Next week we shall hear the proposals of the Chancellor of the Exchequer for dealing with the economic crisis. Today, we propose to examine the reasons for the crisis, 'both the short-term and the long-term one. The immediate reason is in no doubt. As in all such crises it is the run on sterling which has developed. Too much sterling is being offered in relation to the amount being purchased, and consequently, in the three months, April, May and June, there has been a loss of approximately £160 million from our gold reserves. This would have been very much higher but for the support of the European central banks. We do not know exactly how much sterling they have acquired in the last three months, but it is noticeable that in April alone, the first of those three months in which there was a decline in the gold reserves, the holdings of Western Europe in sterling balances rose by £85 million.
Why is there a run on the £? Part of the answer, of course, is that our current balance of payments is in deficit. In the first quarter we were "in the red" to the extent of £56 million. We may be somewhat less "in the red" in the second quarter, but that there was also a deficit seems highly probable. This is not a very large figure. It would not matter so very much if it were something to be taken on its own. But it cannot be considered on its own, for it follows a long and substantial deterioration in our balance of payments.
In 1958, we had a substantial surplus of £291 million. This fell in the following year to £51 million and it developed into a deficit, on a massive scale, of £344 million in 1960. But there is more to it than these figures suggest, for normally we invest abroad substantial sums on long-term—on the average, say, about £200 million a year. We have to do this so long as we are providing capital for the Commonwealth and for other countries. So that, in any event, we need a surplus on our balance of payments of that amount in order to finance the overseas investment. If we have no surplus at all, we have to borrow not only to cover the deficit, but also to cover the long-term investment. Last year, we must have borrowed on short-term something like £600 million to cover both the deficit and the overseas investment which took place. It was not difficult that year because there happened to be a flight from the dollar. Indeed, we borrowed more than £600 million, because our gold reserves actually rose during the year.
We go on trying to maintain a world banking business on totally inadequate reserves. In such conditions I think that most bankers would say that it would be wise to reduce short-term liabilities and to increase short-term assets. In fact, we have done nothing of the kind. During the last six years, according to Mr. Barna, in his article in the Financial Times Revew, we have lent abroad on long-term about £1,000 million and borrowed short almost exactly the same amount. I can hardly feel that this is a very sensible way of conducting a banking business.
Even this increased vulnerability—it is increased vulnerability—would not perhaps be so serious if the prospect ahead of us were more favourable. But it is not. We must expect another balance of payments deficit on current account in 1961. It will not, I think, be as large as last year, but it will probably be about £150 million. This means that if we continue to lend abroad our normal £200 million, we shall once again, if we can get it, have to borrow another £350 million, or lose at least the equivalent from our gold reserves.
Finally, and most important of all, there is now conclusive evidence—which even the Government cannot ignore—that in comparison with other industrial nations we are doing exceedingly badly in the rate of expansion of our production and our exports. Continued failure in this field makes it impossible for us as a nation to enjoy the higher living standards which others have, and which we expect, and to pay our way at the same time. It is the widespread conviction that we are failing to compete in, productivity, design, salesmanship and, price, either at home with imported products or abroad with other countries' exports, which leads, and has led, and is leading, to a profound lack of confidence in the future of sterling; and, therefore, it is this which is the underlying cause of the crisis today.
The facts and figures have often been given. They should be blazoned in the country in place of those other posters which so conveniently lulled the British people into a false confidence and complacency.
These are the facts. Our exports in 1959 and 1960 rose by only half as much as our imports. Last year; France, Germany, Italy, Belgium, Sweden, Japan and the United States all increased their exports more than twice as fast as ours.
Between 1951 and 1960, we had the smallest increase in exports of any industrial nation; and if anybody says; "Ah, but there were other nations which had not recovered so far by 1951, and you should take a later date," I will do so. I will take the progress since 1955, and, again, the same story is true. We had the smallest increase in exports between 1955 and 1960 of any industrial nation. The United States increased her exports half as much again as ours. France, Holland and Sweden all increased their exports three times as fast as ours. Western Germany increased her exports five times as fast as ours, Japan six times and Italy eight times. These are the facts of our record between 1955 and 1960.
