§ The Chancellor of the Exchequer (Mr. R. A. Butler)
I will, with permission, make a statement which, by its nature, may detain the House for a few minutes, but I will be as short as possible.
In my speech on 16th June, in the debate on the Address, I undertook to keep the House informed about any developments in connection with our balance of payments situation.
The monetary measures taken in February have been by their nature slow in their effect on home demand. The trade results for April and May were better, but the strikes, particularly the dock strike—[HON. MEMBERS: "Oh."]—perhaps the House will listen to what I am going to say—have made it difficult to evaluate the more recent figures. But one thing is clear. We are at present absorbing too much of our production at home. Our success in increasing production and our very prosperity require increased imports which, in turn, must be paid for by increased exports. Sufficient extra exports, however, are not yet forthcoming. The strikes have undoubtedly set our export trade back considerably and some of the set-back will prove to be permanent loss, thus adding to the efforts we have to make. Generally, we cannot be satisfied with the way in which our balance of payments and our reserves are moving.
Our foreign exchange position is also being currently affected by many rumours, here and abroad, about our intentions. This has led to sales of sterling, which will adversely affect our reserves in July. My general policy has been to allow rumours to be answered by events as they unfold. But these rumours have reached such unreasonable proportions that I cannot allow them to remain unanswered. I want, therefore, to make it clear that Her Majesty's Government regard the period in front of us as being one of hard work and consolidation to strengthen the home front before we make any further forward move on the exchange front. This is relevant to the future of trade and payments arrangements in Europe, including the renewal of the European Payments Union, which we hope to conclude in Paris this week.
825 For the time being our primary aim must be to reduce home demand in order to leave room for the extra exports we need. All who can must try to spend less in order to save more. Business firms should endeavour to slow down investment not of the greatest national urgency. Since our principal object is to improve our balance of payments it would be undesirable to check investment leading to increased production for export. For the rest, even though a high level of productive investment is undoubtedly in our long-run national interest, all those embarking on investment projects should consider whether they could not postpone their initiation, irrespective of whether they finance them from their own resources or by borrowing.
However, I wish to deal more particularly today with policy in those fields in which Government action can help to achieve our aim. They are the expenditure of the Government itself, of local authorities and of the nationalised industries; credit restriction; and hire purchase.
I will deal, first, with credit restriction. In this field, while bank deposits have fallen, advances play a particularly important part. I am sure that the banks will use their undoubted power to reduce the amount of credit below what they would be glad to give if times were easier, and that customers, for their part, will reduce their applications for credit to a minimum. I am writing today to the Governor of the Bank of England, asking him to represent to the banks how important it is that they should achieve a positive and significant reduction in the total of bank advances outstanding. I will circulate a copy of my letter in the OFFICIAL REPORT.
In the public sector, the Government, while restricting to the minimum all its expenditure, both current and capital, will pay special attention to its overseas expenditure. In this field, savings have a double effect; they not only reduce the charge on the Budget, but they directly relieve the balance of payments.
I must also seek a lightening of the pressure of local authorities' capital expenditure upon the economy. I appeal to the local authorities to hold back their schemes for capital expenditure as far as they can, and the Ministers concerned 826 will now adopt a stricter attitude towards proposals by local authorities for capital expenditure for all but the most essential purposes. The recent action of the Government in raising the rates for borrowing from the Public Works Loan Board will ensure that in embarking on capital expenditure local authorities will have to count the full cost resulting from the general increase in money rates.
I now refer to the nationalised industries. The House must remember that the services which they provide are basic to the whole of our economy, and that serious damage could be caused to industry as a whole by inadequacies in the supply of transport and of power. Nevertheless, in response to the Government's request, certain of the capital requirements of the nationalised industries will be reduced in the immediate future in two ways.
