Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 20th February 1956.

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Photo of Mr Harold Wilson Mr Harold Wilson , Huyton 12:00 am, 20th February 1956

The hon. Gentleman must be patient. The figures I have given are not the result of Marshall Aid. Marshall Aid is disregarded altogether. I have also disregarded from the 1955 figures the December payment under the Washington Loan Agreement. The hon. Gentleman asked "What about 1951?" That was a year when, as the whole House knows, there was a serious run on sterling due to the collapse in the price of sterling area raw materials following the collapse of the post-Korean boom. But 1955 was, in terms of world economic conditions, a highly favourable year. The Banker, a magazine which I am sure the Chancellor reads, said: Britain dare not assume the permanence of the external climate that so powerfully aided it during this difficult year. The terms of trade, which had turned against us by the end of 1954, had improved. Last year sterling area prices were high, especially rubber, with the dollar earnings that represented. There was an unprecedented world boom. There was an unprecedented boom in the United States, making our job easier.

That was 1955. Since then we have had the gold and dollar figures for January. We have a net gain of 29 million dollars. We were all glad to see that the outflow had been reversed. But 29 million dollars, as I am sure the Chancellor will agree, is not enough for what should be the most favourable time of the year. If we can get only 29 million dollars in January, we are bound to ask the Chancellor what happens when Autumn comes—the least favourable time of the year for sterling—or what happens if any new factor arises to upset confidence?

Last summer we saw the effect, in terms of a run on sterling, of a few words said, or believed to have been said, in a private conference in Paris. We saw the effect in terms of a run on sterling last week, for no apparent reason. In December, there was even a small run started because of a rumour, or a leakage, that the former Chancellor was about to leave the Treasury—though goodness knows why that should have caused a crisis in confidence in sterling. The point is that we are not dealing with rational human beings when talking about this, and almost anything can start a crisis of confidence. That is what we must warn the Chancellor about, and I am sure he is receptive of this warning. He must not believe that he has solved the economic problem just because he has maintained a short-term influx of short-term capital. We had enough of that last year, as his predecessor could warn him.

On 24th February last year, rather less than a year ago, the then Chancellor increased the Bank Rate and had a swing a, hire purchase. Within days he was claiming that his policy was successful. We warned him that the real test was the relation between exports and imports and not the short-term influx of "hot" money. But he was still in that spirit and we had the Election Budget speech and the Election. What was the then Chancellor saying at that time? This is what he said in his Budget Speech last April: …it became clear by February that we needed to take action to moderate the growth of imports and to encourage exports. And from the result, all I can say is thank goodness that we took action in time. He also said: But the situation had been brought under control, as, for example, is shown by the movement of the reserves since then and the latest rates for sterling."—[OFFICIAL REPORT, 19th April, 1955; Vol. 540, c. 39–40.] That is what he was consoling himself with on the eve of the General Election.

Then we had the Election broadcast when the right hon. Gentleman addressed many millions of people. He said then, We have restored the national solvency. That was his claim. Referring to the measures of 24th February he said: We are beginning to see the first effects. Our trade figures are better and we are once again holding the position of our reserves. That was in April. He was able to say, or trying to claim, in the Election that the measures of 24th February were successful. I think it is now plain to the country that this Government not only obtained office in 1951 on a fraudulent prospectus but retained office last year on a fraudulent directors' report, because in July, within a couple of months of the Election, we had another crisis and another statement from the right hon. Gentleman. Within 24 hours of that action he was claiming that his measures were proving successful.

Within a day of announcing the measures of 25th July last he was on his feet in this House justifying the success of his action in terms of a purely short-term run of money. Yet by August again there was a new crisis developing. The Government have still not learned—I hope the Chancellor will learn from this—that they must not be misled by short-term runs in foreign exchange markets but that what counts is the balance between exports and imports.

If we look at 1955 as a whole, we find, making due allowance for the sort of factors dealt with in the Government statement, that exports were up by 5 per cent. on the previous years and imports by 15 per cent. and that the trade gap worsened, a disquieting worsening compared with the previous year by £300 million. It is odd, but the Chancellor may remember that in February of last year we warned him that, on the drain of the first few weeks of the year, it looked as though the trade gap would worsen over the year as a whole by £300 million. That is exactly what happened.

