§ Before coming to my tax proposals, however, I should deal with one or two points in the field of monetary policy.
§ First, credit policy, which, as the House knows, is the other main instrument, besides fiscal policy, through which the Government seeks to operate on the level of economic activity. Immediately after devaluation the banks and the finance houses were asked to restrict total advances to the private sector (excluding identified export finance and fixed rate finance for shipbuilding) to their then current level, and within that ceiling to give priority to production and investment likely to benefit the balance of payments. The banks and other institutions responded readily to this call for restraint, and I record my appreciation of this fact. At the same time, I should like to say also how much I appreciated the speed and the flexibility with which the banks and the Stock Exchange adapted their arrangements to the two Bank Holidays last week. The immediate outlook offers no scope for relaxing credit restraint at present. I 270 must ask the banks, therefore, to continue to observe the ceiling, with the same exclusions and priorities in the direction of lending as at present.
§ I turn from credit to savings. Additional savings help to reduce the pressure of domestic demand. And, if they take the form of purchases of Government debt by the public, they also help to reduce the Government's dependence upon borrowing from the banking system.
§ The measures announced on 16th January, in conjunction with those which I shall be announcing later in this speech, will effect a very substantial reduction in the central Government's borrowing requirement. I hope, however, that this will be to some extent offset by additional borrowing to finance an increase in the gold and foreign exchange reserves in the Exchange Equalisation Account. It is one of the paradoxes of our financial system, although one well-known to many members of the House, that an improving reserve position increases the need to borrow at home, while a worsening one diminishes it. It will thus be in no way less important that we should raise as much as possible by sales of gilt-edged securities outside the domestic banking system.
§ This year also offers a special opportunity in the field of national savings. As the Chairman of the National Savings Committee for England and Wales, Sir Miles Thomas, has pointed out, one straightforward and easy way in which everyone in this country can support the country is by buying National Savings. He gave us the striking illustration that, if every working person in this country were to save Is. a day, this would bring in over £400 million in a year and would go a long way towards solving our economic difficulties—and our taxation problems.
§ I would like at this point to pay tribute to Sir Miles Thomas and to Lord Birsay, Chairman of the National Savings Committee for Scotland, and to the thousands of voluntary workers of the National Savings Movement who so steadfastly assist the country by their efforts, year in year out, to increase National Savings. I want to help the Movement by making sure that the whole range of National Savings securities are up to date and fully competitive.271
§ I have indeed explored carefully the possibility of unorthodox steps, such as issuing what is sometimes called an index bond, the redemption value of which would be tied to the value of money, or offering certificates on which the interest would be tax free. The obstacle, I fear insurmountable, to the first is that it would be difficult to single out one form of Government security for this special treatment. There would be repercussions upon the whole gilt-edged market, and we might end up with some desirable growth in savings but with the cost of Government borrowing more than proportionately increased. Equally, a tax concession could not be applied only to those who were making genuine new savings. It would, of course, be most valuable to those with heaviest tax liabilities, and much of the issue would inevitably be taken up by those switching out of other securities. Even modest national savers would obviously also switch to the new issue. The loss of revenue would, I fear, be disproportionate to the new savings brought in. I have, therefore, regretfully had to confine myself to more conventional proposals. I am making three changes.