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Overseas Deficit

Volume 436: debated on Tuesday 15 April 1947

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I turn for a moment or two to the question of our overseas deficit. I have promised to speak of this most tough, external problem, and I will speak of it quite frankly, and seek to deploy the facts before the House without concealment. Our internal finance presents many difficult problems, but they are all easy, relatively speaking, compared to the external problem of our balance of payments on overseas trading account. That is much the biggest headache which must beset any thoughtful person, no matter what his politics or what his economic circumstances may be. No other country in he world, without exception, faces so tough an external problem as we do. It is the result—I have remarked on this before, and I repeat—it is the strange and ironical result of our tremendous effort over six long years of war, an effort in which we in this little island, who were in it from the start, distorted the whole of our economy, without any thought either of the cost or of the consequences, to save many others who, without us, would never have been delivered from defeat and from a slavery worse than death—

Even the Tories took part in this national effort, of course. We all did. It was a common, national effort. What did we do? We ruthlessly cut down our exports, we sacrificed the great part of our overseas investments, and we incurred vast expenditure, all over the world, for the import of munitions into various areas in order to defend the inhabitants, who often took a minor part in the operation, and for the provision of services for our own troops—expenditure which now, as part of the accountancy of victory, is hung round our necks as "war debts." These large and swollen sterling balances—I do not speak of the smaller sterling balances, which arise in the ordinary course of trading—would never have arisen had Lend-Lease been the common rule among all the Allies. These great balances can never be discharged, or even diminished, except by unrequited exports, exports unbalanced by imports. And these unrequited exports are—and I speak bluntly, looking at the facts as they present themselves to me—a luxury of which we can afford very little for many years to come.

That is the background. In 1946 we had an overseas deficit of £400 million—a total overseas deficit; I will distinguish in a moment the hard currency deficit within it. In 1946, £400 million was the total overseas deficit on trading account. I am talking now not about the Budget deficit, but about the overseas deficit on trading account, on exports and imports. This was £400 million, which has to be compared with the 750 million which I forecast a year ago. So far that is a good result. The actual total overseas deficit was little more than half what we forecast. But out total overseas deficit for 1947 may, I fear, be a good deal higher unless we take vigorous action to reduce it. Occasion for debate on such action will occur later.

So much for the total overseas deficit. But, as everybody knows and realises there is the much more acute problem of the hard currency deficit, and that is, substantially speaking, the deficit on our balance of payments with North and South America, Sweden, Switzerland and Portugal. A hard currency is currency which it is hard to come by; that is as good a definition as any other. It is hard to come by because it is the currency of a country which buys so little and wishes to sell so much. In 1946, our hard currency deficit on current trading accounts was about £400 million, that is to say, about equal to the total overseas deficit. From this follows the interesting fact that our overseas account with the rest of the world, outside the hard currency area, just about balanced last year. If more of what we wanted was being produced outside the hard currency area this would go a long way to solving our difficulties.

In 1947, the hard currency deficit is likely to be substantially higher than last year owing to the steep and continuous rise in prices, particularly dollar prices, and particularly the prices of goods which we may most wish to import. Our demand tends to raise the price—

Dollar prices have been rising, and even tending to some extent to outrun the increase in the prices of our exports. And we are thus placed in this exceptionally disadvantageous position which I have been describing—we are drawing much faster than we intended and than we wished on the United States and Canadian lines of credit. In the United States, dollar prices, after a temporary decline last September, have since risen more steeply than ever, and the United States wholesale price index is now some 40 per cent. higher than it was when the Anglo-American Loan Agreement was approved by this House. They are not the same dollars today; their purchasing power has to that extent diminished.

The slow recovery of the non-dollar world, to which I referred to just now, is a very great misfortune for us all. We had hoped for a much quicker recovery, but we under-estimated the wicked destruction done by Germans and Japanese and their satellites all over the world. There have also been many acts of God and natural disasters since the war came to an end, out of all proportion to man's average fate in these matters. Droughts, floods and bad harvests have been widespread. Therefore, because the nondollar world recovers so slowly, we are most uncomfortably dependent still upon the dollar world. This is the essence of the problem—we have to buy too much for dollars because too little comes forward from the rest of the world; and we are selling too little for dollars up to now, although we hope that the results of the International Trade Organisation conference, which my right hon. and learned Friend the President of the Board of Trade has been attending, will help here by increasing the flow of international trade including the trade between ourselves and the rest of the non-dollar world.

Moreover, I regret to state that the two new international institutions—the International Bank and the International Monetary Fund—from which much was hoped, have made a very slow start and have not yet effectively—formally perhaps, but not effectively—begun operations.

May I be permited, to summarise our situation, to quote a few words which used just a month ago in a speech at Swansea? I said then:
"We must either export more or import less, or both. Our imports include large quantities of food, tobacco"—
I will say a word on that later
"and raw materials—such as cotton, wool, hides and timber. If, therefore, we must reduce our imports, it will simply mean"—
and I emphasise these words—
"that we shall have less to eat and less to smoke and fewer clothes and boots and shoes to wear, and fewer houses, and less furniture, and less employment in many industries. In other words, we shall all have a lower standard of living and more unemployment. That is the danger we have to defeat."
I sought to portray it as clearly and as concisely as I could. I desire to conceal nothing and to diminish nothing in the telling of what threatens us all. Cromwell once said to his Ironsides—and his words have been quoted again the other day in the Press:
"Well; your danger is as you have seen. And truly I am sorry it is so great. But I wish it to cause no despondency; as truly, I think. it will not; for we are Englishmen."
And Scots as well. And, after heavy battle, the Ironsides won through, and so shall we. But our need to increase exports is more urgent than ever, and no one but a scatter-brained fool decries the export drive. [An HON. MEMBER: "You did."] We now face more extreme necessities than in the prewar days. This little over-burdened over-crowded island must export, or expire. I cannot put it more simply. In the months ahead, our exports and our imports must be much more nearly brought into balance. Our import programme also, therefore, must be severely limited and much of this will be disagreeable. Later on His Majesty's Government will inform the House of the conclusions they have reached on this issue. But in this dual effort to encourage exports and to discourage needless imports, taxation can play a most important part, and in the proposals for tax changes which I shall now make to the Committee, I shall have in mind, along with other considerations, the need to operate thus on both sides of our overseas trading account.