STATE OF THE NATION

§ The Chancellor of the Exchequer (Mr. Dalton)

These are days when history is being written, and when the eyes of the world are upon us in this little island of ours, as we face a very grave national emergency, and as we debate the action to be taken. We here are the elected representatives of the unconquerable British people, and we must not fail in our trust. We have run into a great storm, and this storm has sprung up very swiftly, as I shall indicate. [HON. MEMBERS: "Hear, hear."] I have a good deal to say and some statistics to deploy, and I have already called up all my reserves of patience for any interruptions I may have. This storm, as I shall show with detailed figures, has sprung up very swiftly, and the force of this storm is measured today by the rate of exhaustion of the United States line of credit; that is the measure. It has sprung up very swiftly, but it has been brewing for a long time—long before most hon. Members opposite were elected to this House.

One of the most notable speeches yesterday was made by my hon. Friend the Member for North-West Hull (Mr. R. Mackay), who showed how, away back in 1932, the late Mr. Neville Chamberlain was also faced with a problem. [Interruption.] What I have to say, I shall say, nor shall I sit down until I have said it. Away back in 1932, Mr. Neville Chamberlain had to face a problem similar in character, though less grave in extent than this, and he called to his aid a general tariff in order to redress an adverse balance of payments. It is an adverse balance of payments which we must redress today. For a very long time past—for at least a generation, if not more—this country has never paid, under any Government, or in any economic situation, whether of boom or of slump, for its necessary imports by its exports alone. That is a task which has never been accomplished under any Government for a generation past. These are platitudes to all who study the subject, though they may surprise those who have not.

1655 The change which has come upon us is that, in two world wars, a great part of our overseas sources of means of payment for our imports has been destroyed; that is to say, the foreign investments which we slowly accumulated through the 19th century have been dispersed through the war effort twice undergone by us in two world wars. Therefore, the period of living on our 19th century investments is over, and that chapter in our history has come to an end. This fundamental change in the conditions of our national life has been cloaked in recent years by many factors. During the war, as my right hon. Friend the Prime Minister said yesterday, it was cloaked by Lend-Lease, when we got large quantities of food and supplies without payment at all, and we deliberately dismantled our export trade in order that that might be diverted to the war effort. This fundamental change of which I have been speaking, slowly making itself felt through years of peace between the wars, was cloaked by Lend-Lease during the war, and it has been cloaked in the interval since the war by the United States and the Canadian lines of credit.

I said that we have run into a great storm, and I will seek to put to the House the immediate causes of it in this simple form. First of all, there is the steep rise in the prices of our imports since the end of the war. I am going to quote a number of figures. I have been asked to do so by hon. Members opposite, and, for that reason, I ask indulgence if, in the course of my next quarter of an hour or so, I give more statistics than I usually inflict upon the House, but they have been asked for and it is right that they should go upon the record. These statistics are all drawn from official sources, and I think I can say that none of them are open to any doubt at all. They can all be readily verified.

First, with regard to this steep rise in the prices that we have to pay for our imports—prices which have to be paid in dollars. The American index of wholesale prices, which is as good an index as we can get, and which takes 1926 as the base year, or 100, stood at 107.1 in January, 1946. In July, 1946, it had risen to 124.3, and in July, 1947, it had risen to 150.6. That is to say, in broad figures, 1656 it had risen by 50 per cent. from January, 1946. If within this total, we take the prices of farm products, which are of great importance to us, this index had risen from 130 in January, 1946, to no less than 182 in July, 1947. Roughly, one may say—I think this is simple arithmetic, which has been worked out by those who study these things—that the cost of the commodities that we are buying from the United States has increased by between 40 per cent. and 50 per cent. since the loan was concluded at the end of 1945, and it has increased by 20 per cent. since 12 months ago. So much for the rise in prices. As I have said before, these are not the same dollars. We borrowed dollars at a certan price level, but, in fact, the value of these dollars has depreciated in the measure which I have indicated. These are not the same dollars that we borrowed, by reason of the depreciation in their purchasing power. That is the first reason why this storm has suddenly risen, and why there has been this steep rise in prices of what we need to buy with dollars.

In the second place, there has been a setback to our hopes of the export drive, as we felt them last winter. That has already been dealt with. The estimated loss of export income for this calendar year, 1947, by reason of this setback due to fuel and weather difficulties, is £200 million. In the third place—and, in some respects, this is the most fundamental reason of all—throughout the world, touching not only us but many other countries, some of whom I will name, there has been a spreading dollar famine which has been rapidly intensifying in the last few months. I emphasise this, and I will give statistics to prove it. One nation after another has been running out of dollars, using every means it can to acquire more dollars, and using in particular every means of converting any other currency—sterling, francs or what you will—into dollars as speedily as possible; all the nations collectively and each of the nations separately have been importing far more from the United States and from the other countries of Western America than they can pay for. I will give figures to illustrate this in a moment.

Therefore, in the third place, the cause of the rapid rising of this storm is the speedy growth in dollar starvation all over 1657 the world. This has not only embarrassed us, although today we are naturally concerned with our own embarrassments; it has embarrassed many other countries in the world as well. It has gravely embarrassed our good friends in Canada, I shall speak of them in a moment; they are in grave difficulties by reason of the same situation. They are importing far more from the United States than they find themselves in a position to pay for. It has embarrassed the economically strong countries of Latin America such as Argentine, Brazil and the rest, who were not in the war and are not at all war-scarred. It has embarrassed a relatively strong, though small, neutral such as Sweden. All these countries have been conscious of a lack of dollars. The measure of this total dollar famine in the world may be appreciated when I say that the United States exports at this time are running at the rate of 21 billion dollars a year, as against imports into the United States of some 8 billion dollars a year. They are exporting more than twice what they are importing, and this difference between these two figures represents the total adverse balance in the current overseas account of ourselves and all the other countries in the world.

Why is this? There are many reasons, but the reason which sticks out a mile is that both the continent of Europe, ourselves—this island outpost of Europe—and large parts of the continent of Asia, have been war-wounded, ravaged, bombed, invaded, and occupied by the common enemy whom, with such tremendous effort, we defeated; and their recovery of productivity has been much slower than we and the Americans hoped. [Interruption.] I am not making party points. Perhaps that may be left to a later stage. I am talking straight statistics. I am saying that all these countries in Europe and Asia were war ravaged in a way that the new world was not; neither of the Americas was. Therefore, the unbalance which before the war was already showing itself—in that the productive powers of the Americas were growing, in relation to those of the old continents of Europe and Asia—has been tremendously stimulated by the war and its consequences. I return to the figure which I quoted, before I pass to the next point. The United States have an export surplus this year of 13 billion dollars—goods going out which it is found increas- 1658 ingly difficult for all the recipients to pay for; that is, 21 billion dollars as against 8 billion dollars. There is nothing controversial about this.

So far I have given reasons why this storm in which we are has blown up with such suddenness. The third and the most important of the three points which I have made is the rapidly increasing surplus of United States exports over United States imports. Some of us have said words of warning about this. It is thought by some that this has come upon us overnight. I think it was the hon. Member for Flint (Mr. Birch) who was so kind as to quote last night from some observations I made as long ago as last February on Tyneside at Newcastle. I asked him to read on. He did not do so, and I shall, therefore, quote now what I said then. I said on 2nd February at Newcastle: We are only able now to import, more than we export because we are living on tick "— I wanted to put the thing so simply that everybody would understand it— which we are getting from the American and Canadian lines of credit. I said: When these come to an end we shall have to pay our way without 'tick.' This means that we must either export more or import less or both. If, therefore, we have to reduce our imports it will mean "— and then I indicated various reactions that would come upon our standard of life and employment, and so on. I said: In other words, you would in this case have a lower standard of life and less employment. That is the danger we have to defeat. It was perfectly clear to all of us at that time that that was the danger. I will quote only one more thing that I myself said, and that was when I was speaking at Margate, where the Labour Party held its recent conference. I devoted some part of my remarks to the same subject on that occasion because I desired to bring home to all those represented what was the big problem confronting us. I said these words: By far the greatest and the gravest of all the immediate economic problems that are now facing us is the question of how quickly we can close the gap between our exports and our imports. We must not count "— I used the word very deliberately— We must not count upon raising any further overseas credit. I hope that we shall prefer to take the view that we must strain every nerve and make every effort in order to stand upon our own feet as soon as possible, 1659 and to pay with our own exports for the necessary imports that we need for the standard of living and the employment of our people. I think that that was perfectly clear. I could not have made it clearer. I added, to give the thing the note of urgency, which I felt to be necessary: Time is pressing very hard. The export drive must be stimulated to the utmost, otherwise, if your exclude the possibility of further overseas credits, there is only one other way of bridging the gap, and that is by heavy cuts in imports, both of food and of materials. And I finally said: In importance this question"— that is, the adverse balance of trade— blots out all others. It is the greatest test that is going to face this country or this movement, either politically or industrially. I quote these things in order to show that I have already spoken clearly to all who will hear me on this subject.

