§ I now come to consider the balance of payments situation against which we must look at all I have just been saying. The past year has shown that, while it is right to run our island economy in a free and expanding mood, problems can spring from the very success which it has been our happy lot to achieve. The increase in our production, which is so important both for our export trade and for the maintenance of employment, necessitates a rising level of imports of raw materials for our factories. We are also eating more and importing more food. And we are importing more, unfortunately—and exporting less—coal. Before the war we always had a substantial surplus of coal to export to our friends and customers overseas. But by 1954 lack of coal cost us many millions in foreign exchange for imports, and still more if we take account of lost opportunities to expand our overseas earnings. More coal, more efficiently used, would be one of the most substantial reinforcements to our balance of payments which our own efforts could contribute.
§ The United Kingdom's balance of payments has also been affected by the alteration in the terms of trade. In my last two Budget speeches, I reported that we were profiting by the terms of trade, which had been moving in our favour. During the past year that movement was reversed. The index of import prices began to rise in April, 1954, and for February, 1955, was 7 per cent. higher than in the first quarter of 1954. At the same time, export prices did not increase until February of this year, when a rise of 1 per cent. was recorded.
§ The result to date has been that on the provisional estimates for the six months from October, 1954, to March, 1955, our imports c.i.f. at about £1,875 million were some £225 million higher than in the corresponding period 12 months 38 earlier; but our exports at £1,460 million rose by only £40 million. The tables in the Balance of Payments White Paper—to which I draw the attention of hon. Members—show in detail the effect of these changes, and I feel sure that hon. Members will recognise that we have attempted to put before them the same documentation as we have tried to do very fully each year, and that with all these facts available it is not necessary for me to go into all of them in my speech.
§ For 1954 the United Kingdom's surplus is provisionally estimated at £160 million; but we earned the whole of this surplus in the first half of the year. The Committee should note that, although there was a welcome increase in receipts from offshore contracts, American defence aid was halved as compared with the year before—the total for 1954 being only £50 million. We are grateful for this aid, especially for the programmes designed to help our expanding Air Force; but we are proud—and I think I can speak for hon. Members on all sides of the Committee—that our own efforts, reflected in full employment and rising production, are making us increasingly independent. Those efforts have had and will have a profound effect on our economy, our morale and our influence in world affairs.
§ The balance of payments of the whole sterling area in 1954 shows much the same pattern of change. The provisional estimate for the calendar year as a whole shows the sterling area roughly in balance with the rest of the world; but a surplus in the first half year was followed by a deficit in the second. All this was reflected in the level of the gold and dollar reserves. During 1954 these rose by £87 million to a figure of £986 million; but the record reads differently for the two half-years. In the first six months the reserves rose by £179 million, but in the second half year they fell by £92 million. This tiecline must be seen in perspective. In this last period hon. Members must remember that we not only had to meet the normal annual payments on the American and Canadian Loans, but we also repaid in gold or dollars £40 million to the International Monetary Fund, and £39 million in part discharge of our debt to the European Payments Union. That is, in all, £79 million of 39 debt repaid. Thus we fortified our capital account by repaying debt.
§ Moreover, the sterling area's reserves exist to be drawn upon in case of need. Indeed, in Sydney, Australia, over 15 months ago the Finance Ministers of the Commonwealth accepted the fact that, important as programmes of internal development are as an investment for the future—and we have all been going in for them in the sterling area—they inevitably result in some immediate strain on the sterling area's balance of payments. This impression and outlook we confirmed when we met in Washington in September of last year. The relatively small decline in the reserves must, therefore, be seen in due proportion.
§ I can sum it up like this, that apart from the special repayments which I have mentioned, the loss in the whole of the nine months from mid-1954 to the end of the first quarter of 1955 has been no more than £46 million—only about half the average monthly loss in the corresponding nine months of 1951–52. Therefore, at £953 million, the end-March figure, the reserves are more than £350 million above their lowest point, which they reached in April, 1952, just after I introduced my first Budget.