ECONOMIC AND FINANCIAL POSITION (Hansard, 24 February 1955)

§ The Chancellor of the Exchequer (Mr. R. A. Butler)
I will, with your permission, Mr. Speaker, and that of the House, make a short statement on the economic and financial position.
The Government's policy is, and has been, to maintain a sound balance of payments position which can be founded only on a healthy internal economy. I have on several occasions recently indicated that I was watching the balance of payments position closely and would not hesitate to take such action as appeared necessary to maintain a satisfactory balance in our external accounts.
In assessing the position and the action to be taken, the Government: have borne in mind that our economy is fundamentally stronger than it has been at any time since the war, and that the industrial base is sound. What is needed—and what the Government now propose—are steps to moderate excessive internal demand and so to match the increase in our imports, which results from our ever increasing production with which it is related, with a corresponding increase in our exports. It is my policy to act as soon as there are signs that this is not happening, and I am determined not to allow an unhealthy position to develop in which the very prosperity we have enjoyed should have unhealthy effects on our balance of payments.
I have, of course, been in consultation with the Bank of England. The Bank took the view that a further increase in the Bank rate would be appropriate in present market conditions. I agreed that such a step would be helpful in dealing with the general economic situation of which I have just spoken. Accordingly, the Bank rate has been increased by 4½ per cent. today. There has recently been a marked expansion of hire purchase.

§ Mr. Robens
The right hon. Gentleman did it.

§ Mr. Butler
As part of our general policy of limiting home demand the Government have decided on certain measures of restraint. For this purpose orders have been made today to restrict the terms on which cars, wireless and television sets, 1454 furniture and a wide range of other consumer goods may be bought by hire purchase. [Hon. Members: "Oh."] Perhaps the House would wish to listen, Mr. Speaker.
The orders are designed to deal with the immediate situation, but it is the Government's intention, as soon as opportunity arises, to seek permanent powers for this purpose. At the same time, I am asking the Capital Issues Committee and the banks to adopt a more restrictive attitude towards finance for hire purchase.
Then there are technical problems arising from the international use of sterling. Apart from the official market, there are other markets through which sterling is traded at a discount to the detriment both of our traders, and of our reserves. I have now, in the interests of the whole sterling area, authorised the Exchange Equalisation Account authoritise to use wider discretion in operating in these markets, so that they may be in a better position to carry out our general exchange policy, and make the most prudent use of our reserves.
In these and other ways Her Majesty's Government propose to guard the best interests not only of our country but of the sterling area as a whole, and thus to maintain the living standards and the full employment of our people.

§ Mr. Gaitskell
Is the Chancellor aware that the grave statement he has made will come as a very considerable surprise and shock to many people who have been gravely misled by complacent and optimistic statements from the other side of the House? Does he not think that it would be appropriate to take one further action, and that is to remove the very misleading Conservative posters which are now beginning to look a little silly? May I also ask him whether he intends by these measures not merely to restrict consumption, which is evidently the purpose of the hire-purchase restrictions, but also to diminish the scale of investment?

§ Mr. Butler
First of all, about complacency, I have taken every opportunity of putting the facts as I saw them before the nation. Only a short time ago, during a tour of the North-West of England, I made it perfectly plain what my opinion of the situation was directly the facts had come to my attention. It was notably 1455 the January trade figures which made me make the statement which I did. That, if I may say so, is in the best tradition of my office and was carried out by my predecessors, including right hon. Gentlemen on the other side of the House. I think it is right that this tradition of telling the country the facts and then acting should be the tradition of the office which I hold.
As to the posters, the right hon. Gentleman may well find that the results of them will be fully justified in the event, and that we shall be returned with a large majority at the next General Election. That will be made even more certain if the Government are ready to act in a strict way when strict measures are necessary to adjust the situation.
Finally, in regard to investment, I am very glad to say that, as a result of the measures in the last Budget, there are distinct signs of marked improvement not only in factory building but also in machine tools and in industrial investment generally.

§ Sir F. Medlicott
Is it not clear from my right hon. Friend's statement that Her Majesty's present Government are prepared to face up to financial problems instead of running away from them as did the Government supported by hon. Gentlemen opposite?

§ Mr. Butler
Yes, the answer to that is quite clear. If we take into account the fact that, after making allowance for two large debt repayments, one to the European Payments Union and one to the International Monetary Fund, the reserves have only sunk by 40 million dollars since July last, and reflect that they sank by 900 million dollars without any action being taken between July and October, 1951, the difference between the degree of the action and resolution of this Government and the previous Government is quite apparent.

§ Mr. Gaitskell
Since the Chancellor appears to desire to restrict consumption and not investment, may I ask him whether he will now take steps to restrain the increase in dividend payments?

§ Mr. Butler
I have always expressed my view that there should be restraint in dividend payments. I have also never concealed the view that in the case of 1456 many businesses the distribution of dividends may result in an increased flow of money, which may result in greater investment. Certainly, I would not fall into the error, made by the right hon. Gentleman himself, of attempting some artificial control of dividends which would not be likely to work.

