§ Order for Second Reading read.
§ 4.15 p.m.
§ The Economic Secretary to the Treasury (Mr. John Edwards)
I beg to move, "That the Bill be now read a Second time."
May I be permitted to say that this is my first assignment since I came back to the House, and quite frankly, had I been picking a subject on which to begin. I do not think, however, that I should have chosen this particular Measure, for it is certainly not the easiest one from the point of view of exposition. I hope the House will agree with me that it would be better for me in this opening speech not to seek to deploy an argument, but rather to give the House such information as I can as a basis on which it can proceed, and, of course, my right hon. Friend the Chancellor of the Exchequer will reply.
This Measure provides the necessary accounting machinery to enable the United Kingdom to play its part in the operations of the European Payments Union. We debated this new payment scheme for Europe on 19th July last, when we had before us a memorandum about the proposed arrangements which had been approved by the Council of the Organisation for European Economic Co-operation. It will be remembered that my right hon. Friend the Chancellor of the Exchequer—then Minister of State for Economic Affairs—took part in that debate and described the principles on which it was proposed to establish the European Payments Union and the effect on the United Kingdom of taking part in it. I do not propose, therefore, to go over the same ground again.
Before I come to the Bill, it will be for the convenience of the House if I say something about the development of the European Payments Union itself and of the position of the United Kingdom in the Union. The Agreement for the Establishment of a European Payments Union, drafted on the basis of the principle approved by O.E.E.C. at the beginning of July, was actually signed at Paris on 19th September, 1950. It has 1915 been published, of course, as Command Paper 8064.
The Agreement comes into force only after it has been ratified by the various signatory Governments, but it was agreed to apply it on a provisional basis as from 1st July, 1950, and the protocol giving effect to this provisional application has been published also in the same Command Paper. I ought to point out that the Swiss Government were unable to apply the provisional arrangements contemplated in this protocol until the Agreement had been ratified in accordance with their constitutional procedure. This has now taken place, and the Agreement will operate in the case of Switzerland from 1st November.
The introduction of the European Payments Union has entailed important consequences for the United Kingdom in our arrangements for dealing with sterling balances held by other member countries, and also in the necessary revision or modification of our payments arrangements with other members. May I take first the question of sterling balances. As the House is aware, we have given an undertaking that any member country which held sterling balances at the date of the inception of the Union, namely, 1st July, 1950, and finds itself in deficit with the Union on current account, should be able to draw down those balances freely to the extent necessary to cover its deficit.
At the time that we gave this undertaking, it seemed quite possible that the effect might be to throw the United Kingdom itself into a serious deficit with the Union. There was, after all, some £200 million at stake. But here we are helped by an assurance from the United States Economic Co-operation administration that they would guarantee us against any loss of gold that we might otherwise incur on this account. This arrangement was recorded in an exchange of letters between my right hon. Friend and the United States Special Representative in Europe and was published as Command Paper 8020.
In addition, we have been negotiating agreements with the holders of European sterling balances to govern the extent to which these balances might be drawn down over the next two years if the holders were in credit with the Union. Not all the countries concerned are likely 1916 to be debtors of the Union, and the Agreement itself provides, in such cases, for mutual arrangements for the amortisation of debts to be worked out between the countries themselves. We clearly cannot stand in the way of an orderly reduction of these sterling liabilities, always consistently with our own position in the Union and with the wider interests of the Union as a whole.
On the other hand, it is not necessarily the case that the countries concerned will regard it as advantageous to themselves to run down their sterling balances in exchange for credits with the Union. Indeed, I am sure that the House will not be surprised to hear that the current trend of our balance of payments, and our surplus with the Union, which I shall be discussing presently, have, on the one hand, diminished the hesitation which we felt at an earlier stage about our own capacity to afford substantial reductions of these balances, and, on the other hand, the hesitation which other countries may themselves have previously felt about the value to them of holding on to their balances.
Turning to the individual countries concerned, we have made arrangements with France and Italy, which have been made public. France will use her sterling balances, amounting to some £28 million, for the purpose of meeting the instalments of her inter-Governmental debts to the United Kingdom which fall due this year and next year. Italy's balances amounted to nearly £60 million and we have agreed to a plan for a "target repayment" of £20 million over two years, to be brought into operation if the Italians so wish. Discussions are in progress with Portugal, whose balances amount to rather more than £80 million.
The only other substantial holder of sterling is Sweden, with balances of some £22 million, and we shall probably agree that no final decision should be taken now, and that the position will have to be reviewed next year. Apart from these four countries, which were the major holders of sterling balances on 30th June, there were one or two smaller balances, but these have been largely worked off in meeting deficits with the Union and now present no problem.
Then there is the question of our own holdings of other countries' currencies at the 30th June. The figures I shall quote 1917 are net figures; that is to say, after offsetting the small official holdings of sterling by the countries concerned. The biggest case here was a debt of £24½ million owed to us by Denmark and we have agreed to fund the major part of that. It will be funded, under arrangements already published, in sterling over a period of 10 years, and the House will have noticed that this funding is mentioned in paragraph 9 of the Explanatory and Financial Memorandum as one of the transactions to be covered by Clause 3 of the present Bill. Then there are smaller amounts owing to us from Holland, about £8 million, and Norway, about £2¾ million, and satisfactory arrangements have been made for dealing with the partial or total repayment of these debts.
Finally, the House will be interested to know that Switzerland's inability to join the Union before 1st November has meant that, instead of having to deal with a sterling liability to her on 30th June, we have recently been discussing with the Swiss the settlement of their debt to us as at 31st October, amounting to £4¾ million, owing to the fact that in these four months the payments position has gone in our favour.
As I have said, the total amount of sterling balances to be dealt with in our arrangements was some £200 million. To avoid any misunderstanding, I should perhaps explain that this represents the sterling held centrally by the monetary authorities of other European countries. It does not include sterling held by or with commercial banks. The figure is, therefore, considerably less than the figure of total sterling liabilities to O.E.E.C. countries which is given in Command Paper 8065. The amount paid off, up to the end of October, has been £25 million, consisting of £14½ million used by France for debt repayment, and £10½ million used to meet deficits with the Union. On the other side, the net amount of debts due to us is approximately £40 million. The arrangements for dealing with these debts have been made, and repayments are now beginning to come in.
I turn now to a matter which I am sure will be of great interest to the House—the actual results of the operations of the E.P.U. during the four months which have passed since it was introduced. The House will, of course, appreciate that when I give figures of the United Kingdom's position in E.P.U., these 1918 figures reflect not only the United Kingdom's own balance with Europe, but the whole of the sterling area's balance. They also include the net balance on transfers of sterling between European and other "third countries."
The first operation was carried out in October, and this covered the three months July to September. The United Kingdom figures, which we published with the least possible delay, showed that over these three months we had accumulated a net surplus with the other member countries, excluding Switzerland, of £34.3 million. This figure, however, was reduced by £5.8 million, representing the amount of sterling balances put into the clearing by other members to cover their own deficits with the Union. The final figure, accordingly, was £28.5 million, which was charged, in accordance with the provisions of the Agreement, against the United Kingdom's initial debit balance of 150 million units of account; that is to say, approximately £53 million. The unit of account, it will be remembered, is equivalent at the present time to one United States dollar.
A second operation has been carried out this week, covering the month of October. This shows a United Kingdom net surplus for the month, again excluding Switzerland, of just under £80 million, from which has to be deducted £4¾ million on account of the use of sterling resources by other members, leaving a final figure of approximately £75 million. Taken cumulatively with our surplus of £28½ million for the previous period, this means that we have discharged the whole of our initial debit balance, and now stand as creditors in the books of the Union for some £50 million.
A net surplus of nearly £80 million in a single month is certainly a striking result. We are not yet able to make any detailed analysis of this figure, but I am sure the House will agree that it is right that the House should be given a figure, if we have it. Nevertheless, I am sure hon. Members will realise that the mere fact of seasonal variations in the movement of goods can prevent the balance of payments in any one month from being a true indication of the trend over a longer period.
Then, too, the prices of sterling area commodities have been rising. In addition to those two factors, last month's 1919 surplus no doubt reflects the change which has occurred in the international attitude towards sterling. The rigidity of the Exchange Control systems in operation in the Continental countries varies greatly, but, even under the strictest system of control, considerable freedom of action remains with the private trader as to when he buys and sells the foreign exchange which he requires for or which results from the goods in which he deals.
For this reason, the net demand by foreign traders for sterling in so short a period as a month may well be considerably in excess of the actual favourable balance of sterling area trade on both visible and invisible account with the countries concerned. Nevertheless, the demands for sterling by foreign traders lead directly to increased demands by foreign commercial banks on their central monetary authorities for more supplies of sterling. And it is on the changes in the sterling balances of those central monetary authorities that E.P.U. operations are calculated—a very sensitive form of barometer, as I am sure, the House will appreciate.
Each member country's surplus or deficit with E.P.U. is closely affected by the attitude which banks and traders everywhere may be currently adopting towards that country's currency in comparison with the currencies of other countries. Sterling, as a great international currency, is particularly susceptible to such changes in international sentiment and confidence. For these reasons, it would be quite unsafe to draw any conclusions for the future from the results of a single month. Indeed, so far as we have been able to make an estimate, it seems clear that our surplus is now running at a much lower rate than in October.
§ Colonel Crosthwaite-Eyre (New Forest)
The hon. Gentleman said that we have paid off the whole of our initial deficit of 150 million units and that we are in credit to the tune of some 50 million units. I cannot make that answer square with the figures which he gave us. Can he tell us how this is arrived at?
§ Mr. Edwards
I did not talk about units. I was talking about pounds 1920 sterling the whole time. I thought that it would be for the convenience of the House to put it in that way. The cumulative position in terms of units of account is that the surplus for the four months was 320 million units. The use of sterling under Article 9 was 30 million and the use of the initial debit position was 150 million, leaving a figure in units of 140 million units of account. Perhaps I may say in passing, for the interest of the House, that we would have to get a figure of 212 million units before gold started flowing.
During the same period, as hon. Members are aware, Germany has run into serious deficit with the Union, and her position has caused considerable concern both to the German Government themselves and to the other members of the Union. The Managing Board were asked to report on the position, and their report was approved, in principle, last Tuesday by the Council of O.E.E.C., meeting at the official level. It is not necessary for me this afternoon to go into detail about this for an adequate and accurate account appeared in "The Times" and other papers yesterday. I would, however, say that there are grounds for believing that Germany's difficulties are only temporary and that satisfactory steps will be taken to remedy them; I hope that it will prove to be so. The final decision will be taken by the Council at the beginning of next month.