Our share in world markets of manufactures has fallen from 25½ per cent. in 1950 to 20 per cent. in 1955 and to 16 per cent. in 1960. Nor is this decline confined to European or non-Commonwealth markets. It is not a matter of the sterling area markets having expanded less rapidly than others. It is a matter of our having lost in the fight for sterling area markets, for there, in the last six years, our share has fallen by over a quarter. In Australia, Malaya, New Zealand, Pakistan, Ghana and Rhodesia—in evey single country—the share of our exports is falling.
Our invisible exports have dwindled from £400 million a few years ago to practically nothing today. Part of this, of course, is due to the failure of our shipping industry to achieve any net earnings at all. Part of it is due to the higher interest rates which we pay on the money we borrow, and it is estimated that this alone has cost us £50 million. Part of it must be due to the amount we pay out in dividends on foreign investment abroad. Here perhaps the Chancellor of the Exchequer or the President of the Board of Trade can tell us why it is that, despite the fact that we have invested so much abroad—£1,000 million in six years—we seem to get very little back from it. Can it have something to do with that change in tax law made by the present Minister of Aviation, when he positively encouraged business firms with subsidaries abroad not to remit dividends home? That is the story of our trading activity in these last few years.
It might be supposed that our problem of selling abroad had been made difficult—indeed, that the whole difficulty had been created—because we were trying to expand too fast at home. We are all familiar with the theoretical argument that if we expand too fast at home, imports go up, exports go down, we get into a balance of payments crisis and we must then clamp down. But this theoretical picture is also not borne out by the facts. Our record of growth in this country, as compared with others, is just as bad as our record of exports. Again, the figures speak for themselves. I take the period from 1955 to 1960 again, because it might be said that an earlier period would not be a fair comparison. During this period, in Germany, France and Italy, production has risen three or four times as fast as it has in this country. It has risen twice as fast in Holland, and nine times as fast in Japan.
It might also have been supposed that, since we neither had an expansion in exports nor an expansion in production, we might have had stable prices in Britain, or at least, prices that rose less rapidly than those in other countries where production was rising faster, but, again, the exact opposite is the truth. Only one country—France—has a record of more rapidly rising prices in the last nine years than Britain.
The Chancellor of the Exchequer said on Saturday:
The paramount need is that, as a country, we should face the facts.
I agree. And these are the facts, unpalatable as they may be. There is a run on the £. Our gold reserves are falling. For eighteen months, at least, our balance of payments has been in the red. We have been spending more than we are earning. We have the worst export record in the past ten years, or the past five years, of any industrial country in the world. We have a steadily declining share of world trade. We have almost the worst production record, and we have almost the highest rise in prices. These facts make some past statements look a little odd.
I have another quotation:
The result of all these measures taken together is that today the British economy is sounder than at any time since the First World War. Sterling has been established as a strong and respected currency. Our balance of payments is strong.
The Prime Minister said that in September, 1959, when our balance of payments was already declining fast and we were moving over into deficit. But he said something much more recently than that. Only at the beginning of this year he was still blandly cheerful.
Production should start moving again soon. Broadly speaking, you know, we are still in a big boom. … We have got it good; let's keep it good.
It also makes some posters look a little sailed, and I cannot help wondering what the new instructions to Messrs. Colman Prentis and Varley are to be.
Perhaps they will be told to introduce a new slogan, "For service and sacrifice, vote Conservative", and combine it with a picture of the Home Secretary disdaining port and over-ripe pheasant, and, at the same time, saying,
Good may yet come from our economic difficulties, especially if our party gives a lead to the country in asking for moral values to emerge instead of materialistic appetites.