Economic Situation

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

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Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North 12:00, 20 December 1956

It was very much the same as it is now, seven years longer after the war. I ant giving only facts which, I think the country should know, hon. Members cannot deny.

Throughout the last few years, while the sterling reserve has been going down, almost everybody else's has been going up. Germany's reserve since 1951 has actually increased five-fold, and even France's reserve has doubled. Germany's reserve was half ours in 1951 and is double ours today, and yet we are both living in the same economic world. In addition, the present reserve is ludicrously low in relation to either the present total of sterling balances owned by overseas holders, or the present volume of trade done by the sterling area with the outside world.

On 4th December, the Chancellor took some credit for the fact that the sterling balances—in plain English, our debts had fallen by £22 million in the first half of the year. But he did not mention that the total of these balances is £4,022 million, or more than five times the total of the reserve at the moment. If the reserve today were equal, even to the same proportion of the United Kingdom's imports, or the sterling area's imports from the outside world, as it was in 1938, it would have to be nearly six times the present figure.

That is the real measure of the plight we are in and the task which is now facing us. The truth is that we have used up a large part of our reserve since 1952 in lucky years, the years when it should have increased, and are now facing the bad years without it. What has the Chancellor done in this new extremity? The Minister said that he had brought forward swift and impressive reinforcements to the reserve. That is rather a queer way of describing it. What he has really done is to borrow 1,300 million dollars from the International Monetary Fund to bolster up the reserve, and is now apparently borrowing another 500 million dollars from the Export-Import Bank. Perhaps the Economic Secretary will give us some more information about the latter transaction tonight.

We should certainly be grateful to the United States for again baling us out on this scale, and it is rather surprising, since all this money comes indirectly from the United States Treasury, that on 4th December the Chancellor did not say a single word of thanks to the United States authorities about it. Of course, this transaction does not mean that the reserve has been increased. It simply means that a large part of it is now publicly mortgaged. As we earn a dollar surplus in future, if indeed we do, we shall have to pay off these loans, borrowings, lines of credit, whatever the Government prefer to call them, for a number of years ahead.

Why is it that the reserve has been falling ever since June, 1954—I give the exact date—and is now 30 per cent. less than it was in 1951? It is because our gold reserve began this phased withdrawal long before the Prime Minister's great diplomatic and military victory in Egypt a few weeks ago. The real reason for the fall over the last five years—