Alternative To Devaluation

Northern Advocate, 28 September 1949, Page 5

Alternative To Devaluation

Cripps. Says: Mass Unemployment And Social Service Cuts

LONDON, Tue. (11.30 a.m.).—The Chancellor of the Exchequer (Sir Stafford Cripps), opening the debate on devaluation in the House of Commons this afternoon, 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 the Labour Government had had to mjike was to “devalue the pound or devalue the worker.” . ~ , , , The main theme of his 80-nnnute review was that devaluation of sterling was the only alternative to mass unemployment and drastic cuts in social services. The Liberals will join the Conservative Opposition in voting against the Government. The Conservatives have decided to table an amendment to the Government’s confidence motion.

The main points from Sir Stafford’s speech include: — (1) The Government's policy of keeping down peisonal incomes from profits, wages or salaries must be strictly observed. (2) Rises in food prices were no. likely to come either in large measure or soon, though the cost of living index might rise about a point or so by the end of the year. In opening his speech Sir Stafford declared: — “I am most anxious that every member of the House and 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.

Sir Stafford told the House how the drain on gold and dollar reserves had continued steadily, “until all our progress towards bridging the gap had been wiped out.” This was due largely to less sterlingarea 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 added. "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 the progressive increase in black market sterling, which had spasmodically and seriously interfered with our dollar earnings.” Sir Stafford said that after reviewing all these points the Government had decided that there was no alterative to devaluation, but 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 “consequenses for our whole economy and social structure that were quite impossible to contemplate.”

“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 19, and we are still in a very grave 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 right action.” Sir Stafford continued that 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 sterling areas could gradually be reached.

Action

Sir Stafford recalled that in July, after publication of the dollar drain figures for the second quarter, he had said that no suggestion had been made in the talks with the United States Treasury Secretary (Mr Snyder) and the Canadian Finance Minister (Mr Abbott) that sterling should be devalued.

He had not been prepared to discuss devaluation with anybody except with his advisers and colleagues in the Government. Sir Stafford also recalled that on July 6 he had said the Government had not the slightest intention of devaluing the pound. That was completely accurate and a 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. Even if the Government had had any intention then of devaluing the pound, no responsible Minister could have done anything but deny the intention.

* “To admit it would -have been to invite speculators and jjrofiteers in to destroy our reserve,” he said. 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,” he added. Sir Stafford said he told American and Canadian representatives in Washington of the Government’s decision, but it was not until shortly before he left Washington that he told them the actual figure. “The Government is under no illusion whatever as to the gravity of the decision it has taken, nor does it underestimate the effect it will have on the life and livelihood of the people at many points,” he said.

Impact

“We appreciated that it was bound to have an impact on practically every other national economy throughout the world, and our anticipations as to the effect on other currencies have turned out to be very nearly accurate. “It was because of this inevitable effect on other currencies that we gave prior notice on the Friday to all Commonwealth Governments.”

Fixing Rate

Some people considered that the rate fixed for sterling was too low, but there had already been a number of sterling transactions below $3 to the £l. To stop this damaging traffic it had been necessary to go substantially below the $3 rate. "It is necessary to make it absolutely plain that this was not a tentative step but a final and completed operation,” he said.

“We had to convince the world and our own people that we had, without doubt, gone far enough. "I think we have succeeded.” He said there could be no ifurther argument about the esscntal valve 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 that was now clarified was the “urgent need for creditor nations to make it possible for debtor nations to substitute earnings by exports or other temporary help they had been receiving since the end of the war.”

“To. achieve a new equilibrium at a high level in sterling-dollar trade, all parties must contribute to create the conditions in which such a balance is possible," he said. "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. Laughter and murmurs of dissent came from the Opposition benches ns Sir Stafford said: “We have been able, with the help of Government supporters in and outside the House, to maintain full employment.”

No Miracle

Sir Stafford then drew counter cheers from Labour members when he departed from the prepared text of his speech to snap: “I can assure the House that workers in this country do not think it a joke as to whether full employment is maintained or not." He conlihued: “It is the essence of the continuous effectiveness of this drastic action that' we should not flinch from necessary economic restraints it imposes upon us:

' “It is not a step that can be repeated. “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 we are determined to avoid if we can.

“A reduction of the exchange rate is no miracle-working device. “The time in which we can make or break has definite limits.” Sir Stafford disclosed that 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. There would be no large or immediate increase in the price of food because of devaluation, nor did he anticipate any general rise in nondollar prices. He announced that food subsidies would continue on the present level, and warned that wages and incomes must not rise until the Government found how far its policy had succeeded. (CONTINUED IN NEXT COLUMN)

One Pleads Guilty

TAUMARUNUI, Wed. (P.A.) The ease concluded this morning in which Leo Merton Biggar and Clifford John Shortcliffe appeared on five charges of theft of cattle from farmers in the Taumarunui district. Shortcliffe pleaded guilty and was committed to the Supreme Court for sentence. Biggar pleaded not guilty and was committed for

Profits

“It is of critical importance that nothing should be done to increase personal incomes arising out of pro fits, wages or salaries,” he said. Increased profits arising from the alteration of the exchange rate should not be distributed in increased dividends. Only in exceptional circumstances could there be an excuse for asking for higher wages. He announced that he proposed as from today to increase the rate oi profits tax on distributed profits by one-fifth—from 25 to 30 per cent. He complained that recently a few companies had deliberately broker, away from the voluntary understanding about the limitation of dividends “I warn industry that if there is any further breaking away from the voluntary limitations of dividends, 1 shall consider myself at liberty to introduce legislation to restrict divid ends in the next Finance Bill,” he said. Sir Stafford pointed to the dangers of internal inflationary tendencies which, he said, could be avoided only if both prices and wages were kept down. “We must limit our internal expenditure,” he added. “We must not allow our desire to have more than we can afford to endanger our present standards. “We .cannot have more than we produce. "We must look to both capital investment and. Government expenditure to provide some easement of inflationary pressures. “It is therefore necessary to review the whole investment programme. “We must economise wherever possible, so that we can have a maximum amount of capital goods for export. “We must economise to the utmost In Government expenditure.”

Fair Share

He said the Government hoped to put constructive proposals soon to the Organisation for European Econorryc Cooperation for the abolishing of restrictions now hampering trade between areas not requiring a settlement in gold or dollars.

Amid cheers from the Government benches, Sir Stafford concluded: “It is time for us finally to renounce and to denounce that easy-going get-rich-quick attitude to life that in all levels of 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 the disastrous attempt to get as much and give as little as possible.” (POINTS FROM DEBATE IN COLUMNS 6 & 7)