§ Mr. James Stuart (Moray and Nairn)

But not given the solution.

§ Mr. Dalton

I shall deal with that in a moment. I shall tell the former Chief Whip of the Coalition Government, for whom in those days we used to have very kind regard, which has not vanished, everything in due course. If he will contain his soul in patience, nothing shall be withheld. I claim, therefore, that warnings have been given. I have quoted my own statements because for them I am responsible; but similar warnings have been given by others of my colleagues. Thus it is plain, as I have endeavoured to show, that this has not come upon us unawares or overnight.

I wish to say a word or two on what the general situation would be if we had not taken the American loan in 1945, with all the terms and conditions attaching to it. There are some who think—I think that the hon. Member for East Aberdeen (Mr. Boothby) is of the opinion, and some others share his opinion—that it would have been better to have refused the American loan.

§ Mr. Boothby (Aberdeen and Kincardine, Eastern)

Hear, hear.

§ Mr. Dalton

It is an opinion which can be supported by argument, but argument can be deployed on the other side. I wish to face this question quite frankly, 1660 because it was part of my duty to present that Agreement, with all its defects and difficulties, to the House. We got a majority vote in favour of it—not quite a straight party vote, for some hon. Members of the party opposite voted with us, and some of my hon. Friends on this side voted with the other side. It was not a straight party vote, but it was a decisive vote, none the less. I wish now to justify that vote which I advised the House to take. Suppose we had not taken the loan in 1945 on these terms from the United States. We should have run into this same storm in which we are, and we should have run into it more than a year sooner. That is plain fact. We are in this storm now. We delayed this storm by just over a year by taking the loan then. I do not think that that can be disputed. I shall give figures in a moment about our reserves and so on. But it cannot be disputed that this same problem of having a vast surplus of import requirements over export possibilities would have faced us just as it faces us now. We should have come into the storm more than a year earlier. And I submit that more than a year ago we were less strong to face the storm than we are now. I shall give reasons for thinking so.

I submit that in the period that has passed we have increased our strength to face this emergency. I shall give reasons for this though some hon. Members may prefer not to believe it. We are stronger now than then in many respects. We are thinking now, remember, back to the end of 1945 and the early part of 1946 when this loan was under debate in the House. There was a further period, of course, when the loan was being debated on the American side in Congress; but our decision was taken at the end of 1945. Therefore, what we have to compare is the strength that we had at the end of 1945 with the strength we have now. I say that without doubt we are far stronger now. First of all, in this interval we have carried through the demobilisation of very large numbers of men from the fighting Forces—with a smoothness and sense of equity which is totally new as compared to what happened after the first world war. The considerations of age and length of service and the absence of wicked wangling and wire-pulling have created a quite different state of affairs, 1661 and the credit can be shared widely for that, for they proceeded upon plans prepared in the days of the Coalition Government, and nobody need be afraid to claim his share of the credit for that. We have carried through the demobilisation of large numbers of men from the fighting forces and women from the auxiliary forces with a greater smoothness and sense of justice among the people than before, and others can share the credit for it. That was a hurdle which we had to surmount, and that hurdle has been surmounted. The credit for it can be shared widely—I am not seeking to take special credit for this for one section rather than another—that we have achieved the immense physical task of the reconversion of our industry from a war footing to a peace footing. This has been carried through. It had only just been begun at the end of 1945. That has been carried through, and all have played their part in that. These are very important considerations.

In addition—and this is controversial: hon. Members opposite will disagree with it, but I am sure it will be supported by a majority of this House—I believe we have better prospects now than then of increased productivity because—I expect this will be argued, but I am anxious to keep the thing on a reasonable level of quietude, and the fact that I was not loudly interrupted from that side of the House or applauded loudly over here just now was a good thing, on the whole, for the purposes of the Debate—but now I say that the prospects of increased production of coal are infinitely better now than they were then. The miners are now working for the nation. The miners were not working for the nation when the American loan Debates were taking place. The process of re-equipping the mines—and much re-equipment is, admittedly, necessary—of re-deploying and re-arranging the labour force within the mines, and of recruiting new labour to the mines, is going forward. It has begun under the new regime, under the National Coal Board.

I speak with complete frankness on this matter. I wish, throughout my speech, to hide nothing. We have still a long, long way to go before our coal output is adequate to our national need and to what Europe urgently needs from us, as part of the general scheme for the building up of productivity on this and on that war 1662 stricken plot. We have a long way to go, but we have a far better chance of going that long way now than we had under the previous regime at the end of 1945. We have a much better prospect than we had in previous days of increasing the output of coal in the months ahead. That applies in other respects also. Although I do not at this stage wish to develop the argument in detail, I believe that in agriculture, in consequence of legislation being passed by this House—the great Agriculture Bill, which has not been very controversial, contains many guarantees for the future with regard to prices, and so on—we are in a far better position now to look forward to a rapid increase in production than we would have been without that Bill. I say the prospects are much better now than they were then.

It has been good that we have had this period in which to strengthen ourselves, both in the present and in relation to future possibilities. When this loan was negotiated both we and the Americans thought—and all the experts thought—that the loan would give us some three years of help towards reaching an equilibrium in our balance of payments. For reasons given by my right hon. Friend the Prime Minister yesterday, we shall, in fact, have not three years, not 36 months, but only some 15 months of breathing space. This shortening of the period has gravely accentuated the difficulties which all of us foresaw, but the character of which has been much intensified by the factors I have been mentioning. It is common ground—here again I think everybody will agree with what I am about to say—that some of the obligations in the Loan Agreement were imposed upon us prematurely. That was the view of the Government; that was the view of our negotiators; and that was also the view of hon. Members opposite, whether, on balance, they supported the loan or opposed it.

There were features of the Loan Agreement which we disliked, and which I, speaking in support of the agreement, and other right hon. Members on both sides of the House, speaking in that Debate, emphasised at the time. We did not like it. Our negotiators struggled hard against it. They struggled so hard that in the case of Lord Keynes, who rendered such conspicuous service, I am sure that struggle shortened his days upon 1663 earth. They struggled hard against it, but, in fact, we were not able to avoid these obligations as necessary conditions to obtaining the dollars. There was nondiscrimination prematurely on 1st January, 1947, and convertibility prematurely on 15th July last. It is common ground that those were highly disagreeable features of the Loan Agreement. What remained to debate between us was whether we could not get it without these conditions, and every effort was made so to get it. Faced with the alternative of loan on these conditions or no loan, which should we choose? The majority of the House chose—in my judgment quite rightly—the loan even with these conditions.

Over and above these conditions it is further true—and our negotiators fought a hard battle on this, also unsuccessfully—that the amount of the loan was insufficient to leave any margin for any unfavourable further events which might not have been foreseen. Such an unfavourable turn of events has occurred. When all is said, we accepted those conditions at the time we signed our name, and we have punctually kept our word to date; and we are entitled to be proud of it, because that is part of the British way of life, that when we sign a document we keep to it.