Now, may I turn more precisely to the Bill which is before us? This Bill gives the necessary statutory authority for the financial and accounting provisions required to enable us to carry out our obligations under the Agreement. Pending the passage of the Bill into law, we are relying on the use of the Civil Contingencies Fund, in accordance with the statement made on 11th July last by the former Chancellor of the Exchequer.
In the first place, the United Kingdom transactions involved in these operations of E.P.U. are all to take place in or through the Exchange Equalisation Account, and the Bill authorises the use of that account accordingly. The maximum amount which could be outstanding as a charge on the Exchange Equalisation Account in respect of extension of credit to the Union is 60 per cent. of the United Kingdom's quota, or, approximate, £227 million.
1921 Secondly, the Bill deals with the conditional aid allotted to us by the United States in connection with our initial debit balance in the Union. The procedure proposed for this purpose is that the sterling equivalent of the conditional aid we receive should be paid into the Intra-European Payments Account, and that this sterling should be used to recoup the Exchange Equalisation Account for the sums made available to the Union against our initial debit balance. This creates no additional charge on public funds, since the sterling is derived from the proceeds of conditional aid and any advances made out of the Civil Contingencies Fund will be repaid as soon as these proceeds are available. This accounting procedure has been discussed and agreed with the E.C.A. mission here in London.
Thirdly, the Bill deals in Clause 3 with the accounting procedure required in connection with the settlement of funding of certain debts from other members of E.P.U. I have already referred to the arrangements we have made with other countries for the settlement of "outstanding debts," that is, debts which existed at 1st July when E.P.U. was introduced, and I mentioned our agreement with Denmark for the funding of their debt to us. This funding will be carried out on an inter-governmental basis and in terms of sterling. The technical procedure for this funding is that we have to issue sterling which enables the Danes to re-purchase the kroner held by the Exchange Equalisation Account, and leaves them with a sterling obligation to us. This requires statutory authority for the issue from the Consolidated Fund and the formal agreement with the Danes cannot be made until this Bill is passed.
Similar arrangements may require to be made in connection with the withdrawal of members or the liquidation of the Union. The Agreement provides an inevitably complicated set of rules for dealing with what is to happen in these cases. Apart, however, from the rules for distributing the gold and dollar capital of the Union, the basic principle is that the credits or debits of the individual members with the Union are to be converted into bilateral obligations between the members themselves. In these circumstances, the Exchange Equalisation Account, having made sterling available against a credit in the books of 1922 the Union, may find itself in the position that this credit is partly or wholly cancelled while in its place there is a series of bilateral and probably long-term debts from other members. It is to meet this type of case—as well as that which I mentioned earlier—that we require statutory authority for the Exchequer to put matters straight by issuing sterling to the Exchange Equalisation Account and taking over the debts itself.
Finally, the Bill is made to apply not only to the Agreement as originally signed on 19th September, but to that Agreement as it may subsequently be amended. No fixed term is set to the duration of the Union, though the financial commitments are concluded in the first instance only for two years. The Bill is wholly concerned with the machinery to be used to enable the United Kingdom to perform its functions with the E.P.U. If it becomes necessary to alter the machinery, then fresh legislation would be required, but as long as that question does not arise, it will, I am sure, be agreed that it is only common sense to allow the powers which we seek to acquire in this Bill to be used in respect of such amendments as may be agreed on from time to time either under the provisions of the present Agreement itself or by way of a new amending Agreement between the signatory governments.
These matters which arise from E.P.U. are, I know, somewhat formal. I hope, however, that I have brought up to date the various matters that were discussed when this subject was last debated. In conclusion, I think it would be wrong to regard the E.P.U. as a mere piece of financial machinery. It is more than that. It is an encouraging example of the way in which we and other members of O.E.E.C. are learning to work together. I believe that is a real contribution to the European solidarity which we all so much desire.
§ 4.41 p.m.
§ Mr. Oliver Lyttelton (Aldershot)
I am sure that we on this side of the House should like to extend our congratulations to the Economic Secretary on his debut. I think he felt a little sorry that his opening words should be on a subject so repulsive as the one we are discussing this afternoon. But, at least, there are compensations in that I did not notice any 1923 exacerbated party interruptions. He can take that as some consolation, at least, for having such an arid first subject.
Although the Second Reading of this Bill would permit me to go very wide, I do not propose to go steeple-chasing all over the counties but, rather, to indulge in what I might call a little trotting exercise round the park, keeping within the railings. In the debate last July, we on this side of the House expressed general approval of any measures which increased or enhanced the convertibility of European currencies and which would help multilateral European trade. It is always as well to remind ourselves that no country stands to gain so much as our own from many-sided trade in Europe.
The Economic Secretary did not devote any of his remarks to the matter of the liberalisation of trade, except that he was referring indirectly to it in his concluding sentences. In July, I did express some apprehension that there was a good deal of make-believe over the liberalisation of trade. There were signs that where quantitative restrictions of imports had to be abolished under these arrangements, they were being replaced by higher tariffs against foreign imports which, of course, is going against the general spirit of the E.P.U., and seems not to endorse, quite so fully, the rather encouraging remarks with which the Economic Secretary favoured us at the end of his speech.
Is it not a fact that, at this moment, the subject of liberalisation, at least of her own trade, is not received with great enthusiasm by France, and that she is being rather obstructive on that matter? It seems that my fears were well founded, but I hope the Chancellor of the Exchequer will be able to give us some words of reassurance. It would be useful for us if he would say—which I am sure he would be able to do—what great importance he attaches to this subject. This leads me to say something about the Gordon Gray Report and the International Monetary Fund's Report, because they are both germane to the subject we are now discussing.
Before I do that I should like to make some complaint—in the hope that I shall receive a sympathetic answer—that we need more figures, more consistent figures 1924 and more readily digestible figures of the sterling area balance of payments. I hope I am not becoming idle with advancing years, but I do find the search for these figures baffling and irritating; and these feelings are not alleviated when the figures are so frequently changed. Thus, under the 1947 credits on the balance of payments, we find the term "Other" accounting for no less than £88 million. Quite apart from the rather elusive nature of the term "Other," the same figure for "Other" appears in other official documents, namely Cmd. Papers 7324 and 7929, as provisionally minus £20 million and plus £32 million. Now it is £88 million. I dare say that, at the beginning, it is difficult to get nearer than that, but £100 million seems to me, as a mere business man, a considerable error in calculation under the heading "Other." I hope we shall get nearer than that. If I made a similar mistake I should probably be staying in one of His Majesty's institutions.
These figures are closely relevant to the subject raised by the Gordon Gray Report and the I.M.F. Report. Generally, the trend of these Reports seems to be rather contradictory. First of all, I turn to the I.M.F. Report. It contains a plea or recommendation for greater purchases by sterling area countries of imports from the United States. It rests the argument upon the great improvement in the gold and dollar reserves which the sterling area built up during the recent past. But it does deal, first of all, with the sterling balances of countries treated individually, and, if one were in churlish mood, one might regard that as something of an attack on the sterling area concept as a whole. I fear that to urge greater dollar purchases now, upon the results of the last year, may be rather superficial, or rather premature.
In considering this Report, it is necessary to take into account, not only the size of the improvement of our gold and dollar reserves, but also the methods by which that has been achieved. Quite apart from the volume of exports, it has not taken place mainly by the rise in prices of raw material which the sterling area are supplying. That is not yet reflected in the accounts. One of the principal factors has been the abstinence from, or cutting down of, dollar imports since devaluation. In 1949, as the House will remember, the 1925 sterling area countries were asked to make cuts of 25 per cent. in their dollar imports, and this percentage has been successfully cut a little bit more. It is not surprising that that should be so, because the rise in dollar prices, expressed in sterling as a result of devaluation, has been a strong deterrent to dollar purchases.
Out of an improvement, during the last 12 months, of about 1,200 million dollars in our balance of payments, no fewer than 325 million dollars have been due to savings on dollar purchases by the United Kingdom. On the other hand, looking at the raw materials part of it, I am impressed by fact that the figures of the dependent Territories, particularly those exporting rubber and tin have not shown the rise in the value of their exports that one might have expected. In the first six months of 1949, their exports to the United States amounted to about 87 million dollars, and, in the first six months of 1950, to only 154 million dollars, so there has not been a very striking rise there.
The really significant matter is that those other countries which are not, in the main, large dollar earners, have changed a deficit of 348 million dollars into a surplus of 28 million dollars. The purpose of my argument is to try to show that, until we can calculate the effect of a rise in prices of raw materials, we should be slow to rush into very much relaxation of dollar purchases. I am sure the Chancellor of the Exchequer will agree with me, and I assure him of support in this matter. These, after all, are not the only uncertainties. There is the effect of rearmament on our balance of payments, and the matter of Marshall Aid, or of aid designed to assist us in military preparation.
I read the International Monetary Fund report as perhaps a little stimulus to His Majesty's Government to go further than otherwise they would go, but I regarded the whole thing as asking us to make decisions rather in advance of the facts upon which those decisions should properly be based. If these words find some sympathy in the Chancellor's mind—speaking as I do, from the Opposition benches—he may be assured that we shall back him up in any action on those lines.
The other report went over a much wider field. It strikes a note with which 1926 I am in harmony when it emphasises the need for sterling convertibility, and it goes so far as to suggest some practical means for facilitating that convertibility. On the other hand, it also emphasises very strongly the bad effects which would occur if the balance of payments in Western Europe were to deteriorate seriously as a result of rearmament. And that, again, is an attitude which is somewhat different from that of the International Monetary Fund report.
I do not propose to go into the machinery of the Bill which is, with the possible exception of the use of the Civil Contingencies Fund, fairly straightforward, but I should like to say a few words on the position of the clearing under the E.P.U. It is not at all unusual for clearing arrangements to suffer from teething troubles or, as the Germans prefer to call it, kinderkreiten, at the beginning and I do not suppose that the Government would deny that the results are different from what they expected when the fund was set up. They are certainly different from what I expected.
Just as in domestic affairs it has been known that economic planners have found it difficult to foresee the course of demand or supply or, indeed, the course of anything, so in international affairs the experts, among whom I fear I must ask the House to include me on this occasion, are often confounded by the course of events over clearing. My hon. Friend the Member for Barnet (Mr. Maudling) will no doubt have something to say on the need for more frequent settlements under the clearing and about that being able to mitigate rather violent movements before they have gone too far.
