§ VISCOUNT ADDISONMy Lords, I must ask leave to intervene before the next Business is taken, as it is right that your Lordships should be acquainted with the terms of a Statement which has been made this afternoon in another place by my right honourable friend the Chancellor of the Exchequer. He said:
"The usual quarterly statement on the balance of payments and its effect on our reserves of gold and dollars is now due and the figures are being published to-day. For reasons of which the House will be aware—and to which I have referred more than once in recent weeks—it is desirable for me to make a short explanation of the facts set out.
During recent months there has been a decline of business activity in many parts of the world. Instead of a sellers' market we now have a buyers' market. As we all know, the most difficult problem with which the sterling area has been faced is in its balance of trade and payments with the dollar area. This has been well demonstrated by the critical effect of the dollar shortage upon our sterling economy over the last few years. The decline in demand from the dollar area for sterling area goods naturally brings with it 949 important consequences. As has already been pointed out on more than one occasion, this change in the financial and commercial climate has meant that the shortage of dollars in the sterling area has become even more marked. As the House is aware from the April and May figures of overseas trade, there has been a considerable falling off in our sales to the U.S.A., and this has reduced our dollar earnings. This decline has been even more marked in the case of other parts of the sterling area, particularly those selling primary commodities to the U.S.A., where both quantities and prices have moved sharply downwards.
It is good to know that our sales to Canada were well maintained in the month of May and that in that month they were very nearly an all-time record. We hope that these exports will be increased still further, especially as a result of action taken by industry and by the Government following the visit of my right honourable friend the President of the Board of Trade to Canada. We are also hopeful that our exports to the United States of America will resume their upward tendency. It cannot be emphasised too often that this is by far the most urgent and important task of all those concerned with exports. Success in that task does, of course, also depend on the willingness of the United States and Canada to accept our exports and to continue to purchase the raw materials which the sterling area can supply.
As a result of the decline in demand that I have mentioned, our dollar gap has widened again, and a new and unfavourable position has developed. While awaiting the figures for the second quarter of 1949 to make its usual quarterly announcement, the Government, in the course of its normal review of the situation, has already taken certain preliminary steps to deal with this situation. The figures of our dollar deficit, before taking account of E.R.P. assistance, of the Canadian credit, or of drawings on the International Monetary, Fund, were in the four quarters of 1948: £147,000,000, £107,000,000, £76,000,000 and £93,000,000. In the first quarter of 1949 the corresponding figure was £82,000,000. The Economic Survey gave an estimate of £195,000,000 for 950 the first half of 1949, which would have allowed for a dollar deficit of £113,000,000 for the second quarter, as expenditure was expected to increase temporarily in line with our E.R.P. Programme. In the event, however, the dollar deficit for the three months to June 30 has risen to £157,000,000.
There were no drawings during the quarter from the International Monetary Fund, but after taking account of £85,000,000 for E.R.P. reimbursement and £7,000,000 from the Canadian credit, the reserves of the Sterling Area fell from £471,000,000 as at March 31 last to £406,000,000 at June 30. There is also a sum of about £20,000,000 owing to us under E.R.P. for goods for which we have already paid. In addition, part of the E.R.P. allocation made to us in respect of the first fifteen months of E.R.P. aid is designed to cover supplies which will not come forward, or be paid for, until a later date. Though this fall in our reserves is a serious development, yet any comparison with the events of July and August, 1947, would be entirely misleading. In 1947, though our own recovery was under way, we were still in the middle of the process of re-conversion and re-deployment, which had itself been checked by the fuel crisis in February of that year. In Western Europe as a whole, the economic recovery had made little headway, and the political situation was marked by weakness and uncertainty.
To-day, as a result of the conclusion of the Brussels Pact, the establishment of the O.E.E.C., and the signature of the Atlantic Pact, our own position and that of the other countries concerned have been immeasurably strengthened. We have behind us in the United Kingdom two years of expenditure on capital goods on an unprecedented scale, and of uninterrupted economic progress. We have taken a variety of measures to deal with the inflationary situation with which in 1947 we were threatened. Our production is at a record level in the whole of our history, and our exports are as high as they have ever been, and half as high again as in mid-1947. We have practically reached a state of overall balance in our overseas trade. All this has been made possible by the great efforts of 951 our own people and by the generous help of the United States and Canada, especially through the European Recovery Programme which is so large a factor in the progress that is being made, and will, I hope, enable us to expand European Trade in the way that I explained to the House on Monday. Productive power is the foundation of a country's economic strength, and ours has grown to such an extent in the past two years as to give us confidence that we can deal effectively with the present unfavourable turn in our affairs. But a drain upon our reserves at the present rate calls for immediate corrective action, as well as for longer term and more fundamental measures.