§ Mr. Brendan Bracken (Bournemouth)

So do the Americans.

§ Mr. Dalton

Certainly. I am speaking of it from our end. I am not making any point against anybody. Speaking from our end, we accepted conditions which we knew to be hard, and which we thought to be prematurely operative; but we accepted them since we could get no better, and we have kept our word.

I am afraid that at this stage I must deploy some figures, at the request of the other side of the House. No doubt my hon. Friends behind me will also wish to have them. It has been alleged that the loan has been squandered. I do not know whether or not that is believed in this House. I have commented upon the quiet tone of the House, and the lack of cheers, but I thought I might have drawn one there. [An HON. MEMBER: "Speak up."]—[HON. MEMBERS: "Hear, hear."] My hon. Friend has awakened the Opposition to life. I was saying that 1664 some people have alleged outside this House that the loan has been squandered, and I was waiting to hear whether that would be picked up by hon. Members opposite. So far it has not. I propose to give details of how the loan has been drawn and how it has been spent. I apologise that there are so many statistics, but I have been asked for them and it is right that we should have them.

How has the credit been drawn? The total of the United States credit was 3,750 million dollars. In 1946, in the third quarter, we drew 400 million dollars; in the fourth quarter we drew 200 million dollars. We were doing well in 1946. As my right hon. Friend the Prime Minister pointed out yesterday, we had, on the whole, a very encouraging year in 1946, though we have had a set back since. In 1947 the speed of drawing increased. I will give the figures by months. In 1947, in January, we drew 200 million dollars; in February, 100 million dollars; in March, 200 million dollars; in April, 450 million dollars; in May, 200 million dollars; in June, 300 million dollars. That meant a total of drawings, from the beginning of the loan, of 2,050 million dollars out of 3,750 million dollars. Then we come to the very startling figure in July, of 700 million dollars. I shall speak about that later; I shall conceal nothing from the House. It was a very startling figure to all of us, including myself. I was deeply disturbed about it, and I will comment upon it later. That is the figure to date.

I wish now to speak without any undue attempt at prophecy. The figure for August will not be known till August ends, but I have good reason for hoping that the August figure will be substantially less than the July figure. I emphasise "good reason for hoping," and I choose my words with care; I will not underline or exaggerate. With regard to the July figure I make the following points, which the House and the public should know. In the first place, at the request of the United States' Government we postponed until 1st July a drawing of 150 million dollars which we had desired to make, and which we really needed in June. That 150 million dollars was deliberately transferred from June to July at the request of the United States' Government in connection with their detailed arrangements for appropriation which run, I understand, upon a monthly basis. In the 1665 second place, July included one of the large periodic dollar payments on behalf of the Germans, to keep them alive. In July nearly 50 million dollars was drawn to feed the Germans. These payments to feed the Germans come periodically; they do not come month by month, but at intervals.

Furthermore, in July we began to make payments—and we make prompt payments, of course, in this connection—for the Canadian grain shipments under our four-year contract, which are always concentrated in the few summer months when the River St. Lawrence is open. During these months the Canadian wheat flows at an exceptional pace across the Atlantic. There was an additional payment of 40 million dollars in respect of Canadian grain. American and Canadian dollars are the same. I will speak later of our special relations with Canada. The precise statement is that we had to find 40 million dollars, part American and part Canadian, during these months. These were drawings on the United States dollar credit. I shall explain the relation between the drawings on the United States and Canadian dollar credits in a moment.

There is a distinction to be drawn between drawings and spendings in any month. All the 700 million dollars that were drawn in July were not spent in July. A number of them are carried forward into August. It is, therefore, the case that if you are looking at. the rate of exhaustion of the credits, it is more useful to have regard to the spendings from month-to-month than to the drawings. The two are connected, but the spendings area closer guide. It will now give the House some figures of the spendings out of the dollar credits. The convenient way to express these to the House is to take the net drain on our total resources of dollars, which means for this purpose the United States credit plus the Canadian credit. The net drain on our total resources of dollars, adding together the United States and Canadian credits, and gold—although in fact we have not drawn down our gold reserves, in spendings—is as follows. I will give the figures in millions of dollars. The Canadian dollar and the United States dollar now stand at parity, and for the purposes of arithmetic no distinction has to be made. The figures for 1946 are, for the third quarter, 210, and for the fourth 1666 quarter, 369. I will again give the figures for 1947 in months. They are: January, 137; February, 224; March, 323; April, 307; May, 334, and June, 308. In July, there is an upward leap, the reasons for that I have given, which is not quite so sharp as in the drawings, the figure being 538. I repeat that when we come to August, I hope these figures will show a decline.

I wish to give some more figures in relation to the suggestions that have been made that these moneys have been ill-dispensed as between different objects. How has the total expenditure been divided? We have, in the first place, direct United Kingdom purchases in the United States. In the 12 months ending 30th June, 1947, we had spent 1,540 million dollars in direct United Kingdom purchases in the United States, as against the earnings in the United States from exports, visible and invisible, of 340 million dollars; that is to say, there is an adverse balance direct with the United States of 1,200 million dollars. How were our spendings on direct purchases in the United States—and this is not the complete story, but only the first item—distributed between different objects? Of our total spendings in the United States direct, 25 per cent. was on food; 27 per cent. on raw materials, including petroleum; 14 per cent. on machinery; 7 per cent. on the purchase of ships—a special case of capital goods acquisition; 12 per cent. on tobacco; 4 per cent. on films, and 11 per cent. on food, etc., for Germany. These add up to 100 per cent. and these are the divisions of the total of 1,540 million dollars divided in percentages over these 12 months. These are direct United Kingdom purchases in the United States, but this, of course, is only the first item in the account.

There are also United Kingdom purchases for dollars in the rest of the Western Hemisphere—Canada and South America. During this same period we spent 615 million United States dollars. Dividing it into the main items, we spent 220 million dollars, practically all on food, predominantly wheat, in Canada; 260 millions, principally oil and sugar, in Central America, and 135 millions principally on meat, with some cereals, in the Argentine and other South American countries. These are the elements—1 repeat it to try to get it clear—of the 1667 total United Kingdom purchases from the Western Hemisphere, other than the United States. We have to pay dollars for them, because neither the Canadian nor Latin-Americans are interested in holding blocked sterling—they want British imports or dollars. This is one of the essential features of the case.

I think the House understands that the question of convertibility is not principally a question of what is written in the Anglo-American Agreement, but what is written in the realities of life of these countries. All these countries, as I have said before, are running very short of dollars, and are increasingly demanding from us sterling convertible at once into dollars, quite apart from any obligations of the American Agreement. If we did not agree to give them convertible sterling, they would invoice the bills in dollars straight away. That should be clearly understood.

This brings me back to the central proposition in the whole exposition of this case, which is that our grave difficulties would be almost over if we could export enough of our own goods and services to pay for the imports we need. Our difficulties all arise from our inability as yet to do this. We cannot yet export enough to pay for our imports. Supposing we could supply exports of British goods and services instead of sterling, there would be no difficulty about convertibility. Convertibility only arises in so far as those who receive our money in return for what they send us cannot turn that money into British goods but have to turn it into currencies of other countries. I have given enough facts about the expenditure in broad categories to show that it would be a complete misuse of language to say that this loan had been squandered. The Leader of the Opposition said, at Woodstock, on 4th August: There were other reasons why the loan had been ineffective.", I expect this will be cheered from the other side— Owing to the follies and indecision of the Government a great part of the loan had been spent, not on the requirements of industry, nor upon the import of basic foodstuffs. Much had been frittered away in American films and tobacco, and in large quantities of foods and fruits, which were not indispensable to our active recovery. We were naturally forced to spend the bulk of the loan on food for our own 1668 people and raw materials for our own factories. It was never suggested that we could have gone completely without tobacco, and when I proposed a heavy rise in the Tobacco Duty the Opposition voted against me. There still stands on the Order Paper, unless it has been taken off in the last day or two, a Motion, backed by a considerable number of Conservative Members, asking for the complete abolition of petrol rationing. The Leader of the Opposition has not had very consistent support from his own followers.

