Cabinet Secretaries' notebooks (CAB 195/19): Economic Situation
Immediate ques. - imbalance of payments. Repns. to G. (U.S. and U.K.) have produced no effect. Risk is effect of this on new Congress who may press for reciprocal arrangements. Anderson concerned at Ford deal, as likely to spark off pressures. I am therefore writing to Anderson to impress on him what we have done in oversea aid etc. & effect of restricting U.S. policy.
Germany. Delay in aiding Yugoslavia. Un-readiness to aid Jordan.
Examples of lack of understanding by Adenauer.
May be chance of pressure behind scenes of G. at N.A.T.O. Mtg.
Internal sitn. in U.K. - para.11. Brought various figures up to date.
Govt. expenditure. V. nearly out of control because of unwillingness in Parlt. & public to accept financial discipline. Must aim at greater control in 1962/3.
On credit side - D.I. policy is working out : investment going well, reserves satisfactory (£6-8 m. up for Nov.)
Immedte. steps - 1) rate, 2) special deposits, 3) h.p.
My advice is v. action on 2: no pressure likely before Feb. anyhow.
On 1., on external posn. alone, cd. have bn, lowered last week : but effect at home runs other way.
On 3, advice is to stand firm : lest relaxation appear to be green light.
Exports. Don't see what more Govt. can do, save in credit field perhaps on medium term credit.
Wages. F.B.I. blaming Govt. for not standing firm. Actually they give in first, when labour is scarce.
Under-emplt. Motor industry is holdg. its labour force on short time.
Shortage of labour is still our problem - not re-employment.
Endorse general picture.
Imports continue high (90% = raw materials and plant for industry).
Increase £340 m. of wh. only £35 m. was consumer goods (first half of '60) cpd. with same period of '59.
Exports will continue poor because of U.S. depression and slackening in W. trade.
Little more to do. Credit insurance has bn. made easier : a little more to be done. But main diffy. is credit (Banks).
H.P. controls - uncertain effect. This time disproportionate effect on motor industry & consumer durables. Point made in memo.
Car makers talking themselves into depression. Our restns. on them are not helping b/p. My proposal wd. be useful psychologically.
Figures are distorted. Exports reduced by tally clerks' strike. Low now : unduly high next month.
H.P. is now part of our way of life. But 2 yrs' credit is about right. Not sure it wd. be right to extend it.
Avoid "whistle-stop" action. That is what impacts industry.
Serious sitn. because of recessions in U.S./Canada. But disposed to try to ride it out - save prs. for reducing B. rate.
I opposed increasg. it in summer. Risk now in reducg. it. But wd. try to find a moment for that - & do no more. V. diff. matter of judgement.
Steady rise in c/l. index against large stack-up of wage claims.
Risk of getting back into that cycle.
If, in same sector, Govt. cd. stand firm (w'out heavy cost) it wd. help to steady that situation.
Fulbright confirmed Anderson. Diff. time with Congress - pressure for restrictive policies.
x. Our costs in G. Cd. G. deposit in sterling amount equivalent to those costs - as fund for aid to underdeveloped.
Overseas expre. : Chequers decns. may help : but we shall need a little more money for propaganda etc. in cold war.
x. Export orders - E. orders - cd. be increased, if credit ceiling were raised.
Stop liberalisation plan from going further.
Can x. and x. be examined?
Exports. We must exhort - w'out fear. Credit needs examn.
Tax allowances for travellers.
Govt. expenditure. Domestic. Nice ques. now wthr. public needs will be better met by increased public expenditure or reduced taxation.
List in para.14. Can any of these needs be denied? 75-90% of electorate want to see them met.
Liberalisation. Look at it again in light of attitude of new U.S. Govt.
i) Wage price spiral. Para.11 is not too worrying - save by contrast with
remarkable record since '58. Wages are more serious : agree with H.W. - but opportunity unlikely to arise unless T.U. plays cards badly. Govt. have less chance to give lead than private sector thinks.
ii) Exports are key to situation. Look carefully at R.M.'s proposal on
h.p. Small restraints have never worked well. Disposed to do nothing or more. Extension of period alone mght do more harm than good psychologically.
Serious weakness in our economy - increased, not caused, by recession elsewhere. Our rate of growth is insufficient. W'out more, our share in oversea market will drop. When N.Z. etc. liberalise we don't get our proportionate share of increase of imports.
Root cause : people are spending too much - not saving enough.
No sufficient national incentive to work. U.S. similarly are showing less rate of growth - again because no dynamic national ambition.
W'out national impulse to grow, we can't remain competitive.
Wages and salaries go up annually.
Consumption is too large a part of people's aim and ambition.
We must try to find something which people will think is worth working for. I.M.'s Commonwealth policy in framework of cold war.
