§ The Committee will agree that no economic expansion is secure unless it is founded on a strong and stable currency. That is an article of faith and a basis for policy which we in the United Kingdom must always keep steadfastly before us. Before recommending measures which would exercise a stimulating effect I have to ask myself, on the one hand, whether they can be justified in terms of our balance of payments and the international position of sterling; and, on the other, whether they would be likely to jeopardise the degree of price stability to which we have with much difficulty attained in the last twelve months.
§ I will deal, first, with the external conditions to which our policy must be adapted. The measures of September, 1957, have led to very satisfactory progress in our external economic affairs. Confidence in sterling has been very strong, and the reserves have been built up to a more adequate level. I conclude that we can now afford a moderate increase in imports, which is the natural accompaniment of recovery in demand and production at home. We must not forget, too, that we in the United Kingdom have our own contribution to make to the re-expansion of the world economy after the mild recession of the last year.
§ If each nation were to pursue too cautious a policy in regard to its balance of payments, international trade would stagnate. But if renewed growth of production and trade goes forward satisfactorily in the world as a whole, we shall benefit from it in a stronger demand for our exports and other services, provided we can give delivery at the right time and at the right price. I am confident that British industry is now in a condition to take the fullest advantage of such opportunities. My conclusion, then, is that external considerations coincide with domestic ones in making it possible as well as desirable to accelerate somewhat the already slightly rising trend of product ion.
46§ As regards stability of prices, the immediate prospects are reasonably encouraging. There may be small seasonal increases in some food prices in the late spring, but, if so, these should come down again in the summer. I derive much comfort from the consideration that the law of averages should ensure a good potato crop this year. I must ask my right hon. Friend the Postmaster-General whether " Ernie" could comfort me further by telling me exactly how good the chances are. Further ahead, the uncertainties increase. As world recovery proceeds, import prices may rise and reduce the benefits which we have so far enjoyed from very favourable terms of trade. Another serious possibility more within our own direct control is a new round of wage and salary increases on a scale which would push up costs and prices.
§ The main factor making for stable prices in 1958 was the fall in import prices. It is true that the wage increases last year at an average of 3½ per cent. were distinctly smaller than in recent years, and this undoubtedly helped towards steadying the cost of living. But if this progress is to continue, almost everything depends on the degree of restraint shown in wage negotiations this year. For only by stabilising or reducing our costs can we secure the additional exports which we must have if expansion is not to be checked by too heavy calls on our balance of payments. We must not be misled by our recent experience into thinking that further increases this coming year on the scale of last year would be either justified by the economic facts or consistent with stable prices.
§ The cost of living has been virtually stable for almost a year. I hope that all concerned will realise what an exceptional opportunity we now have to keep it so. If we do so, we shall secure two priceless advantages of the utmost importance for our future: first, our export prices will remain competitive in the markets of the world; and, secondly, the social hardship and injustice inevitably resulting from rising prices, which fall most heavily on those least able to protect themselves, will be avoided for the future.
§ The possibility of securing these two advantages—indeed, the overwhelming need to secure them—have dominated my 47 approach to the framing of this Budget. Every Budget should have a main aim or theme running through it, related to the current needs of the economy. I have no doubt whatever what the first requirement is today. It is an improvement in the competitiveness of our economy. All our hopes for the future depend on this. If we are to expand our internal economy and, at the same time, to continue to play a leading part in the development of the Commonwealth we must have, year in year out, a strong balance of payments.
§ To seek that by restricting imports would be, perhaps, the easy way, but the wrong way. The right way is through an expansion of trade. I am absolutely certain that a steady increase year by year in our export trade is the first and essential prerequisite of a sound and expanding home economy and must be our paramount aim, but if our exports are to grow they must be competitive. We are going to have to earn our living in a very competitive world, and that means that we must keep our costs and prices stable. So the aim of this Budget is to help in keeping the cost of living steady and in lowering unit costs of production by encouraging a steady but not excessive expansion in production and a continuing high rate of industrial investment. These are the essentials for future prosperity.
§ Although we have made some progress we cannot claim that, as a nation, we have yet found the solution to the problem of the interaction of rising money incomes and rising prices. The fact that it is still unsolved must influence our judgment on the rate of expansion which it is safe to permit in the economy. We must at all costs make it our business not to return to an over-load on the economy, which would make a resumption of inflation inevitable. At the present time, however, this is clearly not an immediate danger, though we must continue to watch the trend of incomes and prices carefully.
§ There can now be some definite expansion of demand without re-creating pressure on supplies of goods and labour, on one proviso, which is that such expansion in demand takes place in ways which do not raise our costs of production, distribution and transport. Having weighed all 48 these considerations, I have come to the conclusion that it would be right for me to seek, through the Budget, to give a further limited but effective impetus to the expansion of our economic activity.