HC Deb 19 April 1955 vol 540 cc53-5

Now I come to the analysis of likely home demand. If we consider the whole range of the economy, will there be room for an increase in exports? It is in the light of this fundamental question that I must assess the claims which home demand seems likely to make on our productive capacity in 1955. I will do it under four heads, very shortly in a few sentences. How much will be taken by Government expenditure; by investment; by stockbuilding and by personal consumption, that is, by people spending on themselves?

Taking, first, expenditure, I calculate that, in real terms, Government expenditure on goods and services in the coming year is likely to be about the same as in 1954–55. Now, investment. The upward trend in fixed investment is continuing. Housing is not likely to show so great an increase this year; but investment in the nationalised industries should continue to rise at about the same rate as in the past two years, the largest increases being in coal and electricity. I have already referred to the encouraging indications that, in private manufacturing industry, demand for factories, plant and machinery is rising as the Committee wanted it to do so ardently last year.

There is no reason why the recent increase in interest rates should discourage sound long-term investment. Indeed, the need for the type of investment which will raise productivity and expand our productive capacity is as great as ever; and the conditions of orderly economic growth, which our monetary policy is designed to foster, are precisely those conditions in which long-term investment can be undertaken with the surest hope of success. We are looking, then, for a real increase in investment in manufacturing industry this year.

Summing up investments, therefore, I would say that over the whole field, public and private, I expect investment in 1955 to increase by at least the same amount as last year; but productive industry is likely to take a larger, and housing a smaller, share of this increase.

Next we come to stocks. The movement of investment in stocks and work in progress is, as always, very difficult to foresee. There was a marked increase during 1954, which as I have already pointed out, was one of the factors in our expansion. Our present rate of stock-building should be at least enough to meet the needs of expanding production. The recent change in the Bank Rate was designed partly to emphasise the need for caution in the accumulation of stocks. Thus I estimate that stockbuilding will not take more of our resources than it did last year.

Finally, I must consider the prospects for personal spending and consumption. There have been substantial increases in wages. But prices have also risen to some extent, and the restraint which we have reimposed on hire-purchase transactions should also help to prevent an excessive growth of personal consumption. Moreover, the rise in personal savings which has occurred during the last few years should be well maintained. I do not, therefore, expect personal spending and consumption to rise as rapidly this year as last.

Taking all these considerations into account, I estimate that the increase in home demand should be appreciably less than it has been in the last two years. On the other hand, the scope for increased production is at least as great as it has been in the past, if not greater. In each of the last two years output per man in industry has risen very encouragingly. Throughout the same period, new projects of investment have been put in hand, while industry has been showing itself increasingly aware of the need to raise productivity, and increasingly eager to explore the possibilities of new techniques and methods of production.

In these circumstances, and taking into account the resources of a flexible monetary policy, I judge that the claims which domestic demand is likely to make on our production will leave a margin for an increase in exports. Any incentive I can give should clearly be directed towards increasing production and, therefore, this margin.