§ Mr. CallaghanNow I turn to the economic assessment. I must, of course, take account 1035 of these increased expenditure commitments in tackling the problem of regulating the economy so as to maintain full employment and yet avoid excessive pressure of demand which would lead to all the evils of inflation.
I must similarly take account of the measures that are necessary to correct the balance of payments deficit. The effect of the import charge and of the export rebate will be to increase demand on home production. If this does not happen, the measures that we have taken will have failed in their purpose. Unless we succeed in diverting resources on a large scale to producing more exports or replacing imports, we cannot hope to wipe out the present large deficit in the balance of payments. Some of the necessary transference will be brought about by the import surcharge. Goods that continue to be bought from abroad will cost more and this in itself will reduce purchasing power.
On the other hand, the fact that home-produced goods will be bought instead of imported goods has the opposite effect, and will increase the pressure on resources. We expect the second factor to have a more powerful effect than the first; that is to say, we expect the reduction in imports to be greater than the increase in revenue resulting from the import charge. It will be necessary to close this gap. The export rebate will tend both to promote exports and to give a bonus to the income of exporters, thus adding to the pressure of demand in two ways. If both the import and export sides are considered together, the conclusion is inescapable that the net effect will be to increase the pressure on our domestic resources.
But this pressure is already high and in some industries and regions, although not in all, it is already hitting the limits of our industrial capacity. This is most evident in the building industry and in some parts of the engineering industry in the Midlands and in the South.
I cannot assume that this high pressure would become any less in the absence of new measures. All the indications when we imposed the import charge were that there would be no falling away in the pressure of demand over the coming months. In spite of the very dis- 1036 appoingting trend of exports in the last 12 months, there will be opportunities for a renewed expansion of sales abroad over the months to come because of the present level of world trade.
In investment, the latest Board of Trade surveys show that over the broad field of private industry and in the public sector, investment expenditure is expected to be about 10 per cent. higher next year than this year. Housing investment, both private and public, seems likely to go on at a high level. On the other hand, there may be some offset to these expansionary forces through a falling away of the rate of investment in stocks.
As for the field of expenditure on consumption, an upward trend is to be expected as real incomes grow. But that may be moderated—I hope it will—by personal savings; and here I am glad to express my unqualified support and thanks to all the workers in the National Savings Movement for their efforts.
I have weighed the position with the utmost care, and I do not see how, taking together the effect of the action needed to correct our balance of payments deficit and the cost of increases in social benefits which I have announced, I can avoid asking the Committee for more taxation.
If I were not to do so, and were to allow the pressure in the economy to rise even further, we should run a serious risk of frustrating the measures that we have taken to put the balance of payments right. I therefore put these proposals to the Committee.