Now I wish to say something about the sterling area, and this, again, is uncontroversial. We have all been rather proud of the sterling area during the war. It has been, speaking in broad terms, a band of brother and sister nations, who pooled their resources and stood together, in fighting the war—with the exception of our Canadian friends, who have a special currency system—Australia, New Zealand, South Africa, our Colonial territories, India, and others. We in this country are the bankers for the sterling area, and we hold their gold reserves, about which I will say something in a moment, as I have been asked to do.

When I give the figures for the sterling area, it must be remembered that they are not the gold reserves of this little Island; they are the gold reserves of Australia, New Zealand, and all the rest. During the war, the arrangement was that we banked for our comrade nations in the sterling area; they paid to us the golden dollars they acquired in the course of their trading, and we paid to them whatever they reasonably needed for their trading. I will tell the House the figures for the first six months of this current year and the last six months of last year, so that they will see the rapid change for the worse in the sterling area situation. In the first six months of this year, we were asked to find 205 million dollars for the current trading of the sterling area as a whole. We were asked to find 50 million dollars for South Africa, 60 million for Australia, and 235 million for the major part of the area, including all the Colonies, and India. But Malaya earned for us, on the other side of the account, 140 million dollars by the sale of her natural products, and the net result of balancing one item against the other was that in the first six months of this year we had to find 205 million 1669 dollars for the sterling area as a whole. That has been an element in the drain on us.

In the last six months of last year, instead of having to pay out to the rest of the sterling area, the rest of the sterling area paid in to us to the extent, in the aggregate, of 155 million dollars. If we take the two together, they paid in 155 million dollars in the last six months of last year, and we had to pay out 205 million dollars in the first six months of this year. Therefore, taking the area as a whole, our total payment out was 50 million dollars. I quote these figures to show how the situation has rapidly varied, and to give a picture of how the sterling area requirements are to be met.

Now I wish to say a word or two about the so-called sterling balances. These are nominal figures, and I have expressed my view—and I do not alter it—that these nominal figures cannot be regarded as figures which can finally be granted in commercial and trading transactions. I think everybody agrees with that. The totals of these sterling balances arose in two separate ways. Some arose in the ordinary way of trade, the buying and selling of goods which has taken place since the end of the war, but a number arose in special wartime conditions, and they resemble war debts as we have known them in the past, to which there correspond no tangible physical assets at all, except the great and overwhelming asset of victory in war against the enemy. Therefore, the figures I am giving are the total nominal figures in respect of all of which I have reserved, on behalf of His Majesty's Government, our position. I have asserted our view that there should be some scaling down and readjustment of these totals. I have not failed to make that clear in any of the negotiations which are going on.

On the other hand, it has been necessary that we should arrive at certain temporary arrangements—and Members who have asked that we should take steps to limit the drain on convertibility will recognise the importance of this—in order, among other things, to get, if we could, an agreed blocking of the major part of these obligations, until such time as the whole matter can be resolved in a rather less critical atmosphere. The nominal figure on which I have reserved His Majesty's Government's view, and 1670 which should be substantially scaled down, stood, at the end of June, at £3,559 million. I should explain that this excludes all liabilities in respect of various credits and loans from the United States and Canada. These are sterling balances in the proper sense of the term. These figures include the balances representing the turnover of trade since the end of the war, but by far the largest part of our balances accumulated during the war, about which there is much debate, and on which I have made my views clear.

I have been seeking to arrive at agreements with various holders of sterling balances, in most cases purely interim agreements, to extend over a further term. We have brought, or are in process of bringing, some £1,700 million of these sterling balances under control by voluntary agreements for blocking. It is a great safeguard against unexpected sterling drains. I am not anxious to conceal anything, and I will answer any reasonable questions which are put to me. Out of £3,559 million we have brought, or are in course of bringing, £1,700 million, that is about a half, under such agreements. The remainder, consisting of £400 million or more, is held by our Dominions, and we have not thought it necessary, in the case of Australia, New Zealand, or South Africa, to enter into the same kind of formal arrangement as is proper in certain other cases. We have agreements with them that are based on good understanding. The sum of £760 million is held by other countries in the sterling area, very largely by our own Colonies, with whom we have our own methods of arrangement. That leaves only some £500 million out of the total of £3,560 million held by all other countries of the world, including some in Europe. I am sure that whatever we may think on the long-term about the equity of a particular figure being fixed for any particular sterling balance, largely accrued as a result of the war, that no one will disagree with my view that it was very important in this critical state of affairs to bring about an interim arrangement, at least as a first stage, to prevent uncontrolled demands for conversion of those large balances into dollars, and it is towards that end I have been directing our efforts.

§ Mr. Scollan (Renfrew, Western)

Will the right hon. Gentleman explain, with 1671 regard to the £400 million that has been blocked, if a final settlement with regard to payment is in suspension?

§ Mr. Dalton

When it has been blocked, it means that it cannot be drawn upon. It cannot be drawn upon except with our consent, and I have been explaining that we have been seeking to safeguard the immediate position by blocking in most cases from the end of the calendar year but, in some cases, from 15th July. I can furnish details, but I think that it will complicate the matter if I go into them too much now. The short point is that, when a thing is blocked, it means that it cannot be drawn upon except with our consent, and I have been seeking to create a position whereby these things cannot be drawn upon, except with our consent in clearly limited amounts.

I wish now to say a few words, with complete frankness, as to what stands behind the United States credit in terms of our final resources when the United States credit has been exhausted. My right hon. Friend the Prime Minister indicated yesterday that it will be before the end of this year, and, in my view, it will probably be in the month of October. I will not be more exact than that, but that is what it looks like, assuming a decline from the abnormal high level of July. On the other hand, the number of measures we shall take, which my right hon. Friend indicated yesterday to the House, will have effects, some of them quite immediately, such as the stoppage of buying quantities of foodstuffs in hard currency areas; others, less immediate, as in regard to cuts in foreign travel allowances, and so on—the effect of these cuts will, I hope, be somewhat to extend the period before the exhaustion of the United States credit. That was one of the immediate purposes, although, equally, there are other purposes as, in the period after the credit has been exhausted, to safeguard in some degree the reserves that stand behind them and to prevent their too rapid depletion.

Behind the United States credit stand three elements. First, there will be the remains of the Canadian line of credit. At the present time, there is outstanding on the Canadian line of credit 500 million dollars, or £125 million. I wish to put very frankly what the position is about the Canadian credit. Canada has been 1672 magnificently generous through the war effort as a whole, and to this country in particular. We owe our Canadian friends an undying debt: They advanced this credit immediately after the United States credit was created. They have run into a heavy storm, the form of which is the same as the storm into which we have run. They are finding great difficulties in paying for their imports from the United States with the export of their own produce and, therefore, our Canadian friends have asked us to go slow in drawing on the credit and, of course, we have accepted. In fact, what has been agreed between the two countries—the Canadian Government and the United Kingdom Government—is that we shall meet our Canadian dollar expenditure—that is, payment for purchases of wheat, in particular, and other things being sent to us—only as to 50 per cent. by drawing on Canadian credit, and as to the other 50 per cent. by drawing on United States credit. That is what they have asked and what we have agreed to do; and what, until we have some new arrangement with them, we shall continue to do. The reason is, having drawn more slowly on the Canadian credit this amount still stands as a further line of reserve of approximately 500 million dollars of credit unexhausted.

In the second place, there is the possibility of drawing on the International Monetary Fund. This fund was never intended to make long-term loans or to correct anything as fundamental as the world-wide dollar famine from which the world is now suffering. Indeed, the latter was not foreseen when this institution was created. The function of the International Monetary Fund was always judged to be limited to enabling those members, including ourselves, if we had the need for it, to iron out purely temporary fluctuations in the balance of payments.

