§ The Chancellor of the Exchequer (Mr. R. A. Butler)
With your indulgence, Mr. Speaker, and that of the House, I desire to make a statement on the financial and economic position. I am sorry that the words of the Leader of the House may prove to be true, namely that the statement will be fairly lengthy, but in the circumstances that cannot be helped. I should only like to say here, quite humanly, that I am very glad that we are all back at school together and that we can discuss these matters again.
I first spoke to the House as Chancellor of the Exchequer on 7th November, when I described the economic situation of the country and put forward certain remedies, only 11 days after the Government had come into office. Everything that has happened since has confirmed the impression which I sought then to give to the House, namely, that we were then, and are now, confronted with a grave situation. The Government then brought forward certain stop-gap and immediate measures.
Since then we have had the opportunity of considering the position more fully, and I have further decisions to announce today. Before I do so, I think it proper to set forth quite shortly some of the fundamental truths about our economy and about the impact which success or failure in our handling of our own affairs can have on the position of our own country and on the future of the Commonwealth and the free world as a whole.
As a people of 50 millions living on a small island, and dependent entirely, or largely, for our daily life upon supplies from abroad of half our food, nearly all the raw materials for our factories, and nearly all our petroleum, we are in a difficult position. We have, however, by our accomplishments over the centuries become a great power in the world, both in our own right and as the centre of a mighty Commonwealth, and we intend to maintain this heritage. Our currency is the currency in which half the world's trade is conducted. The territories for which we are responsible in these matters spread around the whole world. The Commonwealth, with whom I have been recently conferring, is an essential link between the United States, on the one 41 hand, and Western Europe, on the other. If we allowed our economic strength to deteriorate and decay, not only would our lives be impoverished, but the whole aspect of the problems confronting the free world as a whole would be irremediably worsened.
We as an island cannot carry these great responsibilities without earning the means to pay for them, and it is the harsh truth that our economic position in the world has been deteriorating for about half a century. [Interruption.] Well, I want to give the background against which we can work, and the more accurate that background is, the more sure we shall be of the remedies.
§ Mr. Butler
Our resources have been depleted by two world wars into which we unhesitatingly threw all our resources. The result of this is that, in addition to the other burdens which are upon us, we have become the largest debtor country in the world, whereas for generations we had been the largest creditor.
In these circumstances, every good citizen is bound to ask himself this question: Is he, or she, prepared to make the effort which will enable this country to play its part in the Commonwealth and in the free world, and to maintain and, as time goes on, to increase those standards of social progress to which we on all sides of this House are committed? This is the vital question, and there can be only one answer to it. We must succeed. We are entitled, if others think it worth while, to receive help in our defence programme for a common cause, but, for the rest, if we are to maintain our position and our independence and stand on our own legs, we must pay our own way.
I must talk today a great deal in terms of what are called economics and statistics, but this problem is not one just of facts and figures. It is a great moral issue, and if we fail to answer the moral challenge, then all else will crumble. The purpose of everything that I now have to propose, therefore, is to enable this country to pay its way.
I must first say how the broad strategy, which we must follow resolutely if we are to succeed, fits into the discussions which I have been having recently with 42 my fellow Finance Ministers in the Commonwealth. I should like to say—this is a very important aspect of the conference—that at this conference the Colonies, whose Governments and people have made such noble and useful efforts on our behalf as well as their own, were represented by my right hon. Friend the Colonial Secretary and by representatives of the Colonial Governments, who, I am glad to say, took part in our debates. There was no doubt at all about one matter—we were all confident of the future. Whatever our present difficulties are, we were determined not only to overcome them but also, above that, to go on from them to better things by increasing our earning power.
Restrictions and cuts are only palliatives. Expansion and development of the great resources which each of us commands are the only real and lasting remedies, and I must say that our imaginations were fired by the extent of these resources in the overseas dependencies and in the Commonwealth as a whole. I am also glad to say—this is our great hope for the future—that we have also formed groups to put into practice some of the ideas which we discussed and to study their implications. There is one on development under my hon. Friend the Under-Secretary of State for Commonwealth Relations and another, under the Minister of State for Economic Affairs, is on the steps to be taken towards the convertibility of sterling. These Ministers are presiding over meetings of representatives of the Commonwealth as a whole, and we are, therefore, carrying forward the work of our conference.
Our aims at the conference were to preserve the strength of sterling and, above all, to establish each country's economy on a sound and stable basis. The only thing I want to read to the House is a short extract from our statement saying that these aims:… can best be achieved when the worldwide trade of the sterling area is on a substantially higher level than at present, when sterling is freely convertible into all the main currencies of the world, and its position need no longer be supported by restriction on imports.Thus we proclaimed our faith in the future.
