Financial and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 30 January 1952.

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Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford 12:00, 30 January 1952

I feel that the hon. Member for Louth (Mr. Osborne), has survived the transition from this side of the House to that side very well without any great change in his style of speaking. He still gives us the rather bewildered homilies we got used to in previous Parliaments, but I think the substance of what he has to say has changed. Whereas he used to tell us about the dreadful state of affairs in this country, and the dreadful difficulties we were facing abroad and at home because of it, I do not remember hearing previously from him a great deal about the world crisis of which he has told us so much this evening.

First, I would agree with him when he says that the Labour Party are not prepared to say that we will level ourselves down to the Indian standard of living. Obviously, nobody can do that. Obviously, that is quite impracticable. But I am bound to say that during the period of the last Government one of the factors which made it most difficult for us to moderate our own standard of living in order to improve that of the Indians and the people of the other underdeveloped countries was the attitude which his right hon. Friends consistently took up—the attitude of exploiting every difficulty which occurred as a result of trying to pursue a policy of fairer shares in the world, the attitude of the right hon. Gentleman the Prime Minister of protesting bitterly against the release of sterling balances. It is really no good coming along and attacking us on this side of the House on that score.

I was rather amused to hear the hon. Gentleman say, at the end of his speech, that he thought the job of national recovery should now be taken out of the sphere of party politics. It might have occurred to many of us that that is something which might have been done a long time ago.

There has been a lot of discussion as to whether this crisis is more severe or less severe than previous ones. In some respects it is more severe; in some respects it is less severe. There is one respect in which it is less severe and easier for this Government, and that is that they do not have an Opposition, as we had, prepared to exploit every difficulty and to decry the position of the country; to make it seem worse than it was to people outside the country; to make them feel that we could not possibly recover so long as present policies were pursued; to make them feel in 1949 that devaluation was about to occur—an action which did a great deal towards bringing about devaluation.

This Government have the great advantage of having the right hon. Gentleman the present Prime Minister imprisoned as Prime Minister and, therefore, unable to talk about economic affairs and go about making speeches which make the crisis a great deal worse, as his speeches certainly did in 1949.

Our first charge against the Chancellor of the Exchequer must be the lack of an adequate diagnosis of our present difficulties. I thought that his speech was very deficient in that respect, very deficient in giving us any additional information about exactly why we are in this position except in such general terms that it added nothing to what we already knew. I remember that hon. Members opposite used to complain about the long explanations which Sir Stafford Cripps gave us on similar occasions. They were fairly exhausting to listen to, but they did tell us exactly what the position was in a way which the right hon. Gentleman the present Chancellor certainly did not. It seemed to me that he took as long but did not give us the facts.

The right hon. Gentleman the President of the Board of Trade was, I thought, a good deal worse than the Chancellor. He did not merely not give us an adequate diagnosis, but he denied the need for an accurate diagnosis, which I should have thought was very much the attitude of a bad doctor. He said that there had obviously been inflationary pressure and there was obviously a balance of payments difficulty but he made no attempt to relate the two at all accurately.

Nor did he make any attempt to distinguish between sterling area difficulties and United Kingdom difficulties or to show how measures which were being taken would lead to an improvement in the situation. There, of course, is the difficulty of not having an adequate diagnosis. If we do not have an adequate diagnosis we cannot possibly evaluate how adequate the measures are towards relieving the difficulties we have to face.

There was one point in particular which I was extremely surprised that the Chancellor said nothing about yesterday. That was the question of the terms of trade. After all, it is important to remember exactly how great a contribution the worsening of the terms of trade has made to the situation with which we are now faced. To begin with—and I am going back a little distance—if the terms of trade had been as favourable to us today as they were in 1938, we should have finished up 1951, on the same volume of exports and imports, not with a big deficit of£450 million, but with a surplus of something like£800 million.

Even if one takes the deterioration between 1950 and 1951, it is such that, if the terms of trade for 1951 had remained the same as the average for 1950, we would have had a deficit, not of£450 million, but of between£50 and£100 million, which would have been something quite manageable, particularly in view of the stockpiling that was going on at that time.

It is, therefore, the case that this dramatic worsening in the terms of trade, particularly when accompanied by our difficulties over Persian oil and the increase in our imports in 1951, which was to some extent inevitable, because we can now see that they were at an artificially low level in 1950—when one puts these facts together, they alone are quite capable of explaining our present difficulties.