The present emergency is more than a temporary difficulty, not only for us but for the great majority of other members of the International Monetary Fund. Our trading rights—I hope that this is completely clear—under the constitution of the Fund are limited to £80 million in dollars a year for four years—£320 million in all. Some people have said, "Why have not the Government already begun drawing on this?" I am not anxious to 1673 hurry towards this because advances from the International Monetary Fund, whether to us or others, carry a rate of interest which rises as the period of the advance extends, and it seemed to me better to hold this among the reserves. This seemed to me the right course for us to pursue, and to take up with the other national representatives on the Governing Body of the International Monetary Fund next month, when they are due to hold their regular annual meeting, the question of whether we should not extend and modify, so far as the constitution permits, the purposes for which the Fund may be used. I quote this as one among the items in our reserves with regard to the use of which further discussion on an international basis is clearly necessary.

In the third place, after the remains of the Canadian credit, and after the drawing powers on the International Monetary Fund, stand our gold and dollar reserves. These now stand at about £600 million. I think that they have varied very little over the past year; they have been practically stationery during that time, and that is a matter that should be understood in the United States. There are some people who apparently think that we have been using the United States credit in order to pile up gold and dollar reserves. Such is not the case. This figure has stood substantially stable with only minor fluctuations, for a little over 12 months. I repeat that these reserves are not the reserves only of the United Kingdom but are the reserves of the whole sterling area, including our friends of the sterling Dominions. We are the sterling area's bankers, and our reserves are their reserves.

Against this £600 million we have liabilities in the form of sterling balances of which I have spoken, and even if we should succeed in writing down the nominal total of our sterling balances from the figure at which they now stand, some £3,600 million, it would still, I think, be true that, taking account of all the factors in the case, our liabilities, not at short term, but our total liabilities, would be substantially in excess of these gold and dollar reserves. That is one more reason for treating the matter with very great caution and for hesitating long before taking any steps, or avoid taking any steps which would mean rapid dipping into them. We all recognise that reserves are no good unless they are able 1674 to be used in some crisis. To have unusable reserves is no better than to have no reserves, but, on the other hand, they are- only to be used at a critical moment when there is some prospect that the throwing in of some part of the reserves will bring us victory in the battle and will not dribble out and delay an inevitable defeat. I hope the House—and I think all sides will agree with me—will say that we should be exceedigly careful before we contemplate any policy which would involve the running down in the near future of these gold and dollar reserves to a level much below that at which they now stand.

§ Mr. Bracken

What about our dollar investments? Can the right hon. Gentleman give us some information about that?

§ Mr. Dalton

I think that the right hon. Gentleman, on reflection, would agree that it would be most undesirable to begin putting labels on our holdings. Let him think what that does. I am quite friendly about this, and I am anxious to co-operate. I should like, however, to speak a cautionary word on this. [HON. MEMBERS: "Speak up."] I was saying a special cautionary word to the right hon. Gentleman. I was saying that I really think on reflection he will agree that it would not be a good thing to give undue publicity to any such subject in this Debate. That is my considered opinion. Putting labels or ticket values on these things and letting them go-forth would not be very wise. That is all I am going to say. I think the right hon. Gentleman agrees with me. My right hon. Friend the Prime Minister was asked yesterday whether the figure I have given included what the right hon. Gentleman is talking about today, and the answer is "No." I hope I can leave it there now.

I have endeavoured to display the position statistically, and I apologise for the large number of figures which I have used. But I was asked to produce figures about our drawings and spendings and I have done so. I pass from that, and, in view of the situation I have been describing, I should like briefly to recapitulate the steps which are to be taken in accordance with what the Prime Minister indicated yesterday to the House. Our trouble is this wide, yawning gap between our 1675 exports and imports. That is the trouble and nothing else; neither less nor more than that. Therefore, all our measures must be aimed at narrowing the gap at both ends; at operating on both sides of the gap to narrow it. We shall only get straight when we can pay with our current exports, visible and invisible, for our necessary imports. That is the goal at which we must aim, and we must accomplish this in any case, whatever temporary alleviations may be got, whether through the international discussions in Paris with regard to Europe or the international discussions in Washington with regard to the part the United States can play.

We must close this gap within at the outside a short span of years. All other devices must be no more than bridging devices over a few years. This country will never be in the economic and financial position it ought to be in until we can pay with our current exports for our necessary imports. The gap must be closed right up. That I have constantly said, and I have quoted remarks of mine to that effect. This means we must spend fewer dollars on imports and on overseas expenditure, and we must earn more dollars by our own exports. These are the only three variables in the case. There is nothing else in it—our own exports, our own imports, including the invisibles, and our overseas expenditure. These three totals must be so adjusted that within a few years at the most we can close and do away with the gap.

Now we are confronted with the size of the gap. As my right hon. Friend the Prime Minister said yesterday, in terms of dollars we are confronted with a gap of £600 million this year so far as the Western Hemisphere as a whole is concerned, including Canada, the Latin American States as well as the United States themselves. With a view to closing that gap we are proposing—and I only summarise briefly what the Prime Minister said yesterday to put it into proper focus and into the picture—to reduce our foreign exchange expenditure with regard to imports of food from hard currency sources at the rate of £12 million a month and with regard to a large number of other items of expenditure which were mentioned yesterday, such as timber, films, consumer goods, foreign travel allowances, and so on, to 1676 an order—this is additional to the food saving—of over £50 million a year. The result of this will be, in round figures, that if we are to continue the reduction in food imports by cutting them from hard currency sources, hoping, as was indicated yesterday, to supplement these in considerable measure from soft currency sources, and intending to enter into discussions with the United States forthwith as to means by which this can be accomplished, including the loosening up of those obstacles of non-discrimination and the like——

§ Mr. Churchill (Woodford)

Hear, hear.

§ Mr. Dalton

Before the right hon. Gentleman came in I gave some figures on that. As I was saying, if we can do these things which will enable us to buy from other members of the sterling area in particular, the net effect, supposing that these other matters can be maintained for a year, and taking into account what can be got conversely from the soft currency countries, will be a total saving of an annual rate of £200 million a year. That is a fair contribution towards the size of the gap.

In addition to this, there will be the savings in respect of Germany. I have already referred to this heavy payment for keeping the Germans alive. My personal views on this are well known and we have all, including my right hon. Friend the Foreign Secretary, been doing our best to put an end to this inequitable arrangement whereby we have to feed the fallen foe to such a disproportionate extent of the total cost. Over and above the figures I have given, there can be savings which we cannot estimate with precision, but which the Foreign Secretary did indicate on Monday in this House, and I quote his words: What they— that is His Majesty's Government— cannot do, when this present scheme runs out, is to spend any more dollars for this particular purpose. That purpose is civil supplies for Germany. Therefore, it does involve discussions and review, in order to devise other plans."—[OFFICIAL REPORT, 4th August, 1947; Vol. 441; c, 1102.] I hope and believe we can add considerably to the closing of the gap in this regard. This still leaves a wide gap, and 1677 I have already indicated that that can only be narrowed by a rapid expansion of our exports, which was dealt with yesterday by my right hon. Friend the Prime Minister, and which is linked up with the whole problem of increasing the productivity of our industries here. I do not propose to re-traverse this ground which he covered yesterday.

I want now to come to another matter, and that is the Armed Forces. Yesterday my right hon. Friend the Prime Minister covered an exceedingly wide ground and he had to deploy statistics and arguments over a wide field. I am not quite sure that the House as a whole completely apprehended the importance of the figures that he gave on this subject on the Armed Forces, and, therefore, I propose to recapitulate them and to add a comment. As the Prime Minister said yesterday, we are bringing back to this country between now and the end of December of this year 133,000 British troops from a number of overseas theatres. For obvious reasons we are not going to tell the House the breakdown between the theatres. If anybody asks for that information it will be refused. The total is 133,000 from the overseas theatres as a whole, and this total will be further raised to more than 200,000 men brought back from all overseas theatres taken together by the end of March, 1948.