First, expenditure on capital projects will be postponed or slowed up as far as may be possible with due regard to contractural obligations and economical administration. This will be done without jeopardising essential objectives such as coal production and nuclear power. Furthermore, the nationalised industries will, so far as practicable, increase their internal resources available for capital purposes, as, indeed, the Central Electricity Authority has already publicly announced is its intention.
Finally, I must deal with private spending in the form of hire-purchase. Since the Government imposed restrictions on hire purchase on 24th February, my right hon. Friend the President of the Board of Trade and I have been watching the effects very closely. Let me emphasise that our object is not to depress the sales of particular goods because they are regarded as less essential or more readily exportable, but to relieve the pressure on home demand generally by asking the consumer to use more of his own income and less borrowed money when he buys the goods of his choice.
We have reached the conclusion that the measures taken in February must now be intensified. My right hon. Friend has, therefore, made an Order, to operate from tomorrow, to increase from 15 to 33⅓ per cent. the minimum deposit required in certain transactions of which the most important are those involving motor 827 cars and motor cycles, radio and television sets, gramophones, cameras and certain domestic appliances such as refrigerators, washing machines, vacuum cleaners, and gas and electric fires. The maximum repayment periods remain unaltered in all cases.
By such a combination of measures on the Government's part, supported by retraint in spending by individuals and business firms, I hope to achieve the improvement in our internal position which our present situation requires, and which I have always indicated was the first of the pre-conditions for moving to a freer system of trade and payments. In other fields we have made satisfactory progress. We now have opportunities for expanding our trade and we must seize them.
I have said before, and I now repeat, that our economy is fundamentally sound; but we must concentrate all our attention on increasing our competitive power and developing our export trade.
§ Mr. Gaitskell
The fact that the Chancellor of the Exchequer has been obliged to make such a depressing statement will come as no surprise except to those who were deluded by his speeches at the time of the Budget and during the election. I should like to ask him if he can recall whether any of Her Majesty's present Ministers spoke of hard work and consolidation as being the slogan of the Conservative Party at the time of the election. The statement is a long one; it contains a number of extremely important decisions, and I must, therefore, ask whether he will arrange for time for a debate before the Recess? I hope that that question may be discussed through the usual channels.
§ The Lord Privy Seal (Mr. Harry Crookshank)
If the right hon. Gentleman would like the answer to that question straight away, I can give it to him. We are making arrangements for a debate tomorrow evening. The business already announced is for a debate on Scottish education, and it is suggested that after that we should proceed to a debate upon the economic situation until about 10 o'clock, and then take the rest of the business which has been announced.
§ Mr. Gaitskell
The Lord Privy Seal will observe from the reaction of my 828 hon. Friends that we are not all by any means satisfied that half a day is adequate time for this debate. I again ask that the matter should be discussed through the usual channels, with a view to a full debate taking place.
§ Mr. Gaitskell
I do not think that the usual channels were familiar with the content of the Chancellor's statement at that time.
Meanwhile, I should like to ask the Chancellor two further specific questions. He referred to local authority spending. Are we to understand from his statement that local authorities' housing programmes are to be cut down still further? Programmes of school building clearly are, but I should like a specific answer upon the question of housing. Secondly, can the Chancellor say whether furniture is or is not included in the list of articles in respect of which the deposit is to be put up to 33⅓ per cent.? Thirdly, is he satisfied that the monetary policy in which he believes really does have a sufficiently sharp enough effect upon consumption generally, or whether, by this means, he is not cutting back investment very much too hard? That being so, could he say whether he now contemplates an autumn Budget to correct the errors of his spring Budget?
§ Mr. Butler
The right hon. Gentleman opened his remarks with some political observations about the Election. I should be very well satisfied if he would refer to the sound broadcast which I delivered upon the Saturday before the Election, in which I indicated that if there were difficult times—and I said that it was not likely to be "roses all the way"—we should be ready to take all the steps necessary to put things right in time, unlike the right hon. Gentleman himself, who let things slide in the course of his administration.
