Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 12:00 am on 7th May 1957.

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Photo of Mr Donald Chapman Mr Donald Chapman , Birmingham, Northfield 12:00 am, 7th May 1957

I am not really interested in the hon. Gentleman's argument. The answer to him is quite simple, namely, that in the first place I said virtually the whole and, secondly, that I was, of course, dealing with the concession to private taxpayers. We are talking here largely of the impact of direct taxes on the community. I am talking about who gets most out of the Budget. That is the right way to judge the Budget as a whole.

I want to spend a few minutes putting to the Government a few more questions on the lines of some which I put in a short speech at the end of the Budget debate. They are about the effect of all this on the balance of payments situation. There we have a situation where, in the next twelve months, the Government will be taking a deliberate gamble. I do not object to that. To get out of the stalemate of production, consumption and imports it may be worth taking a gamble.

I want to know why and how the Government think that the gamble will work out in the coming twelve months and whether the risk they are taking is legitimate. The background of all this is Table 2 of the Economic Survey, which must haunt everybody who thinks about the balance of payments. In that table can be seen the farcical but crucial nature of tiny shifts in consumption exports and imports, investment and stock building. In spite of a national income of £20,000 million, we need only a 1 per cent, movement, a movement of £200 million, in the wrong direction in some of these, and we have an acute balance of payments crisis. That is farcical in view of the huge figures involved.

The equivalent result in 1938 was a £50 million deficit in our balance of payments which passed unnoticed, simply because at that time we had enough reserves to ride the storm, the very small storm as it was then. Today, with two and a half months' reserves, the 1938 deficit in our balance of payments is something which could bring us very near even to devaluation of the £. As these very small movements in the next twelve months can, as they did in 1955, bring us very near to another terrible crisis, we ought to know more about the figures upon which the gamble is being taken.

We do not know how the Chancellor expects these figures to go, yet a very small movement will give us a very big crisis. It is even more important in the sense that we have not only to maintain the 1956 position, but from 1959 onwards begin repaying some of the very reserves on which we are now depending and which we have borrowed. From 1959 onwards, £591 million reserves for a start have to be repaid. As was mentioned in the Budget debate, we need an even bigger balance of payments surplus because of the likely demands of the sterling area on sterling balances in the next twelve months, and beyond.

It is not good enough to start out with all the figures moving, as I will show, towards the same sort of pattern which we had in 1955 and which produced a crisis, and yet to say that we are just simply hoping that the gamble will succeed. I am not saying that there will be a crisis. I am saying that we need an explanation of the way it is expected to work.

What happened in 1955 and in 1956? Let us take them in the reverse order. In 1956, we managed to hold and improve our balance of payments surplus by holding production, holding back consumption, holding back imports and pushing up exports. That was the only way in which we could get our balance of payments surplus. In the previous year, when we had a crisis, we had an increase in consumption, a big increase in investment, but an enormous increase in imports and a relatively modest increase in exports. That is beginning to happen in 1957, and it is not at all reassuring.

Admittedly, exports are now increasing. Admittedly, we have them going up quite merrily, but what is also beginning to happen in the first quarter of the year is that imports are going up more than exports. Far from holding them steady, which was the key to our success in the situation in 1956, they are already rocketing ahead. Imports are up more than exports compared with last year. Again, retail consumption increased in January and February by 8 or 9 per cent.

This situation will make itself felt most in the latter part of the year. Although some of us at one time thought that investment would be held this year, and to that extent—whether good or bad is a different matter—would help the balance of payments, the Treasury Bulletin shows that investment will increase this year. This is all the pattern of 1955 which produced a crisis because consumption rocketed, because imports rocketed and because the whole thing got out of hand.