§ Mr. Dalton

I can get along much better if the hon. Gentleman will keep still. I want to explain the whole picture before I answer any questions. In addition to the 133,000 by the end of this year rising to 200,000 and more by the end of March, 1948, we are bringing back from the overseas garrisons 34,000 non-United Kingdom troops, chiefly Indians, to be returned to their own countries, which will also save the Exchequer something.

§ Mr. Dalton

Before I deal with the total of Armed Forces at home and overseas together I shall be willing to clear up any ambiguity in the statement I make.

§ Mr. Wyatt

Would the Chancellor make this quite clear? The Prime Minister said yesterday that we had 500,000 troops overseas. Does that mean that by the end of March next we shall have only 300,000 troops in all stations overseas?

§ Mr. Dalton

Yes, it means that and a bit more.

§ Mr. Wyatt

And 700,000 at home?

§ Mr. Dalton

That is true of British troops, but one has also to take into account the fact that, in addition to what my hon. Friend has said, there are the 34,000 troops, chiefly Indians, who are being taken back to India and other places, and to that extent diminishing the overseas garrison maintained by the British Commonwealth and Empire and making a saving for the Exchequer. With that addition, my hon. Friend is correct.

§ Mr. H. D. Hughes (Wolverhampton, West)

Does that include Germany?

§ Mr. Dalton

I am talking of the total Armed Forces—the Army, Navy and Air Force together. I have already said that I shall refuse to answer questions about particular theatres.

§ Mr. Deputy-Speaker (Major Milner)

Hon. Members are not entitled to speak unless the right hon. Gentleman gives way.

§ Mr. Dalton

If my hon. Friend will wait for one minute I make the same offer at the end of the next passage which I am about to place before the House. The total of which I have been speaking is that for all garrisons overseas.

§ Mr. H. D. Hughes

Does that include Germany?

§ Mr. Dalton

Germany is overseas—and a few other places. I repeat that I refuse to state how many of the 200,000 are being withdrawn from each theatre. If my hon. Friend the Member for South Cardiff (Mr. Callaghan) will give me a little longer I am now going to talk about the total strength of the Forces at home plus those overseas, and it may well be that it is on that he wishes to ask me a question. I will give way when I have said what I am now about to say.

With regard to the total strength of the Armed Forces, adding together those at home and those overseas, the Prime Minister stated yesterday that plans have already been made to bring the number 1679 down to 1,007,000 by the end of next March. This means that six out of every ten men who were in the Forces at the beginning of 1947 will have been released in the 15 months ending 31st March next. The total so released is 830,000 men. This is a large total and the process has been carried out in an orderly fashion and governed, except in a very small minority of cases, by the age and length of service principle for devising which, as I stated earlier on, the Coalition Government was entitled to take credit. It is a very great achievement of which we should hasten to be proud before we go on further to be critical. It is a remarkable achievement to have released 830,000 uniformed personnel of the Forces in this period with no serious disorders or disquiets. My right hon. Friend the Prime Minister said yesterday: I do not pretend that the Government can contemplate with equanimity the retention in the Armed Forces of so large a proportion of our manpower. [HON. MEMBERS: "Hear, hear."] My right hon. Friend said that yesterday, and it should have been cheered then.

§ Mr. Mikardo

It was.

§ Mr. Dalton

All the Prime Minister's colleagues, including the Chancellor of the Exchequer, totally agree with that statement. My right hon. Friend continued in these words: …an exhaustive inquiry has been instituted into the whole future of our Defence policy, and of the shape and size of the Armed Forces required to implement that policy. I would add, "In a rapidly changing world situation in which no one can give snap answers without going wrong." The Prime Minister went on: The results of this inquiry are receiving the most careful consideration from the Government as soon as they are received, and meanwhile we shall not relax our efforts to find any further means of reducing the numbers in the Armed Forces during the current financial year."—[OFFICIAL REPORT, 6th August, 1947; Vol. 441. c. 1510.] I add this obvious thought, that such further reductions can be achieved in only one or other of two ways or by combinations of them—either by quicker releases or by a slower call-up. Both these alternatives are being very closely studied at this time and, as the Prime Minister stated yesterday, we are making what we consider a very important contribution to- 1680 wards the balancing of our national economy by having decided already to defer the call-up of all persons engaged in agriculture, whether they are working on the land now or whether they respond to the appeal to take up work on the land hereafter. I see that my hon. Friend the Member for South Cardiff is on the jump, but I ask him to wait for a few more figures before I give way.

I want to separate the three Services because we sometimes go wrong by lumping them together and assuming that only the Army is referred to. At the present rate of rundown the Army will be down to 550,000 men by the end of March, 1948, and to 425,000 by the end of 1948; the Navy will be run down at the present rate to 178,000 by the end of March, 1948, and 166,000 by the end of 1948, and the Air Force will be run down to 279,000 by the end of March, 1948, while the figure for the end of 1948 is still under discussion. I have the authority of my right hon. Friend the Minister of Defence, with whom I have been in close consultation on this matter, to say that whatever further economy can be achieved by the continuance of the most searching investigations into the strength and rates of run down will be at once put into effect. I add, as is not unnatural, that it is my intention as Chancellor of the Exchequer to do my utmost to see that these efforts which are being made to speed up the run-down, without damage to the efficiency of the Forces and the carrying out of the commitments involved in our foreign policy, are crowned with further success.

In particular, one subject which is being very closely studied is whether economy in manpower overseas in garrison duties cannot be achieved by a greater use of air rather than of ground troops. Many people think that that is possible. I say, in conclusion on this matter, that this figure of 1,007,000 is not to be regarded as a target but as a milestone on the road of reduction which, as I have already said, we are determined to leave behind as rapidly as the conditions which I have been indicating allow.

§ Mr. Callaghan

I am very much obliged to my right hon. Friend for giving way, and I apologise for interrupting him. I want to ask him a very simple question. As he knows, for certain purposes Germany is regarded as a home station. I 1681 would like to know whether the 700,000 figure includes troops serving in Germany. If the 700,000 troops we have at home do not include troops serving in Germany, what on earth are those 700,000 doing?

§ Mr. Dalton

My hon. Friend has asked me a question, the answer to which is "Yes." Now I can pass on. Germany is overseas, and therefore the total of troops serving overseas includes those serving in Germany. I hope that is understood.

I have so far been speaking in purely financial terms, apart from this last excursion into manpower, regarding the external gap in our balance of payments. As my right hon. Friend the Prime Minister said yesterday, we have now to make a two-fold effort to narrow the gap. He indicated a series of positive and negative measures designed to that end. It is clearly desirable that we should concentrate our efforts, so far as we can, on the positive side of extending production and exports rather than be forced back more than we desire on to the negative side of restricting imports. We must do our utmost in both those directions. I am not going over the wide field of stimulating productivity which my right hon. Friend mentioned yesterday, except to say this: We are very much encouraged by the tone and the substance of the communiqués which have been issued in the Press this morning regarding consultations which have been taking place between certain of my right hon. Friends and the organisations of employers and trade unions in this country. There were discussions yesterday with, I think it was, the National Joint Advisory Council representing the employers and employed, and they issued a statement. A separate statement has been issued on behalf of the General Council of the Trades Union Congress. There is nothing but congratulation to be found in the fact that both these bodies have responded in the way they have to the calls made upon them and the facts placed before them by certain of my colleagues. It has been most encouraging.

I wish to say a further word about capital equipment. The right hon. Member for West Bristol (Mr. Stanley)—it is natural that he should have to go out for a moment, but I am referring to him because he raised a point—challenged me, or perhaps I ought to say invited me, to 1682 say something about one point, and that was on the question of capital programmes. It is clear now that we must concentrate predominantly upon exports and that certain of those capital programmes must be reconsidered and re-phased.

§ Mr. Churchill

Re-what?

