One feels a great sympathy for the right hon. Gentleman in having to make a speech such as he has just made because he was moving a partisan Amendment. I do not propose to deal with any of the points which he made beyond those on the economic side, because I feel it my duty to put before the House the most recent results of our economic struggle. I am very glad to be able to give the House that up-to-date information, particularly as to our present balance of payments situation, because I think it provides a good general measure of our economic progress, and is a complete answer to any of the criticisms which the right hon. Gentleman has mad 3 of our policies. I am the more glad to be able to give that information today because I think it should be of a heartening character to the country, and should provide encouragement and stimulus in the further efforts that we are all still called upon to make.
We have available in the form of a White Paper—Cmd. 7520—which has been issued this afternoon, the result et the first six months effort of this calendar year so far as the balance of payments is concerned. Those figures, as I will point out, show a very great improvement over those of 1947, and a close approximation to the hopeful target which we set out in the Economic Survey.
Any feeling of optimism which is engendered by those results must, however, be tempered by these qualifications: first, that we do not let up in our efforts or in our self-restraint, for these two have together brought about our present improved position; second, that our friends in the rest.of the sterling area continue to give us the splendid support that they have done, particularly over the last year; third, that there is no exceptional element that intervenes in either the political or the economic sphere to upset our achievement; lastly, that the measures for European cooperation go forward with the same vigour and determination in the sphere of economic action as they have done since, a few short months ago, the O.E.E.C. came into being.
The figures in the White Paper tell the story of what I regard as six months of really fine effort by the British people, and, though these statistical tables may appear dry and uninspiring, the facts that lie behind them are very far from being so, as I think the House will recognise when I go through the figures, as I now propose to do.
In 1946 we set out, hopefully but with some considerable realisation of our difficulties, to recover from the huge unbalance in our external account which had been created by our deliberate and necessary renunciation of our export trade during all the latter part of the war. Many of our most valuable economic connections were severed, and we had sold, as the House knows, a large part of our income earning overseas assets. With surprising speed we rebuilt our export trade and re-established our commercial connections, so that by the end of 1946, the first post-war year, our total deficit for the year was only £370 million—[HON. MEMBERS; "Only? "]much less than most of us could possibly have expected under the circumstances.
The figures in Table I of this White Paper show how these favourable results of 1946 were reversed in 1947, and how the dollar crisis swept over the greater part of the world and most grievously affected our own position as the mainspring of the sterling area, so that the drain on our gold and dollar resources became almost disastrous. The rapid rise in prices following the removal of price controls in the United States in the middle of 1946 accentuated the dollar crisis, and its effect upon the rest of the world was to create other payments difficulties which were reflected back on us in terms of gold and dollar costs. It can also be seen from that Table how the fuel crisis, early in 1947, checked the rising tide of our exports and so set us back in our overseas balance. So we observe that, a little more than a year ago today, we in the sterling area were confronted by one of the most severe economic crises we had ever faced.
Now let us pass to the first half of 1948, when the results of the many and varied measures we took to meet this crisis in our affairs began to be measured. We can now look back over the first six months of 1948, and take stock of what progress we have made and what has still to be done. To this part of the White Paper I now turn, but before doing so I must draw the attention of the House to the corrected figure for the deficit in 1947, which now appears at £630 million sterling and which is smaller by £45 million than the estimate which was published in the White Paper on the Balance of Payments in February of this year. It will be remembered that this earlier Paper referred to the Estimate as "very provisional," since it was put together long before much of the necessary data had become available in its final form. Now we have much more complete information about 1947, and the new figure of £630 million given in today's White Paper is more accurate.
Although there are a number of detailed changes between the two figures, the revision can be summed up by saying that our estimate of total payments is practically unaltered—it has actually gone up by £2 million—with smaller payments for imports offset by larger payments on invisibles; but the estimate of total receipts has increased; the decrease in the figure for export income of £23 million has been more than offset by £21 million in larger receipts from shipping, and by £7 million more from interest, profits and dividends. We also now have a reasonable estimate of receipts from travel in the United Kingdom which was not available before and finally the figure for net receipts from various miscellaneous transactions has been written up to plus £3 million from minus £20 million. Hence the total difference of £45 million in the figures. I may add that our sources of information upon all these matters are constantly improving very largely as the result of the detailed discussions we have been having with many other countries during our negotiations with them. This underlines perhaps the provisional character of the results for the first half of 1948 with which I am dealing, but I do not think that the final version will show any markedly worse result than that disclosed now. The variation is likely to be in the other direction.
The most outstanding fact as to the first half of this year is that our total deficit with the whole of the rest of the world has been reduced to £140 million, or an annual rate of £280 million, compared with £630 million in 1947, a reduction of approximately 55 per cent. Hon. Members will recall that in the Economic Survey we estimated tentatively that our aggregate deficit might amount to £136 million in the first half of 1948. To all intents and purposes this general forecast has been fulfilled.