If the Chancellor did not tell us much about the terms of trade in the past, he said nothing about his future view of them, and it seems to me to be absolutely vital in any discussion of how big the burden upon us is likely to be in the future. Fortunately, this is one of the bright spots in the situation. There is every chance, as I think the hon. Member for Oldham, East (Mr. Horobin) has said—I do not think I agree with anything else he said, but I do agree with him on this point—that we should by now be over the worst as far as the terms of trade are concerned, and that things should be a great deal better in 1952 than they were in 1951.

The terms of trade were at their very worst from our point of view by May, 1951, when they were 19 per cent. worse than the 1950 average. The average for the year was 13 per cent. worse, and by December of last year, they had come back to the position in which they were only 6 per cent. worse than the average in 1950. There is, therefore, a good chance that the improvement in that position will be held, so that, for 1952, as a whole, we shall have the terms of trade making a contribution towards closing this gap equivalent to about£150 million, or getting on for about 40 per cent. of the gap we have to close.

Obviously, we have a difficulty in deciding what the Chancellor was trying to do when he told us nothing at all about the assumptions upon which he was working on an absolutely basis question like this. Secondly, and still more important, he did not make it clear to us whether it was his view that an inflationary situation still persists in this country, and if so, exactly in what respects. There has been a good deal of discussion about that today.

I am sorry to note that the right hon. and learned Gentleman the Member for Montgomery (Mr. C. Davies) was taking a very deflationist view, saying that we have been living with continuous inflation in every year since the war, and this was proved by the fact that we had to have a Budget surplus for a number of years past. I should have thought that it had nothing to do with this question at all. One had to have a Budget surplus if the total of private savings was not enough to finance the investment being carried out. If one gets a Budget surplus at an adequate level, one can finance invest- ments without any inflation, and such a state of affairs is perfectly compatible with a reasonably disinflationary situation.

I would have thought it quite obvious that we could not today say that there is an inflationary situation, in the usually accepted sense of the word, when, over the great range of consumer goods industries and particularly in textiles, there is just not enough demand. It is obvious that, if we damp down demand still further here, we will not increase exports—for markets are saturated here—unless we get deflation on such a scale as would produce a lowering of wages, and therefore, a great lowering of costs in those industries. In those circumstances I cannot see that any general deflationary policy can possibly produce an increase in textile exports.

Of course, it is perfectly true that the situation in another part of industry—the engineering industry—is very different. There, we do have not merely adequate demand but more than adequate demand. There is very great pressure on the resources of that sector of the industry. But I think we should also note that the exports of that part of industry did keep up remarkably well during 1951. They did very well indeed and our difficulties at the present time, to whatever else they may be due, are not due to any falling off in exports so far as this engineering group of industries is concerned.

Nevertheless, it is obvious that home investment, defence and exports are competing one against the other to quite an extent, but I think the lesson of this curious position in which we find ourselves when, broadly speaking, one half of industry is in a state which could not perhaps quite be described as deflationary but certainly is approaching that and the other half of which shows a very heavy pressure on resources, is that this situation is the last situation which can adequately be met by general monetary measures in relation to inflation.

Obviously, one wants measures which are selective and which will relieve the pressure on this sector of industry where it is heavy, but which will not further reduce the demand in industries like the textile industry. The only result of so reducing demand in that industry would result in more short time and people being laid off work. Therefore, this seems to be the last place to have anybody coming along and saying, "What we want to do is to keep away from these selective physical controls and have a general policy of monetary deflation." That would be the last thing which would accomplish what we want to accomplish.

There are, of course, measures other than physical controls which can be used to deal with such a situation. There are fiscal measures such as initial allowances which tend to reduce investment. There are measures such as the stepping up of Purchase Tax on particular products. I am bound to say that I should have thought that the Conservative Party, before they came into Government, were committed thoroughly against these measures and I cannot see how it is possible for them to come along now and say, "These are the ideal weapons from our point of view."

They fought bitterly, throughout an all-night Sitting, the proposal to do away with initial allowances. [HON. MEMBERS: "No."] Certainly, they fought it extremely hard indeed, and I think it was throughout an all-night Sitting. Now, of course, the Chancellor of the Exchequer calmly comes along and says it is very useful that he is able to use this weapon, together with his general monetary policy, to effect a reduction in investment.

I remember particularly well the Minister of Works arguing strongly that there was no comparison between these two things. He was in favour of stiffer interest rates. He did not for one moment admit that even in difficult circumstances the abolition of initial allowances was something which could be put alongside this monetary policy and which would have the same effect.