GOVERNMENT EXPECTS GOOD MAJORITY IN COMMONS IN FAVOUR OF STERLING DEVALUATION DECISION

Grey River Argus, 29 September 1949, Page 5

GOVERNMENT EXPECTS GOOD MAJORITY IN COMMONS IN FAVOUR OF STERLING DEVALUATION DECISION

CHANCELLOR STATES THE ISSUE:—

DEVALUE THE MONEY OR THE WORKER! (Received 10.45 p.m.) LONDON, September 28 The Government is confident that when the House of Commons debate on devaluation began yesterday, and ends to-morrow night, it will emerge with an ample majority. In the House of Lords where the debate ends to-night, a division on a’Conservative Party amendment will almost certainly bring a Government defeat. This would not affect the Government’s position in the least, since financial affairs are essentially the business of the House of Commons. It might be less well understood abroad, and its repercussions might embitter the already tense relations between the two Houses.

SIR STAFFORD CRIPPS STATES THE CASE LONDON, Sept 27. The House of Commons, to-day. began to debate the Government’s decision to devalue the pound. Sir Stafford Cripps. Chancellor of the Exchequer, was the opening speaker. He said that Britain had been in a very grave situation before September 18, when devaluation was announced, and was still in a very grave situation. The difference was that now the country had a better chance of emerging from its difficulties, but only provided it took the right action. Sir Stafford declared that the decision that the Labour -Government had had to make was to “devalue the pound, or devalue the worker.’’ The main theme of his 80-minutes review was that the devaluation of sterling was the only alternative to mass unemployment and drastic cuts in social services. The main points of his speech were: — (1) The Government’s policy of keeping down personal incomes from profits, wages or salaries must be strictly observed (2) Rises in food prices are not likely tc come either in a large measure or soon, though the cost of living index might rise about a point or so by the end of the year. Sir Stafford declared. —“I am most anxious that every member of the House and the public should realise the seriousness of the recent action of the Government and the extreme importance of our taking full advantage of the more favourable environment that has thus been created, for our efforts to earn dollars that are vital to the maintenance of our standard of living. “Despite the excitement and dislocation that must always accompany any substantial readjustment of the exchange rate of two major currencies, the whole operation may seem so simple and painless that it fails to impress its gravity fully on the people. "We were in a very grave situation before September IS and we are still in a very giave situation. The difference now is that for a period we have a better chance of emerging from our difficulties than we had before the alteration was made, but only provided that we take the rigid action.’" He said it must be made abundantly clear to the people that what was done now was of supreme importance and would ,in fact, determine whether the alteration of the exchange rate was a futile and dangerous gesture, or the hopeful beginning of a new era of stability for sterling during which equilibrium in trade between the dollar and the sterling areas could be gradually reached. Sir Stafford recalled that in Jul' after the publication of the ' dollar drain figure for the second quarter he had said that no suggestion had been made in the talks with Mr John Snydei (Secretary of the United States Treasury) that sterling should be devalued. He had not been prepared to discuss devaluation, with anybody, except with his advisers and colleagues in the Government. He also recalled that on July 6 he said that the Government had not the slightest intention of devaluing the pound. That was a complete accurate and deliberate statement made after consultation and in full agreement with his colleagues. In that intention he thought he was supported from all sides of the House. INTENTIONS CHANGED Even if the Government had had any intention, then, of devaluing the pound, no responsible Minister could have done anything but deny the intention, he said. “To admit it would have been to invite speculators ana profiteers in to destroy our reserve,” He disclosed that when he returned to England on August 19, he found that adverse tendencies were persisting. “In these changed circumstances we changed our intentions and decided that we must take action, but that it would not be wise or practicable for us to act until after our visit to Washington,” Sii Stafford said. ■ He told the American and Canadian representatives in Washington of the Government’s de- 1 cision. but. it was not until shortly before he left Washington that he told them the actual figure. A GRAVE DECISION “The Government is under no illusion whateevr as to the gravity of the decision it has taken, nor does it under-estimate the effect it will have on the life and livelihood of the people at many points,” he continued. “We appreciated that it' was bound to have an jmpact on practically every other national economy throughout the world and our an-