Mr. Osborne (Louth): Can the Chancellor tell us what the deficit was for the first six months of last year?
Sir S. Cripps: I cannot without referring to documents, and I think it would break the thread of my argument if the hon. Gentleman wanted me to get that information now.
The general figure overall, however, is not the whole story. When we look at the details of how that reduction has been accomplished large variations between the forecast and our actual experience are disclosed, and I think it is worth while to examine the significance of these differences.
First, let me take imports. We spent on imports, in the first half of 1948, £887 million; the forecast was £792 million. We spent, therefore, £95 milion more than we had anticipated upon imports. That was only to a very minor extent due to any higher volume of imports than we had planned for. We actually estimated a volume of imports at 76 per cent. of the 1938 total, and we imported 78 per cent. Such an overall comparison might be misleading, but with one or two exceptions, which I will mention later, we did not pay for a larger volume of imports than we had expected. The difference is basically a consequence of the rise in import prices, a rise which has proceeded continually and amounted to 10 per cent. during the half year. I and many other people have constantly drawn attention to the damaging effect to our economy of this rise in prices of foodstuffs and raw materials which we must import to keep our own production going.
Looking ahead for a moment there is perhaps not quite so black a prospect as there was; there is the possibility of some relief so far as some commodities are concerned. The good world harvests, and particularly the bumper crops of coarse grains in the Western Hemisphere, have already affected the prices of cereals, which are an important element in our imports. Although we do not want to see any catastrophic fall in prices of raw materials and foodstuffs, because that would only further upset world economy, we can very legitimately welcome a reasonable fall. On the other hand, the prices of many industrial commodities, particularly metals, are still rising and show very little signs of any fall. They are being supported, of course, by the very high level industrial activity throughout the world, and although they are a matter of vital concern to us in our overseas balance, unfortunately, by our own efforts we can do very little to influence them.
Imports, therefore, cost us £95 million more than we expected, largely because of the rise in prices, but export prices also rose, though only by 3 per cent. Therefore, the terms of trade moved heavily against us during the six months. Our exports earned £731 million, which is £26 million more than we had forecast, so that to that extent the increase in the cost of our imports was offset.
This export effort is, in my view, worthy of very high praise of those who made it. Between December, 1947, and June of this year, the volume of our exports rose from 120 to 138 per cent. of the volume of 1938. By the end of June, 1948, it had almost certainly hit our target figure of 140 per cent. of the prewar figure which, I may say, has since been well exceeded. This must be described as a very fine overall achievement, and one which reflects the greatest credit to all those industrial and transport workers, managers, technicians, staffs and salesmen who have enabled this vast volume of British goods to be produced, sold in the world markets, and delivered to the four quarters of the globe. It is on this effort that our recovery has been based, and it is upon a continuance and spread of the energy, initiative and drive that have been shown that we can base our confidence in the successful achievement of our objectives. I want to deny specifically that any part or section of our people are not working well. Some individuals it may be are slacking, but the people as a whole—no, they are doing their stuff, to use a colloquialism.
Summing up this part of the story, we can say that on visible trade account we showed a total deficit of £156 million for the half-year, which is £69 million more than we had forecast. But now I come to what is perhaps the most hopeful development shown in these Tables, the definite signs of recovery in our invisible income. Nothing, perhaps, was more disturbing in 1947 than our heavy adverse balance on invisible account. In 1938 we had had a net income on invisibles of £232 million equivalent at that date in value to more than a quarter of our total imports. In 1947 we had a net deficit of £192 million—a changeover of £424 million on invisible receipts. A good deal of this change was accounted for by much heavier Government expenditure overseas, an increase from £16 million in 1938 to £207 million in 1947. But it was also due to a loss of income on overseas investments, because we had to sell them, and it fell from £175 million net to £50 million, to smaller net shipping receipts because the ships were at the bottom of the sea, and to heavier expenditure over a large range of commercial activities in re-starting the machinery of export.
In the first half of 1948 we had expected some considerable improvement in this part of our accounts through smaller military and other Government expenditure, particularly on relief and on Germany, and through some recovery in shipping and other receipts. Our actual performance, however, has exceeded our expectations. On Government account we spent about as much as we forecast, but our receipts from various war-time settlements and from sales of surplus stores abroad were higher. It is, however, on the receipts side that our most striking advances have been made. We have earned more from shipping. Compared with a net income of £30 million in 1947, we earned at the rate of an annual income of £66 million in the first half of 1948.
Our receipts from travel, which are shown for the first time, were up from £19 million to an annual rate of £28 million, and we expect the second half year to make an even better showing still because of the Olympic Games and other matters. Also this is the time when there are generally more foreign visitors. Finally, the net income from all other financial and commercial activities has also risen much above our expectations. This latter item is a compound of many varied items of both expenditure and income, but it is possible to say that the income from the overseas operations of our oil industry has increased, and I am sure that will be a matter of great satisfaction to all those who have contributed to it by their abstinence in the use of petrol in this country.