43 But there will be no future unless the sterling area can overcome the immediate and pressing difficulties which face it. The whole foundations of our trade, and, therefore, our existence—the central reserves—must be preserved and must be built up again. In other words, the sterling area as a whole, and not only this country, must face up to the basic need of paying its own way. To all of us in the conference it was clear that, unless the sterling area paid its way, the stability of our currency would be undermined, with great loss to ourselves and to our friends outside, and, therefore, we were all agreed that we should not spare ourselves at all in taking whatever action was necessary to put the whole area firmly back on the road to complete recovery.
Now I should like to state, for the benefit of the House, the facts which were before the meeting of the Commonwealth Finance Ministers. In the year 1950 the sterling area as a whole had been in surplus with the rest of the world to a total of about £427 million—I repeat, in surplus. In the first half of 1951, although the position of the United Kingdom was worse, the surplus was rather bigger, at the annual rate of £550 million. Then in the second half of the year had come the dramatic change, a deficit with the rest of the world at an annual rate of no less than £1,450 million. The gold reserves had fallen between June and December, 1951, by two-fifths, or £550 million, until no more than £835 million were left. That is the fact that we had to face, and manifestly to anyone concerned a drain on our resources at this rate could not be allowed to continue. If it did continue, it would mean starvation and unemployment for the people of this island and economic disaster for other members of the Commonwealth.
That was the picture before us and the problem as we saw it together, not just a partisan or a single-country or a single-party view, but the view of all of us. The meeting therefore formulated definite proposals for action by each country which will in the aggregate ensure that the sterling area as a whole will be in balance with the rest of the world in respect of the second half of this year, 1952. These proposals involve a variety of methods, this or that designed to suit 44 such absolutely different economic systems and economies as those of Ceylon and Australia. From what my colleagues told me, I am sure that these proposals will be endorsed by the Commonwealth Governments concerned.
There was one unfortunate absentee owing to his taking part in an election, and that was the Finance Minister of India, Sir C. Deshmukh, but he is coming here next week and he is hoping to confer with the British Government and myself. I have also invited the Finance Minister of the Irish Republic to come to London early next month, and he has accepted my invitation. When these two further conferences, with the Indian Finance Minister and the Finance Minister of the Irish Republic, are concluded, then I shall, and the Government will, have the picture completely in our minds.
If each of the members of the Commonwealth succeeds in carrying out the proposals, as I am sure we shall, then we shall stop the drain on the gold reserves in the second half of this year. This is a formidable task which we have all undertaken. If each of us does our bit, taking into account the measures that were brought in last November—that is, the big import cuts, which are not fully operating and the effect of which we have not yet fully felt on the reserves—it means that we shall reduce the deficit from an annual rate of £1,450 million in the second half of 1951 to zero in the second half of 1952. But this is only the first step, for in future years we shall have to proceed from this balance with the rest of the world to a surplus to enable the gold reserves to be built up again. What we are concerned with is the stability of the currency, and this is the whole meaning of the statement which I have to make to the House today.
That was the picture before the Commonwealth Ministers, and I now have to give to the House some idea of how we are going to carry out our part of the bargain. What is this country to do in this great Commonwealth enterprise? Our task in particular is to reduce our deficit with countries outside the area to £100 million in the second half of 1952. The proposals which my colleagues the Finance Ministers of the Commonwealth and the other sterling area Governments are undertaking would provide them in 45 the aggregate with a surplus of £100 million with the non-sterling world in the same period. This would mean that the whole sterling area would balance its accounts with the rest of the world. That is the plan we have agreed upon, and that is the plan we must carry out. The United Kingdom's task in this is formidable, but the House should remember that we are the banker and the custodian of the central reserves of the sterling area. We cannot flinch from our task. We must prove ourselves worthy of it, and we cannot afford to fail.
Let me show by figures how great this task is. In the last six—I repeat, six—months, ending 31st December, 1951—that is, less than a month ago—the United Kingdom had a deficit with the non-sterling world of no less than £575 million. In the six months ending 31st December, 1952, we must reduce this deficit by £475 million to minus—that is, a deficit of—£100 million. In addition to this, we must have a surplus, as we normally do, with the rest of the sterling area, leaving the non-sterling world on one side. That must be of at least £100 million in the same period, so that overall, with our surplus with the sterling area and our deficit with the outside, we shall be paying our way. That is the task to which the House should address itself.
The constructive approach, and by far the most important for the long term, consists of measures which will increase our earning capacity. Later on, I shall be announcing some measures expressly directed to increasing our exports. The House will remember that last time I talked in this way, it was mostly concerning import cuts. This time, a good deal of what I have to say is to encourage the exports, so as to earn more on the plus side.
