This was the prospect which faced us when we took office. The United Kingdom was committed to a very large defence programme, with no certainty of continuing economic support from the United States or any other North Atlantic Power. Indeed, we had no assurance that support would, as my right hon. Friend the Prime Minister said in the Defence debate, be
on a scale in keeping with the defence burden undertaken by the late Prime Minister or with our needs."—[OFFICIAL., REPORT, 5th March, 1952; Vol. 497, c. 433.]
§ At the same time, we were faced with a large and growing United Kingdom deficit with the non-sterling world, including a formidable deficit with the dollar area. The sterling area as a whole was in major deficit with the non-sterling world, resulting in a drain on the gold and dollar reserves of a most perilous character.
§ I announced emergency action on 7th November. Imports were cut and the Bank rate was raised. In January, the Finance Ministers of the Commonwealth met together in London. Our objective was clear: to bring the sterling area as a whole into balance as quickly as possible. Any failure to do this could mean only the rapid exhaustion of the reserves and the disintegration of the sterling system with all that implies.
§ I described to the House on 29th January the plan which we prepared together We all agreed to recommend action, the cumulative effect of which would be that the sterling area as a whole would be in balance with the rest of the world in respect of the second half of 1952, including at least a balance with the dollar area.
§ I must, however, inform the Committee that the effect of these measures in checking the drain on the gold reserves has not yet had time to operate fully. In the third quarter of 1951, the loss of reserves was 598 million dollars, or 46 million dollars a week. In the last quarter of 1951, the loss was 934 million dollars. or, if we exclude—as we should to get a true comparison—the service on the United States and Canadian lines of credit, 58 million dollars a week. In January: it was 299 million dollars, and in February 266 million dollars—an average for the year so far of 63 million dollars a 1274 week. We have, in fact, lost 2,000 million dollars from the reserves since last June, and, at the end of February, they stood at 1,770 million dollars, or £632 million.
§ We can, in my view, confidently rely upon a considerable reduction in the rate of loss in the course of the next few weeks. But the future is uncertain, and the consequences of failure are dire. We are determined not to fail. No one can foresee the future, but, change as it may, we shall be ready to do whatever is required. That is why I recently came to the conclusion that the whole sterling area must set its sights appreciably higher.
§ The striking manner in which our fellow members of the Commonwealth have answered my further appeal reminds one of their moving response in more than one war. Together, we shall win through again. South Africa's response was immediate and cordial, and I am satisfied that we will be able to earn at least £50 million of her gold, and perhaps substantially more, for the central reserves during 1952. Over the week-end, the voice of Australia has rung clear. The United Kingdom must suffer from the drastic effects of Australia's severe and timely action to save an economy swollen by the recent boom in wool prices and now threatened by the consequences of smaller receipts from her staple industry, coinciding with a period of exceptional development.
§ I share the regret expressed by the Prime Minister of Australia that it is necessary temporarily to restrict imports from the United Kingdom, and I trust that the recovery in Australia's balance of payments will soon allow her to remove these restrictions. Hon. Members will note—
I have foreseen the hon. Gentleman's intervention, because my next phrase meets him
Hon. Members will note that later in my speech I shall have to take account of this new factor as it affects our prospects. I have had stirring answers from that stalwart leader, the Prime Minister of New Zealand, and from my friends the Finance Ministers of India, Pakistan, Ceylon and Southern Rhodesia. They have each told me of their special difficulties.
1275 All these Commonwealth countries, together with the colonial territories whose contribution to the economy of the sterling area is so vitally important, are taking determined action to ensure that the sterling area as a whole is not merely in balance with the rest of the world, as we planned together when we met in January, but will be in surplus with the rest of the world in the latter half of 1952. These are aims far more comprehensive than ever before adopted by the sterling Commonwealth.
I have also received a message from the Minister of Finance of the Irish Republic indicating his Government's understanding of the gravity of the situation and their determination to play their part in resolving it. He will, I understand, be making a statement in his own Parliament tomorrow, just as, I understand, some of my colleagues will also be making statements in their own town and their own place.
The British Government have decided to take further measures to match this story. On 29th January I announced that our part in the Commonwealth Finance Ministers plan was to reduce our deficit with the non-sterling world to £100 million in the second half of 1952. Our part in the new effort is to eliminate the United Kingdom deficit with the non-sterling world in the second half of 1952, after taking into account such defence aid as we may receive from the United States.
How do we set about this and achieve it? As for imports—we are already very tight-drawn. Even in 1951 the volume of imports was no more than 90–95 per cent. of that of 1938. Yet our population is now 6 per cent. greater than it was then and our industrial production, mostly based on imported material, is more than 40 per cent. greater. Clearly, there are no great margins here.
Nevertheless, we have now decided further to reduce the 1952 import programme by again cutting our purchases. In carrying out these further cuts, the nature of which, for commercial reasons, I cannot disclose, we shall ensure that the essential needs of industry are met, and that stocks are not reduced below what we consider to be a reasonable and safe level. We have also had to consider what savings we can make in our imports 1276 from Western Europe. These have in large part—as the right hon. Gentleman opposite drew our attention in a letter to "The Times"—to be settled in gold, now that we have nearly exhausted our quota of credit in the European Payments Union.
A number of hon. Members have represented recently that further cuts should be made in our less essential imports from Western Europe. The scope, however, is severely limited. We could not hope to go on selling large quantities of manufactured consumer goods to Western Europe if we were to restrict our imports from them more than is absolutely necessary owing to our balance of payments situation. Quite apart from our close political ties with our Continental neighbours, it is essential in our own economic and commercial interest to maintain trade at the highest level we can afford.
We must remember, too, that some of our friends in Europe, and I refer here particularly to the French, have their own critical balance of payments problems here and now and look to this country as a traditional market for their staple exports, such as wines. In these circumstances, it is our wish, but also wise in view of present disequilibrium in Europe, to avoid further severe cuts in our imports from those sources.
Yet we have to plan to live within our means. The Government have therefore decided to withdraw the Open General Licences for a further list of selected goods so as to bring the trade under control. The extent to which this control will have to be exercised depends on how our position develops. This list has been prepared by careful selection in the light of the needs of our European friends as well as our own. Particulars of the goods brought under control will be published tonight by the Board of Trade. Goods already on their way to us will be admitted freely, and wherever goods are the subject of firm contracts already entered into, we shall issue the necessary licences. Arrangements for the issue of licences for new business will be worked out during the next few weeks.
The effect then, the Committee will wish to know, of all the various import cuts we have made, which will amount to about another £100 million, will be to reduce the value of our imports in 1277 1952 from all sources, assuming that prices are much the same as they were at the beginning of the year, to about £3,150 million. This is a reduction of about 10 per cent. on the value of imports in the year 1951, and of over 15 per cent. on the annual rate in the second half of 1951. I give these figures specifically because there appears to be some doubt about the basis of the previous cuts.
At the same time, to deal with this emergency, we propose two further steps. We are suspending for the present the issue of duty-free licences, under Section 10 of the Finance Act, 1932, for the import of machinery. No applications posted after today will be considered. This is another emergency measure. We recognise that there is a long-term problem here, and we propose to examine it, in consultation with industry.