§ Mr. Dalton

Re-phased. Some of them must be. I thought that was a military term which the right hon. Gentleman would know very well. These programmes must be rearranged in their time programme. Some capital developments, most desirable in themselves, on the desirability of which we take back nothing we have said, must none the less be put behind the export drive in terms of priority, which is the most important thing which lies in front of us. Next comes the production of the necessary goods for the home market. Therefore we have to slow down in some respects the capital programmes on which we have been working, and that will be done. We shall give particular priority to any capital developments, building and the like, which may stimulate the export drive on the one hand or stimulate import savings on the other.

Here I put home agriculture on the list. Home agriculture, is the biggest dollar saver of them all. We have legislated this Session already in support of British agriculture and we shall continue to do all we can to support it. I have sometimes been chided as being too ready in the expenditure of public money. I think that some of those who have so chided me will agree that money spent on the greater productivity of British agriculture could not be better spent in any alternative manner, except on the other priorities such as the production of coal and steel. We must set it high above all rival commitments, and that is what we are going to do. The Government are going to reconsider and rearrange the total scheme of capital expenditure, including all kinds of building, with a view to stimulating agriculture, coal and other fundamental necessities. That will also involve rearrangement and redevelopment of the labour force. The Prime Minister dealt with that yesterday, and I wish to add nothing to what he said.

I was also chided by the right hon. Member for West Bristol, when he opened 1683 the Debate yesterday, on the subject of inflation. I wish to say something about that. It is very clear that what we have to do is to import less and to export more of all the most important things, and that is likely to result in an increase in the inflationary pressure. It is likely to increase the total purchasing power as compared with the total of goods available to be bought in the home market. Therefore we must consider what steps should be taken to prevent this inflationary pressure growing to a point of danger.

I will say a few words about that now. I have been reading in the papers a number of rumours about an autumn Budget. Papers are very prolific in rumours in these days. I can only say that no decision has been taken either by the Cabinet or, at the Treasury, either in favour of or against an autumn Budget. Surely that is how things should stand. We shall not rule out an autumn Budget if it should be necessary to introduce one, but we shall not be rushed into introducing one merely as a symbol or as a more ineffective method of dealing with a situation better handled by other means. Only a week ago we parted with the Finance Bill, which is now the Finance Act, after discussing it at great length. For my part, although it is my duty to do whatever seems right, I should view with horror the prospect of having to embark again, soon after we have assembled at the end of our short holiday, upon another Finance Bill. If necessary, we shall do it, but we have first to be convinced. We do not rule it out and we do not rule it in. The suggestions which have been made for the autumn Budget are quite fantastic. I will not enumerate them. The papers have run riot.

Some people have been saying that a lot of taxes ought to be reduced or swept away altogether and others are demanding increases. They are not quite clear what the autumn Budget of their dreams should be—whether it should increase or reduce taxation. I will leave them to think about it before we reassemble. The Budget can be viewed—as we always have viewed it—in two separate aspects, in what I might call the narrower and the wider aspects In the wider aspects, in which we not only raise revenue and arrange expenditure, but in which we use the Budget as an instrument for influencing 1684 the national economy as a whole, it might be—I do not put it higher than that at this stage—desirable to have certain fiscal changes in the autumn. We must watch the position and see. Evidently there is no time to pass an autumn Budget before we disperse now.

In regard to the narrower aspect, I hate to say anything which would seem optimistic, least of all to quote it from the "Economist," but because they are never anxious to praise His Majesty's Government, nonetheless I read in last week's "Economist" these words: Amid the encircling gloom— They will have their gloom. They live on it— one bright shaft of light comes from the Exchequer returns. Week after week, they reveal a robust strength of revenue and successions of surpluses which are almost unseemly at this period of the financial year. That is what the "Economist" says. It is quite true—perfectly true. For the financial year to date, up to 2nd August when the last Returns are made out, the total of the revenue was £1,162 million; and the surplus over ordinary expenditure over this period was no less than £265,750,000. That is over the first four months. At the comparable date for the previous year there was an accumulated deficit of £299 million. This is for the record so that we may see how things are and see the picture as a whole. Even if I were to agree—I have given reasons why I would not—to exclude from the revenue all what I may call the debatable items, such as the war stores, the trading services and the miscellaneous revenues, which amount between them to over £244 million of my surplus, I am still left with a surplus of over £21 million in the first four months of the financial year. I apologise for adding this, but this is the first time for a very long time that this can be said. So much for the Budget in the narrower sense.

The Budget in the wider sense is a different story. I say that there is absolutely no ground in the narrower sense to play about with taxes at all. The taxes are bringing the money in very well and expenditure is falling faster than we were given credit for yesterday. In the wider sense it might be necessary to take some fiscal measures in the autumn to correct any increase of inflationary pressure, but I go on to add that yesterday the right hon. Member for West 1685 Bristol seemed to suggest that one element in what he regarded as the inflationary pressure—we all agreed; I have never denied it—was the high level of taxation being levied in the aggregate. He asked whether it was possible to avoid inflation if a certain percentage, which he gave us, was being taken in taxation. In reply to the right hon. Gentleman, I make this submission to the House. The height of the level of taxation in itself does not directly bear on this matter at all. I will deviate for a moment to say that before the right hon. Member for West Bristol came back into the Chamber I had been arguing that an autumn Budget is a matter which should be left in suspense until we see how things move, but many of those who are asking for an autumn Budget are asking for more taxation, and if it be that high taxation is a factor making for increased inflationary pressure, it can hardly be right to ask for an autumn Budget to increase the burden of taxation.

With great respect, I think that those who hold that view are mistaken. What matters is what one is spending the money on and how one is collecting it. A great deal of this high level of taxation and expenditure has been deliberately undertaken with a view to bringing about certain transfers of wealth and purchasing power in connection with a large number of schemes this House has approved in relation to social services and so on. Merely transferring income from a taxpayer to a beneficiary of public expenditure, whether he owns war stock or whether he is an old age pensioner, has no direct effect whatever on inflationary pressure. I say that in order to make a response to the argument yesterday adduced by the right hon. Gentleman.

I think we must hold the autumn Budget in suspense, committing ourselves neither one way nor the other. Two things can certainly be done and should be done now, and if pressed forward with great energy, they would have the effect of reducing any inflationary pressure that may develop. The first, as has already been said, is to increase to the utmost the productivity of our own industry so that we shall have a larger total production—on which we shall have to draw for export, but the larger the total production, the more there will be available for our own people. The other is an intensification of the National 1686 Savings Campaign. Nothing can be more assured—and this again is completely un-controversial—than the proposition that the best way to lessen the inflationary pressure is to persuade people not to spend all the purchasing power currently coming into their possession. From time to time we have made great efforts to stimulate National Savings. It has been on a non-party basis. Right hon. Gentlemen opposite and I have spoken together on the platform in the Albert Hall. There are some things on which non-party efforts are legitimate and proper on any view of these matters. In the light of the position in which we are now I appeal to all good citizens of whatever party to do their utmost to stimulate the Savings Movement, and give full support to Sir Harold Mackintosh and others who are carrying on with it. I will do my part, and I hope everybody else will join. [Interruption.] I was not getting at the noble Lord the Member for South Dorset (Viscount Hinchingbrooke): I was merely looking that way. This really is a case where the national need must take preference over any minor differences we may have on other matters. The National Savings Movement must now be encouraged and enabled to recreate the spirit which carried it so magnificently through the war and inter-war years.

Finally—and this has a potential bearing on the autumn Budget—it must be abundantly clear from what my right hon. Friend the Prime Minister said yesterday, that there is to be equality of sacrifice in this crisis by all sections of the community. Those who have sacrificed nothing so far—the "spivs" and the like; I do not know much about them, but they are constantly referred to in Debates and the definition of a "spiv" as one who has sacrificed nothing so far, may be as good as any other—should now be required to make their contribution. All sections should play their part in due order in this affair. That may or may not be reflected in an autumn Budget. I reserve that. But we are deeply conscious, as the Prime Minister stated, that there must be equality of sacrifice for all, and there must be seen to be and understood to be equality of sacrifice for all in the efforts we are now making.