ticipations as to the effect on other currencies have turned out to be veiy nearly accurate. It was because of this inevitable effect on other currencies that we gave prior notice on the Friday to all the Commonwealth Governments.” Sir Stafford told the House how the drain on the gold and dollar reserves had continued steadily “untill al] our progress towards bridging the gap had been wiped out.” This was due largely to less sterling area sales to North America. “As a result of the attack launched on the exchange rate of sterling people began to doubt the rate and to speculate as to the likelihood of its being changed and, as a result business of all kinds fell off,” he said. There was some improvement in the situation as a result of the London talks with Mr Snyder and Mr Abbott and the Commonwealth talks which followed them but it was not so marked as to deprive this element in the situation of its importance. Finally there was a progressive increase in black-marketing of sterling which had spasmodically and seriously interfered with our dollar earnings. He said that after reviewing all these points, the Government had decided that there was no alternative to devaluation to recreate confidence in sterling. The Government had at first considered a floating rate for the pound—a varying rate that would be allowed to find its own level. That, however,, would have had “consequences for our whole economy and social structure that v/erc quite impossible to contemplate.” Some people considered that the rate fixed for sterling was too low, but there had already been a number of stealing transactions below three dollars to the pound. To stop this damaging traffic, it had been necessary to go substantially below the three-dollar rate. LOW ENOUGH NOW ‘‘lt is necessary to make it absolutely plain that this was noil a tentative step, but a final and completed operation,” he said. “We had to convince the world and our people that we had without doubt gone far enough. I think we have succeeded.” Sir Stafford said there would be no further argument now about the essential value of the sterling area as a great multilateral trading area, or about “'the absolute necessity of maintaining the stability of the sterling area.” Another matter Wat was now clarified was “the urgent need for cred.tor nations to make it possible for debtor nations to substitute earnings by exports of goods and services for the gifts, loans and other temporary help they had been receiving since the end of the war.” MUST MAKE IT A SUCCESS He continued.—“We must make a success of it now, for failure would be disastrous and would land us in 'that very mass unemployment and low standard of living that we are determined to avoid if we can. The reduction of the exchange rate is no miracle-working device. The time in which we can make or break has definite limits.” Britain had decided to appoint a very senior official to its ambassadorial ' staff in Washington. His full time would be occupied in studying problems arising from the Washington talks. The United States and Canada would make similar arrangements. FOOD PRICE STABLE He-said there would be no large or immediate increase in the price ot food because of devaluation nor did he anticipate any general rise in non-dollar prices. He announced that food subsidies would continue on the pi esent level and warned that wages and incomes must not rise until the Government found how far its policy had succeeded. PROFIT LIMITATION “It is of critical importance that nothing should be done to increase personal incomes arising out of profit wages or salaries,” he said. Increased profits arising from’the alteration ot the exchange rate should not be distributed in increased dividends. Only in exceptional circumstances cou’J there be excuse for asking for higher wages. He announced that he proposed, as from to-day, to increase the rate of profits tax on distributed profits by one-fifth—from 25 to 30 per cent. He complained that recently a few companies had deliberately broken away from the voluntary understanding about the limitation of dividends.

“I warn industry that if there is any further breaking away from the voluntary 'limitation of dividends, I shall consider myself at liberty to introduce legislation to restrict dividends in the next Finance Bill.” Sir Stafford continued: “To achieve

new equilibrium at a high level m sterling-dollar trade, all parties must contribute to create conditions in which such a balance is possible. Our foreign economic policy has been dominated ever since we took office by this continuing need to reach a stable balance of our overseas payments. We certainly need not be ashamed by the way our people have tackled the difficulty.” FULL EMPLOYMENT Sir Stafford said: “We have been able, with the help of Government support in and outside the. House to maintain full employment.” This remark was met with dissent and laughter from the Opposition, but Sir Stafford drew counter' cheers from the Labour members when he departed from the prepared text of his speech to snap: “I can assure the House that the workers in this country do not think ill a joke as to whether full employment is maintained, or not!” He continued. —“It is the essence of the continuous effectiveness of this drastic action that we should not flinch from the necessary economic restraints it imposes upon us. It is not a step that can be repeated.” He said the dangers of inflation could be avoided only if both prices and wages were kept down.

“Wc- must limit our internal expenditure. We must not allow our desire to have more than we can afford, to endanger our present standards. We cannot have more than wo produce. We must look to both capital investment and Government expenditure to provide some easement of inflationary pressures.

