§ From the financial prospects for the Exchequer during the coming year following the normal course of these speeches, I now turn to the economic prospects. Here, alas, there is no true science which can give us certainty in this uncertain field. Some people feel that what passes for such is more like astrology than astronomy. Lyndoe or Old Moore may turn out just as reliable as Professor What's His Name or Dr. So and So. I do not share this extreme view. Nevertheless, I think that we should all agree that if there is such a science, it is not an exact one. There are too many unknowns and to many variables. Then I am told that some of our statistics are too late to be as useful as they ought to be. We are always, as it were, looking up a train in last year's Bradshaw.868
§ Some of my friends on both sides of the Committee feel this very strongly. They feel also that we might improve matters if we had some sort of a committee or commission—not a novel, but a very respectable proposal. Before the war there was a committee presided over by a distinguished fellow clansman of mine—a most learned lawyer and a most charming personality—Lord Macmillan. His committee was about monetary policy. I do not think that he would have claimed any personal knowledge of this matter; indeed, he had none, but in our country that is the way we run committees best. Broadly speaking, the same goes for Ministers. We call it Cabinet government.
§ These friends of mine think that some means ought to be found to get us earlier information of what will happen and to devise more precise and perfect weapons for dealing with trouble both before and when it comes; so let us have another Macmillan Committee. That is one plan. Then there is another, more ambitious, but in a way more dynamic. Many years ago, when we were in the throes of an apparently permanent deflation, some of us used to study these matters with all the impetuosity of youth. My hon. Friend the Member for Aberdeenshire, East (Sir R. Boothby), and the present Governor of Northern Ireland and I, together with that brilliant and well-loved figure, Oliver Stanley, once collaborated in a little volume on these matters. It was called "Industry and the State," and was published in 1927.
After receiving, a few weeks ago, a deputation led by my hon. Friend, I took down a copy from my library shelf out of curiosity. I find that, after reference to what was already being done in the U.S.A., we said this:
We therefore wish to emphasise the necessity of setting up something of the nature of an Economic General Staff in this country, to advise and assist the Government of the day.
We went on:
It is clearly impossible to cure a patient until the malady has been diagnosed, and subsequently kept under observation.
Cabinet Ministers are, by the very nature of their administrative duties, prevented from doing either of these two things.
I wonder which of us wrote that!
§ As one grows older, one gets a little shy about these high-sounding nomenclatures. It may, or may not, have been the result of what we wrote that in 1950 the Economic Advisory Council was set up to report to the Cabinet on economic policy. During the war, this arrangement was superseded by the Economic Section—now, of course, a part of the Treasury. Of course, the Central Statistical Office did not exist thirty years ago.
§ Nevertheless, I am still conscious of a certain gap in our defences in this matter and the need to strengthen our technical and administrative armoury. We must continually improve our statistics, in form and timing. We shall, of course, have to make further calls on the co-operation of industry. I am sure that this will be readily given. More complete and more up-to-date information will not only help in the proper ordering of the national economy, but it will help industries themselves by enabling them to foresee more accurately the conditions in which they will have to operate.
§ So much for the reinforcement of our statistical arsenals. How are we to use these weapons? It is certainly true that the pressure of day to day work is so great that Ministers have too little time to think ahead. On the other hand, it is no good thinking ahead in a kind of vacuum, without that close contact with actual problems which Ministers—from both sides—obtain when in office. However, some improvement can and should be made. While conditions within which the economy of the United States has to be managed are very different from ours, yet there is undoubtedly much to be learned from a study of their methods. In a word, I feel sure that we can do a good deal, without embarking on a tedious investigation or setting up too elaborate a structure, to improve the machinery available to us. I am considering all this very carefully; and, as soon as more immediate preoccupations are out of the way, I hope to make progress.
§ But that is for the future. In the meantime, the Chancellor of the Exchequer has to reach a decision today and to indicate to the Committee, in guarded phrases, if not in precise estimates, the factors which he has taken into account in forming his own judgment. From the Economic Survey and the other documents recently published, hon. Members 870 will also be forming their own conclusions. We have to assess the outlook for the balance of payments—the crucial test. We all know our debts—whether on loans, or in sterling balances. We all realise our obligations throughout the world, if we are to play our part in the world. We all know our need, not merely to balance the account, but, if we can, to earn a substantial surplus.
§ What is the outlook? One place where we can expect to do better is in our invisible trade. Last year, our invisible surplus fell by £148 million. Half of that immense sum was on oil, due to heavier payments, a very large part of them being "once for all" special payments of tax and royalties. Oil earnings will go on increasing, and our net oil income this year should be well on its way back to the 1954 level. Hon. Members will know that receipts of defence aid have been falling off for some time, but our invisible earnings from offshore sales have started to rise and are expected to be much larger this year than last.
§ Further, we took a bad knock last year in shipping payments—£80 million up. We had to hire more foreign ships and pay higher rates to bring in the goods we bought abroad, particularly bulky things like coal and timber. This year, we should not have to import so much coal and timber and the rise in our other imports should be checked, while our earnings from shipping will go on rising.
§ All this is encouraging. But what will really determine our success or failure is the balance of our visible trade—exports and imports. This, in turn, will depend on our success or failure in limiting the demands we make on our home production. If these are too high, the gap is filled by increasing imports and reducing exports. The questions which the Committee and the public have the right to put to me—the questions which, with the burden which I have to carry, I put to myself, day by day—are these. Have we done enough? Is the trend in demand already changing? Can the measures which we have taken be relied upon to overcome inflation?