These exports, helped by increased supplies of steel from the United States of America, for which we must express our great gratitude, should ensure a substantial increase in export income in the latter part of the year. We have also just made another satisfactory agreement. It has been announced only within the last 24 hours that plans have been made for the sale of 25,000 tons of rubber to the United States for strategic stock. The United States authorities have agreed to pay for all of it on the basis of their 46 present buying prices, so that the sterling area will receive from this sale, in a very short time, well over £8 million in dollars.
It has been agreed that the purchase for stock which both we and the United States authorities would have made in this period will not be affected by this particular sale, and there need therefore be no disturbance to the normal working of the rubber market, upon which we depend for very considerable earnings of dollars and other foreign currency for the sterling area; and for that we shall be grateful also.
Then, we can reasonably expect that under the North Atlantic Treaty we shall receive help from the United States towards some of the burden of defence which we are undertaking in the common cause. Meantime, the House will have noticed that the United States Government have just announced that as an interim measure of support for defence, they have allotted to this country 300 million dollars of economic aid from the provision already made by Congress for the current year. That is in support of our defence programme.
To this extent, therefore, there is a definite sum of aid in prospect, though the House should observe that this will take some time to flow, since it is linked with our imports of dollar materials for defence. I do not doubt that the House feels as grateful as the Government and I do to the United States Government for their recognition of the value of our defence effort. We have also taken account Of this support of our defence plan in making our general plans.
But the House should be under no illusion that this will not be enough, and much of it will not come quickly enough. Since it is imperative that we should stop the drain on our reserves as quickly as possible, I must have recourse, in order to stop the drain, to the first set of measures which I shall announce, which means further cuts immediately in our imports and external expenditure so as to save foreign exchange. Unless we make these cuts, there would not be time for the other measures to take effect.
In making these cuts and economies, there are two overriding principles that we must observe. First, they must be made in such a way that industry does not lack essential raw materials. If we allow machines to run down for lack of 47 raw materials, we deny ourselves and our workers the only possible means of effecting recovery. Second, in view of the need of maintaining the strength and morale of the population as much as possible in present circumstances, the basic food rations must, if possible, be kept up.
On 7th November I announced certain cuts in external expenditure to the tune of £350 million. These cuts will take some time to become fully effective, but I fear that as £170 million of them was in foodstuffs, their impact will become progressively more apparent in our shops and in our lives from now on. It is very important that anybody bearing responsibilities as I do should make himself quite clear to the House and to the public. When that impact happens, these cuts will have an effect, because they will substantially reduce our deficit with the non-sterling world in the latter half of 1952. It is now clear, however, that we need a further saving of about £150 million, making total savings of no less than £500 million in external expenditure per annum.
It is not easy to find such essential savings without damage to some part of our economy. We shall in some cases have to use stocks acquired for the stockpile in order to reduce the current level of imports. [HON. MEMBERS: "Oh!"] This sacrifice is necessary because we are bound to halt the drain in the gold reserves, and we must keep our production going full blast if we are to earn what we need. What I can say is, though, that as a result of this operation, taking commercial and strategic stocks as a whole, the reduction in 1952 will be within perfectly reasonable proportions.
We fully recognise—and I am trying to set out the case to the House because we are all taking part in this housekeeping together—[Laughter.]—or, if we are not, we should be—we fully recognise that any use of stocks for current purposes is a once-and-for-all operation and this makes it all the more necessary to carry out our other proposals resolutely and in good time. For well recognised reasons, I cannot give details of the exact make-up of the £150 million. In any case this should be regarded with the £350 million as one single operation.
But there are one or two specific items I can mention, and I come first to 48 tobacco. This is a commodity where it seems, without damage to production or the health of the people, we could make large savings. I want the House to listen to one or two arguments I am going to put forward.
Tobacco is a commodity which brings in very large amounts of revenue and less than 7 per cent. of the price of cigarettes in the shops represents expenditure on imports—less than 5 per cent. on imports which have to be paid for in dollars. Thus, if any savings in our dollar import bill were to appear as a cut in consumption, we should be releasing purchasing power over 20 times as great on the home market and so increasing inflationary pressure, which it is our aim to remove.
Nevertheless, despite these considerations—which any human Chancellor must take into account, because this is by far the winner in the horse race for the collection of revenue for any Chancellor of the Exchequer, as my predecessor well knows; it has got beer beaten hollow, and the Purchase Tax and everything else—nevertheless, some saving of dollar expenditure there must be. My right hon. Friend the President of the Board of Trade has had some discussion with the people concerned and, as a result, it has been found possible, by a careful re-arrangement of our proposals in connection with stocks and other methods, to achieve a saving of the order of £22 million this year without reason to expect an undue shortage.