“It is, therefore, necessary to re view the whole investment programme,” he added. The Government hoped to put constructive proposals soon to the Organisation for European Economic Co-operation for abolishing the restrictions that are now hampering trade between areas no;: requiring settlement in gold or dollars. A WARNING He concluded: “It is time for us finally to renounce and denounce that easy-going, get-rich-quick attitude to life that in all levels oi society, has found its post-war devotees. We must not allow anyone to confuse the just and equitable doctrine of fair shares for all, to which we hold, with a disastrous attempt to get as much and give as little as possible.”

CONSERVATIVES’ “NOCONFIDENCE MOTION”

MJ- Oliver Stanley (Conservative) said his Party had considered the Government’s motion for an expression of confidence. “We have no confidence in the Government,” he said. “We have no confidence in what it has done and wnat it will do. We cannot support the motion.” The Conservatives would later move a reasoned amendment. He criticised Sir Stafford Cripps for not devaluing sterling two months earlier —if he had to devalue at all. That would at least have saved a further drain on the dollar reserves and enabled the Government to stabilise sterling at a higher rate by short-circuiting the blackmarket operators. “We object tol devaluation, because we think it is not only dishonest but very dangerous,” said Mr Stanley. He contended that devaluation, instead of shielding the worker and the Government’s social services, would actually increase the risk of both. The opportunities it gave Britain to increase its dollar sales were also available to her competitors who had devalued in step with Britain. . Mr Stanley said he hoped all classes would respond to the appeal to keep downt costs, as the rise in the cost of living must be substantial. It looked as if the whole cut in capital investment would fall on private industrial investment. That would be disastrous.

During the debate some Conservative members who have business relations with ' United States said they considered the American tariff the biggest single hindrance to British exports to America. The debate was adjourned. Both the Commons and the Lords will resume the debate to-morrow.

Capitalist Press Hostile to Cripps (Pec. 9.5). LONDON, September 28.

There is an undercurrent of hostility in London newspaper comment on Sir Stafford Cripps’ speech. The Financial Times said: "This speech confirmed that the Government has only the haziest notions about repercussions devaluation is likely to have upon the country’s economic structure. Realities are not beinofaced. Unless they are. and soon, the latest devaluation will be but the forerunner of a series leading eventually to a complete debasement of the currency”. WAGE CUTTING?

The Daily Mail says: “Neither Sir Stafford Cripps nor any other Minister will proclaim what he knows to be true, namely, that Britain must work longer hours for no more wages. Our only hope is that British people will smash Socialism before Socialists smash Britain”. PROFITS TAX DISLIKED . Much criticism is centred on profits tax increase. The Daily Telegraph’s city editor says: “It is universally condemned in the city of London as a political measure. Already industrial profits in Britain bear heavier taxation than in any other industrial country”. The Financial Times political correspondent said: The profits tax increase is an obvious bid io secure support for the devaluation policy from the reluctant and resentful trade union movement. Th e Government all too clearly has its eye on the coming general election, and is anxious, above all. to avoid antagonising the electorate. The whole of Sir Stafford Cripps’ speech was an attempt to soften the blow cf the Government’s own economic failures”. OPPOSITION ACTION The Liberals will join the Conservative Opposition in voting against the Government. The Conservative? have decided to table an amendment to the Government’s confidence motion, which Mr Churchill will move to-morrow. It "welcomes the measures agreed upon in Washington, but regrets that the Government, as a result of four years’ mismanagement, should now be brought to drastic devaluation of the pound The amendment adds that the re-

turn of national prosperity, the maintenance of full employment and the safeguarding of social services cannot be assured under the Labour Government, which, instead of providing cures for economic ills, resorts to temporary An amendment to be moved by the Liberals also blames the Government’s policy for devaluation and declares that devaluation alone will not solve the country’s economic problems. It also expresses regret that the Government has no plans for reducing expenditure. A third amendment, to be moved by the Independent Labour Group, says that devaluation will not bridge the dollar, gap, but will create unemployment and lead to a substantial rise in the cost oil living. The amendment says that the only remedy for the crisis is to end the expenditure on armaments and overseas military commitments, limit profits and develop fully trade with the Soviet Union, China and the countries of Eastern Europe “unrestricted _by the Government of the United States.”