§ It is usual for Chancellors of the Exchequer, at this stage of their argument, to try to judge the trend of the main elements of demand and to set these against an estimate of our own production. It is in the light of these assessments that the question of fresh taxation 871 or remissions has to be decided. This year I do not think that any detailed forecast of this kind would give us much help. Hon. Members must remember the various steps which were taken by my predecessor. Those which I announced in the middle of February—a few weeks after I succeeded to my present office—are so recent as to be fresh in their memory. None of them can as yet have had its full effect.
§ The object of present economic policy, whatever weapons are employed, must be to switch some labour and resources from less necessary to basic production—from production for home consumption to production for export. Of course, if we were operating in a closed economy with vast natural resources, or if we were under a totalitarian system, we could order everybody about and command, by the most ruthless methods, automatic obedience. That would be different, but in our country it is another story. In an island like ours, with a free system which we are determined to preserve, with a large population depending on its exports to pay for half its food and nearly all its raw materials, the Government of the day, of whatever complexion, are the servants of the people. But if the people are to be well served, they, too, have a part to play.
§ To succeed in its purpose, the redeployment of labour, which must be secured by any control, whether monetary, fiscal or physical should be allowed to take place as swiftly and smoothly as possible. The more smoothly it takes place, the less interference there will be with production. How far have we moved in this direction? There are now signs that the pressure of demand is easing a little. But we still have an excess demand for resources. There are still more vacancies than there are persons unemployed; expenditure on fixed investment is still rising, and consumers' purchasing power has been increasing.
§ The main evidence of an easing of demand is confined to one sector of the economy—the industries producing consumers' durable goods—and that, of course, has been affected both by the new hire-purchase regulations and by seasonal slackness. We cannot, therefore, say with any certainty that we are definitely moving in the direction in which we must 872 go. That is why I have said that any detailed assessment of the course of demand and of production would not help us. For such an assessment would imply a degree of knowledge, which I do not think we possess, as to the exact position at which we stand today.
§ In looking to the future, I must first consider the credit squeeze and related monetary measures. We have placed a good deal of reliance on these—higher money rates, sharper control by the Capital Issues Committee, restrictions on hire purchase and all the rest. In its use of the monetary mechanism, the policy of the Government has been much discussed by professional commentators and intelligent amateurs. Now it is my turn for a few moments. I have already explained our new plans with regard to the financing of the nationalised industries. Although there will be no relief by these changes as such, the authorities will technically be better placed. I shall also be in a better position to work out plans for the future which may give us real improvement.
§ It would be unwise, and, indeed, it would defeat the purposes of monetary policy, if I were to attempt to forecast the course of interest rates in the coming year, or to measure the part that credit restriction will be called on to play in our affairs. But it is plain that for the time being credit restrictions must continue.
§ There is another question to which I would briefly refer. I have been given a great deal of advice about the question of the credit base and the need for the banks preserving a proper liquidity ratio for that purpose. As I understand, it has always been our practice for the conventional liquidity ratio to be determined by the clearing banks in accordance with their views of sound banking practice. But they would naturally take into account, on this as on other matters, any recommendations put forward by the Governor of the Bank of England acting on behalf of the central authorities, and reflecting the needs of the general economic situation.
§ Further, I am advised that under the Bank of England Act, 1946, the Bank, subject to Treasury authority, has the power to give statutory force to any recommendations it may make to the banks about liquidity ratios. However, it is often true that many things are better done on a voluntary basis, by 873 honourable understanding, rather than by legal regulation—by unwritten law rather than by prescribed code.
§ Before making changes in a system which has on the whole worked well, we should need to be very certain that the changes would bring more advantages than disadvantages. What matters is not the method but the result. In any event, I think it is right to say that the British banking system has shown that it can combine tradition with flexibility, and that it is able and willing to conduct its business with full regard to public policy.
§ Carrying out a disinflationary policy is not pleasant, and I am fully aware of the difficulties it involves for the banks and for their managers and staffs throughout the country. So much for monetary policy. Monetary policy and fiscal measures must go hand in hand. Today, we are mainly concerned with another instrument which I have in my hand—the Budget and the Budget policy.
§ Is a surplus of £445 million enough? Is it too much? It is easy to err—it is human to err; but I confess that I would rather err on the safe side. A misjudgment on the side of over-optimism might have the gravest results. Any heightening of the inflationary pressure—indeed, any delay in reducing it—might prove disastrous. But an error in the opposite direction would be far less harmful—and far more easily remedied. If we want to reverse the process and increase purchasing power or generally to reinflate, it would be very simple to do so.
§ We have learned only too readily how to turn the taps on. Even Lord Keynes never told us how to turn them off a bit. Should we go on a little too far in the policy of inflation, I look forward to the day when a joint deputation from the F.B.I. and the T.U.C. comes to see me asking for the abolition of Surtax, Income Tax and Profits Tax and the immediate reduction of all indirect taxation. It is very easy to do it the other way if we go a little too far in one direction. Meanwhile, I am determined that this Budget shall dispel any lingering doubts, at home or abroad, as to the determination of Parliament and people to secure the welfare and solvency of the nation. I have, therefore, decided that any benefits which I may have to propose shall make no inroads on next year's surplus. Indeed, the surplus must be fortified rather than 874 depleted. In other words, any prizes which may be distributed must be more than balanced by impositions.