Dpt. Ministers press all accelerators & Ch/Ex. applies brakes. Odd way to drive the economy.
Remedies. Agric. : see no health in producg. expensively here what we can buy cheaper from abroad.
Real problem : wages. This year's increase is equivalent of a new Navy!
x. To make a stand : we shd. have to stiffen engineering employers &promise to back them to limit.
Expenditure : no saving short term : but policy decns. now cd. secure
y. big economies further ahead. Re-appraise policies in long term.
I wd. favour action on x and y.
Wages. S.Ll.'s forecast is at extreme. May be 5% average, not 6%.
Private sector determines rates, not Govt. - and mainly because of shortage of labour. A tough policy on wages means telling employers to be tough. Are we to face strike in engineering with exports our main problem?
Lack of fluidity in labour. Not only because motor indy. are holding on. Machine tools won't take men on when they know they'll lose them again when cars pick up.
Exports real nub. Is it true we can do no more save on credit. Need for more constructive support to export drive - eg. relief on taxation, direct Govt. aid etc. Other countries are cheating on G.A.T.T. : shall we not have to do the same? Shd. we not know what others are doing - either to stop them or to do same ourselves?
Exhortn alone & credit facilities is not enough.
Must give longer term & be more free with credit.
Tax relief for exports - on balance I doubt if it would help. But cd. we give it for bldg. up export organisation overseas? Less difficult sales organn. rather than price - or as well as.
Wages policy. Can we not find some means of recurring order in the system. Legn. to enforce agreements - penalties on T.U.'s for breaking them. Arbitration. Given right moment, country wd. welcome such Govt. action. Are we ready to take it, when it comes? D.E.'s point on immigration. Cd. we develop new spirit of commercial enterprise in C'Wealth? Try it at P.M.M.?
Some sacrifice fr. Defence Budget wd. be justified to increase oversea informn. work. Our need now is for another £2 m. That & more cd. be spent on our defence scare.
Need for enterprise. Shipbldg. etc. - after 20 yrs. of prosperity, our shipping interests are now buying their ships abroad. Our industry is not competitive - esp. in older industries. Mainly because we have made it too easy for people to live. cf. effect of our way of life on imported Italians - they go sloppy in a year.
Sooner or later, we need a show down with labour. £100 m. over line for rlways : cd. be eliminated in 2 years with proper work study. There are 100.000 men on rlways who are not needed.
Is K. right - if people were asked if they wd. prefer lower taxation.
Look at tax dodging : or work dodging to evade tax. Tax structure is hostile to incentive.
To avoid recurrent crisis - people shd. pay more for necessities and less in taxation. Review policies on that basis. Also adjust method of taxation so as to avoid calculation of tax avoidance. W'out relief in taxation we have no hope - eg. of increasg. exports.
Taxation is crucial.
Agriculture. Can it increase its contn. to b/payments? It cd. produce more than 66% of our needs. But wd. mean increased subsidy because of more units & also lower market prices : unless we restricted imports. (If we did restrict imports, gains to b/p. wd. be considerable.) But, w'out restn. of imports, we cd. expand beef, pigs and grain : imports wd. be inhibited : £30-40 m. gain on b/payments at extra subsidy cost of £20-30 m. This on basis of only moderate increase in prodn. We cd. do much more, with increased subsidy.
Wages. Clyde : tough line by employers killed a strike (lithgows) : they gave good publicity to effect of contd. strike or increased wages on future for the men. Cd. this be done more generally.
What people want. I agree with K. These needs are more important than reducing taxation. Roads, schools, educn. health - all preferred to lower taxation, esp. among the young. But can't say at what point level of taxation dulls incentives.
Are people so soft? If they were, wd there be such pressure for house purchase. Nos. wanting it all growing.
My view : don't do much on house front now. Too much depends on developments abroad - N. America, Europe. Wait for a time. E.g. don't mess about pre-budget. Immedit actions. Limit to b. rate - costs in Germany - no action on h.p. pro-tem. Hold in reserve quantative limitn
x) of imports - which was v. effective in '51. Hope it won't be regarded as out of date. In refn to US it cd. be no more than stand-still on liberalisation. Avoid impression of crisis. Reserve manoeuvres for budget. Be ready for more dramatic action in '61.
Action on x) cd. be linked with change in agric. policy.
Avoid minor increase now.
Expansion by Kennedy cd. change whole situation.
i) We must move with greater speed on extended credits. Greater urgency by banks.
ii) Tax grumbles by exporters - v. hard to assess extent of trouble. On K.'s point : I believe effect of direct taxation is disincentive. On services, people shd. make larger contribns as they go. Even education. More will have to go, also, on indirect taxation.
Taken from C.C. 60(60) - Meeting held on 29 November 1960