§ So much for the external outlook. Our consideration of the economic prospects at home for the next twelve months starts from the position that we have at present some unused resources of capital equipment and manpower which could now be 41 employed productively if the demand were there. Although the current level of unemployment is low in comparison with most other industrial countries, it is still too high. It must be our unceasing endeavour to get every person we can into productive employment without putting at risk the stability of the foundations of our economy on which the prospects for full and steady employment must rest.
§ There is no greater waste than the human waste and misery of unnecessary unemployment. And the reserves of manpower on which we could draw extend beyond the numbers of those registered for unemployment benefit; there are the possibilities of drawing back into the labour force some of those who have left it in the last year or so, while some of those who have continued in employment are underemployed and will be able to produce more when opportunity offers.
§ The reserves of physical capital are, no doubt, at least as great as those of manpower. But this unused capacity is very unevenly spread throughout industry. We have not yet reaped the full benefit in higher output which we should, and shall derive from the massive industrial investment of the last four years. Some of this has replaced—not necessarily increased—existing capacity with more modern and efficient equipment, and in some industries changes in the pattern of demand will have made it unlikely that all the capacity will be wanted. For these and other reasons, the concept of unused capacity cannot be precisely defined, and still less can it be measured exactly.
§ Praiseworthy attempts have been made at a quantitative assessment by using sample inquiries and in other ways. These have helped us to get our orders of magnitude straight, and that is useful. But I do not think that anyone is in a position to say that there is at this time 8 per cent., or 12 per cent., or any other precise percentage of unused capacity over the economy as a whole. What can be said is that the physical possibilities both of capital equipment and manpower now exist for an appreciable increase in production above its present level. This is one of the basic assumptions of my Budget.
§ I turn next to the question how far such an increase in production may be expected to take place in the next twelve months under the influence of the forces 42 already at work. I will start with home demand. The biggest element there is expenditure by ordinary consumers. Expressed in real terms, consumption expenditure has risen significantly since the autumn of last year. A large part of this increase has been the rise in expenditure on consumer durable goods such as cars, refrigerators and washing machines, resulting from the reductions in Purchase Tax made in the Finance Bill last year and the subsequent removal of restrictions on hire purchase.
§ The removal of restrictions on hire purchase has proved a useful and effective method of providing a quick stimulus to this sector of the economy. But the effects are greatest in the early months and I expect them gradually to fall off as the months go by. For this reason, though consumption expenditure should continue at a high level, I would not expect it to go on increasing at the same rate as it has been over the past six months throughout the rest of the year.
§ Next, there is fixed investment, which for some years has been running at a very high level indeed, judged by our own standards in the past. On the private side, there is one element, capital expenditure by manufacturing industry, which has been declining during the last twelve months. This is expected to go on declining during the rest of this year, judging by the sample of firms whose forecasts are collected and aggregated by the Board of Trade. The Board of Trade figures forecast a decline of about one-tenth in this part of capital expenditure between 1958 and 1959. This is a trend which has caused me some concern. Nevertheless, to get the picture right we must remember that investment by manufacturing industry is only 45 per cent. of the total of private investment, and that the other elements of the total—private investment by distributive and other industries, and private housebuilding—are both expected to increase. Taking it all together I expect a small rise in the total of private investment, in spite of the fall in the manufacturing sector.
§ Coming now to the investment programme of the public sector, I forecast a strong rising trend over the coming year. All the programmes in this sector have been carefully examined during the last nine months, after the lifting of the ceiling imposed by my predecessor in 43 September, 1957. A number of substantial increases have been approved. A full analysis of the present programmes has been given in the Appendix to the Economic Survey, and I will not go into any details about them today.
§ I will confine myself to two points. The first is the scale of the upward trend. The increase from 1957–58 to 1959–60, that is, over the two years which, in my statement last November, I put at £125 to £150 million, will, because of further increases in short-term capital expenditure approved since then, in fact amount to nearly £200 million. Secondly, I must repeat the warning I gave last year, that it is not realistic to suppose that the large long-term investment programmes in the public sector, of the nationalised industries and others can be rapidly varied up and down in accordance with the state of trade and the need to raise or lower the general level of demand from time to time. Something effective can be and is being done in this way, but for large parts of the public sector programme the possibilities are limited if we are to have sensible plans made and carried through with confidence and efficiency.
§ From the capital programme of the public sector I turn to current expenditure by public authorities on goods and services. In pursuance of our policy of securing economy in the public service, Ministers have taken care to restrain their Departments' expenditure to what is essential for the efficient discharge of public services. In terms of the volume of goods and services I am expecting that this expenditure will be roughly constant.
§ The last, and most uncertain, element of home demand is expenditure on industrial and Commercial stocks. During 1958, the volume of stocks continued to increase, though at a lower rate than in previous years. Prediction of such a volatile item is a hazardous business, but I should not be surprised to see a further increase in the volume of stocks in the year to come.
§ Exports, of course, contribute a most important element in total demand absorbing not far short of 20 per cent. of our resources. We have made good progress in the dollar markets, but generally, as the Committee is well aware, our exports have been hampered for some time past by the reduced incomes of the 44 primary producing countries and the slowing down of economic activity in many industrial countries.
§ I think that we must expect this reduced purchasing power in some of our most important markets to continue for some little time yet. However, I would hope that by the second half of this year the position of the primary producing countries will be improving, and they should be able to buy more. We may also hope that expansion will be resumed in the industrial parts of the world. My expectation, therefore, is that our total exports will continue to run at about the present level for a few months to come and then, if our salesmen and businessmen continue to exploit their opportunities with energy, they should increase somewhat.
§ Taking all the elements of demand together, and allowing for the proportion of our supplies we are likely to draw from imports, my conclusion is that the trend of total production of goods and services is likely to be upwards in the coming months. It has, indeed, been rising since about the end of the third quarter of last year. But this rise is not likely to be at all rapid—indeed, if nothing more were done, it might slow down in the second half of the year, since the biggest factor in the rise, consumption expenditure would be increasing less fast as the effect of the decontrol of hire purchase wore off.
§ The rise in the index of industrial production might be a little greater than the rise in total production. The rise in output might turn out to be proportionately greater than the rise in employment. The increase in productivity which this would imply would be a natural consequence of the high rate of investment in recent years.
§ There can be no doubt that the measures which we have taken already, and which I mentioned briefly just now, are taking effect. The increase in hire-purchase sales, the increase in private house-building and the big growth in public sector investment, are three convincing examples. Moreover, in the coming year I shall continue to see that our monetary policy, and, in particular, our funding operations keep in step with the development of our economic policy generally. Nevertheless, the prospect for home production as I have set it out does not represent a full enough use of the capital resources which have been created in recent years. Nor can we be content 45 with the possibility that unemployment might continue at around the present levels allowing for seasonal changes. I have, therefore, felt it right to consider most seriously whether a further stimulus should be given to the economy through the Budget.