I then come to tourism. On 7th November I announced a reduction in the tourist allowance from £100 to £50 and we have now decided, with great reluctance, that it is necessary to cut this further. The allowance for the year to November, 1952, will therefore be reduced to £25. This second cut should yield a saving of the order of £12,500,000 this year. Further details about allowances and so forth will be announced afterwards, but some adjustments will have to be made with the Scandinavian countries over Uniscan.
Then coal. We have decided to reduce our purchases from the United States, and the savings here, as these purchases were of a small order, will be only £2,500,000. But this is a thoroughly healthy step. This country must export, and not import, coal.
49 Now I shall deal with two other items, one where we cannot, and one where we do not, propose to take action. The first is films. We have dollar expenditure on these at the rate of £9 million a year. As the House is aware, we have undertaken to the United States films interests that we will allow remittances at this rate and this agreement runs until September. We therefore cannot take any immediate action in this field owing to our being bound by this agreement, but I must warn the House that we shall use the time before then to consider the economies which may well have to be made in the future.
Now on petroleum; only about one quarter of the total consumption of petroleum products consists of motor spirit. A good deal less than half the consumption of motor spirit is by private motorists, and not very much of this is used for pleasure motoring. The only means of securing significant savings would be by imposing petrol rationing. The House by now must be fully aware of the complexities and expensiveness of working any petrol rationing system. We have considered this again, very fully, bearing in mind the fact that 2,500 people were needed to run the previous system at an administrative cost of well over £1 million, and even then it was subject to grave abuse.
I have investigated this with my colleagues, very closely, and we have come to the conclusion that all this effort would bring in only £4 million in this year, 1952, and £8 million in a full year. We have therefore decided that the whole thing is not worth while. [Interruption.] I do not think it is worth while spending nearly £1,500,000 in administrative expense to bring in only £4 million saving in foreign exchange. At any rate that is our decision, and I am sure it is the right one.
How are these proposals—those of November and those made now—likely to affect our lives generally? They will be a major contribution to solving the balance of payments difficulties of the sterling area as a whole, and such a contribution cannot be made without sacrifice. I have said that we plan to maintain essential supplies to industry on an economical basis. Furthermore, our present proposals do not involve reducing the basic rations on which the material for agriculture—namely, the 5,500,000 tons 50 of coarse grain supplies for food—depend, but in many ways our daily lives will be progressively affected.
In food we shall find that there will be considerable reduction—and I must warn the public of this—in a great many foodstuffs which hitherto supplemented our basic rations and gave variety to our diet. [Interruption.] The most important of these are canned hams, meats—[An HON. MEMBER: "Red Meat?"]—canned fish, fruit and vegetables and certain fresh fruits. In addition to this, the allocation of sugar and oils and fats to the manufacturers was reduced last November and this will mean less cakes and confectionery in the shops.
In the field of manufactures, there will be much lower imports. The most notable items affected directly are clothing, furniture, carpets, shoes and toys. We are also expecting considerable reductions in imports of items not subject to restrictions. I should like the House to note, however, that we are not now putting further or new restrictions on imports from Europe, because we want to maintain what remains of inter-European trade as free as we possibly can, and as a two-way traffic.
§ Mr. Speaker
Order. The hon. Member must not remain standing if the right hon. Gentleman does not give way.
§ Mr. Davies
The right hon. Gentleman has now been kind enough to give way. It is an important point. I should like to ask the right hon. Gentleman how this inter-European trade is going to affect the E.P.U. payments. Is there any likelihood of losing—[HON. MEMBERS: "Oh."] Hon. Members may say "Oh," but it is an important point. If there is an adverse balance with us in some supplies, shall we still have to move gold into the European pool?
§ Mr. Butler
At the present moment, owing to the scale of our indebtedness to the European Payments Union, we are approaching the moment when we shall be paying our debts in gold; that is the reason we had to cut our imports. But I do not want to go further, unless I am obliged to do so by the seriousness of the position, in cutting our trade with Europe or with France. I think we have done a great deal. I do not wish to go further than we have. As it is, the cut 51 in tourism will be deeply felt on the Continent.
To sum up, we have put into operation a programme of import cuts which, in conjunction with the measures to increase earnings and with defence aid from the United States, will, we believe, enable us to carry out the commitments I have made to the other Commonwealth Finance Ministers—provided that there is no turn for the worse in the economic weather.
I must point out that we have assumed that import prices remain much the same as they are now and that there is no major change in the world economic situation. If there are such changes, and they affect us adversely, we shall nevertheless maintain our resolution to do what we have undertaken. But this would mean further cuts in external expenditure and would probably entail reductions in rations. I give that warning in case things go worse.
As I have said, the cuts we have made are essential because the money in the till is running out very fast and we must stop it at all costs. But I have mentioned that our objective is not to pay our way at a low level but as quickly as possible to increase our earnings and so fulfil the part which we should play in the world. In order to build up our earning capacity overseas, we must free industry from some of the demands made upon it by the home market and clear the ground for a bigger volume of exports.