His Majesty's Government, therefore, acted at once in pursuance of what must remain the major objective of our financial policy, the safeguarding of the reserves of the sterling area. Before the middle of June we had, much to our regret, been compelled by events to give instructions to all our purchasing departments that they were to postpone new dollar purchases to the maximum extent practicable. That stand-still arrangement will be continued for at least three months and until after the discussions to which I am about to refer. Existing contracts and commitments will remain in force, but specific authority will be required for any new dollar purchases and will only be given where a clear case of urgent national interest is established. Dollar expenditure, other than on imports, will be permitted only where essential, and then at a reduced rate.
Unless the sterling area succeeds in restoring the volume of its sales to the dollar area, these restrictions upon dollar expenditure will have to be continued. As soon as the distribution of E.R.P. aid for the coming year has taken place and the new intra-European payments scheme has come into operation, we shall get out a new import programme in the light of the circumstances which then exist. We hope to have such a programme completed in September next. Before the discussions to which I will refer in a moment, we do not intend to make any immediate adjustments in the 952 amount of dollar goods released for consumption; but as soon as they are over we shall have to reconsider the situation in the light of any decisions reached, and it may then become necessary to reduce consumption of certain selected foodstuffs which are primarily drawn from the dollar area and of certain raw materials.
I must make it clear that, just as it took some time for the position which I have outlined to declare itself, so this stand-still will have little immediate effect in reducing the drain on our reserves. Unless contracts already entered into were to be broken and the flow of imports for which firm arrangements have already been made was to be stopped, there could be no large degree of relief from the present measures until towards the end of the third quarter.
But a stand-still on dollar expenditure, though absolutely essential, is no solution for our difficulties. The effect upon our trade relations with the dollar area of the change from an expanding to a contracting volume of world trade demonstrates the need for positive long-term policies. In the meanwhile, His Majesty's Government will press on with every practicable method of increasing our export trade—above all, the sale of goods and services for dollars. And for this it is fundamental that industry itself must quickly achieve a reduction in costs and prices by improved productivity, and give preference wherever possible to exports to dollar markets. Any inability to hold our own in world markets must deprive us of essential supplies and our standards of life will suffer. This creates the imperative necessity for new directives to be given to all those in industry who are concerned with costing and securing contracts, that they must increase dollar exports. We must get our export prices down to a point which enables us to improve our position in these markets, and the rather easy methods resulting from the unlimited demand of the last ten years must go.
The Government and the nation are pledged to a policy of maintaining full employment and protecting our present standard of living. To that end our efforts will be directed, but no demo- 953 cratic Government can do this alone. If a nation is to achieve these generally accepted aims there must be complete co-operation. While we have no desire to see wages cut, we must and can cut down costs, and this we can do if we increase our efficiency of production. There should therefore be, throughout the Government services and every other public service, and throughout all industry, a resolute aim to achieve the utmost efficiency. In addition we must avoid waste in materials and in every other way, so as to get the best possible results from what we import. Above all, it is quite certain that our existing policy on personal incomes, costs and prices will have to be vigorously pursued. I must warn the House and the country that any attempt at this stage to force up personal incomes can have only the most adverse effect upon our situation, since it will raise prices and thereby make it even more difficult for us to earn dollars or other hard currencies with our exports. This in its turn must lead to a diminution of our general standard of living. If our money is to buy us less in goods, an increase in money earnings is of no value. It is of crucial importance that in meeting the present situation we should not aggravate it either by demands for increases of personal incomes or by delays and stoppages in our industry which increase costs and reduce our dollar earnings.