On the question of a debate, I am, of course, very ready to take part in any debate; indeed, I think it is consonant with the dignity of the House and the importance of the subject that a debate should take place, and I trust that it will be arranged to everyone's satisfaction, as the Leader of the House has said.
829 In answer to the specific points, first, about the programmes of local authorities —I shall be prepared to go into this in greater length in the course of the debate. Meanwhile, I can say that, in general, existing programmes will not be affected. It is much more a case of slowing down rather than of putting off existing programmes, and not taking on new commitments. We are all trying to do too much at once. It is not a case of slashing any particular programme, but of digesting what we can, because the difficulties of the economy are marginal and not fundamental.
Furniture is not included in the new rise to 33⅓ per cent. The answer to the question about our monetary and investment policy is that we have been very well pleased with the increase in factory building and industrial investment, and the increased production of machine tools. The problem now is, again, not to try to do too much at once. I am satisfied that with the intensified drive for credit restriction we shall get from our monetary policy the results which we desire.
Finally, upon the subject of an autumn Budget, I have nothing to add to what I have previously said to the House—that I am not disposed towards such a step at present.
§ Mr. Butler
Had there been any further measures which I wished to announce, I should have announced them today. As to the right hon. Gentleman's question about Conservative freedom, I think that everybody is very well satisfied, as the country illustrated during the Election. I think that both the House and the country are now interested in solving exactly the same problem as that which faced my predecessors, namely, that when the country tends to get a little too fat upon the home front it is difficult to balance our overseas payments. That is because this island economy of ours depends so much upon the import of raw materials and of food.
§ Sir I. Fraser
Is my right hon. Friend aware that, notwithstanding the short-term political consequences of any actions 830 which he proposes, the great majority of the people will welcome any steps he takes, however strict and apparently difficult they may seem, provided that they save us from the financial difficulties which forfend?
§ Mr. Butler
Yes, Sir. I am very much obliged to my hon. and gallant Friend. That is precisely why I took this opportunity—as I undertook to do upon 16th June—of informing the House before it rose, and giving an opportunity for discussion.
§ Mr. Shinwell
As the matter of a debate has already been mentioned, may I address my question to the Leader of the House, with your consent, Mr. Speaker? He has suggested that there might be a short debate some time tomorrow evening.
§ Mr. Shinwell
Does not he regard that as very unsatisfactory from the standpoint of the House itself? Would not he agree that the subject of a debate of this kind is much more important than some of the miscellaneous items which are due for discussion? If he finds it difficult to arrange for a full day's debate tomorrow, would he consider having a debate towards the end of the week? Perhaps I could have a little silence from my own Front Bench. The right hon. Gentleman seemed to indicate that this matter of a short debate had been settled through the usual channels. Does he mean by that that there is no possibility of revision, if hon. Members feel that there should be a fuller debate? I am not trying to indulge in any carping criticism of what he said; I am simply putting my point because I think that the debate is so important that it should be much fuller than he has intimated.
§ Mr. Crookshank
All I can say is that my right hon. Friend is anxious to have this debate tomorrow and that talks took place through the usual channels. Whether the debate should come in the first half or the second half of the day might be arguable. As to the Scottish business put down for tomorrow, I understood quite clearly that the suggestion which I made just now was agreeable to both sides of the House. [HON. MEMBERS: "No."] I see from the nod of the right hon. Gentleman opposite that that is so. Are we to carry on?
§ Mr. H. Morrison
The Lord Privy Seal has been quite fair. It is quite true that conversations took place through the usual channels, but there is this to be said. At the time those conversations took place we were not fully aware of the text of the Chancellor of the Exchequer's statement. As is usual, some of us became aware of it on coming on to the Front Bench. In the circumstances, in view of the nature of the statement, and also of the fact that because of the Geneva Conference there will have to be a debate on foreign affairs before we depart, perhaps further conversations might take place through the usual channels to enable an adjustment to be made.