The figures given by the Economic Secretary amounted to the same as saying that the debit balances of Germany, the credit balances of France and the credit balance of our own country amount to rather more than we expected when the clearing started. I do not think we can be entirely free from anxiety in this initial period, because the arrangements have been founded on calculations that there would be very small movements of gold and that the debits and credits under E.P.U. would roughly cancel out. I heard the October figures for the first time this afternoon. I think it is the first time they have been made public; I always like to be sure that I have not 1927 missed anything, but there are so many of these documents and Command Papers to follow. They show that the general trends are so emphatic that the prediction about the small movement of gold may very well be upset.
As I said, I do not wish to traverse the whole subject, and there is only one thing, in particular, which I should like to ask the right hon. Gentleman. I believe he can give me a sympathetic answer. Perhaps he could imagine himself an Opposition politician trying for the moment to make some contribution to a debate like this. It is a position which he himself might have to occupy at some time during his political career. Looking at it from that point of view, would he try to get within a reasonably-sized document all the necessary figures which have to be brought together in order to study this subject? For the last two days I have been chasing a consolidated statement about sterling area trade with the O.E.E.C. countries and, after looking through Command Papers, through publications and at an enormous number of figures, I feel rather rebuffed.
I trust that the Chancellor will realise that the remarks I have offered are intended to be helpful and that they indicate quite clearly the directions in which the Opposition would wish to give support to His Majesty's Government but, like all efforts made by commercial or ex-commercial people, there is another side to this; we expect to be paid back, and the coin in which we want to be paid back this time is no more than that he should give his personal attention to trying to collect in a digestible form the figures which will enable us to make some contribution to the subject.
§ 4.55 p.m.
§ Mr. Norman Smith (Nottingham, South)
The right hon. Member for Aldershot (Mr. Lyttelton) was singularly uncontroversial and I will reciprocate by echoing what he said, that we should regard the improvement in our gold and dollar reserves with caution. Certain fortuitous factors have been at work which may not recur. There is exaggeration and even misrepresentation on this subject from political platforms and in such newspapers as are more than usually addicted to polemics. I do not want to make that kind of thing any worse.
1928 I have been struck by the—I do not want to say pedestrian, for that would not be a fair word—unimaginative speeches we have had from both Front Benches on this occasion, which I believe to be a memorable, historic occasion. It is well known that there are some hon. Members on this side of the House, and I am one of them, who hold extremely unorthodox views about finance. Any retreat by the pundits of finance from orthodoxy is welcomed by me as evidence that I and those who think with me are probably right. The Economic Secretary said the Bill was mechanical. That may be true. But there is nothing mechanical about E.P.U. There is something revolutionary about E.P.U., and the language in this Bill is calculated to obscure the significant and, as I would say, hopeful fact of the retreat of the orthodox financiers from their position.
In the Explanatory Memorandum and, indeed, in Clause 1, there are references to the Exchange Equalisation Account. I think a phrase like "Exchange Equalisation Account" is not a good one. I do not know what the average man outside, to whose influence all we in this House are sensitive, thinks about it, but I have some ideas about the Exchange Equalisation Account. The title is itself a misnomer. It conceals the financial genius of these islands, which is bringing about important and far-reaching changes. After all, the classic orthodox financial system is proving increasingly unsuitable to the needs of mankind, and it is true that the people of these islands, usually against violent reaction from the other side of the Atlantic, are devising new financial techniques. The phrase "Exchange Equalisation Account" would have been just as incomprehensible to a banker in the year of my birth, 1890, as television would have been incomprehensible to my grandmother in 1890.
Something has happened since 1890. There are people in these islands singularly gifted in these matters of finance, as in many other departments of human life, and such people are bringing about a financial revolution. In talking of the Exchange Equalisation Account, for example, anyone might think to hear it so called, that it is just some account held by the Bank of England; but it is no such thing. It is one of the largest and most influential banking institutions in the world. It is a deposit banking institution 1929 holding deposits, I believe, from half the countries of the world. It is an independent banking institution controlled by the Treasury and demonstrating the efficacy of State banking as applied to these intractable problems of international trade.
In the Explanatory and Financial Memorandum references are made to the funds in the Exchange Equalisation Account. I wondered whether the right hon. Member for Aldershot would raise the question whether these funds were adequate for the demands that may be made on them under the procedure of the Bill. It is worth while pointing out that these funds are substantial. They include £3,500 million in the Account at the extremely favourable interest rate of one-half per cent. per annum. They are our old friends the sterling balances, and the fact that they can be used in this way, as contemplated under the Bill and as my hon. Friend described, is a testimonial not merely to the credit of this country—by which I mean the belief of foreigners that we shall be able to deliver goods within a reasonable period—but also to the changing scene in all that pertains to new financial techniques.
I notice in paragraphs 4 and 8 of the Explanatory Memorandum, and in Clause 2, references to the Intra-European Payments Account. This Account is a thing from which I derive satisfaction, because it is our old friend the Keynes Plan in a new guise. The Keynes Plan was rejected at Bretton Woods in 1944 with something like contumely, and it is very gratifying to some of us on this side of the House to see the old Keynes Plan, rather condensed and rather modified, and with blocked sterling and blocked dollars functioning instead of bancor. The blocked sterling and blocked dollars are based on the credit of Britain and the United States, whereas bancor was to have been based on international credit.
I am happy to think that after five years the people across the Atlantic have grasped the ineluctable fact of the case—that scarce dollars require unorthodox technique—and that they are sponsoring this Intra-European Payments Scheme in order to revive international trade within the European system. Now that dollars are blocked, I hope we shall hear less about sterling being blocked than we 1930 have been hearing from across the Atlantic.
My hon. Friend referred to conditional Marshall Aid, and I am glad he did so, because what goes in at one end goes out at the other. Over all, I believe we give away as much as we get in Marshall Aid. I deeply regret that anybody should cite aggregate Marshall Aid in an attempt to belittle the achievements of the British people since the war under the wise leadership of the Government. After all, there are deductions to be made, and this is an excellent example. The Americans are underwriting our possible losses in gold to this European Payments Union. It is good of them to do that, but let nobody add the amount of this kind of Marshall Aid to the total we are alleged to be receiving.
I notice that my hon. Friend the Member for Edmonton (Mr. Albu) is in his place and I think this a suitable occasion for me to recall to the House something said to me by his predecessor, the late Mr. Evan Durbin, a few weeks before the unfortunate accident that took him away from us. He said to me, "Well, Norman, I suppose you feel just as the Archbishop of Canterbury would feel if he awakened one morning to find that everybody in the country had been converted to the point of view of the Church of England." I said, "How so?" He replied, "The financial authorities, the people who matter, are gradually coming round to the point of view with which you have chosen to identify yourself for about 20 years. I think you have reason to be pleased."
It is a fact, as this Bill indeed shows, that a revolution is proceeding in financial technique like the revolution, which everybody understands, arising out of our increasing knowledge of physical science. The two go together. It is commonplace that changes in the industrial arts that result from science and invention are reflected in politics. That is no less true in the realm of finance, nothwithstanding the innate conservatism of bankers and, indeed, of Chancellors of the Exchequer—on this side of the House no less than on the other. The Treasury is being driven by the inescapable pressure of events to devise new financial techniques, of which this Bill is only one example.
Those of us in this House who offered strenuous opposition in 1945 to the 1931 financial conditions attached to the American Loan have been justified in the event. The gravamen of our charge was that such an attempt as was being made to fasten on the world an international gold standard was bound to fail. That we have been proved right is only too obvious from the distressing series of financial and economic crises we have had since. It so happens that I am as much interested in good wine as in high finance, and I am certain we cannot put new economic wine into old financial bottles. We cannot in this age have a financial system based at one or more removes on gold payments. The difficulties of the last few years have borne that out.
It is at this stake that we get E.P.U. and we get this Bill. Whatever else is happening, this much is sure, that in E.P.U., and in the financial technique that underlies the Bill, we have a departure from the age-old superstition that trade transactions must necessarily be based on money of intrinsic value related to the precious metals. The contemporary variation of this singular superstitution takes this form, that international trade must be based on convertible currency. This Measure is a departure from the idea of convertible currency. This departure, so far as it goes—and it is a substantial departure—substitutes a kind of international credit for money based on gold, very much as the banking system in the late 19th century substituted the cheque-book for golden sovereigns in the overwhelming majority of transactions within this country.
I hope that the process of financial innovation will continue. I am not sure whether financial innovation is not one of the major inventions of our age. It so happens that in the 60 years I have been alive there have been five major inventions. I remember them all—the motor car, the cinema, broadcasting, the aeroplane, and atomic fission, the last having incalculable economic and social consequences. I am not sure whether financial innovation does not constitute a major invention likely to have substantial economic and therefore social effects.
I hope this process will continue until in every country the financial authorities regard full employment as a necessity, until such time as the last aboriginal anywhere has a television set. I hope it will con- 1932 tinue, this process of financial innovation, this departure from superstition about gold. I hope it will continue until all over the world the financial authorities everywhere abandon this curious idea that convertible currencies based on precious metals are necessary.
I hope it will continue until that idea is abandoned, because I know that the inevitable accompaniments of that idea, if it is put into practice, are recurring trade depressions and perpetual poverty. That I know from experience. I welcome the Bill as a happy omen that we are nearing the time when these superstitions are going to be abandoned everywhere, even against the opposition of the clever boys across the Atlantic. It is because I hope that that will continue that I welcome the Bill.
§ 5.5 p.m.
§ Colonel Crosthwaite-Eyre (New Forest)
I think we must all congratulate the hon. Member for Nottingham, South (Mr. N. Smith), on this the fourth and, so far, most exciting chapter of his long attack in this House on gold and its uses. I do not feel, quite honestly, that I need follow him any farther, especially as we shall, no doubt, get the fifth chapter in due course without any further argument on my part.
My right hon. Friend the Member for Aldershot (Mr. Lyttelton) did say, when he spoke just now, that it is very difficult for any Member of this House to comment on the European Payments Union at this moment. The Economic Secretary has produced figures today which were quite unknown to anybody in this House. Indeed, nobody could have got at them. It was only two days ago that the figures up to September were produced. That was the very latest information the ordinary Member had. I do think that this occasion provides an opportunity to ask the Treasury whether they will not be a little more forthcoming in providing information in time for debates. Even when one puts a Question to the Treasury they look upon it as being their duty, if possible, to produce the very minimum answer, without giving any information, if that can be avoided.
