§ It is against this somewhat sombre background that we must now have a look at the gay scenes, painted in bright, not to say glaring, colours, in the foreground of our picture. On the home front, 1955 was a year of great prosperity for the mass of ordinary men and women in this country. Everyone had a job; consumption again rose appreciably; and investment also increased. But, in total, demand rose faster than output, and, in consequence, the economy was overstrained. Prices went up; there were shortages of labour and material; imports increased, exports were held back from the foreign market to be consumed at home. So the balance of payments suffered.
§ Industrial production in 1955 was 5 per cent. higher than in 1954, a smaller increase than the 7 per cent. of the previous year. Productivity, or output per man, rose less than in 1954—about 2 per cent. instead of 5 per cent.
§ It reminds me of the story of the darky porter on one of the trans-continental trains. An English traveller asked him what was the average tip. He replied, "Our average, sah, is five dollars, sah. But ah may say, sah, that very few people come up to the average." I hope that average productivity will do better in the future and will go well above the average!
§ Meanwhile, the increase in demand was too much for the increase in output. It is true that the increase in total personal consumption was rather less than the increases of the previous two years. Unfortunately, as the Committee knows, it was concentrated on our overloaded 856 engineering industries. Motor cars, television sets, washing machines, and similar products were in great demand—and all, of course, in competition with precious exports.
§ There was, at the same time, a sharp increase in fixed investment. Expenditure on plant, machinery and vehicles, after allowing for price changes, rose more than in any year since 1947. More orders were placed for capital goods than deliveries made, and so order books and delivery dates lengthened; and, despite heavy imports, many types of steel were scarce. Stocks of raw materials, work in progress and finished goods rose sharply and all this added to the strain on the economy.
§ The number of jobs waiting to be filled was substantially more than the number of unemployed, and unemployment remained at record low levels throughout the year. Employers competed with one another for labour, and wages and salaries went up by 8 per cent. Profits also increased by 8 per cent., and import prices went up by 3 per cent. As a result of the consequential cost of increases, prices, of course, increased, too. Retail prices were 4½ per cent. higher than in 1954, the price of manufactured goods was 3 per cent. up and export prices 2 per cent.
§ All these are symptoms of severe inflation. The strain was heaviest on the building and engineering industries; and the most important initiating factor in producing the inflation was the upsurge in industrial investment. For this, the Government accept part of the responsibility. I think everyone on both sides of the Committee will agree that we need a high level of investment in this country. It was to help achieve this that my predecessor, in two successive Budgets, stimulated investment first by the initial allowances, then by the investment allowances.
§ In the long run we want all this investment and more. But the rise was too sharp and sudden for the economy to sustain with all its other burdens. One force acts and interacts upon another. The investment boom has stimulated both consumption and a sharp rise in stocks—particularly of work in progress—as the pipe-lines of industry become full to overflowing.
§ I need not go over again here all the various measures taken to moderate the 857 boom, by restricting credit, raising taxes and cutting Government expenditure. They have all been discussed at length in this House, I think only six weeks ago. These measures took longer to act than we expected. They had to be—and they were—continually reinforced. The economy is still running at a very high level. But I think we have learned this lesson from the events of the past year. We cannot afford to run our economy flat out, with more jobs than men to fill them, more orders than industry can meet, easy profits at home and rising costs.
§ It would be, of course, very nice if we could do so—at least for some people, for we much remember that there are victims as well as beneficiaries of inflation. It would only be nice, even for the majority, so long as it lasted; and it would not last for very long. There is really no future in importing extra materials that we cannot afford, in order to turn them into extra goods that we do not export. We must, therefore, pay for these imports honestly by our exports; and not by drawing on the reserves.