Mr. H. Wilson
Since the drift from sterling appears to come mainly from commodity shunting operations and is financed by transferable sterling, will not the right hon. Gentleman agree that this is largely due to the reckless decontrol of commodity trading and overseas finance, and will the right hon. Gentleman tell us this afternoon that he is instructing the Exchange Equalisation Account authorities, or allowing them, to lose gold in operating further in some of these commodity markets?

§ Mr. Butler
Of course, if there is intervention it means an expenditure of our reserves, but I am satisfied that the Exchange Equalisation Account authorities, who have already operated with such skill, will so conduct their operations that the resultant loss is less as a result of their transactions than if the situation were left without any kind of intervention at all. I am satisfied about that as a matter of judgment, and I think that the results will prove this in the weeks and months to come—at any rate, I hope that may be the case.

§ Mr. Assheton
Is my right hon. Friend aware that he will be much respected for his courage?

§ Mr. H. Morrison
Is the right hon. Gentleman aware that there are Conservative posters all over the place saying that Conservative freedom works? Is it not clear from his statement that Conservative freedom as interpreted by the Government has not worked, is not working, and as, in his own language, severe restrictions have to be imposed, and as the Lord President of the Council, his colleague in the Cabinet, is Chairman of the Conservative Central Office, would there be anything more simple than to ask his Lordship to have the posters taken down?

§ Mr. Butler
The remarkable thing is that, first, the Chairman of the Conservative Party is the Chancellor of 1457 the Duchy of Lancaster—the Lord President of the Council is being bandied about rather freely at Question Time today. Secondly, it is a remarkable fact that Conservative freedom does work. [Hon. Members: "Tea!"] Let the right hon. Gentleman take any of the fundamental tests which affect a British working-class family—[Hon. Members: "Tea!"]—full employment, rising production, increased prosperity and availability of goods—all these are evident as a result of our methods.

§ Mr. Strachey
Since the Chancellor began his statement by telling us that the prime cause of this critical situation was excessive imports, would it not be far more logical for him to re-establish those import controls which he so improvidently scrapped after first using them, rather than indiscriminately to cut down the standard of life of the British people, which is what his statement amounts to?

§ Mr. Butler
It is a little exaggerated to say that by restricting hire purchase, which has really got quite out of bounds—which is not necessarily sensible or right—we are restricting the standard of living of the British people. In answer to the main question, I do not think it would be in the national interest to restrict imports in the way suggested by the right hon. Gentleman or to reimpose those controls, because it would only result in retaliation against our exports, which we so much need to sell.

§ Mr. H. Morrison
May I ask the right hon. Gentleman a question which is directly relevant to one of the restrictions he has announced, namely, that there is to be a restriction on television sets? In these circumstances, and in view of the squandering of the national resources involved, will he not arrange for the holding up of the development of the Independent Television Authority, which involves the duplication and waste of material resources?

§ Mr. Butler
People will still be able to buy television sets, but not on such easy hire-purchase terms as they have done hitherto. And when they buy them, the wisdom they will imbibe, particularly from the political programmes, will result in a resounding triumph for Her Majesty's Government.

§ Mr. Speaker
Order, order. This is a very wide subject. We cannot debate it now.

Mr. Thomas
On a point of order. Would it not be in order, Sir, in view of the serious nature of the statement made by the Chancellor of the Exchequer, if he were to indicate whether or not it is the intention of the Government to alter the rate of interest on local authority loans for housing purposes?

§ Mr. Speaker
That is not a point of order. We are discussing the Public Works Loans Bill on Monday, so perhaps we can continue some aspects of this discussion then.

Mr. Thomas
Further to that point of order——

§ Mr. Speaker
I have answered the hon. Gentleman.

§ Mr. E. Fletcher
On a point of order. May I submit, Mr. Speaker, in view of the fact that we shall be discussing the Public Works Loans Bill on Monday next, that it is in order now to ask the Chancellor whether, in view of the statement he has made, and the increase in the Bank rate, an increase is proposed in the interest rate charged to public authorities? Surely that is information the House is entitled to have so that it may discuss the Bill properly next Monday.

§ Mr. Speaker
I do not know that the rates of interest charged by building societies, which was the original question——

Hon. Members
No.

§ Mr. Gaitskell
The question asked, Mr. Speaker, was about the rate of interest charged to local authorities. As I believe, from the look on his face, that the Chancellor is anxious to reply, will you allow him to do so?

§ Mr. Speaker
Very well.

§ Mr. Butler
The House should certainly be in possession of all possible information on this important subject. The answer I would give is that the rate for public boards depends in general on the levels obtaining in the gilt-edged market. It would, therefore, be premature to make a statement at the moment 1459 on the future of local loans until market adjustments have been completed after the Bank rate change, and as the Bank rate is a flexible instrument it would be wrong to jump to any conclusions at this stage. That is as far as I can go today.