This continuation and intensification of the policies we have been pursuing, though vitally important, will not in itself be enough to remedy our situation. The problem of the relationship between the sterling and the dollar worlds is not one to which the United Kingdom alone can find a remedy. It is a problem in which our friends and partners in the United States and the Commonwealth are especially involved. Just as we have in this postwar period concerted together short-term economic solutions to our difficulties and together laid the basis for our long-term political association, so now we must seek together a long-term remedy for the stubborn problems of the balance of trade between the Western Hemisphere and the rest of the world, of which the sterling area forms so important a part.
954 As soon, therefore, as the facts of this greater stringency of dollars became evident, and its effect upon the whole of the sterling area, we invited Commonwealth Finance Ministers to attend a meeting in London. This meeting will begin on July 13, and its purpose is to discuss the situation as it now exists, and to devise mutual co-operative measures to deal with it. We are taking the opportunity of the visit of Mr. Snyder, the Secretary of the United States Treasury, who will be visiting London this week, to initiate discussions with the United States Government on the whole matter; Mr. Abbott, the Canadian Minister of Finance, will take part in these talks, as well as in those of the Commonwealth Finance Ministers.
Arrangements have thus been made for prompt discussion of the whole position at a high level. The House will realise that until these talks—which will undoubtedly take some weeks—have been concluded, it will not be possible for the Government to formulate and lay before them the full policy which we intend to pursue, in association, we hope, with our American friends and with the other members of the Commonwealth. In the meantime, we shall in the course of these consultations and in concert with others take whatever further steps may be necessary to deal with the immediate situation of the sterling area. I would warn the House and the country that a thorough-going solution of this sterling-dollar problem will take some time; and, just as in dealing with every other great national problem following the upheaval caused by two world wars, we shall need, while exercising patience, to be prepared to take resolute action.
The United Kingdom carries a great burden of responsibility in this matter, not only as the central country of the sterling area but also because it is so large a contributor to world trade. We have indeed fully recognised this responsibility in the assistance which we have provided since the war to stimulate world trade and to help forward world recovery. As the House is aware, we have devoted over £900,000,000 to this cause.
We are convinced that the present circumstances offer a real opportunity 955 for a long-term solution of the difficulties between the dollar area and the rest of the world. Our recovery and that of Europe has, with American and Canadian Governmental help, which cannot be expected to continue indefinitely, gone far enough to enable us now to look for a way out of these difficulties. If we are to have in the future the convertibility of currencies and the multilateral form of trade which we have sought ever since the end of the war and are now seeking, we and others must begin to build the permanent policies that will make these desirable objectives possible of attainment.
It is, therefore, in a spirit of constructive determination that we approach the solution of our present difficulties; and if we must pass through a further period of restraint and restrictions in order to brine about a more permanent solution of our problems, I am confident that in so doing we can rely upon the help and support of all our people, thus safeguarding that basic policy of full employment to which we, in common with all other countries of the world, are so deeply pledged, and at the same time preserving the principle of `fair shares' to which our nation is committed."
§ 4.28 p.m.
§ THE MARQUESS OF SALISBURYMy Lords, there have been, during the last few days, evidences that the Statement which was to be made by the Chancellor of the Exchequer would be of a somewhat formidable character; and I am afraid that that is borne out by the Statement which the noble Viscount the Leader of the House has just read to us. It would obviously be unwise, and I think improper, for us to attempt at this stage to make any comment on what we have heard, and I therefore propose to say nothing. The question of a debate, of course, arises, and I should be glad to discuss that with the noble Viscount the Leader of the House at the proper time.
§ VISCOUNT SAMUELMy Lords, the statement that has just been made discloses a situation which is serious and indeed sombre; but we need not jump to the conclusion that, grave as it is, it is therefore catastrophic or beyond recovery. Like the noble Marquess, I 956 should be interested to know what steps the Government will take to meet what I am sure will be the wishes of the whole House: that the economic situation in its entirety should receive full discussion here, when we could examine together what steps we think could be taken by the Government, by Parliament, by industry and by the nation at large in order to restore the situation. In view of the impending conversations with the members of the Commonwealth and also with other countries, especially the United States, it may be thought impracticable to hold an immediate debate. The view of your Lordships would probably depend upon the course that is taken in another place. Certainly, I feel sure that we all desire that there should be a debate before Parliament rises for the Recess. If the debate cannot be immediate, the Second Reading of the Finance Bill might offer a convenient opportunity. I feel certain that we could not contemplate an adjournment for some weeks or months without the matter being fully explored in your Lordships' House.