Economic situation - 1 December 1956

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Economic situation - 1 December 1956

H.M. 

400 $ m. is final out-turn.  Will appear at 279 $ m.  Rate 10/20m.p.d.
 We shd. try to hold posn.  Devaln. to fixed rate wdn't help us for long: we shd. soon get dollar invoicing.
 Measures: a) renewal of Anglo-U.S. pol. co-opn. b) mobilisation of dollar resources. c) internal measures: favour 1/- extra duty on oil: but on reflection I don't think it poss. to make rebate for passenger transport.  First, because once given wd. be commd. to such exemptn. always. Second, because need the increase on derv.  Also, tighten up h.p. In addition, think we must announce intention to increase income tax.
 Petrol tax alone will be irritating.  Price was going up by 5d. anyhow.  Think now it will be necessary to do more.  Hence proposals on h.p. and income tax.

J.S. 

Will advance announcement make it possible to fiddle?

H.M. 

Yes : for the very rich.

I.M. 

Need you be explicit.  "I shall not hesitate to increase direct taxn. if sitn. still requires it."  There might be deflation.

S.Ll. 

What is real purpose of internal measures?

H.M. 

If your b/p. is even, instead of +300 M., how do you pay for imports.  Internal demand must be reduced.

L.P. 

Present petrol tax as means of conserving petrol, rather than means of
 x| retrieving genl. financial posn.  Income tax : will hit middle class heavier than others.

P.T. 

x/ won't be v. convincing - we are conserving it by other means.  Govt's object.  Prefer therefore to relate it to shortage vice finance.

R.A.B. 

Incomes will suffer less than prodn. : stiff Budget will therefore be needed: as was proved by last autumn Budget.  Anxious tht. this time measures shd. be strong enough.  We have to cut internal demand by £200M.  Petrol tax will give only £100M.

P.T. 

Must discuss with H.M. what can be done on h.p.  If it is to be addressed to credit base, it must be wider - to include Bank Rate.  If it is to be h.p. alone, we must exclude cars & cycles.  Can't touch furniture again.  Comes down therefore to consumer durables : cd. go fr. 50% to 75%. …….

D.E. 

…. ought we draw on our last dollar resources without being sure that mechanism of sterling exchange is such as to prevent those resources from draining away.  Mght a floating rate be safer?

H.M. 

Let us at least get dollars fr. I.M.F. while we are defending the rate - it is only purpose for which we can draw them. 

A.J. 

Oil Prices.  The case on merits is unanswerable.  On timing, quick action wd. help to correct present tendency of retailers to hoard stocks.

L.P. 

Make all such announcements simultaneously.

H.M. 

Yes : Cos. to announce on Tues. so that I can refer to it while I am announcing the tax.

H.M. 

Authy. to seek U.S. agreement to my announcg. intention to claim waiver.

Taken from C.M. 95(56) - Meeting held on 1 December 1956.