The right hon. Gentleman the Member for West Bristol (Mr. Stanley) has made a speech couched in very reasonable terms, illuminated by flashes of humour, in relation to a subject of immense importance. I do not intend to make a purely party speech this afternoon. It has been suggested that I ought to reply to a rather exuberant speech made by the Leader of the Opposition on Bank Holiday at Blenheim, but I do not think it would be useful at this time. The right hon. Gentleman is entitled to make speeches on those occasions. He hit around him very vigorously. Sometimes he hit at us, sometimes he hit at some of his friends opposite, and sometimes the ball rebounded on to his own head. But it would be wrong for me to follow that sort of speech today. I would say only one thing in that respect. I think there were some unfortunate remarks which will have repercussions elsewhere where it might do harm, which I am sure the right hon. Gentleman would not wish, to this country. I would allude to one in particular, in which the suggestion was made that we had frittered away the American Loan. [HON. MEMBERS: "Hear, hear."] Well, I shall proceed to show that that is not true.
The right hon. Gentleman the Member for West Bristol has made a number of points. I hope he will excuse me if I do not follow him point by point. I have noted them, and almost all of them are already covered by what I propose to say. Any other specific points will be answered by the Chancellor of the Exchequer or the President of the Board of Trade in the course of the Debate. I want today to give the House and the country as full and fair a description of our position as I can. I want to trace briefly the course of events, because it is always tempting to "job" backwards. I thought even the right hon. Gentleman did so, to some extent, in assuming that the position in which we find ourselves today could necessarily have been foreseen some time ago. [HON. MEMBERS: "It was."] Well, perhaps I might proceed to describe our difficulties.
Let us for a moment glance at the position of this country. It is familiar to all of us here. We want to put it on record that in this country of 45 million people we have had quite an exceptional economy built up over the years by our own home resources and other resources, and our skill and power to add value to raw materials from all over the world. We had quite an artificial position before the first world war. We all know we had to import food and raw materials and pay for them with goods and services, and with interest on investments abroad. We also know that in the first world war that economy received a serious shock. We had to pay for the war with an immense proportion of our foreign investments. Increased industrialisation abroad pressed heavily on us, and we found, instead of having a large export surplus after the first world war, that our balance of payments was only achieved with great difficulty.
The second world war has been more costly, and let us remember that for a whole year we stood alone. The greater part of our foreign investments had been sold; great debts accumulated; our export trade was reduced to less than one-third; we had great shipping losses; physical damage from air bombardment; and we had had to change the whole organisation of our industry for war. We got through the world war, we all know, with the help of Lend-Lease which was rightly described by the right hon. Gentleman the Leader of the Opposition as "the most unsordid act in history," but which left us in a most vulnerable condition. We had a vast task of reconstruction, involving the redeployment of our whole economy, and what we required essentially was time, in order to effect that change over.
The United States and Canadian loans were essentially measures to buy time—time for ourselves, time which was also needed for the rest of the Old World to recover. We know the amount of those loans—£937,500,000 from the United States, £300 million from Canada. We were deeply grateful to the United States and Canada for this assistance. The loans were acts of statesmanship beneficial not only to ourselves but to the whole world. But they were essentially designed and accepted in order to enable us to stand on our own feet. I entirely agree with the right hon. Gentleman opposite that it would be utterly wrong for this country to become dependent permanently on another, however friendly our relations. But these were steps taken on the road towards recreating the world of multilateral trade and convertibility of currencies. We and our friends across the Atlantic were both working to this end, and we think it to be the most advantageous system for the world, and especially for a country in our position.
We should have liked, we all know, a larger amount. We doubted then whether this loan would buy sufficient time. We had hoped the loan would last us not, I think, five years, as the right hon. Gentleman said: we hoped it would last us well into 1949, possibly into 1950, by which time there was a reasonable chance we should have redeployed our economy and been in sight of equilibrium. As things have turned out, it is now certain that the loan will be exhausted before the end of this year. This essential difficulty of our position has never been absent—indeed, it could not be absent—from the mind of this Government. It could not have been absent from the mind of any other Government. I recall that in my speech on the Address on 16th August, 1945, I said:
Sooner or later, we have to face the fact that we can only buy abroad, if we can pay I for imports in goods and services. Therefore, we must set ourselves resolutely to the task of increasing our exports."—[OFFICIAL REPORT, 16th August, 1945; Vol. 413, c. 109.]
And this is what we did, and not without success. By the end of 1946 our exports had reached a level of over in per cent. of the 1938 volume. I think it is well to bear in mind the very great efforts which have been made by the people of this country. I am sure that no one, whatever his political colour, whatever his desire to attack the Government, will wish to underrate or to run down in the very least what has been done by this country—there is always the danger of denigration—whose people sustained the brunt of the war longer than any other. An immense amount of internal reconstruction has been done. An unparalleled redeployment of labour has been accomplished with very little friction. There has been a great effort to try to increase and to build up our production and our exports.