For instance I had a Question about one of the subjects which are bound to come up today—about what was the intention of the Government in regard to Germany. That was put down for answer 1933 on Tuesday, the very day when the E.P.U. was meeting to consider this question. It had a scheme and a plan in front of it. It would have been perfectly simple in answering that Question for the Treasury to have given some information—not necessarily complete information, but some—of the way in which the Government proposed to tackle this matter. Not a bit of it. They used the opportunity merely to produce one of their well known answers consisting of flannel and platitudes which, in sum, meant nothing at all.
It was the same with two Questions, bearing on subjects to which my right hon. Friend referred. I put down on Tuesday two Questions about the amount of the recent growth of sterling balances—and the amount by which the increase in our gold reserves were due to sales of raw materials by the sterling area. Those are both very important points; both points, information about which, would have helped every hon. Member in this House in our discussion today. All I got by way of answer was that I should refer to the White Paper, in which the latest figures are dated 30th June. I could have found that for myself.
I do say this to the Treasury, that if they can come down to the House when it suits them, with figures that are right up-to-date to the end of the last month, it would be the least courtesy they could do to Members of this House to give in answer to questions, similar information. Then we cart have informed debates, instead of having a debate based on a Government statement, as happens all too often, without time to consider the facts and figures, contained in them. We ought to be given before the debate as many facts as possible.
Now I turn first to the question of the initial debit balance. I am sorry I got mixed up when I interrupted the hon. Gentleman between units and pounds. With all these figures that sort of thing happens only too easily when a list of new figures is suddenly introduced. However, as I understand it, we have paid off the whole of the initial debit and are now in credit. If I am right, that sum should be reimbursed to us by way of conditional aid.
§ Colonel Crosthwaite-Eyre
The debit balance. I think I am right. I should like to ask the Chancellor this question. Has that sum been reimbursed to us yet, or is it part of our present allocation for the year of conditional aid, or is it something in addition to what, under the original allocation, we should be entitled to receive under the heading of conditional aid? I hope I have made myself clear. There are two possibilities. One is that it comes out of the sum we were originally allocated; or, it is something we receive in addition. I should like to know which it is, and how much we have received. Again, I should like to ask him this question. Suppose Marshall Aid in one form or another is cut down to this country. Can it be expected that so reduced a sum of conditional aid will include part of our structural grant to the European Payments Union? I do think we ought to have a very clear statement on that, and I hope that the Chancellor will give us one.
Now let me come to sterling balances. I hope I am right in thinking that the hon. Gentleman said that it is the intention that, in principle, under E.P.U. only sterling balances may be used owned by members within E.P.U. who held them prior to 1st July, 1950. That is the date at which the sums were reckoned which are available for payments by them as debtors. Then the hon. Gentleman, I must say, told me something I had never thought of, and that is what happens when a nation is in credit. Can it still use these balances? As I understood him, he was not prepared to give an answer on that. He said arrangements were going forward. Well, if in addition to giving our debtors unrequited exports by means of allowing them to draw down on sterling balances, we also give our creditors the same facilities, then we shall get the worst of any imagineable world. I do hope that the Chancellor will be able to reassure us on that.
Again, in the Command Paper 8020 I see the Chancellor has made arrangements for the refund by the U.S.A. of gold in case the drawing down of the balances should entail them. I want to know a little more about this. Is this particular guarantee included in what has been promised to us under Marshall Aid, or is it something entirely separate and additional?
§ Colonel Crosthwaite-Eyre
Separate? I am glad to hear that. Well, that is the first question.
The second question is this. According in paragraph 2 of this Command Paper it would seem that the design is to bring the whole of the sterling area within the operation of this particular Agreement, and to safeguard the Government against the use of sterling balances held by a country outside the European Payments Union if such a balance be transferred to a member of the European Payments Union and used by that member in creating a debt which would incur for us a gold loss. If the right hon. Gentlman will look at what he said in the debate we had in July he will see that then he did admit that all transferable sterling balances could be made available by means of current transactions to the members of E.P.U. In fact all such balances could be liquidated through the clearing system we are now discussing. If he will look at paragraph 2 of the Command Paper he will see that it would appear that he has covered himself against this possibility, but I should like him, if he would, to say something really positive about that.
My right hon. Friend, in talking about sterling balances, very rightly raised this question of the International Monetary Fund Report. I was interested in seeing the right hon. Gentleman's answer to the hon. Member for Lichfield and Tamworth (Mr. Snow) last Tuesday. With respect, I would point out that that answer of the right hon. Gentleman was nothing but platitudes. It did not add anything to our knowledge. It left open, that what was put in the Report might have very grave effects for us. The right hon. Gentleman says that he retains control—or the Government do; but on the other hand, he can be outvoted by the I.M.F. and might well find himself—not necessarily forced—but under very considerable pressure, against which he might not be able to stand to implement the terms of that Report.
It must have—or may well have—very considerable effects upon the European Payments Union if it is true that the gold and dollar reserves of this country are to be viewed as the reserves of this country only, and that as far as the rest of the sterling area is concerned their sterling balances are to be considered as their reserves. Then those sterling balances are 1936 going naturally to find an even greater impetus to translate themselves through E.P.U. or some other means into a more liquid and firm sort of reserve. The report of Mr. Gray has been quoted. There we are told that the terms of trade are going further to move against us. But we are equally told that sterling has got to be made convertible, and that we have got to liberalise trade to that end. I would point out to the Chancellor that with the small knowledge we have of the E.P.U. and with the apparently very small buffers we have with which to protect ourselves, we are running very grave risks.
I want now to ask the Chancellor one question about Germany. Here we have had the first really grave difficulty into which the E.P.U. has run. If the right hon. Gentleman will look back to the debate in July, he will see that my hon. Friend the Member for Chippenham (Mr. Eccles) stressed—and this was possibly the most important point he made—that unless the E.P.U. had the right, as suggested by O.E.E.C., to recommend, and, indeed, if necessary, by a vote to enforce the proper use of its funds and its mechanism by all its members, this sort of trouble would be bound to happen. It was His Majesty's Government who refused the E.P.U. those powers. They, as in so many other matters dealing with European integration and the means of bringing together for effective action the forces, economic, military, and so on, in Europe, took the negative line that they were not going to join in anything which might infringe their own sweet will to go along the road of their own choice.
Here is the first proof of what happens when we do that. Within four months it has been necessary to grant a very large and special credit to Germany, and also to use the very powers which if brought earlier into existence under the original suggestion might well have saved this particular crisis. I say to the right hon. Gentleman that if in all sincerity we are going to strive to build Europe together and use E.P.U. and other similar measures towards the full conversion of sterling and the full revival of the Continent to which we belong, it is very necessary to go into it wholeheartedly and not with reservations which within a few months as we have seen in this particular case, bring real trouble in their wake.
I feel that the first few months have provided no test upon which we can form 1937 a final judgment. I hope that future action will be designed to make this type of agreement effective by giving it real strength in its initial stages and by giving the powers which make international agreements work and that it will not, as in this case, be so full of reservations that it is hard to see how it can achieve the purpose for which it is designed.
§ 5.24 p.m.
§ Mr. Albu (Edmonton)
I think this has been a rather interesting debate. You, Sir, have allowed it to go very wide, and I am sure many of us rather welcome that, and particularly do we welcome some of the statements made both by the right hon. Member for Aldershot (Mr. Lyttelton) and the hon. and gallant Member for the New Forest (Colonel Crosthwaite-Eyre). I shall refer in a few moments to some of the things which the hon. and gallant Member for New Forest said about Germany because I think they lead to some very interesting conclusions which were not the conclusions he himself intended.
In particular, I think we were interested in the remarks of the right hon. Gentleman who opened the debate for the Opposition on the question of liberalisation of trade, and, to some extent, his defence of the sterling area which has, of course, been the basis of the Government's foreign trade policy for the last few years. I should like to support what he said because it is obvious that an attack on the sterling area is starting on the other side of the Atlantic at the present time. There was a report recently in the "New York Herald Tribune" which hon. Members may have seen, which showed that that was taking place.
This debate is taking place at a time when, I suppose, it is more difficult than normally to forecast the future of foreign trade and international payments because of the rearmament programme, and because of the great change in world prices and in terms of trade, due, particularly, to the commodity boom. Therefore, I support the right hon. Gentleman when he says that this is not the time for launching any change in policy as regards the sterling area, and I am sure that my right hon. Friend the Chancellor has no intention of doing so.
I think it is a little unfair of the hon. and gallant Member for the New Forest 1938 to make the sort of remarks he made this afternoon, and has made in the past, to the Chancellor when he knows that he is engaged in very difficult negotiations. I do not think that his remarks on many occasions during the last two or three years have been at all helpful to this country. Of course, all of us would like to see further information provided on financial matters, particularly on matters of foreign trade and foreign balances, as soon as possible. But I would have thought that in the last few years there has been an increase in the provision of financial and economic information of a type we have never had before, and I should have thought that the Government and the Treasury were perfecting the method of presenting this information to the House and the country and that we could trust them to go on doing so. I do not object to hon. Members pressing for further information, but I do think that they might give credit where credit is due, and might realise what has already been done.
To my mind the most interesting point of view put forward so far in this Debate is that on the relaxation of dollar expenditure by the right hon. Member for Aldershot. I only hope that when he is in a more controversial mood than he was today he will remember what he said, and that he will remember what he said when he speaks on the hustings, as I have no doubt he sometimes does. It is rather extraordinary that he should make this clear statement, that this is no time for relaxing any restrictions on dollar expenditure, in view of the fact that the Opposition are demanding that we should raise the number of houses to be built by spending more dollars on timber, and that we should spend more dollars on newsprint in order to increase the size of newspapers.
§ Mr. Osborne (Louth)
Does not the hon. Gentleman agree that it is wiser to spend what few dollars we have on timber for houses than on timber for the amusement parks in connection with the Festival of Britain?
§ Mr. Albu
That remark is worthy of the hon. Gentleman. He knows perfectly well that the amount spent on the amusement parks is a triviality and is intended as an attraction by which we shall earn a larger amount of dollars.
I also hope that the Opposition will not support the attack made on the Government by the meat traders yesterday or the 1939 day before when they blamed the Government for the shortage of poultry, and then went on to say that if the Government would allow more dollars with which to buy poultry there would be more turkeys for Christmas. Of course, in most of the newspapers this suggestion appeared in small print whereas their blaming of the Government was in the headlines.