One step that the Government can take in this direction is to reduce the amount of money available at home to buy the products of our industry. The first steps to check the supply of money were taken last November when the Bank Rate was raised and stiffer conditions for lending were introduced. The clearing banks, whose co-operation I want once again to recognise, were asked to look very hard at requests for advances, and in general not to make them for capital expenditure. A further direction for a severely critical review of capital issues was made public. There is no doubt that the change of emphasis represented by these measures is already having its effects, and that these will now move right through the economy.
Another step is to reduce Government expenditure, which now takes a big share 52 of the country's resources. I therefore turn to a number of measures the general effect of which is to reverse the trend, which has now been continuing at varying rates for several years, for civil Government expenditure to increase year by year, and thus to reduce the proportion of national income devoted to this purpose.
It may be urged, and is urged by some economists of various schools, that there is little connection between Government expenditure, for example, on social services and the balance of payments. This is a complete misunderstanding of the true position. Every pound spent by the Government means either a direct call on man-power and materials or a transfer of income to someone else, who is thus enabled to make such a direct call. Our fundamental task is to increase the resources available for export, and this cannot be done unless we are willing to release them from the other calls made upon them. Besides, constantly increasing taxation has required the maintenance of absolute levels of tax so high as seriously to check incentives to work and to enterprise.
My colleagues and I took office at the season when Estimates are being prepared. Ever since, we have bent our efforts to reducing the Civil Estimates. I doubt whether anyone who has not been in office realises, as my predecessor the right hon. Member for Leeds, South (Mr. Gaitskell) certainly must, how great is the natural tendency of Government expenditure to increase. Added to this natural tendency is the rise in prices and wages. In recent years civil expenditure has risen on an average by nearly £100 million per year, and this despite a steady falling off of residual expenditure from the war.
Leaving aside Civil Defence and other quasi-military items which appear in the Civil Estimates, we are holding other Government expenditure at about this year's figure, the exact figure having still to be settled when the Estimates are printed. This is a major achievement. The rise in wages and prices between the two years is about 10 per cent. All that has been absorbed. It means a fall in the proportion of the country's gross national product which the Government take for their civil expenditure from about 15 per cent. to about 13½ per cent. That has already been achieved.
53 It has not been an easy task. We have cut out waste, but that is not enough. We have also had to reduce or slow up many useful services. In doing so we have tried to preserve the structure of the great Government services and to make economies by delaying developments that could wait for better times, and doing without some of the less important things. I am not going into detail now. The Estimates will do that, and the House will see for itself. I will only mention the principal measures which we propose, of which the House should learn at once. Hon. Members should not under-rate the accumulation of economies which we are achieving in every branch of the public service just by patient attention to detail.
Before I come to the main economies, there are two small but still important cuts. The first is to reduce the Civil Service by 10,000 in the next six months at a saving of about £5 million, and to aim at a further reduction in the following six months. The second is to reduce the Information Services by £1.2 million a year, of which £700,000 will fall on home services and £500,000 on overseas services.
Next I come to education. The Minister of Education has been accused of dreadful things on the score of her recent request to local education authorities to reduce their forecasts for next year by about 5 per cent. overall. Watching, listening and reading of the hue and cry which has been going on, I have wondered at the lack of faith of many of my own educational friends. This Government has always believed with Disraeli that, to use his words:Upon the education of the people of this country the fate of this country depends.The Minister of Education and the Secretary of State for Scotland will maintain the essential fabric of education. In particular we do not propose to change the period of school attendance. But surely there is some room for economy without doing vital damage to the service. The necessary measures will include economies in the school building programme and a number of other savings, mainly administrative.
We do not propose to discharge or to cease recruiting teachers, and anybody who knows about education knows that that is the major expense in education— 54 salaries. We need the teachers and we value their services. We need them in order to cope with the increasing number of children coming to school and the increasingly large size of classes. In order to meet difficulties in school building, particularly the shortage of steel, which is affecting this building programme like everything else, the Minister of Education proposes to ask authorities to make more economical use of school premises and to have more flexible arrangements in the age of transfer to secondary schools. Similar action will be taken by the Secretary of State for Scotland. This is better than cutting the school age at the top or sending children to school later.
In the National Health Service special measures are needed. We shall keep the cost of this Service—excluding Civil Defence expenditure borne on the National Health Service Votes—within a ceiling of £400 million. We shall maintain the structure of the Service, but we shall make charges where they can best be borne.
