§ The Chancellor of the Exchequer (Mr. James Callaghan)
Before I discuss these long-term objectives in greater detail I must return to the situation in connection with the balance of payments. The rate of deficit this year is one of the largest in the country's history. There are some special features to which I call attention which have inflated the deficit this year such as the rise in import prices which took place in 1963. We have borne the full burden of that, but I cannot see much relief from it next year. Then, again, we have suffered this year from the stop/go of 1962–63 when industrialists allowed their stocks to run low. They have been building them up again in late 1963 and early 1964. I certainly hope that there will be some relief on this score as stocking assumes more normal proportions. Finally, three were items in the capital account, including a high level of investment overseas by the oil companies, which, I hope, will come down after this year.
However, when due allowance is made for such specific and temporary factors, the record of 1964 is an extraordinarily poor one. Our exports, which were expected to show a "substantial increase", to quote my predecessor's last Budget speech, have, in fact, been drifting downwards throughout the whole of the last nine months. Our imports have been swollen by a very large increase in the imports of manufactures and semi-manufactures largely of the sort which we produce and export ourselves. Thus, while our machinery exports were stagnant, our machinery imports increased by 30 per cent.
All these things were pointers to serious trouble. They also pointed to the expectation of a balance of payments deficit next year, which, while no doubt a good deal smaller than in the current year, still threatened to be disconcertingly large. This is my main complaint against the previous Government. An economy is not healthy when imports are booming and exports are static. These are the essential points which measure our competitive strength. But the implication of these facts and figures was consistently glossed over, especially by the Leader of the Opposition during the summer months.