I am glad that we have had from the Opposition Front Bench a clear statement that they do not believe this to be the time for relaxing our restrictions on dollar expenditure. I am also glad that the right hon. Gentleman referred to the great change in our fortunes in regard to international trade and the balance of payments that has taken place since we had the debate on devaluation. I am particularly pleased because I debated in the Third Programme of the B.B.C. with two Members of the party opposite, who are no longer with us, when they continually pressed me to say what further cuts in Government expenditure should be made in order that we might balance our trade. We now know that we have not only succeeded in balancing our trade, but have a substantial surplus. The right hon. Gentleman admitted this, and agreed that this was not due to the rise in the value of sterling area commodities during the last few weeks.
The point to which I particularly wish to refer in connection with this Bill was the position——
§ Mr. Bell (Buckinghamshire, South)
I think my right hon. Friend did not say that it had nothing to do with the rise in price of sterling area commodities. He indicated that it was only one factor, and said that it was not a predominant factor.
§ Mr. Albu
We shall see what he said when we come to read HANSARD. I heard him, fairly clearly, say that the rise in prices in the sterling area commodities which had taken place has not yet been brought into account in the figures presented. At any rate, he said that it was not a predominant factor.
I want to refer to the question of Germany. It is very interesting that the hon. Member should suggest we should exercise some powers over the German economy in order to correct the position 1940 into which they have got. This situation is not surprising to those on this side who have always believed that the type of liberal free trade economy practised in Germany and in some other European countries is quite impossible in the circumstances in which they are. I only hope we shall make quite certain that the policies pursued by the German Government in their trade affairs will not result in a drain on the other European countries that are in credit with the account.
I know that the question of the German deficit was referred to experts who have reported that they think that the condition was produced by temporary factors, and that the situation will correct itself. On this point, I should like to read part of the speech made by Dr. Victor Agartz who is the Director of the German Trade Union Institute for Economic Research. Some of us know him from the days when he was the director of the economic administration in the British zone. He lost his position when the bi-zonal arrangement was made at Frankfurt and when the German Federal Government was subsequently elected. He is a Socialist, and Germany has a Christian Democratic Government pursuing a liberal free-trade policy. He is a highly intelligent man who is well informed on the question of the German economy and its balance of payments. In a speech he made at Dusseldorf on 26th September, 1950, he said this:We have already mentioned that the German balance of payments shows a considerable deficit. Inasmuch as, on account of special circumstances created by the rearmament boom, we shall succeed in reducing and even in making up this deficit, it must not be forgotten that from the point of view of an active political economy, this improvement in the balance of payments is not due to a better organisation of the general structure of economy. Should the production of armaments diminish or cease, we can well find ourselves in a situation which will have heavy repercussions on the German consumption and, consequently, on the German production.I want to quote something else he said which is relevant, if we are to understand what is taking place and if we are to safeguard ourselves in our economic relations with countries that have a free-trade liberal economic policy. He said:I do not want to insist on the memorandum addressed to the O.E.E.C. by the Federal Government, although many statements contained in this memorandum are very 1941 instructive. I shall say this however: if, today, the enforced system of quotas is abolished and if freedom of consumption has been restored in Western German—a situation which the Trade Unions would welcome as much as the Federal Government if economic conditions were favourable—this freedom of consumption is possible, at the present time, only because one half of the population does not take advantage of this freedom on account of too small incomes. This applies particularly to those who live on unemployment allocations or small pensions. The superabundance of goods seen in the shops and shop windows is relative and, above all, illusory, and exists only for the small percentage of the population which is able, because of higher incomes, to buy such goods.He went on to say:It is not a healthy economy, however, where one half of the population can purchase freely because the other half cannot do so.We believe that there is a connection between this state of affairs and the situation into which Germany has got herself with the European Payments Union. I certainly hope that the British Government will ensure that in O.E.E.C. we shall exercise whatever powers we have to see that the German Government puts its economic house in order. The continuance of this type of liberal free-trade economy in countries like Germany should not mean that they are allowed to become a drain on Britain's economy. I am sure that my right hon. Friend has this point in mind, although it is important that this should be said in the House at this time.
§ 5.36 p.m.
§ Mr. Maudling (Barnet)
I am always glad to follow the hon. Member for Edmonton (Mr. Albu) because, apart from any other reason, it enables me to emphasise that, although we resemble each other physically, we are, in fact, different identities. I wish to refer back to the debate of 19th July, and to one or two of the points I put in that debate which the Chancellor of the Exchequer did not answer, no doubt because he did not have the time to do so. The three points to which he did not reply have become very relevant since that debate took place.
I asked whether any precautions were being taken under the European Payments Union scheme against the possibility of one member drawing the whole of its credits in one go, which is what has happened. Secondly, I suggested that two-monthly intervals for the clearings or compensations were too long. I suggested that much could happen in two months in 1942 connection with these monetary matters, and that one-monthly intervals should be adopted. I believe that this has now been done. If we had had an interval of only one month, we should have been able to see how things were going a good deal sooner.
My third point was this: The European Payments Union scheme is designed entirely for the smoothing out of fluctuations in current payments, and not to take care of capital movements. I expressed the doubt whether it would be possible to distinguish between current payments and capital transactions. This is the situation which, surely, has happened in the case of Germany. As I understand it, a good deal of the German deficit has arisen from heavy German forward orders for raw materials, which, in fact, form a stocking-up programme. They have used their credit facilities with the European Payments Union to increase their working capital, which I should have thought was not a current transaction.
Similarly, there has been a fairly clear movement away from the mark. A fairly substantial bear position has developed which is a matter, not of current payment, but of a capital nature. If this scheme is to work, we must have greater facilities for distinguishing between current payments and capital on speculative transactions.
The next point I want to come to is the credit of 120 million units which is to be extended to Germany. I have seen some reference to this in the Press this morning. I believe that one-third is to be paid by the Germans, out of their dollar resources. The question I wish to ask is from where this credit is to come. Is it to be provided by the members of the European Payments Union, or is it to come from the European co-operation administration? I want to refer to Cmd. 8064, particularly to Article 15 of the Agreement headed "Special Assistance," and to ask whether this article has been followed, because it provides:If a Contracting Party is not in a position to make … payments of gold necessary for the settlement of its accounting deficit, the Organisation may, at the request of that Contracting Party, recommend to the Government of the United States to place at the disposal of that Contracting Party—subject, if necessary, to desirable conditions—amounts of United States dollars necessary to enable it to comply with its obligations under the present Agreement.1943 Has that article been brought into play in providing special assistance for Germany?
I should also like to say a word about the question of trade liberalisation, and how far progress has been made with the liberalisation of intra-European trade. I do not know whether the difficulties have yet been resolved, which I understand have arisen through the fact that the proportion of liberalisation applies wholly to trade on private account, whereas so much of our trade is still on public account. I think some controversy has arisen between ourselves and the other European Union countries as to the exact proportion and interpretation. I hope that these difficulties have been cleared up. Is it not a fact that Germany will have to put her liberalisation in reverse and reintroduce measures to restrict and discriminate? If that is so, is it not likely that that policy will be followed by other countries contiguous to Germany, particularly Belgium and Holland? It seems to me it is most important that liberalisation should continue.
I want to examine for a moment the implications of a substantial sterling area surplus with the European Payments Union. At the moment we are accumulating a remarkably large surplus, and this is likely to continue for some time at a substantial figure. What is the effect of this surplus? Surely it is, in fact, another form of unrequited exports. For the first 150 million units we have earned we shall get nothing at all, because it has been used to wipe off our deficit. I understand, from the speech of the Chancellor of the Exchequer on 19th July, that the 150 million units would not be something additional to our share of Marshall Aid, but would be used as counterpart aid. Under the European Payments Union arrangement we will get exactly the same Marshall Aid dollars, and nothing additional for wiping out that deficit. We have now got to about 320 units in credit, but we have another 40 million units to go before we start getting gold payments.
I am not sure that we want to absorb part of the gold reserves of other European countries, because they have not a great deal to spare. My point is that a further extension of unrequited exports on a large scale may be a serious thing for the economy of our country. Surely the first 1944 principle we must bear in mind is the importance of Empire trade. Important as is European trade, Empire trade is even more important. In so far as we have an increased surplus on the European Trade account, surely we are likely to have a smaller surplus, or a deficit, with the rest of the sterling area.
We can earn our surplus with the European Payments Union, either by the export of our own goods, or by the export of sterling area goods, such as wool. This may produce a credit for us with the European Payments Union but it will be matched by an increase in the balances held in London by Australia and New Zealand. If our credit is made up from our own exports, then we are exporting merely in exchange for credits with the European Payments Union goods which could be sent to other areas, such as the dollar area, or used to increase our investment in the sterling area, or goods which could be consumed in this country and thereby help to damp down the inflationary pressure. Surely any sending of goods abroad against credit and not against immediate payment is bound to be inflationary in its effect? Secondly, in so far as credit has been earned not by our own exports but by the exports of Dominions passing through our monetary system to Europe, we have been piling up increasing quick sterling liabilities to Dominion countries, and the scale of these liabilities in London at the moment is one of the most serious economic problems which we have to face, and it may become more serious.
I appreciate that there are strong political reasons why we should strive to maintain a high level of exports to Europe. One could not argue very easily in favour of cutting them down, but, on the other side of the picture, surely it is much to our advantage to increase our imports from Europe, particularly at a time when the growing rearmament drive is creating bottlenecks in our own industries and shortages of consumer goods? The heavy engineering industries of Germany and Italy have spare capacity, and so I believe has the Belgian steel industry nowadays. The industries of those countries could provide articles, goods and commodities useful in our rearmament drive and we could take those instead of merely earning for ourselves credits with the E.P.U.
1945 The E.P.U. is obviously in its early stages at the moment and it is suffering very considerable stresses and strains. I wonder sometimes whether the fact that E.P.U. cannot apparently work successfully without the most stringent exchange controls in a time of fixed exchange parities is not another argument for saying that we must look again at the present doctrine of maintaining a system of fixed parities. The E.P.U., or any other payment scheme, has to carry heavy strains. There have been, and are, wide variations in commodity prices, in the course of trade and in the course of payments and there have been disparities between the changes in trade movements and the changes in payments. These fluctuations are surely enhanced by the existence of fixed parities which encourage speculative movements in currencies. It is another example of the way in which the maintenance of fixed parities and the absence of a fluctuating exchange market with exchange equalisation funds as a counterbalancing factor encourages speculation and makes it more difficult to have a regular flow of trade and payments in the world.
