Economic Situation - part 3

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Economic Situation - part 3

A.L.B.

Suggn. for savings.  Doubling Colonial loans, now £20 M.  Raise maximum to £2.000.  And low units – £1.  Open to small investor.

H.M.

Valuable contn. to general project for reviving savings habits.

H.M.

Opinion in Cab. y'day was fairly evenly divided.
Have sought means of reachg. agreement.
We broadly agree that food subsidies shd. be abandoned, at right moment.  Ques is timing & circs. & atmosphere of such action.
P.M. fears brusque announcement, w'out any prelimy. discn. wd. appear as harsh & brutal attack on workers.  Wd. damage P.M.'s reputn. for fairness & fair play.  Esp. after B'fd. speech invitg co-opn. of workers.
How can we gain some time & overcome P.M.'s diffy. – wh. is psychological rather than economic.
My resign. wd. injure Party & economic sitn. we are trying to cure.  I recognise that.
But hope Cab. will also see tht. a Chanc. apptd. as I was cannot be strong unless his judgement is supported.
Unsteady financial sitn. is worsening.  Fin. Times to-day.  Expectns. of early action.  Can't wait therefore until Budget.  But v. weakening of posn. & speculn. about devaluation makes action easier to take.  If we really face a run, meriting devaluation, Cab. wd. be readier to take drastic action.  I don't say we have reached this point.  I believe we cd. get by w'out action now – but might then collapse in summer.  But somethg. must be done now.  Govr. ready to raise Bank Rate.  Wd. volunteer it if Cab. authd. whole package – but not if action on b. & m.  They wd. then need a direction to do it. 
 Modified time-table.  Raise Bank Rate Thursday.  Statement that day offering debate on Mon./Tues. or Tues/Wed. but makg. it clear that this was one of the measures to be announced in following debate.  So as to make it clear tht. Govt. initiative is preserved.  Then P.M. to see T.U.C. on Fri. or week-end : say Bank Rate indicates serious situation : but indicate what further measures Govt. feel obliged to take in natl. interest.

P.M.

Any breach in Cab. wd. certainly be deplorable in its consequences – on econ. situation as well as our fortunes.
My reflections.  Have we not under-estimated other elements in package – esp. h.p. proposals.  Wd. be possible to make statement covering all save b. and m. : and say these are only part of our measures – those we must bring into effect at once – but add that they will be followed by others wh. are connected with fiscal measures & must therefore wait.  That wd. give us more time for talks with T.U.C.
Effect of incldg. b. and m. is not merely psychological.  For, if it produced industrial strife, that condition wd. not inspire increased confidence in sterling.

R.A.B.

Seems tht. B/E. will only raise Bank Rate if certain Govt. action is taken.
My advice fr. Jan 55 from B/E. was bad.  His pol. judgement is not reliable.
Does Govr. seek to attach conditions?  There is a case for Bank Rate w'out regard to these considns.

H.M.

I am not willing to direct him to do this, unless I think Govt. action proposed justifies such a direction.

P.M.

Under my plan, we wd. have to assess what industry wd. be willing to do by way of restraint.  It might be such that. it wd.be neither wise nor necessary to do b. and m. – even in Budget.

H.M.

Chief anxiety is that T.U.'s shd. not use this removal of last subsidy as excuse for industrial strife.  Can they not be persuaded that this is not to be done as gesture of "hard-faced" Tory Govt. – not prelude to further savage action v. workers.

Taken from C.M. 13(56) - Meeting held on 14 February 1956.