HC Deb 05 July 1950 vol 477 cc479-84
The Chancellor of the Exchequer (Sir Stafford Cripps)

With your permission, Mr. Speaker, and that of the House, I should like to give the House the latest figures of our gold and dollar position in the second quarter of this year.

During this period the sterling area's net gold and dollar surplus has amounted to 180 million dollars compared with a surplus of 40 million dollars in the first quarter, a deficit of 31 million dollars in the fourth quarter of 1949, and a deficit of 632 million dollars in the second quarter of 1949—that is, the quarter a year ago corresponding to the one on which I am now reporting. Our receipts under the European Recovery Programme amounted to 240 million dollars, and we also drew 18 million dollars on the Canadian credit. The gold and dollar reserves rose by 438 million dollars, so that at the end of June they stood at 2,422 million dollars compared with 1,340 million dollars at the lowest point immediately before devaluation took place. I should here add that, since our gold and dollar reserves are acquired by the Exchange Equalisation Account in exchange for sterling, the recent increase in the reserves has involved a corresponding decrease in the sterling resources of the Account. In order to replenish those resources I propose, under existing powers, to issue £300 million to the Account from the Exchequer during the current week.

Last April, when I spoke about the first quarter's results, I explained that two main types of influence had been at work in bringing about the improvement in our affairs. First, there were those influences which were outside our own control, such as the recovery in demand by the dollar countries for the goods which are supplied by the sterling area. Secondly, there were the effects of our own policies and actions. Such as the positive encouragement we have been giving to exports to the dollar area, and the economies which all sterling area countries acting in unison have exercised in their expenditure on dollar imports. By making our own exports more competitive, compared with dollar goods, devaluation played its part in encouraging these economies. It also helped to limit expenditure on the so-called invisible items. We benefited, too, from the great change in sentiment about our position and prospects which took place after devaluation and resulted in a considerable accretion of funds as debts outstanding were paid and new business entered into.

The chief thing to say about the second quarter's results is that most of these influences have continued to be powerfully at work. Among them, it is probably true to say that the continued high level of demand in the United States, particularly for the raw materials produced by the rest of the sterling area, must take first place. The increase in our own exports to North America, especially Canada, is also a factor worthy of special mention.

Our expenditure on dollar imports and the expenditure of other Commonwealth countries has continued to be kept within the limits which we imposed on ourselves a year or so ago. Our gold and dollar payments to the so-called "hard currency" countries outside the dollar area, which were so grievous a burden on us last year, have also been very moderate. To other O.E.E.C. countries we have made no gold or dollar payments at all in recent months.

Though the picture I have painted is one of growing strength, I should be failing in my duty if I did not point out to the House some of the less favourable features of the situation which, together with the uncertainties ahead, must impel us to take a cautious view of the future. It will be seen from the figures I have quoted that the major part of the increase in our reserves is the direct result of the assistance we have been receiving under the European Recovery Programme. In this respect, what we have experienced is a reversal of the state of affairs last year, when the gold and dollar deficit was running far in excess of available assistance and we were drawing heavily upon our reserves.

Further, it must be remembered that the assistance available to us in 1950–51 will be substantially less than that in 1949–50. Accompanying this increase in our reserves there has been an increase in our short-term liabilities in recent months, particularly to other sterling area countries. This is the direct result of the increase in their own earnings, including dollar earnings which have gone to swell the sterling area's reserves. As the House are aware, expenditure on dollar imports, both here and elsewhere in the sterling area, has been running well below the limits we have set ourselves, and some increase over the present level may well occur. The exceptional accretion of funds following devaluation cannot continue indefinitely. And the rise in prices of raw materials which has so greatly benefited our dollar earnings cannot be expected to go on. Some reductions have already taken place and more are possible. This may well be so even though the underlying conditions in the dollar area and elsewhere remain essentially favourable.