I am not complaining about the Leader of the House. I hope that he will not complain about us. It is a little awkward when we have not seen a statement, and then we find it to be one of rather greater importance than we expected. I hope that we can have conversations through the usual channels and can rapidly arrive at an agreement.
§ Mr. Crookshank
I certainly do not complain of what the right hon. Gentleman has now said, because he has explained exactly what the situation is. We shall be very glad to have further conversations if he wishes that to be done. I am grateful to him for making clear the situation which he had taken up as well as we did.
§ Mr. Elliot
Would my right hon. Friend the Leader of the House remember that a debate on Scottish education has been promised for a long time, that it is a matter of great importance north of the Border and that any attempt by hon. and right hon. Gentlemen opposite to deprive us of it on this occasion will be greeted with great indignation in the Northern Kingdom?
§ Mr. Ross
I am sure that all Scottish Members are grateful to the right hon. Member for Kelvingrove (Mr. Elliot) for the belated interest he is showing in the need for a debate on Scottish education. He did not give us very much help when we were pressing for it. Will the Lord Privy Seal remember that this is not just a matter of having only three days in which to meet this week? We have about three months' recess before us. Surely there should be no need to sacrifice the 832 time of any group or of any hon. Members interested in any specific point. There is no reason why we should not continue to meet for at least another week.
Mr. C. I. Orr-Ewing
Would my right hon. Friend the Chancellor of the Exchequer bear in mind that the new hire-purchase restrictions might lead to more widespread use of rental for home consumer goods? Will he look at this problem with a view to making a statement on it?
Mr. H. Wilson
Does not the right hon. Gentleman feel that he has been somewhat misleading the House by stressing the effect of the strikes on the balance of exports and imports—[HON. MEMBERS: "No."]—in view of the fact that the gap between imports and exports was already very alarming before any strikes took place? Since the right hon. Gentleman has said that it will be the Government's aim to economise on Government expenditure overseas and balance of payments expenditure overseas, would the right hon. Gentleman tell us, first, how much he thinks we shall have to pay this year on increased interest on balances in this country because of the rise in the Bank Rate, how many tens of millions of pounds that will cost us; and, secondly, how much our dollar balance of payments has been worsened by the frivolous way in which he increased the purchase of dollar commodities, such as grain, which should have been obtained from the sterling area?
§ Mr. Butler
It is very important, in the national interest, to get as clear as we can on the various effects of the strikes and other causes upon our balance of payments position. There is no doubt that the dock strike particularly had a considerable effect on the trade figures—
§ Mr. Butler
And in holding up exports, especially the trade figures for June. The trade figures had increased in the two previous months.
One of the difficulties is to get an exact tally of the situation, because of the confused position arising from the strike. The 833 one advantage of having a debate, with more time available, will be that we can get the strikes and other causes—because there are other causes—clear. I shall be the first to desire to get the whole thing into proper perspective. Lastly, the right hon. Gentleman made a demand for certain figures. I will make a note of this and will bring it out in the course of the debate.
§ Several Hon. Members rose—
§ Mr. Speaker
Order. We are to have a debate on this matter very soon and we cannot pursue the matter any further now.
Following is the letter from the Chancellor to the Governor of the Bank of England:
I should be glad if you would urgently call the attention of the British Bankers' Association and other bodies concerned to the statement which I have just made in the House of Commons on the economic situation of the country. For convenience, I enclose a copy of that statement.
The essential need of the moment is for a reduction in the total demand on the country's resources. Only a part of that demand is financed by hank advances; but it is an important part and one which, with the cooperation of the banks, can be readily affected by the granting or withholding of credit. In such circumstances, I have no doubt that the banks will agree that it is their duty to reduce the amount of bank credit below what they would be glad to give in less difficult times. Indeed, the necessary reduction in demand is unlikely to be achieved unless the total of
bank advances is reduced below its present level.
It is for the banks to decide what steps they must take to make this policy effective. But I look for a positive and significant reduction in their advances over the next few months.