But there have been difficulties and disappointments. First of all, the output of coal has been less than that required to meet our own needs, much less than to enable us to help Europe as well. The run-down of the equipment of the mines has been far greater than we had supposed. The recovery of the industry has been far too slow. I am not going into the history of that: we all know the position of the coalmines. Second, though I think most people in the country have responded very well, there have been some sections that have not, perhaps. Undoubtedly, it has been difficult to get rid of all the practices we ought to get rid of. But we do not quickly get rid of bitter memories of past unemployment. Third, I would agree that it might have been better if we had had a greater concentration of effort. It may be we have tried to do too much in a short time. It may well be that we have relaxed controls too soon. But I would remind hon. Members opposite of their vociferous demands for every kind of thing to be done, and for a great many relaxations of controls. Fourth—I am trying to put this frankly before the House—there has been, undoubtedly, some failure on the part of some workers to realise that shorter hours and higher wages must be matched with higher effort. But I say, despite these things, that the record of the people of this country in these two years is one of which any country could be proud.
Then there came—I am putting it in proportion, because it is important to get these things in proportion, and I think that some of the right hon. Gentleman's points were a little out of proportion to other matters—then there came the unprecedented severity of the winter. The fuel crisis of February and March caused great damage to our agriculture and to our industry. I am putting that in its historical setting.
In these two years we have always had to give adequate weight to two conflicting considerations in this matter of our balance of payments—the need for maintaining our external financial position, and the need for maintaining the strength and the morale of our people at home. Our people were very tired by the end of the war, and the immediate imposition of very heavy sacrifices by forgoing loans might well have resulted in failure to reconstruct. Time was needed after the rigours of the winter before we could impose some of the things we had to impose. I am saying frankly we had pressure put on us to give our people more—more food, more of everything—and I do not think that it is unwise to hold a balance in these matters. Despite the cost, we had to get the food and the raw materials necessary. To have foregone that would have been shortsighted folly. We cannot get production without consumption.
I have said that there were adverse factors preventing our build-up, but there were severe adverse factors which were developing entirely outside our control. As I have said, we were trying to buy time, not only for the recovery of this country, but for the recovery of the world, particularly the recovery of Europe; and that recovery has been much slower than was anticipated. The economic disruption had been far greater than had been realised. The political position of both Europe and Asia has taken a very long time to settle down—if it has settled down yet. For reasons which the Foreign Secretary has often explained, our foreign commitments have proved heavier, and their continuance more prolonged, than we had hoped. There were bad harvests in many parts of the world which increased the too great dependence of the rest of the world on the Western Hemisphere for food and raw materials.
That is a factor which we ought to bear in mind very clearly, because this was already showing itself even before the war. The disequilibrium between the continents has resulted in a steep rise in prices. I must again correct the right hon. Member for West Bristol on the price levels. The facts as given to me are that the price of our imports has risen, on the average, by more than 40 per cent. since the loan was negotiated, and by more than 20 per cent. since we began drawing on it. We are compelled to buy largely from the Western hemisphere in dollars at high prices. But we were not the only people in that position. The rest of the world is suffering from the same difficulties. The failure of their production, owing to the damage of the war, means that they, too, were compelled to buy a large part of their essential supplies of food and fuel from the Western hemisphere, and they have to pay dollars. So there is a world shortage of dollars.
I think it fair to say that that world dollar shortage would have arisen earlier had it not been for U.N.R.R.A. and for loans provided by the United States of America to other countries. That temporarily enabled production and the flow of dollars outside America to have its effect on exchanges. U.N.R.R.A. was a great undertaking, but all these efforts have been,. to some extent, disappointing. Those efforts prevented starvation and enabled consumption goods to be distributed in Europe; but they have not had the effect which was expected—of enabling the balance of production between the Western world and the Old World to be restored. The consequence is that the exports we sell to other countries are paid for in currency which we cannot use to cover our deficit with the Western hemisphere, and the countries which receive sterling in payment for what they export to us immediately convert that sterling into dollars so as to cover their deficit in dollars. Now it has been particularly in the last few months that the effects of those adverse factors have shown themselves, with ever-increasing severity. The over-all adverse balance, which was £400 million in 1946, has risen to an annual rate of something over £700 million in the first half of this year. That is the over-all. But the salient feature of recent developments is the increase in the dollar deficit, and I now want to say something about that dollar deficit.
For the year 1946 our total dollar deficit was under £350 million, even if we include the Canadian dollar output. That was partly due to the shortage of supplies. For the first six months of 1947 our United States dollar deficit was £405 million, which represents an annual rate of £810 million. Of this figure of £405 million, £176 million represented our own trading deficit wth the United States of America. In addition, we spent in dollars £29 million in purchases from the U.S.A. for Germany. We had to provide £118 million in United States dollars as part of the payment for our own purchases from the rest of the Western hemisphere. We had also to provide in United States dollars £58 million for purchases in the United States by the sterling area countries, £10 million for purchases by the sterling area countries in the rest of the Western hemisphere, and £14 million for similar purchases by European countries.
The most serious aspect of the situation has been the acceleration in this dollar drain during recent months. That has been reflected, as was pointed out, in dollar drawings. Of that total credit of £937,500,000 we have, to date, drawn £687,500,000. By the end of 1946, on the contrary, we had drawn only £150 million. From the beginning of January to the end of March we drew £125 million, but in April and May we drew £162,500,000. In June we drew £75 million. In July there were exceptionally heavy drawings, which we should not take as an indication of the trend, and the drawings were up to £175 million.