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Volume 463: debated on Wednesday 6 April 1949

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If we now turn to the expenditure side we find that, compared with the actual estimate of expenditure of £2,976 million, the out-turn was, in fact, £3,176 million, an increase of £200 million. The cost of interest on National Debt and other Consolidated Fund services, including £23 million for sinking funds, was £542 million, against the estimate of £534 million. The increases on Supply services have already been examined in detail, when the Supplementary Estimates were authorised by the House. The Supple- mentary Estimates amounted to £309 million. The principal ones were £87 million for Defence, £52 million for food, and £58 million for national health. Set against these increases were savings, amounting in all to £117 million, making a net increase of £192 million, compared with the original Budget provision of £2,442 million.

Let me now, in the light of these results, return to consider the policy which we should adopt, so far as the disinflationary aspect of our planning is concerned. I have said that, during 1948, we succeeded in reaching a valuable degree of stability, which we must now preserve. In other words, we must see that the total calls made on the national income by all our different kinds of expenditure balance against that income, without creating any inflationary pressure.

Comparing these calls between the years 1948 and 1949 in the light of the figures in the Economic Survey, the first thing to observe is that there is a change in the foreign balance. We expect, in 1949, to be in balance, compared with being in deficit to the extent of £120 million in 1948. Strictly, therefore, we ought to withhold that amount of purchasing power from the home market. But we must remember that, over the last half-year, we have, in fact, been in balance, so that we can discount a good deal of the effect of this difference, which has already been dealt with by what we planned and carried through last year.

For investment, we estimate our needs as practically the same, or, allowing for the smaller increase in working stocks, perhaps slightly lower. At any rate, they will need no more financing than last year. On the other hand, Government expenditure shows a large increase between the two fiscal years, principally relating to defence and to the various social services, health, education and so forth. These must, of course, be paid for out of the national income, and the Government's share of the cost must be found by the Budget; so that it is quite impossible to reduce this Government expenditure—and, therefore, taxation—so long as defence and social services are provided on the present scale.

When I hear people speaking of reducing taxation, and, at the same time, see the costs of the social services rising rapidly, in response very often to the demands of the same people, I sometimes rather wonder whether they appreciate to the full the old adage that "we cannot have our cake and eat it." This last year the people of this country have enjoyed an unexampled national dividend in the form of a free Health Service, at the cost, for the nine months of its operation, of £208 million. [An HON. MEMBER: "Free?"] Free to the individual. Next year, for twelve months, it is estimated to cost £260 million. It is not possible to get increases of benefits of such an order at the cost of the Budget, and, at the same time, to experience decreases in taxation.

We must, therefore, make adequate provision to meet this Government expenditure. It is recurrent expenditure, and forms part of the current standard of life, which, as a community, we have chosen for ourselves. Such expenditure must be paid for out of the current income of the community, by taxation. If we do not do this unflinchingly, we shall face inflation. Inflation is not an evil that, once checked, disappears; the threat remains, and we must be on our guard against it.

For the same reasons, investment, other than that financed by the Government surplus, must be financed by savings—by private savings, that is, savings put aside by companies and other organisations which have investment programmes, or by personal savings, that is, savings put aside by individuals. As regards private savings, there will be an automatic increase in the allowances for depreciation, since these allowances are calculated as a percentage of the higher costs of new buildings and plant; and, if we maintain the dividend limitation policy, as industry has promised to do, we shall continue to have considerable private savings in the form of undistributed profits, though probably not much in excess of those of last year, which amounted to about £500 million. I do not think we should calculate upon any very large increase in the volume of personal savings, but as to this I will say a few words presently.

On the whole, therefore, in view of the general world tendencies which I have mentioned, and the check on the growth of inflationary pressure which we have manifestly secured during the past year, and which has probably not yet entirely worked itself out, it seems that we should follow the same general policy as last year for our Budget, though not with so sharp an accent upon the urgent need to check inflation. We shall certainly need an over-all balance on the right side, though not so large an over-all balance as we realised last year. Similarly, we should aim at a true revenue surplus which, while in itself very substantial, need not be so large as that realised last year.

These are my broad general conclusions on the disinflationary aspect of the Budget. I would emphasise again what I stressed last year, that, with the many great uncertainties in the situation, we must remain alert to watch the trend of disinflation, and to arrest it if it threatens to widen into a generally harmful deflation. The volume of investment, and the level of savings, as well as of personal expenditure, may be affected very rapidly by the state of mind of the community—or sections of it—whether they are optimistic or pessimistic. World economic conditions may vary swiftly, in a manner completely outside our control. It is, therefore, a most essential aspect of our planning that it should contain as large a degree of flexibility as possible, so as to enable us to adjust our fiscal and financial situation rapidly to any new circumstances, once we are convinced that an important change is really taking place.

I will now turn to examine the prospects for 1949–50 on the existing basis of taxation. Consolidated Fund services this year will need £527 million, including £485 million for the service of the Debt. I should, perhaps, at this point, say a word about the prospects of debt redemption in the coming year, and of National Savings. I should expect to be able, in this year also, to use any surplus there may be from the Budget, together with the other funds which make Exchequer cash available, and, in particular, the Special Account sterling under E.R.P., for the reduction of short-term debt in the hands of the banks and the market. In that connection, I may say that I have decided not to avail myself of the first redemption date, 1st August next, for the £714 million of 2½ per cent. National War Bonds, 1949–51.

The National Savings movement, which is widespread and deeply rooted in the habits of our people, has been steadily at work during the past year, though the net results are somewhat below expecta- tions. The value of this great voluntary movement lies, not only in its collection of new savings, but in its influence in retarding withdrawals, as the temptation to spend increases with the greater availability of goods. These small savings are an integral and important part of our whole effort to avoid inflation, by providing sufficient savings to meet our investment needs, and I very much hope that in this financial year we shall realise a substantial net surplus of savings. Last year, I asked the National Savings movement to take abstention from spending as its central theme. They have carried out my request with the utmost loyalty, and abstention from spending must continue to be their objective for 1949. But this year I am confident that the movement will also bring home to the public that voluntary savings have a positive function—the financing of the investment programme, which, in its turn, is essential to our recovery. I rely upon the Savings Movement to take up this theme, and I can assure them I shall be ready to cooperate with them most fully in linking the savings effort with the national recovery effort.