Review of Stabilisation Policy

Financial Statement – in the House of Commons on 25th April 1944.

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These two developments are sufficient reason why the details of the policy must be looked at again. They are certainly not reasons against continuing a policy which has played so fundamental a part in the success of our domestic policy. It is the firm intention of the Government, as has been announced on other occasions, to maintain the policy, so long as they have the vital co-operation of all sections of the people, and to continue it on the same conditions during the transitional period when we are turning back once more from war to peace. We believe that one great element of anxiety can be removed from people's minds if they feel that they can rely on the Government maintaining the same firm control over prices to tide over the awkward problems of transition to normal civilian life as it has done during the war itself. The asset of stability will be hardly less valuable then than it is now.

While, however, I can give this solid assurance that the Government intend to maintain the policy as firmly as they have done hitherto, it would be wrong to bind ourselves to a rigid adherence for an indefinite period of time to the level which prices happened to have reached in April, 1941, at the time when the policy was inaugurated. I must have regard to the changing levels of wages, costs and prices, and must from time to time review the precise level at which stabilisation is to be continued in the light of current conditions.

When, as in the case of coal, wage costs, as far as not offset by increased output—that is an important point—have raised the actual cost of vital commodities, and when it is known to the whole country that costs of production are being still further increased by increases of wages, the stabilisation policy would become an altogether artificial affair if we were to attempt to mask these developments by making arbitrary reductions in the prices of other articles in order to maintain the level of the cost of living index unchanged. We have, therefore, felt it right that these in- creases of price should he allowed to reflect themselves in the cost-of-living index in the natural way. I mention this now because, if and when this happens, I should not wish anyone to think that the situation had in any way got out of hand or that the Government were not still as firmly in control of prices or as firm in determination to maintain the stabilisation policy as they have been for the last three years.

Having regard to the higher domestic costs of production, and also to import costs, I feel that for the ensuing year a range for the cost of living index of 3o per cent. to 35 per cent. over pre-war should be substituted for the 25 per cent., to 3o per cent. laid down by Sir Kingsley Wood in 1941. This will only offset one quarter of the increase in wage rates which has occurred since he spoke and it is, I think, in a better and more stable relation to the current facts of wages and prices at home and abroad. I should add that while this should be regarded as the current range, the upper limit is a maximum only, and no substantial increase towards the new higher limit is' immediately in view.