Quite apart from the effects of any serious deterioration in international affairs, it would not be right, for the reasons which I have given, to count on a continuation of all the favourable factors which have governed our experience in the last six months. In the volatile world of international trade and finance there are bound to be fluctuations both downwards and upwards. Moreover, our position as banker for the whole sterling area and as the centre of the world-wide trading system based on sterling makes it necessary for us to carry the burden of downward fluctuations, as well as reap the benefit of the upward movements. Such fluctuations, when they occur, should not be interpreted as implying a basic weakening of our situation. We must expect such perfectly normal phenomena to continue. They need not alarm us so long as conditions at home are sound, our exports are fully competitive and our enterprise in selling our goods is unimpaired. But this, in turn, will only be so provided we can keep in check here the rise in personal incomes and the total level of monetary expenditure.

Moreover, it is essential that our reserves of gold and dollars should be adequate for their purpose. Although they have increased over the last nine months, these reserves are still far below the level that is necessary to enable us to face with equanimity all the sudden and substantial changes in external conditions which may take place. Their further strengthening is a matter of the highest importance to us. It is for this reason that we must firmly maintain those policies of restraint in respect both to personal incomes and expenditure, especially on dollar imports, while at the same time providing the maximum encouragement to dollar earnings, which have contributed so much to our recovery during the past nine months. It is along this road that we can reach our declared aim, namely, to stand on our own feet by 1952 without any extraordinary outside help.

Mr. Oliver Lyttelton

I am sure that the figures which the Chancellor of the Exchequer has just given to the House will be a source of encouragement and gratification to Members in all parts of the House. We had expected good figures from the high level of business activity in the U.S.A., but I think that these figures somewhat exceed our expectations. At the same time, we regret very much that the level of our reserves is still not high enough, and I think that these figures should be a signal to redouble rather than to relax our efforts to place our balance of payments on a solid foundation.

Earl Winterton

On a point of order. May I respectfully call your attention, Mr. Speaker, to the fact that today we are having a very important Debate in which a number of hon. Members desire to catch your eye. Surely it would have been possible for the Chancellor of the. Exchequer to have made his statement tomorrow, when the business is less important, so as not to take up the very, truncated time which is allowed for today's Debate.

Mr. Speaker

It was rather a matter for the Chancellor of the Exchequer. He thought that this was the right day to do it. It was such a long statement that I should have thought that Members would have preferred to read and study it, before they started to discuss it.

Mr. Mikardo

Would the Chancellor of the Exchequer say that the announcement which he has just made is a factual description of the total economic collapse which, a few months ago, some leaders, of the Opposition were confident would take place?

Mr. Boothby

While the right hon. and learned Gentleman is extolling the benefits that we have derived from devaluation, will he bear in mind that he advised the House that devaluation would be a disaster for this country and fought against it until the last possible moment?

Mr. W. Fletcher

Would the right hon. and learned Gentleman say, with regard to the highly-important sales of sterling area commodities that have been made to the dollar area, how much is for stockpiling, which might cease at any moment, and how much is for real consumption? A division into these two categories is of the highest importance.

Sir S. Cripps

I cannot give those figures.

Mr. Wyatt

Would the Chancellor of the Exchequer say that his statement justifies the Government's refusal to accept the advice of the Leader of the Opposition last year, when devaluation was announced, to make cuts in Government expenditure of £500 million?

Mr. Osborne

Can the Chancellor of the Exchequer break down the figure of £180 million and show how much was earned by the United Kingdom by trade and how much by the sterling area outside the United Kingdom?

Sir S. Cripps

It will be broken down in the normal way when further figures come along; we shall publish them as usual.

Colonel Crosthwaite-Eyre

May I remind the Chancellor of the Exchequer that when he gave the figures last time he made a distinction between current, recurrent and non-recurrent items? Will he have them broken down this time?

Sir S. Cripps

I do not think that is possible. It was possible to do it more certainly last time because we were nearer devalution. It has now become difficult to make that breakdown.