Our predecessors, in the shape of the present Opposition, very conveniently left behind them legislation, out of which I do not propose to be manœuvred, enabling a charge to be imposed on prescriptions. This is not a case of stealing the Whigs' clothes; it is rather a case of stepping into the shoes of the right hon. Member for Huyton (Mr. H. Wilson). We shall use this legislation to make a charge of one shilling on prescriptions. This will bring in £12 million in a full year. Where there is hardship, help will be given in meeting this or other charges. The details are being satisfactorily worked out by my right hon. Friends the Minister of Health and the Secretary of State for Scotland.
Now I come to the dental service. The dental service has done excellent work, though it is by common agreement now in an unbalanced state. There are far too few dentists and the attractions of the general service have lead to a depletion of local and school services. Dental work is not being done where it is most needed. At present in the school service, taken as a whole, there is only about one dentist to every 8,000 children. This is a shocking condition. We must get the supply and demand into balance and make sure that the demand of those who need help most gets the preference.
55 With this as much as with economy in view we shall impose a charge of £1, or the full cost if less, for all treatment except dentures, where a charge is already made, but this new charge will not apply to children or to expectant and nursing mothers. This should free more dentists' time for the local and school services. Thus we are putting first the needs of the priority classes, including children. This will bring in some £7½ million.
At the same time we shall impose some other minor charges. There will be a charge for some appliances such as surgical belts and boots, hearing aids, and wigs when these are supplied through the hospital service to out-patients. Amenity beds, so-called, in hospitals will cost more. The powers of local authorities to charge for the use of day nurseries will be extended. These and other charges should bring in just over £20 million in a full year. My right hon. Friend the Minister of Health will give full details about these charges in due course. As legislation will be required, there will be ample opportunity, of which hon. Members will doubtless avail themselves, to discuss the undoubted merit of these proposals.
Before leaving the social services, I will say this in general. All the steps I have announced are sincerely designed to preserve the scope and purpose of the various measures, while correcting or avoiding abuse or faulty emphasis. [HON. MEMBERS: "Nonsense!"] The real danger to the social services, as anyone who has seriously studied the position knows, comes from the threat of bankruptcy. This it is our major objective to prevent and so save the services as a whole.
Let me for one moment deal with defence expenditure. This is not the occasion to go into detail on it. The Government mean to carry out as quickly as we can the defence programme started by our predecessors. We cannot do so without a strong and healthy national economy. It was fully recognised by the Temporary Committee of the Atlantic Council, which recently reviewed all countries' defence efforts, that the success of any country's defence effort, including our own, depended upon the balancing of its external accounts, and 56 their ability to obtain important raw materials.
As the Prime Minister explained to the House before Christmas, our defence production programme has been to some extent delayed. That is partly due to certain shortages such as skilled labour, machine tools and essential materials. The increased supplies of steel we shall be receiving later in the year from the United States will be of great help. The lag has also been due to the inevitable holdups in matters of design and production planning which afflict all large arms programmes. I need hardly add that we have applied to the Service Estimates quite as rigorous a drive for economy as I have described in connection with civil expenditure.
In particular, in re-balancing our defence effort we have had two main objectives; to ensure that for the money we spend we get the maximum value in effective power so that we may carry out our contribution to N.A.T.O. and to support our world-wide commitments and to increase as quickly as possible our exports of engineering goods by easing the immediate burden of defence on the metal-using industries.
This brings me to a discussion of our plans for investment. The main problem concerns the output of what I have just described under defence, the engineering industries, for which defence, exports and home investments are all competing. This is the portion of the economy on which there is the greatest strain, and unless we can relieve it we cannot hope to get the exports we so vitally need. It is absolutely vital that the output of these industries should be increased, but shortage of steel will continue for a little time to limit the speed at which this expansion can take place.
But it is clear that, however successful the effort may be, this section of our economy must still have a most difficult task in meeting in full all the claims I have mentioned. We must therefore take steps to ensure that the most important claims are met first. That means restricting certain types of home investment as well as consumption in the interests of exports.
I take building first. There is an acute shortage of building steel, which limits the number of jobs requiring steel which can be carried out during the coming year. 57 Moreover, owing to the importance of the other demands for labour, we cannot allow the size of the building labour force to grow above its present level.
We must not forget that provision must be made for some increase in building work for defence and the fuel and power industries. In addition, the Government intend to carry out their pledge on housing, which uses comparatively little steel. The amount of building which can be carried out this year should be considerably greater than last year, and probably greater than in 1950. A tight control will have to be kept on all types of building using steel which are not of fundamental importance to the national economy. Shops and offices will be particularly affected, and the programmes for rebuilding the blitzed cities, I am very sorry to say, will have to be further delayed. [HON. MEMBERS: "Shame!"] Well, it is a good thing that the House should know the bad parts as well as the good.
