Economic Situation - part 1
Economic Situation - part 1
Loss for Sept. likely to be $150 m or more. Due largely to settlement with Europe. [Up to date $112 m.] Deficit with E.P.U. of £37m will have to be carrd. fwd. into Oct. So figures won't be good for Oct., as well as Sept. : cdn't well be less than $100 m. Reserves, at highest in Nov. 54 (3 billns.), are now 2.349. m. - a considerable decline moving twds. level of Jan '54 (2.500 & going up). 1650 was lowest level - Budget of '52. Further action is essential to check this. Wish therefore to proceed with plan for re-call of Parlt. and introducg. further measures of restraint. We shd. thus retain initiative. Return 18 or 25 Oct.
At Istanbul, no-one doubted fundamental strength of sterling but concerned at our wages spiral, coal, & competitive power of exports.
I was doubtful. Feared mght create crisis atmosph. Mght recall Labour fin. crises. Diff. to get Parlt. up when once re-convened.
Wd. sooner have waited until Oct., if we cd. have said July medicine was working. But, if it is not, we shd. be in diff. posn. at Party Confce. etc., if unfavourable figures come out just before it.
Don't like a recall. Will create crisis atmosphere. No indicn. tht. situation is deteriorating - Cab. have not bn. mtg. Will the shock not be damaging to confidence.
Shan't get Parlt. to go away again without debates on Cyprus, Mclean etc., And shall be accused of hustling H/C. in order to get to B'mouth.
Measures: i) Statement (by P.M. on defence - redn. of man-power. [Improvemt. in Army pay wd. have to wait until Estimates.]
ii) Housing. Proposals in pp. circulated. Main diffce. of opinion is tht. I want to announce new subsidy figures. But we must forecast intention to deal with rent de-control (tho' Scotland will have to follow a year later). An important & diff. manoeuvre.
iii) Other expenditure of l.a.'s. Objns. qua education and hospitals. Don't want to exclude fr. circular any Dpt. interest. Circular gives latitude to l.a.'s to decide how to arrange their cuts. Hope to reach agreemt. with Ministers concerned with these expenditures.
iv) L.A. finance : methods. Carrying them on Exchequer below the line is out of date. Larger l.a.'s shd. stand on own credit not on ours. Will help credit squeeze on private sector.
v) Investment by natd. indies. Statements on electricity & gas.
vi) Bread. M/Ag. wants subsidy abolished : it is unsound. Propose we abolish it, but allow off-setting increase in N.A. scales. e.g. 2/6 & 4/= increase - wh. is likely anyway : wd. cost £3 M. more to do it now. vii) Savings. New 4% Def. Bond, with same premium as for existing 3½% with 3 mos. vice 6 mos. notice for encashment. Modification on deposits (?).
viii)Tourism. Redn. to £75 wd. save £3 M. Ready to do this, if Cab. so desire.
ix) Purchase tax. Only immedte. way of reducg. pressure of home demand. Triple manoeuvre : a) remove D. Scheme to encourage quality prodn., and instead sales tax of 5% on woollen cloth. Socialists will say it is regressive. A. & N.Z. are going to re-impose import restns. (because of their inflation) : and our textile indies. will need help with quality prodn.
b) Increase of all rates fr. 50% to 60%.
c) Bring in domestic articles (pots & pans.)
Together, these changes wd. yield £75 M.
x) Tax on distributed profits : 30% instead of 22.5%. Can find no other way of curbing excessive profits. Industry got £70 - £80 M by abolition of E.P.L. Tho' this wd. put profits tax back to 1952, there have bn. 2 income tax redns. m'while. Will deflate Stock Exchange boom. Yield : £60 M.
Weakness : no certainty of redn. of Govt. exp're save on bread subsidy. That is reason for incldg. latter.
Measures wd. be welcomed by economists here & abroad & instructed public opinion.
Anxious about keeping such a package on ice for a month. We cd. get it thro' now.
Only (ix) and (x) need Parly. action. Rest cd. be done w'out it.
This p.y. opn. cdn't be done, decently, by Order. Parlt. wd. wish to be recalled. Also for housing announcement, because of politics.
But unwise to announce figures of subsidy cut before I can talk to l.a.'s Grave risk of announcg. w'out consultn.
Tho' I will sound warning note about housing finance in a speech to A.M.C. at Harrogate to-morrow. L.a.'s are thinking of increased subsidies.
Shall meet l.a.'s on 3/10.
Commercially - much to be said for early announcemt. of all measures. We can't go on with 90% liberalisn.
Also v. embarrassing to hold Party Confce. w'out having said this. Package : can't announce save simultaneously.
Oppn. wd. demand recall if we announced some of these measures.
Malta Conference : wdn't be able to meet much next week : & in followg. wks. 2 Party Confces. Malta won't be able to make much progress : Labour members will complain of that.
Package : can't defend it so easily w'out (x). Better therefore to recall Parlt.
Bread subsidy. T.U. Congress : 1952 attack on subsidies is still resented. This will poison package, fr. my angle. Recognise tht. I have always opposed it, & tht. large wage increases have in event bn. obtained. But there are Labour leaders who do wish to urge wage restraint - and they may well be alienated by this.
This will drive Ass. Bd. to ask for increase in scales. That is not inevitable otherwise. We have succeeded in reducg. by 200,000 the nos. on assistce. because we have got N.I. rates higher. Increase in Ass. scales will undo all this good work. Reproach : steady increase of nos. on assistce.
Am circulatg. memo. - hope it may be taken into a/c before decn. taken on bread.
1.33 points on c/living index : bread.
1 point .. .. .. : p. tax changes.
Recall of Parlt. will create biggest crisis we have had. We have boasted of avoiding crises. Will it not damage confidence.
Shd. have to reconsider handling of Party Conference.
Include Tourism. Then it is balanced. Unwise to divide it.
Bread is most diff. ques. If we don't do it now, shall we ever? But see force of W.M.'s remarks re effect on T.U.'s - who have given us as much support as we cd. have expected. Also its effect on wage demands thro' increase in c/living.
Parlt. Choice is recall now, or one week before date arranged.
Taken from C.M. 32(55) - Meeting held on 21 September 1955.