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substantial trading deficits with the Sterling Area. We have also undertaken to support the Colombo Plan for economic development in South and South-East Asia over the next six years. In addition, provision has to be made for long-term investment in productive enterprises overseas, particularly in the sterling Commonwealth, to which such investment has of necessity been mainly confined since the war.
92. All these are obligations which in the end can only be met from a surplus on the balance of payments. Furthermore, we should normally be making provision for repaying our own long-term debts, largely incurred as a result of the last war, and for financing the building up of the gold and dollar reserves, which are still insufficient to meet our essential long-term requirements. The need for a substantial surplus is not in principle affected by the new defence programme. Indeed, with repayment of the United States and Canadian lines of credit due to begin at the end of this year, the United Kingdom's external obligations may even increase. Nevertheless, while fully recognising this need, the Government has reluctantly come to the conclusion that the maintenance of a surplus during the rearmament period will be impossible in view of raw material shortages and the concentration of new defence production on the metal-using industries which have been providing so large a part of the United Kingdom's exports.
93. The Government is, however, determined that this country should con- tinue to carry out its traditional economic functions overseas and to meet its contractual debt obligations. In so far as the United Kingdom no longer enjoys a current surplus out of which to finance these activities, it will not be able to avoid some increase in its own overseas debts, or some reductions in external assets. By and large, no improvement in the overseas capital position is to be expected during the period of the rearmament programme. None the less, the aim must be at least to maintain a balance on current account (except to the extent of stockpiling purchases), for a substantial deficit would raise the serious risk of an accumulation of sterling at a rate faster than overseas holders might be prepared to tolerate. This would weaken the position of sterling and increase the difficulties we face in buying food and raw materials at a time when world demand has rapidly outrun available supplies.
94. The scale and character of the task of maintaining a balance on external current account are examined briefly in the following paragraphs. The size of our import requirements is considered first, and then there is an examina- tion of how far earnings on invisible account will go towards meeting the bill. From this will emerge the scope of the export effort required, the adjust- ments necessary to accomplish it and their implications for the people of this country.
The Import Bill
95. The value of total United Kingdom imports in 1950 was nearly £400 million greater than in 1949, virtually the whole of this increase being accounted for by rising prices (Tables 12-13). The volume of imports showed no appreciable change, some rise in raw materials and manufactures being offset by smaller imports of food. In part, this was a direct result of the deliberate decision to economise on dollar imports taken in concert with other members of the sterling Commonwealth during the dollar crisis of 1949. In part, it was due to growing difficulties in obtaining our full requirements from non-dollar sources in face of the increasing pressure of world demand and the failure, through natural causes, of certain agricul- tural supplies. This growing scarcity of non-dollar supplies of raw materials like wool, softwood and certain non-ferrous metals has been primarily respon- sible for the reduction in domestic stocks which took place in 1950. For while in the early months of the year restrictions were placed on dollar pur- chases of some raw materials on grounds of dollar economy, these were relaxed later on, and during most of 1950 no such, restrictions applied to purchases of essential raw materials. The decline in stocks was therefore almost entirely attributable to other factors.
96. In conditions of great scarcity it will not be easy to rebuild these depleted stocks of primary commodities. Moreover, we now face a further substantial rise in the cost of all imports. By January 1951 import prices as a whole were some 17 per cent. above the average of 1950. Even with no further increase, this would add some £400 million to the annual import bill. But import prices must be expected to go on rising. There is inevitably a time-lag between movements in market prices and their reflection in the prices of goods arriving in this country, and a further rise in market Pages ŝanof 58 any means be ruled out, though it may notae sorapta587
as hitherto. On account of prices alone, therefore, the United Kingdom
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