At the same time, work on some industrial projects of high long-term value to our balance of payments will have to be slowed down or stopped altogether, and the start of a large number of similar new projects will have to be postponed. This is inevitable because factories and factory buildings generally are large users of steel.
I turn now to plant, machinery and vehicles for civil use. Our objective is to reduce total home deliveries of plant, machinery and vehicles for civil use by £150 million to £200 million at current market prices below the level attained in 1950. The House should know that this severe and unwelcome step means on the average a cut of no less than one-sixth of actual supplies in 1950—and even in that year the supplies which industry and agriculture got fell short of what they would have liked to buy and what is really needed in the long-term interests of our economic progress.
In making this cut we must, so far as possible, protect basic essentials such as the fuel and power industries, but even for these expansion cannot be indefinite. Some reduction in home civil demand for plant and machinery should follow from the withdrawal of initial taxation allowances as from next April, which was announced by my predecessor 58 a year ago, and from the tighter credit policy which I introduced last November and which will be maintained.
I should like to make a special appeal to industry and agriculture in general to limit and, where possible, postpone its demands on the engineering industries. The Government are relying on the engineering industries themselves to do everything they can to push forward overseas orders and thus ensure that a larger proportion of their output goes to export, because that is a vital thing for the balance of payments. We shall be discussing with particular industries the appropriate division between their exports and the home market.
We shall ask the motor industry, which, as everyone knows, has been preeminent in the export field, to release only 60,000 cars and 60,000 commercial vehicles to the home market; this compares with actual deliveries to the home market for this last year of rather more than 110,000 cars and about 100,000 commercial vehicles. This is a hard and unpleasant thing to do—and will, I fear, be felt to be so, more than appears at present—for it is upon the continued development and modernisation of industry that our overseas earning power must in the long run ultimately depend.
In the short run, however—and I hope the House will remember those debit figures with which I opened my remarks; the debit balance of the United Kingdom especially, and of the sterling area as a whole—we are faced with a critical situation that demands at almost any cost a rapid increase in our exports, and we can confidently rely on securing such an increase only by stepping up our exports of capital goods, since the markets for most other types of manufactures are distinctly uncertain.
In addition, we must also lighten the domestic load on the engineering industry by restricting the supply of the metal goods which we buy for our personal use. Cars I have already dealt with. But there are also motor cycles, bicycles, radio and television sets, refrigerators, washing machines, vacuum cleaners, metal furniture, sports goods and so on Supplies of these goods for the home market will be limited this year on the average to about two-thirds of last year's level.
59 In money terms this is equivalent to a reduction of some £70 million, excluding Purchase Tax. Many of these things make life easier and pleasanter—they are part of the higher standard of living. But we cannot have unlimited access to them if they or other things made in their place can be sold abroad to pay for the food and raw materials that we must have. I hope the House will see that we are in earnest in increasing our exports and limiting our imports.
First, we shall discriminate, in order to achieve these things, openly in favour of exports in the allocation of steel and other scarce materials. Thus, consumer goods industries have already been put at a low level in the allocation of steel for the first quarter of the year.
Second, if it is necessary in exceptional cases to reinforce steel allocation we may have to prohibit the supply to the home market beyond a certain level. Thus where goods cannot be exported it may be necessary to reduce output, so that resources can be transferred to other products which can be sold overseas.
Third, an order will come into force this week to restrict hire purchase on such things as motor vehicles, bicycles, radio and television sets and electric appliances. Credit restriction will also limit hire purchase, which is essentially a form of living beyond one's means. [HON. MEMBERS: "No."]
I must here say a word about the allocations of steel. I know there are many who feel that the allocations of steel for this quarter do scant justice to their performance and efforts in the export field, and they hope that their efforts will progressively receive more encouragement in the way of steel supplies. A move in this direction—although not as far as we should like—will be made in the allocations for the second quarter which we shall try to get out to industry as soon as possible in order to help manufacturers to plan ahead. Thereafter, we hope for deliveries of the United States steel, and that, I hope, will ease the position.
All the varied measures I have described are designed to free resources for the expansion of our export trade, which is vital for our survival. If we do not earn more we shall have to bring 60 more in and cut more imports of food and vital materials. The Government's primary responsibility is to create the necessary conditions to enable industry to concentrate its efforts on that purpose. In general, we shall rely not on any battery of direct controls but on the enterprise and determination of industry and its voluntary co-operation with the Government. Thus, as I have already said, we shall hope to agree with industry, section by section, as we have done in the past, what proportion of its output is to be devoted to export in this new drive. This is particularly the case in the engineering industry whose contribution to our exports has been so remarkable. I have mentioned the value and importance of capital goods.
