§ As a result, we are faced with too wide a gap in the balance of our visible trade, and with a marked decline in the reserves of gold and dollars. The facts about our balance of payments position can be read by hon. Members in the recently published paper, Cmd. 9585. When we assess the balance of our overseas income and payments, we must always remember that nowadays practically any payment which we have to make in the non-sterling world may involve a loss of dollars. The revised estimate for the overall current balance of the U.K. recently published, shows a surplus for the second half of 1954 of £21 million; and the provisional estimate for the first half of 1955 is £17 million. This surplus of £38 million—including aid—for the 12 months ending in June, 1955, is at any rate a surplus, but it is insufficient to enable us to discharge the full range of our commitments and responsibilities overseas.
§ By 30th September of this year the reserves figure had fallen to £838 million, 209 and during October we have had to pay to the European Payments Union £28 million in respect of our September deficit, which was incurred—the Committee should note—almost entirely in the first half of that month, because, as I said earlier, since then things have been comparatively stable and, in fact, improvements have been seen. On the other hand, at 30th June, 1953, the International Monetary Fund still held sterling in excess of our original subscription to the extent of £96 million; the whole of that excess has now been redeemed. Thus, our borrowing rights have increased, and this constitutes a significant reinforcement to our own reserves. In short, we have room in which to make effective our determination to reinforce and maintain sterling; but we have no room for complacency.
§ Now, when world trade is expanding, is the time for the level of our reserves to rise rather than to fall. As far as we can foresee, it would appear that the rest of the sterling area should, with improved commodity prices, do a little better in the months to come. On the other hand, the closest possible examination I can make of our own prospects shows that results in the United Kingdom are not likely to show sufficient improvement—though they may show a small one—unless we moderate the pull of home demand. In judging what further measures of domestic restraint are required for this purpose, we must remember that a near balance or a small surplus on our overseas current account is not good enough. It is essential that we should earn a good surplus, if we are to honour our manifold commitments overseas while allowing for adverse swings in our balance of payments, and if confidence in sterling is to be maintained.
§ Having watched the recent course of events—the continuing high level of demand, both public and private, the persistent shortage of labour, the renewed pressure for higher wages, and the strain to which our reserves remain subject—I see both reason and need to reinforce the restraints which we have so far applied, in order to give the economy, in good time, the degree of relief which it needs and to strengthen the foundations of our balance of payments.
210§ The methods by which the Government propose to deal with this problem will be consistent with their economic policy as a whole, as it has developed during the past four years. We shall not fall back on physical import cuts, which, so far from correcting inflation, may aggravate it still further, and, in any case, can be effective only if they are reinforced by rationing, allocation and controls. Our measures, therefore, must be of a more general character, consistent with our set policy of freer trade and payments, and designed to moderate the expansion of demand without distorting the natural pattern of growth of a free economy. The measures I shall outline are of this kind.
§ But however firmly and wisely the Government act, it is only if their measures are recognised by public opinion as being taken in the best interests of the country as a whole that the economy will be restored to full health. It is an illusion to suppose that full employment, price stability, and a healthy balance of payments, can be secured by the Government, irrespective of the contributions made, or withheld, by the people. Our plans are, therefore, framed to create the economic climate in which all elements of the community can play their full parts, and so balanced as to command the support of the whole country.