I have tried to emphasise as far as I can that this scheme is in its early stages. It has started by producing features which no one could have foreseen when it was first introduced. We must try to make a success of it. Now is the time for us to review the implications of the E.P.U. scheme which have become apparent in the last few months and which must change the whole aspect of the scheme from the point of view of this country's long-term economic interests.
§ 5.50 p.m.
§ Mr. A. Edward Davies (Stoke-on-Trent, North)
It is with some trepidation that I enter into this very complex subject, but it behoves all of us to try to get at least a glimmering of the main principles involved in the legislation. The E.P.U. sets out, as the White Paper so clearly says, to facilitate the largest possible measure of liberalisation of trade among member countries. As the hon. Member for Barnet (Mr. Maudling) said in the useful contribution which he has just made, that would give us the advantage of products which the continental countries can provide for us at the time of over-full employment when our resources are stretched to the limits.
1946 Secondly, the aim is to help the member countries in their efforts to become independent of extraordinary outside assistance and to encourage all members to achieve and maintain a high and stable level of trade and employment. None of us will grumble with that aim. We are also told that the aim is to assist nations in the transitional period from the post-war world to the years after 1952 and to provide a cushion to play the part which European gold and foreign exchanges which are earned cannot be expected to play.
There are other aims, but these are very important principles in themselves. All of us would agree that this idea of a clearing union operated from Basle, which seeks to give greater flexibility in currencies and trade and to provide extra credits for nations which may be temporarily in difficulties, is all to the good. However, I want to ask one or two questions because, since the time that this Measure was first talked about by my right hon. Friend's predecessor in regard to the intra-payments legislation and in subsequent discussions, the position has changed somewhat.
Reference has already been made to the changed position in regard to our balance of payments. The Bill mentions the aid which we are receiving from the United States, and in the "Economist" the other day certain matters were put to us which have been brought out in the discussion. One is that since 1st July Great Britain has received 175 million dollars of its provisional total allocation of 424 million dollars of Marshall Aid for 1950–51. Great Britain's allocation was to include 150 million of conditional aid, which was to off-set its initial contribution of the same amount to the European Payments Union.
The question is whether Great Britain has received the 150 million dollars of conditional aid, or is it to be subtracted from the aid which we have already received? We heard from the Home Secretary, in his new role as an economic adviser, that the time had arrived when this country could stand on its own feet and that, possibly, we could carry on without Marshall Aid, although under pressure he made it clear that that was the position before we had our rearmament programme to consider.
1947 My second point is this. In July we were asked by the United States to state what we thought we could contribute during the next three years to the rearmament programme, and almost by return of post we said we thought that, with some sort of help, we could commit ourselves to £3,600 million. By this time we ought to know exactly what aid we are to receive, and I hope that the Chancellor of the Exchequer will give us any news which he has of that position.
It is all very well to say that the exchange position has improved, though we are all glad to hear that. It has been made clear by the right hon. Gentleman the Member for Aldershot (Mr. Lyttelton) that that is not all due to the sale of primary products from Malaya and so on. He thought that it was a little early to see results from that, but no doubt we can expect some tangible results in the course of time. However, that is a very impermanent basis on which to build and I do not think that this country can be expected to say that it has completely solved its balance of payments position, if that is going to be the explanation.
Also, we cannot pay the amount of £3,600 million for rearmament unless we have substantial aid. If we did so, it would devalue the pound sterling, the economic position of this country would become completely lop-sided and instead of maintaining the apparently good standard which we have now attained there would be a recession. I should have thought that it is too early to talk about cancelling out Marshall Aid.
I also want to ask my right hon. Friend something about the relationship of the International Monetary Fund to this new machinery. He answered a Question by my hon. Friend the Member for Lichfield and Tamworth (Mr. Snow) and it seemed to us—it was described as a secret report from the International Monetary Fund—that certain directions were being given to this country to increase its dollar imports. To say the least of it, I agree with the right hon. Member for Aldershot who thought that this was premature, although I expect that a week tomorrow some of his hon. Friends will be saying that more newsprint must be imported into this country from the dollar areas. I hope 1948 that they will bear his words in mind when that is said.
What is the relationship between the International Monetary Fund and E.P.U.? Are we under directions from it? We could certainly do with many nice things in this country. We have restricted our imports to about 84 per cent. of our pre-war consumption, but it would not be an act of wisdom if at this first sign of success we were to ease up and then have to tighten up again and disappoint our people. So far our reserves are very slender, and I hope that, owing to the changed position, the Chancellor of the Exchequer will be able to tell us something about the Government's views in this matter.
There seems to be a conflict in the United States as to what the position should be about giving aid to this country and to other countries of Western Europe. The other day we saw the report of Mr. Gordon Gray, which seemed to argue for a continuation of aid after 1952. He thought it was a first-class investment. Yet, if our information is correct, one of the first jobs that a distinguished American visitor to this country had to do was to tell us that we were doing so well and were so well off that Marshall Aid should cease immediately. However, Mr. Foster said, in passing, that if we did get into a jam again there would be some standby assistance. These considerations are very important to us.
I welcome the Measure in so far as it will make for the liberalisation of trade and remove some of the difficulties not only between us and dollar countries but also between the currencies of the 18 countries in which there have been exchange difficulties. As the right hon. Gentleman the Member for Aldershot said, it is rather like putting up a façade to talk about the liberalisation of trade. He gave a hint that France might resort to other methods—if she has not already done so—to keep us out. This refers to quantitative imports.
There are other considerations in regard to the liberalisation of trade. Conditions of production need to be borne in mind. Are we satisfied that the conditions under which goods to be freely exchanged are produced are fair, for instance, in terms of wages. Probably this falls outside the terms of the scheme but there ought to be a parallel scheme to give protection in such matters.
1949 In seeking to liberalise trade, are we doing it on a planned basis? Will some countries bring into production some things which in a year or two nobody will want, or is there some kind of correlation between the countries in Western Europe and the 18 subscribing countries under this scheme to see that the plans are developed, in the best sense, to maintain trade and full employment, not only in the next few years, but in the next generation? I know that some of these considerations will have occurred to my right hon. Friend, who had a conference on this very matter some time ago with the kindred powers in Western Europe. They are, however, matters which occur to us as trade unionists and to people who do not wish to run headlong into competition with Germany or other countries where the conditions of production are not what they should be.
§ 6.1 p.m.
§ Mr. Osborne (Louth)
It is only with very great diffidence that I take part in this highly complicated discussion. Before I come to the point which I wish to make, I should like to follow up what the hon. Member for Stoke-on-Trent, North (Mr. Edward Davies) has just said. If I understood him aright, he said that we cannot spend £3,600 million on rearmament with outside aid.
§ Mr. Osborne
Without outside aid. He also said that we have not as yet solved the balance of payments and, therefore. Marshall Aid should not end at once.
§ Mr. Davies
What I said was that it was a little premature to say that we have solved the balance of payments problem. I thought that the factors which had given us our improved position were not sufficiently stable to make us independent of such aid as we have been having.
§ Mr. Osborne
I am much obliged to the hon. Member. He has made the point clearly for me. He is saying that we are able neither to earn our own living nor to pay for our own defence. That is exactly the point that I want the Chancellor of the Exchequer to make from this highly technical Debate, because I suppose that if the Press take any notice of the Debate, they would take 1950 notice of two facts which were given in the opening speech.
The first was that in the four months since the fund has been operating, we have improved our position to such an extent that whereas previously we had a debit, we now have a substantial credit. The second is that for the month of October our position had improved by, I think, £78 million sterling. That is the figure which is likely to impress such people as will see anything of this in the newspapers tomorrow, but it will give a false impression.
The one problem facing the country—and I am sure that the Chancellor is well aware of this—is the question of productivity and lower costs. Our problem is to make the workers, and especially industrial workers, realise that we must have substantially increased production at considerably lower costs. My experience in talking to workers, however, is that if I say that output has to be increased and costs reduced, I am faced with figures of the kind which have been given to us. I am told, "But the Chancellor or his deputy said only yesterday that our balance had improved this month. We are doing fine. We are in no difficulty at all. The wonderful Socialist Government have so organised things that we are in an economic paradise." People do not say that we are facing a dire economic crisis, which I believe to be the position—a view to which the hon. Member for Stoke-on-Trent, North, subscribed when he said that we could pay neither for our own living nor for our own defence.
§ Mr. A. Edward Davies
I am sure that the hon. Member, while he is quite entitled to score a debating point, would not wish to misrepresent me completely. What I said was that we had not reached a position of self-sufficiency completely and absolutely, certainly not to be able to expend £3,600 million during the next three years on rearmament. That is vastly different from what the hon. Member is saying. I said that it was premature to think that we could wind up even Marshall Aid.
§ Mr. Osborne
I am obliged to the hon. Member. I would not wish to misrepresent him, but in putting even the most modest interpretation upon what he says, it still boils down to the fact that without outside help we could not maintain our present standard of life and could not 1951 meet our liabilities to defend ourselves. That is the point which I want the Chancellor to put over.
Let me remind the right hon. Gentleman that in paragraph 30 of Command Paper 7572, which was issued in connection with O.E.E.C., his predecessor, with characteristic honesty and forthrightness, said that the great difficulty facing the Government was to make people realise that there was a great and real economic crisis. I do not believe that that realisation has got home even now. The statement that there was a £78 million improvement last month will give a false impression unless the Chancellor gives the sternest warning against misinterpretation.
I come now to my second point. One of my hon. Friends made a protest about our being refused up-to-date figures on economic matters. I support him in saying that when it suits the Government to produce up-to-date figures, they can be given. When I asked, in Question No. 65 today, what the sterling area imports from North America had been in the last six months and how they compared with the improvement in our sterling balances in the same period, I was referred by the Economic Secretary to a White Paper that is completely out of date. He was able to ride away without giving the facts that he knew I wanted and which. I feel, the country ought to have.
The danger is that the figures which the Government issue from time to time give too rosy a picture of our true economic situation. We shall never get either managements or labour to put into their jobs that extra effort to give us the additional production we require until they realise the gravity of our situation.