In the case of other exports, conditions are not so easy. With the best will in the world we shall not be able immediately to push up at all substantially our exports of such materials as coal and steel which are of obvious importance, but plans are afoot, and the spirit of the miners is excellent. Their production is first-class and it must be clear to the country that any exports of coal are quite vital to our economy and are of far more interest to the Chancellor of the Exchequer than money at the present time.
I know that in recent months particular difficulties have been experienced by Lancashire and the textile industry—that is, by our industries making consumer goods, particularly the textile industries. These difficulties have arisen partly from the working of the Purchase Tax arrangement for those classes of goods for which there is utility manufacture.
In view of the serious problems involved, my predecessor appointed some months ago a Committee under the Chairmanship of Sir William Douglas to consider the whole range of questions arising from the connection between utility schemes and Purchase Tax. The Report of this Committee has been received and will be published on 24th February. The Government have considered, in the light of the recommendations contained in this Report, what action they should take to deal with problems which have arisen, particularly those affecting the export trade. We shall be submitting our proposals to the House in the very near future.
61 Exporters may ask whether they should concentrate on certain overseas markets in preference to others. My right hon. Friend the President of the Board of Trade will be speaking later and I do not propose to give any extra guidance in this statement except to say that exports to the dollar area must continue to come first.
The story would be incomplete without a reference to manpower. Many industries, particularly in the engineering field, are short of labour. This problem has been the subject of special consideration by the National Joint Advisory Council and the special steps we are taking have their agreement. I am making this statement by agreement with my right hon. and learned Friend the Minister of Labour.
The essential thing is to ensure that workers who may have to change their jobs should know where their services can best be used, and should not go into less important jobs when they would be prepared to take more essential work if they knew of it. In order to help with this, the Minister of Labour is today making an order under Defence Regulations requiring employers seeking to engage workers to do so by notifying their vacancies to a local office of the Ministry of Labour, and to engage only workers submitted by a local office. There is no intention of attempting to compel workers to take jobs they are unwilling to take. No directions to workers are to be used at all. They will be told of the important vacancies and asked to take them willingly. If they are not willing to do so, their names will be submitted for vacancies in other work of the kind they desire.
That is the end of my account of what the Government are doing and what they expect industry to do to encourage exports and to meet our difficulties. These measures must not be looked at individually or in isolation. They are all part of a general plan: they all contribute, though in different ways, to our one great aim today, which is to enable this country to pay for what we have to import and to stand once more on its own feet. If we fail in this we fail in everything else: in defence, in housing, in full employment and in social welfare; moreover we fail to maintain our position at 62 the centre of the Commonwealth and Empire.
Whether we like it or not some people have got the impression that the United Kingdom economy is soft, and that there will be no real return to confidence until, both at home and abroad, people really feel that we are getting down to fundamental remedies. I believe that the plan that I have outlined does get down to fundamentals; and I am much encouraged to think that my view is shared by the Finance Minister of the Union of South Africa whose most helpful statement reported today we all applaud.
In all this we recognise that all our efforts will be brought to nought unless we are successful in dealing with the problem of inflation. This leads me to an important statement with which I conclude. The measures which I have outlined can be brought to their logical conclusion only within the framework of a Budget. Hon. Members will, I know, not expect me to be specific at this stage about the contents of the Budget.
I can point out, however, that if legislation is necessary to carry out any recommendation arising out of the Douglas Committee Report this can be done only in a Finance Bill. Besides, it is becoming increasingly important to announce the detailed proposals of the Government for introducing an Excess Profits Duty. Moreover, the interests of the balance of payments, which are paramount to this country, make it essential to introduce the appropriate Budget at the earliest possible date and thus complete the third stage in the operation which I began in November.
It is vital that the country and the world should understand the spirit of urgency and resolve which inspires the Government. I had not intended to open my Budget until late in April, but the needs of the situation demand exceptional measures. We have therefore decided that the date will be 4th March. I feel sure that everyone will interpret this exceptional move—for which there are few precedents, in this sense—and will realise that there is much I cannot do here and now outside a Budget. The purpose of the Budget will be to round off the economic policies which we have adopted, and to ensure the conditions under which the people can, given the will, pay their way.
§ Mr. C. R. Attlee
When we asked that this statement should be made today and that we should not embark on a debate immediately, it was because we thought that this was really in the nature of a Budget statement when one requires to consider the matter as a whole. I do not propose to put any specific questions now, but I reserve the right of the Opposition to consider the whole matter in detail, indicating that we are as concerned as anybody else to see stability in the finances of this country.
§ Mr. Deputy-Speaker (Colonel Sir Charles MacAndrew)
I understand that an arrangement was made that there should be a break after the statement of the Chancellor of the Exchequer. Mr. Speaker gave his approval to that arrangement as there is to be a two-day debate starting tomorrow. Therefore, we had better proceed to the Orders of the Day.