§ Mr. Callaghan
I come now to the immediate task of the Budget—the short-term management of the economy. This is the essential means of creating the conditions in which we can right the balance of payments.
I start from the encouraging signs of improvement which have shown themselves in the last few months. Exports have been rising: in the three months December-February they were 6 per cent. higher than in the previous three months. Imports have come down a little, and thus the balance of trade has improved considerably.
Moreover, there are forces at work which should bring some further improvement in the foreign balance. For example, stockbuilding is unlikely to be as high as it was in 1964, and the steps we took last autumn have had, and will continue to have, an effect in redressing the balance. So quite apart from this Budget, measures already taken mean that we can expect a considerable improvement on last year.
But we cannot leave the position there. We are still in deficit on current and long-term capital account. I should like to give the Committee an idea of the scale of what has to be done. We need, first, a rise in the value of exports of 285 more than 5 per cent. a year. That is higher than the average rate of growth in the past. But the export rebates, additional credit facilities, and, above all—I hope that other hon. Members share my experience in this matter—a new awareness among manufacturers of what needs to be done, can and will help us to achieve this target.
Secondly, we must slow down the recent trend towards increased dependdence on imports. A rise in our imports of manufactures is normal and healthy in the present phase of world trading relationships, but for one reason or another we have been engaged in a buying spree from abroad on a scale which we cannot afford. For the time being, the temporary import charge is holding this in check. But the charge was never intended to be anything but a stopgap. We have to look forward to the time when it will have been removed: and when that time comes our home production will have to be sufficiently competitive to rule out any possibility of excessive imports.
The prospects for world trade are not unfavourable to our objectives. There is good reason at present to expect a continuing increase in world activity and in the demand for our exports. The rate of increase may not be quite as rapid as it has been in the recent past, and, in particular, the sterling area may be somewhat less buoyant. But, with few exceptions, the economies of the industrial countries are expanding healthily. There are possible threats to the continuing growth of liquidity to sustain international trade. But I am glad to say that these threats have not so far been reflected in the adoption of internal policies which check the growth of activity and trade, and I am confident that international co-operation and understanding of these matters has reached the point where that will be avoided.
The opportunities therefore exist for a substantial growth of exports. An increase of more than 5 per cent. in value is a considerable challenge, but it is within our reach. The question is whether the resources will be there to provide for an increase in exports of this order. This depends on the likely movement of home demand. The upsurge 286 in fixed investment which has been the main factor stimulating the economy in the last two years is expected to go on. The Board of Trade surveys of the investment plans of private industry showed an expected rise from 1964 to 1965 of 10 per cent. in both the manufacturing sector and the distributive and services industries sector. In the nationalised industries, and in the public services such as education and roads, there are programmes which provide for steady expansion in the period ahead. In housing, construction by public authorities is increasing and the indications we have of private building also point to further growth. We must, therefore, expect that the growth in investment in total will continue strongly this year: though looking farther ahead, I must take into account on the other side that the rate of increase in private industrial investment may ease off in late 1965 or early 1966.
We thus have a buoyant immediate prospect for investment, which is always one of the main forces governing the level of activity in the economy.
Turning to the other items of demand, I expect a steady increase in current expenditure on goods and services by public authorities. It is true that the growth of personal consumption will be to some extent restrained by the measures announced last autumn. But in conditions of high activity there would be some moderate growth. Investment in stocks, which is always a most uncertain item, will probably be lower than last year, but much of the effect of this would be on imports and only a part on home production. Finally, because of the import charge there will be a tendency for British industry to supply a bigger share of total demand than before. This also works to raise the pressure on our resources.
We have to consider what would be the position if, superimposed on these movements in home demand, there was a rising trend of exports on the scale that I have said is necessary to achieve the improvement we must have in the balance of payments. The answer I give is that the economy could not meet all these demands. Although there is some slack in some regions, industry 287 generally is already working at high pressure. Unemployment is now below 1½ per cent. and order books in many industries are long. I am confident that productive capacity will grow as new investment and new techniques bear their fruits. But we must ensure that the extra output can go to correct the foreign balance and is not all pre-empted by expanding home demand.