I ask the Chancellor if he will now give me the figures for which I ask. Is it not true that our purchases from America during the last six months are just about equal to the improvement in our dollar reserves? If so, does it not mean that our stocks of raw materials and foodstuffs have diminished by that amount? Further, is it not true that in that six months the prices of both raw materials and foodstuffs have increased considerably, so that if we were to try to replace the physical volume of the stocks we had six months ago it would cost us a great deal more? Therefore, to say to 1952 the workers that our position has improved enormously, that our gold and dollar reserves are up by x millions, is to give a false and "phoney" picture. [An HON. MEMBER: "False?"] Yes; and we shall never get from the organised workers that great effort which I believe is still necessary until the truth is put in front of them.
§ Mr. Follick (Loughborough)
Would the hon. Member like to introduce a 10-hour working day? If so, he should say so clearly.
§ Mr. Osborne
I am not saying how the Government should achieve results. If they would get out and let a more competent set of men take their place, we would show them how to get results.
But that is not the point I am making. I am reiterating what was said by the previous Chancellor in paragraph 30 of Command Paper 7572, which I recommend to hon. Members opposite, and I emphasise that until the workers realise the gravity of our situation we shall never get anywhere. I ask the Chancellor, when he winds up the Debate, to show the red light as it were, against these favourable figures, so that a false impression shall not be left with the people of the country.
§ 6.10 p.m.
§ Mr. Nigel Birch (Flint, West)
I rise to end this short but highly technical Debate. There have been very few fireworks, and we must look to the Chancellor of the Exchequer to make his own Fifth of November. I remember the right hon. Gentleman congratulating me upon my maiden speech. He did so with equal grace, but probably with less sincerity than most people who perform that difficult art. In those days we knew the right hon. Gentleman as a backroom boy of the Ministry of Town and Country Planning. He has now become one of the principal ornaments of the front parlour, and we must wish him well in his new task.
Our attitude to the European Payments Union was very well put in the last debate on this subject by the hon. Member for Nottingham, South (Mr. N. Smith), when he said that the whole thing could have been much worse. The hon. Member always speaks very good English if nothing else, and I thought that that was admirably put. In his speech today, however, the hon. Member saw a great vision 1953 of the whole world going Douglas Credit, with his right hon. Friend the Chancellor of the Exchequer bowing before that idol. I am not at all certain that the hon. Member is right. I am not sure that with the inevitable march of progress, in 30 years' time we shall not get back to a foreign exchange situation which our grandfathers considered to be normal, and I am not at all certain that the prayer of the Chancellor of the Exchequer is really the prayer which the hon. Member for Nottingham, South, thinks it is. I am not at all sure that his prayer is not the prayer of St. Augustine, when not yet in a state of grace:Oh God, give me chastity and continency, but do not give it yet.It seems to me that all this business is a gradual sloughing off of the war-time restrictions and a gradual return to something which was very simple and normal in the old days.
Incidentally, the right hon. Gentleman is a teacher, and I think that the Economic Secretary also has been at one time a lecturer in economics. Exactly how anyone lectures on foreign exchange now I do not know, because unless the textbooks are amended by hand they can never be up-to-date for more than six months at a time. That, however, is beside the point.
So far, the working of the Agreement has been not at all bad, although of course not exactly in accordance with the plans. The Economic Secretary, very wisely, I think, pointed out that he could not exactly foresee the future. That is the trouble with planning. All planners know who won last year's Derby. The trouble arises when they come to next year's Derby. That is where the hon. Gentleman was not very helpful. The only absolute certainty that I can see in the future whilst the Socialist Government are in power is that prices will go on rising. I should not at present like to predict anything else.
Both the hon. Member for Stoke-on-Trent, North (Mr. Edward Davies), and the hon. Member for Edmonton (Mr. Albu) rather twisted what my right hon. Friend the Member for Aldershot (Mr. Lyttelton) said. My right hon. Friend said that given the uncertainties of the future, we ought not to throw the reins on to the horse's neck and gallop regardless. He did not say that things were 1954 not slightly better and that certain alleviations were not possible. It is this tendency on the benches opposite to say that something is pitch black or is pure white which is dangerous, because very few things are in fact either pitch black or pure white; and to say that my right hon. Friend wanted to "gallop regardless" is a misrepresentation of his speech.
There is one point about the revival of the strength of Europe which we should never forget, particularly when talking about this Agreement. That is, the paramount effect on the economy of Europe and upon this scheme of the actions of the Americans and what happened to the American economy. Lord Keynes, whom the hon. Member for Nottingham, South, quoted, in the last article which he wrote before he died, said something which is very relevant to the situation of this country and to our future. He wrote:The United States is becoming a high, living and high cost country beyond any previous experience. Unless their internal as well as their external economic life is to become paralysed by the Midas touch they will discover ways of life which compared with the ways of life of the less fortunate nations of the world must tend towards and not away from external equilibrium.That I think is happening in ways which perhaps may not have been foreseen at the time. It is happening not only by their giving aid but by their war preparations and the shouldering of so much of the general burdens of the defence of the world. The dollar problem is being solved by America becoming a high cost and high living country and not allowing themselves to be paralysed by the Midas touch.
There has been a great deal of talk in this Debate about sterling balances. There are two types of sterling balances; those arising out of the war which I profoundly wish had been settled at the end of the war, which I believe if we had been tough enough would have been settled, and sterling balances of which we are talking here, which are simply trade debts incurred in the immediate past. They should not be put in the same class as debts incurred in the defence of civilisation during the war. The question has been raised several times whether the change in American policy will affect the guarantee they gave on the loss of gold in payment on sterling balances. I hope that when 1955 he replies the Chancellor will say a word about that.
As far as sterling balances go we have been protected in some way I think by their immense size. Doctor Johnson had great experience of this. Small debts are a nuisance, but he said,great debts are like cannon; of loud noise, but little danger.The more money one owes, the more anxious bankers are to lend one money. There is a point raised by the hon. Member for Edmonton (Mr. Albu) about which I wish to say a word. He said that Germany were the bad boys of this agreement and that it was going to get worse. The Economic Secretary to the Treasury was a little more charitable but the hon. Member for Edmonton attributed German difficulties entirely to the liberalising of German trade. I am bound to say that coming from someone like him that is fairly tough because, after all, in the first three or four years after the war Germany was a planner's dream. Everything was planned in Germany, practically everyone was starving, trade was about a third of what it is now, no building was going on and there was the greatest possible degree of misery.
Anyone who has been in Germany during that period and lately will find that one of the most staggering changes in economic history has taken place between the two periods. They have certainly run into a rough passage now, but to say that because someone runs up a debt they are evil people and it is all because of liberal trade comes rather badly from a party which in 1947 ran through £1,500 million of gold in the middle of what we are told was a highly planned economy.
§ Mr. Albu
The hon. Member is aware that Germany has been receiving a great deal of Marshall Aid and has received a great deal of aid from this country and the United States. What I was pointing out is that the appearance of economic prosperity is an appearance and in fact the majority of people, especially pensioners, are not so prosperous.
§ Mr. Birch
Does the hon. Member say that the appearance of prosperity is owing to Marshall Aid? It seems to me that if we say that is the reason in Germany we will have to say that it is the reason here. It is difficult to see a great deal 1956 of difference between the two. When the hon. Member says that pensioners are suffering so horribly in Germany I would ask what is happening to them here? I think that to attribute this to liberalisation of trade is a piece of nonsense.
If I may now get down to a point of detail on the Bill, I want to call attention to subsection (3) of Clause 2, under which it is open to the Government to charge large temporary debts which they may incur under this scheme which are subsequently recouped from America to the Civil Contingencies Fund. As I see it, the real evil is that it is given as an excuse for maintaining the size of the Fund at a very high level, namely £125 million. This Fund was only designed to deal with trifles, very small amounts with which it was not convenient to deal by Supplementary Estimates on the nod, so to speak. It was not intended to put in the hand of the Executive a very large sum of money which they could use entirely at their own discretion, thereby giving them power to conceal from the people what really was going on.
The Chancellor of the Exchequer may say that he himself is as pure as a London snowflake and will never do anything wrong, but we have to remember that this Civil Contingencies Fund for which he is now supplying excuses was used to conceal from the country underestimating on the Health Service of £98 million until after the Election. It was concealed by raising £55 million from this Fund thereby avoiding having to bring forward a Supplementary Estimate until after the Election. That was wrong and if the groundnuts scheme had been set up in a different way it would have been possible to hide what was happening there in exactly the same way.
I think it is important to distinguish between the tasks of a poacher and a gamekeeper and in his present job the Chancellor is a gamekeeper not a poacher. Unless he realises that we will get the usual once-every-two-year crisis. We had one in 1947, one in 1949. There is not one due this year. But next year, unless he pulls himself together and if he goes on doing a bit of poaching on the sly as well as being a gamekeeper, it will happen again. I hope he will not go on with this but that he will give a better justification for the use of the Civil Contingencies Fund than he has so far given. With 1957 that one stricture on a technical part of the Bill, I say we welcome the general scheme and, as the hon. Member for Nottingham, South, said, on the whole it is working better than many thought it would work.
§ 6.23 p.m.
§ The Chancellor of the Exchequer (Mr. Gaitskell)
This has been an interesting Debate and I am sure, despite the technicalities, everyone has enjoyed it. I personally thought that a lot of the points made were very valuable. Some of them, of course, were points of detail and some of greater consequence. The right hon. Member for Aldershot (Mr. Lyttelton) referred to the question of liberalisation and I must take the blame for the fact that the Economic Secretary to the Treasury did not cover that in his remarks. I thought it might be going rather wide and that we would get perhaps into too much detail, but, in view of the questions of the right hon. Gentleman, I will say a few words on the subject.
Since the debate in July we have moved some considerable distance in this sphere. For example, it has been decided that discrimination in what is called the liberalised sector, where we have no quantitative restrictions, is to be abolished on 1st January next and in the non-liberalised sector by 1st February. The progress towards 60 per cent. liberalisation was achieved within a fortnight of the signing of the Agreement and at the last meeting of the Council of O.E.E.C. we agreed to go to 75 per cent. by 1st February, subject to certain reservations made by certain countries.
So, however difficult this question of tariffs may be, I do not think one can deny that one essential object of the European Payments Union has already been achieved to some extent. The right hon. Gentleman is perfectly right in saying that we cannot consider the question of quantitative restrictions as a possibility of freeing trade without also bringing in the question of tariffs and it is quite true that some European countries, which happen to be low tariff countries, have had the feeling that by lifting quantitative restrictions they are left in a less advantageous position vis-a-vis other countries with higher ta[...]iffs. But, as the House will realise, the question of tariffs affects a much wider area than the European Payments Union area: it is under discussion 1958 at Torquay at the moment and it is no use trying to deal with it in the European framework alone. That is the line we have always adopted on O.E.E.C. and, on the whole, I think it has been accepted.