Then we had the January, 1956, figures, the figures published a few days ago. Now, twelve months after the action which the right hon. Gentleman thanked goodness he took in time, we have a visible trade gap of £74·2 million in a month. That is £2·1 million worse than the monthly average for last year, and £12·1 million worse than the monthly average for the fourth quarter of last year. Can the Chancellor really claim that the credit squeeze is working in its declared aim of restraining imports and expanding exports? Although we all welcome the meagre successes of the Board of Trade in expanding exports—they are still slowly rising—it one compares our export record with those of other countries one sees how dismal is the Government's performance.

If we compare 1951 with 1954, we find that exports in Western Germany—I realise that in this case there were special factors—rose by 52 per cent.; those of Greece by 48 per cent.; Austria by 34 per cent.; the Netherlands, 24 per cent.; Denmark, 14 per cent.; the United Kingdom, 2½ per cent. and France, 1·9 per cent. We were nearly at the bottom of the league. The same is true with regard to gold and dollar earnings. Sir Oliver Franks, chairman of Lloyds Bank said: Since the end of 1951 the Continental countries have accumulated some 5,000 million dollars' worth of gold and dollars; our own reserves have actually fallen on balance and are indeed lower than in 1945. There is the same gloomy record with regard to production. If we take the years from 1951 to mid-1955, we find that production in Germany rose by 54 per cent.; Greece, 49 per cent.; Austria, 40 per cent.; the Netherlands, 39 per cent.; Italy, 31 per cent.; France, 26 per cent.; Norway, 24 per cent., and the United Kingdom 16 per cent. Again, we were nearly at the bottom of the league. I do not need to remind the House that when the Labour Party was in office, up to 1950 we were at or near the top in all these tests—production, exports and gold position. These figures were proved and are proved by impartial international authorities. We were at the top of the league at the very time when the right hon. Member for Woodford (Sir W. Churchill)—whom we are so glad to see here this afternoon—was proclaiming that we were doing worse than any other European country west of the Iron Curtain.

Why have exports stagnated? It is not that the markets are not there. It is a direct result of the Government's free-for-all, unplanned and inflated economy. I will take two examples. Last year we mentioned the fact that the motor car industry was consuming large quantities of sheet steel and the export proportion was declining. We also reminded the President of the Board of Trade that exports of cotton piece goods in 1954 were lower than in any peace-time year since 1840. We did not think that they could fall much lower, but they did; they fell by one-third, or 13 per cent., in 1955.

It is not that we have been priced out of the market—hon. Members opposite are too quick to assume that—although I admit that the Government's measures are in very serious danger of having that effect. The problem is much more one of deliveries, because of inflation. When the right hon. Gentleman talks about wages and wage costs, it is relevant to point out how this nation, under Tory freedom, has seen the cost of living rise very much more than has been the case with its main rivals. Again comparing 1955 with 1951, the cost of living in Western Germany rose by 3 per cent.; in the United States by 4·1 per cent., and in this country by 23·6 per cent. That is one league—the cost of living league—where the Government have put us at the top.

The policy of restraining imports is a result of inflation and, to some extent, premature decontrol. Many examples could be given. I will mention coarse grains. Imports of barley from Canada last year rose from £13·6 million to £21·3 million, and imports of maize from the United States from £18·4 million to £28·7 million. Does the right hon. Gentleman really suggest that these are the products we most need to buy with our scarce dollars?

He talked about import licensing, and mentioned some of the practical difficulties. One of the biggest difficulties is that which he mentioned, namely, the danger of retaliation from other countries against our own export trade. That is a factor which we all have to bear in mind, but I do not agree that licensing would mean allocations and rationing. It would do if there were sharp reductions in the quantities of basic foodstuffs or raw materials, but a very large proportion of the increase in imports today, both from dollar areas and Europe—where we now pay in gold—consists not of raw materials or foodstuffs, but of relatively inessential manufactured goods. There would be no need for a reduction in the supply of those to cause any rationing.