I must apologise if I am talking a long time, but I want to answer questions, and it would be wrong to dodge the issue of the gilt-edged market. I am desired to 1687 say a word or two on that, and I gladly do so. During the past three weeks there has been, as we all know, a setback on the gilt-edged market. I regret that very much, and I hope that everybody else regrets it because it is not a good thing.

§ Earl Winterton (Horsham)

There has been a loss of money on it.

§ Mr. Dalton

Only for those who have recklessly sold. We must all regret this setback, but we have seen ups and downs on the Stock Exchange before. I am wishing to put the thing objectively and I believe—and this is the language used to me by some of those who give me their views based on experience—it is largely due to sentiment, rather than technical reasons, that a setback has occurred. When I say sentiment, I am not surprised. We have had an accumulation of bad news from everywhere all over the world; not merely on the home front, but all over the world from East and West comes bad news, and it is not at all surprising that there has been this decline.

§ Mr. Bracken

And too many Government securities.

§ Mr. Dalton

That is another matter, and I want to keep this on the minimum of agreement between us—[HON. MEMBERS: "Maximum agreement."] I remember very rapid ups and downs on the Stock Exchange in the past, and as with regard to an autumn Budget, so with regard to this, we had better watch and see what happens. [An HON. MEMBER: "And pray."] I am making no promises. I merely say that we have seen these ups and downs, and ups again, and I add this final point: it is a fortunate thing from the point of view of the Exchequer that this is a period in which we do not need large borrowings from the market—I have explained that in my Budget statement—other than, of course, the weekly renewals of the floating debt. There the position is completely unchanged. We still are charging the half per cent.—we still pay the half per cent. on Treasury Bills and the five-eights per cent. on T.D.R.'s, and there is no present intention of altering that. It is in respect of these short-term arrangements that the major saving so far has come from the cheap money policy. That is to be maintained without any change, and I add merely this: it may be only a question of time before other 1688 prices for medium and longer-term stocks adjust themselves to the persistently-held level of the Treasury Bills and the T.D.R's. That is all I will say on that.

I do not know whether the Conservative Party will vote—I read in the paper that they will do so—against the Adjournment of the House. I do not know whether they have decided it or not. They are entitled to do whatever they please, of course, and I would not wish to influence them one way or the other. But what I do say is that we, on this side of the House, jointly with them, have gone through a very strenuous Session in which we consider—I do not ask them to agree with this—that we have gathered a great harvest of legislation—[Laughter.] I said they would not all agree with that. My view is that we have carried through a strenuous Session in which we have brought into harbour a large number of exceedingly valuable Bills—some Socialist Measures, some Measures of social reform and social improvement, some Measures such as the Agriculture Bill, which are broadly agreed. We have had a very strenuous Session and many people, no doubt, are a little tired. I hope that some of those who are tired are also tough enough to see it out, even if we have to sit next week.

However, I am sure the duty of all of us, when we have departed for a short time from this place, is to use our rest and reflection in order to gather new resources for resolution to face this conflict, because conflict and national emergency it is. My right hon. Friend the Prime Minister laid out yesterday a very wide-ranging programme of action, urgent and important, to be taken. When we have secured once more a Vote of Confidence in the Government, if the Opposition challenge it, our business is to gear up with no delay at all the administrative machine to all the tasks necessitated by the various decisions indicated by the Prime Minister yesterday. These must be translated into vigorous action, not only by the various Departments concerned, but by all those industrial groups, trade unionists, employers and others who will be affected by them. We must not mistake words for deeds, and we must not mistake general declarations for detailed and effective action.

I would add only this: this is the first step, and many further steps may need 1689 to be taken It has been said that it is the first step which counts, and very often that is so. I hope this House will boldly take the first step involved in endorsing the very wide-ranging programme set before the House by the Prime Minister yesterday. This will be the first step in the conditions which I have sought to make clear uncontroversially in the earlier part of what I have said today; the first step towards our keeping control of our own national destiny and becoming pawns of no man; our national destiny as an independent people, friendly to all but dependent upon none; and to reshape our economic life to suit new conditions which, again I have sought to portray, are profoundly different from anything which our fathers knew—profoundly different and rapidly changing from the impact of these two world wars. We must not hesitate—and I am sure the majority in this House will not hesitate—to take any necessary measures to implement the principles that have been laid down as they shall from time to time reveal themselves. We shall ride out this storm in which we find ourselves, as we have ridden out other storms in war and in peace, and we shall come through unconquered and unconquerable. And those people whom we are proud to represent in this House, each for his own constituency, will not in this great hour fail.

§ Sir John Anderson (Scottish Universities)

This is a grave occasion and, as the right hon. Gentleman the Chancellor of the Exchequer said at the beginning of his speech, we must all endeavour to be worthy of the trust that rests upon us as the representatives in Parliament of this great nation. I listened with close attention to the speech of the Prime Minister yesterday, and I confess at once that my feeling when he sat down was one of profound disappointment. I thought it was a speech in no way "adequate to the occasion. I listened in vain for any ringing call to action. What did the proposals that were unfolded by the Prime Minister, that have been developed but not materially added to by the Chancellor of the Exchequer, amount to? A few cuts, painful cuts no doubt, but obviously insufficient, obviously only to be regarded as a first instalment; a few vague suggestions for reorganisation in the industrial 1690 field, although the Government are supposed to have been planning hard all this time; a half-hearted appeal to people to work harder and not to press for more wages.

What a note to strike! Unconvinced, and unconvincing, I thought. We had a suggestion for a longer day in the mines, which we are told on good authority is likely to be impracticable. We are told that agriculture is to be brought back to its wartime peak, but not for four years. The Chancellor of the Exchequer said that agriculture was at the top of the list, but four years is a long time to wait. We have been told about the reductions in the Forces. It is not clear to me how far those reductions go, beyond a mere acceleration of a process which would come about anyhow. No doubt all these small steps are steps in the right direction, but surely they are grotesquely inadequate, even as palliatives, if that word can be used in such a situation. Until the latter part of the Chancellor's speech, no serious attempt seemed to be made to deal with what I, at any rate, regard as fundamentals; and, as regards the latter part of his speech, I confess that I prefer the sombre note that characterised the speech as a whole to the note of optimism on which the Chancellor endeavoured to conclude. This is not the moment for recrimination. As my right hon. Friend the Member for West Bristol (Mr. Stanley) said yesterday, we are all of us in this mess togther, and we must join in order to see what we can best do to get out of it.

I feel that it is necessary for me to look back over a period, in order to see what are the causes that have contributed to our present plight; to see what action has been taken by His Majesty's Government which may have aggravated the situation, and, on the other hand, to see what action has been omitted which might have bettered it. We must look to past experience to see what to do, and what to avoid in the future. His Majesty's Government are in no way responsible for the general situation with which they were confronted at the end of the war. They are in no way responsible for the state of economic and financial exhaustion in which we. emerged after, regardless of consequences, pledging all our resources to the single purpose of achieving victory. Neither are His Majesty's Government responsible for 1691 the great inherent difficulty of expanding our exports to the extent necessary to meet our economic situation. Nor are they responsible for the increased prices, upon which the Chancellor laid great stress, of the imports which we have had to purchase from various markets. No doubt also the Government have had some extraordinarily bad luck. They had bad luck in the weather last winter.

§ Mr. Shurmer (Birmingham, Sparkbrook)

We arranged that.

§ Mr. Osborne (Louth)

Do not be foolish.

§ Sir J. Anderson

They have had bad luck in the still slow recovery of Europe from. the war. Nevertheless, there is a great deal in my judgment for which the Government are responsible. I shall endeavour to show that they have taken measures at home which have aggravated the situation. In my view, they are undoubtedly responsible for failure to realise the developing situation beca