Some reference was made by the right hon. Gentleman and by the hon. Member for Barnet (Mr. Maudling) to the question of State trading. I would like to make this clear. If we exclude State trading our percentage of liberalisation is now 85 per cent. and even if we treated State trading as being entirely in the restricted area, our percentage would still be 75 per cent. That is, we should already have achieved what the organisation said we ought all to reach by 1st February. I must add, of course, that it would be quite wrong to treat State trading in every case—to put it mildly—as involving the same thing as quantitative restrictions. When trying to buy raw materials in Europe, for instance, we are anxious to get as much as we can and there is no question of keeping products out. Perhaps only in the sphere of agriculture and agricultural products can one make such a criticism. No one can pretend that this is an easy question, but we have made very substantial progress.
The right hon. Gentleman asked if I would repay some of his remarks in the coin of information. The quantity of statistics now published is vastly greater than has been the case in the past. Sometimes, I must remind hon. Members, when they ask Questions it is not very easy to answer because the figures are not readily available to us. The hon. Member for Louth (Mr. Osborne) this afternoon asked something which it would have been extremely difficult to answer except by referring to other statistical tables. It is, after all, a very well-known and accepted convention in this House that the Government are not expected to repeat to hon. Members what they can find for themselves in other publications.
§ Mr. Osborne
I am much obliged to the right hon. Gentleman, but I am sure he will agree that this publication was three months out-of-date. I was asking for up-to-date figures.
§ Mr. Gaitskell
I was not thinking of the sterling balances for the moment. I will say a word about them later, but I was thinking of the other Questions the hon. Member asked.
1959 We will do our best to satisfy the House generally in this matter. I agree that it is confusing when statistical changes are made, but I think it would probably be agreed that the latest White Paper on the balance of payments, although it involves changes, compared with previous White Papers, is a very distinct improvement in that it draws the line distinctly between capital and current transactions. After all, it is better to get on to a new basis, if it is a better one, than to stay on the old one.
The hon. and gallant Member for New Forest (Colonel Crosthwaite-Eyre) asked me a number of questions which I shall try to answer. If I may say so, he was rather confused about the position, under the E.P.U., of sterling balances. My hon. Friend the Economic Secretary explained that, quite apart from the fact that any country in deficit may draw on its sterling balances, we are in the process of making agreements, in accordance with the provisions, with those who were our creditors about the repayment of the balances. There was nothing new about that. It is simply the funding of a debt which, as the hon. Member for Flint, West (Mr. Birch) pointed out, has accumulated in the last few years. The fact that the creditors may be surplus countries is neither here nor there. It would be a serious matter for us only if we were in deficit, and if that were to be the case, of course we are covered under the gold guarantee, so I do not think the hon. and gallant Member need have any anxieties on that point.
Similarly, I think he must have misunderstood something, whether in the correspondence between myself and Ambassador Katz or elsewhere, about the position of the sterling area. The only balances that can be drawn down in this connection and attract the gold guarantee are the balances of the European countries. There is no question of any other sterling balances being involved.
The hon. Member for Flint, West, asked me whether the gold guarantee would still apply whatever happened to Marshall Aid. If he will read the exchange of letters, he will see that it is quite clearly intended that the guarantee shall continue until 1952, and that there is no question of relating it to the amount of Marshall Aid we may be receiving.
§ Colonel Crosthwaite-Eyre
I take it that if sterling balances other than those held by members of E.P.U. are used for E.P.U. there is no available guarantee to cover them.
§ Mr. Gaitskell
No. that would not come into it at all. I do not know what the hon. and gallant Member means by sterling balances being used when they do not belong to E.P.U. countries. Perhaps he will think it over, because it does not make much sense in this connection.
There was another point made by the hon. and gallant Member for the New Forest about the position of Germany, with which I will now deal. He seemed to think that had we adopted the system which the hon. Member for Chippenham (Mr. Eccles) suggested in our last debate—that is to say, a management board with a majority vote and complete powers so that every country which belonged to the union would put itself under this board and be pledged to carry out its decisions—we should not have got into the present position as far Germany is concerned. I cannot follow that at all. The German Government have not been making difficulties with the rest of the members of the Union. They have not objected to anything in particular.
As various hon. Members have said, what has happened is that they have run through their quota rapidly. I will come to the reasons in a moment. There has been a discussion, first by the management board who, in fact, invited two experts to report to them on it. There have been discussions with the German Government. Certain recommendations have been made, and they will finally come before the Ministerial Council on 1st December. I cannot see that it would have made the slightest difference in this case if we had had the kind of set-up which I am surprised to see he still seems to support, because it was completely at variance with his criticisms of the International Monetary Fund—a body which, to some extent, works on those lines, where there is a majority vote so far as the activities of the Fund are concerned, and we have to accept it.
In the case of Germany, it is quite true, as the hon. Member for Barnet said, that we did not provide any special precautions to prevent one country drawing out 1961 its full credit. All that was laid down in the original Agreement was that the management board would keep under review the position of any country which got into serious deficit. It was never our intention that clearing should take place only every two months indefinitely. It was simply felt that to start with anything else would have been impracticable. That was all. I think we may expect that they will probably continue on a monthly basis. They will not do so immediately but they will certainly do so six months after the beginning of the Agreement.
On the question of current and capital transactions, one could argue as to whether the forward purchases of other currencies, which, no doubt, played some part in the German deficit, were capital transactions. They were not capital movements in the ordinary sense of the flight of capital, but were forward covering by traders, who probably anticipated changes in currency rates. It is not a thing which E.P.U. could have done anything about. It becomes a question of what type of exchange control exists in the various member country and, as the hon. Member will appreciate, we have only limited powers over the German foreign exchange control.
Then the hon. Member asked whether Article 15 had been used. I understand that it is a recommendation to the Council that the European Co-operation Administration should be approached with a view to assisting with some grant under that Article. The House will not expect me to say more on this because, although the Council at the official level has discussed the matter, it will shortly be considered at the Ministerial level.
Then the hon. Member for Barnet, in a particularly interesting passage of his speech, discussed the question of the relationship of trade with the sterling area and with Europe. At one point I thought he was suggesting that somehow or other we should not have allowed this surplus to accumulate within Europe. I do not think he meant that in the end, because he also said that the only way in which we could have prevented that from arising—in so far as it was particularly due to increases in the prices of sterling area materials—would have been to refuse to agree to any union which did not involve automatic gold payments.
1962 I explained in our last debate that we felt it would have been most undesirable in present circumstances to attempt to suck up gold from Europe and put Europe back prematurely on a gold standard. But if we do not have that, we must expect these swings in credit to a certain extent, although perhaps they have been on a rather larger scale in this instance. However, I agree with the hon. Member that if the difficulties of the German position appear to be rather more long-term, undoubtedly there is a strong case for increasing the scale of imports from Germany, both to the rest of the sterling area and here.
§ Mr. Maudling
Surely it is not only a question of the German debit, but also of our credit with Europe as a whole.
§ Mr. Gaitskell
I quite agree. It was always the intention, when we set up the Union, that as far as possible extreme creditors would correct their position and so would extreme debtors. We shall endeavour to do that, but, of course, we have already carried our liberalisation policy to a high level and it is not easy for us to do more. However, we shall certainly look at it and do what we can.
Then I was asked what was the position of Marshall Aid. I would ask the House to excuse me from saying anything on this subject at the moment. I am engaged in talks with our American friends and, as soon as I have anything to say, I will come here and say it. I think, however, that it would be wiser for me not to refer to the subject in the circumstances.
Finally, the right hon. Gentleman spoke of the so called I.M.F. Report, which suggested that there should now be relaxations on dollar imports by certain sterling area countries. I answered a question put to me by my hon. Friend the Member for Lichfield and Tamworth (Mr. Snow) on Tuesday on this, and I cannot accept the criticism of the hon. and gallant Member for New Forest that it was a particularly fluffy answer. No doubt when Governments make statements they have to use very diplomatic language. Anyway, he would see fairly plainly that what we were saying, in effect, was that the I.M.F. might hold these views, but that so far as we were concerned it was a matter for our Government to decide what we would do about dollar imports.
1963 We did that in collaboration with other Commonwealth countries in the sterling area and, in fact, discussed the whole question at the July Conference with the sterling area Finance Ministers. Incidentally, I might tell the House that this is not a report of the I.M.F. at all; it is, I think, simply material which the representative of the I.M.F. took with him to the Torquay Conference. The matter is being discussed there and I have every reason to hope there will be a satisfactory outcome from it.
I certainly welcome the support of the right hon. Gentleman for the policy of the Government in this matter. He is perfectly right. We ought not to overlook the fact that some of the influences which have given rise to the increase in our gold reserves are undoubtedly of a temporary character. It is quite clear, as has been said on many occasions, that the restrictions imposed in 1949, before devaluation, have been most powerful factors in helping us to restore the situation. It is equally clear that the increase in prices, though certainly benefiting some countries in the sterling area, will also involve higher dollar payments. Also, I think that, to some extent at least, the increase in the reserves is associated with those anticipatory or forward purchases of sterling to which I referred, They are in that sense capital and non-recurring items.
I would agree with the hon. Member for Louth that the very large surplus which is shown in this last month is unquestionably due to special factors and cannot be regarded as a normal trading surplus. There is every reason to believe, as my hon. Friend said, that in this month and probably in the succeeding months, though I think we may have a surplus of some kind, it will not be on that kind of scale.
There is, as the right hon. Member for Aldershot said, the whole question of the repercussions of our defence expenditure on our trading position, and, last but not least, the question of the height of our reserves. I do not apologise to the House for reminding hon. Members that these reserves are still, by any reasonable standard, extremely low in relation to possible calls that may be made upon them. So long as that is the case we must continue to direct our policy to building them up. That means that, although we 1964 shall be reasonable—and we have already dropped the extreme formula, the 75 per cent. formula, as my answer to my hon. Friend the Member for Lichfield and Tamworth made plain—we cannot afford to throw away all these protections which we have had to impose, for fear of what might happen.
I think I have now dealt fairly fully with almost every question raised and I hope that the House will now give the Bill its Second Reading.
§ Question put, and agreed to.
§ Bill read a Second time.
§ Committed to a Committee of the whole House.—[Mr. Hannan.]
§ Committee Tomorrow.