In the upshot, therefore, the net result on invisible account—which showed a deficit of £192 million in 1947, and which we expected to be reduced to £49 million in the first half of 1948—actually came out at a surplus of £16 million. I believe this marks the beginning of an upward trend which will be maintained, so that in time our invisible income will once again make a significant contribution to making up the balance on our overseas trading account.
So to sum up the situation, these provisional figures show that, compared with the Economic Survey forecast for the first half of 1948 we had a visible deficit £69 million larger, but a net invisible income £65 million greater, giving a total deficit of only £4 million more than the forecast. These figures, as I have said, may still be subject to a good deal of detailed correction, but they are sufficiently near the mark to indicate that the better performance on the invisibles offset the extra deficit on the visible trade balance, which was itself largely due to increased prices of imports.
That overall picture with which I have dealt needs, of course, some sub-division into various areas of currencies, because our problem is not merely one of achieving a reasonable balance in the total of our overseas payments. That would be so if currencies were convertible, but they are not. We have also to solve the even more stubborn problem of achieving a balance with the Western Hemisphere. The White Paper gives, in Table II, an analysis of the movement in our visible and invisible balances with four main geographical areas, and this shows clearly the way our position has changed over the past few years. With the Western Hemisphere we had in 1946 a deficit of £360 million, almost exactly the same as our total deficit for the year. By 1947 that deficit had increased to £670 million, an increase in which visible and invisible trade shared almost equally. Not only did the increase in the cost of imports far outstrip the rise in receipts from our exports, but our expenditure overseas on feeding Germany and on many commercial purposes increased heavily just at a time when much adventitious income which we had received in 1946 after the war came to an end. Not only has that process been reversed in the first half of 1948, but we have got back to a rate of deficit not very different from that of 1946. And this despite a rise in import prices, which has affected our Western Hemisphere imports as much as, if not more than, those from anywhere else.
We have reduced our expenditure on Western Hemisphere imports from £716 million in 1947 to an annual rate of £588 million in the first six months, a reduction in value of nearly 20 per cent. and in volume of nearly 25 per cent. That is a pretty quick switch-over within a six months' period. At the same time our exports have gone up from £164 million in 1947 to the annual rate of £234 million in the first half of this year, an increase in value of over 40 per cent. Those are remarkable achievements in so short a time.
The reduction in imports has entailed some sacrifice to the people of this country, who have forgone desirable goods. particularly those types of foodstuffs from the Western Hemisphere which provide variety in the diet; but they have the satisfaction of knowing that by their action they have contributed largely towards the solution of our dollar problem and, what perhaps is even more important, have strengthened the position of sterling in the world. The increase in exports has meant breaking entirely new ground in markets where competition is very severe, such as the internal market of America itself.
As a consequence of these developments the visible deficit with the Western Hemisphere has been reduced from £552 million in 1947 to an annual rate of £354 million in the first six months of the year, a reduction of one-third. Simultaneously, as I have said, we have greatly improved our position on invisible account. As a result of sympathetic co-operation by the United States, our dollar expenditure on maintaining our zone of Germany has been very largely reduced and we have earned a good deal more in dollars from shipping, tourists, oil sales and a number of other sources. This was forecast in the Economic Survey, and those forecasts have largely been fulfilled. The result is that our Western Hemisphere deficit, overall, of £670 million in 1947 has been reduced to an annual rate of £390 million in the first half of this year. That is actually a little larger than the Economic Survey forecast, which was £183 million in the first six months—an annual rate of £366 million.
But apart from the question of price increases, which I have already noticed, there are one or two special factors which have affected the Western Hemisphere position. For example, we spent £11 million on tobacco, as against a forecast of practically nil. That was done because we had a very favourable opportunity of anticipating expenditure which would have been incurred anyway a little later on and of getting tobacco at a very cheap price. We also received under a number of our contracts rather larger deliveries of foodstuffs in the first half year than we expected—but this means a smaller expenditure, of course, in the second half of the year.
As a result of these special factors, we spent on imports from the Western Hemisphere £294 million, which is £27 million more than our forecast, a very small excess in view of the increase in prices; and this was partly offset by an increase of £12 million in our export proceeds. I think that is a good record of progress for six months in reducing the size of our Western Hemisphere deficit, though be it remembered that deficit was still very uncomfortably large, at a rate of just under £400 million a year; and it still remains the most difficult problem with which we have to deal.
It is this particular lack of balance, above all, that must be removed if ever we are to stand on our own feet without external aid. For the time being the aid we are getting under the European Recovery Programe is helping to bridge this all-too-wide gap. Without that aid we should have had to cut off vital supplies of food and raw materials, with the gravest consequences not only to our standard of living but to our capacity to produce. We can certainly draw encouragement, as I have said, from the progress that we have made, and confidence that we are on the right road, but we still have a long and difficult journey to travel—