Printed for the Cabinet. May 1952
Page 82
The circulation of this paper has been strictly limited.
It is issued
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TOP SECRET
CABINET OFFICE RECORD COPY
C. (52) 173
23rd May, 1952
CABINET
Copy No.70
THE BALANCE OF PAYMENTS AND THE METAL-USING
.1
INDUSTRIES
MEMORANDUM BY THE CHANCELLOR OF THE EXCHEQUER
Introductory
I have discussed the balance of payments outlook in C. (52) 172 and indicated therein that an increase of at least 20 per cent. in our total exports over the next three years is needed if we are to pay for our current requirements of imported food and raw materials, meet Government overseas expenditure and make provision on a minimum acceptable basis for dealing with our external capital position. This export task can only be achieved with a very substantial increase in our exports of engineering products. My aim in this paper is to examine this export task in more detail, and to discuss some of the modifications in other policies that may be needed to enable this task to be fulfilled. It is clear to me that these modifications will have to include some lightening of the defence load on the engineering industries.
The Size of the Export Task
2. The Import Bill. We have already taken decisions to reduce our expendi- ture on imports. A substantial reduction below 1951 levels has been made in the import programme for this year. Some of the savings were possible because imports in 1951 were greater than was required for current consumption and expenditure in 1952 could be saved by foregoing further increases of stock. A substantial part of the savings is to be attributed, however, to a reduction in imports for consump- tion of food, As I see it, the minimum total import programme which we would find tolerable in the next three years would cost us the following amounts : —
Actual imports (at March 1952
prices)
1951
£ million
1953
3,500
3,200
1954 1955 3,300 3,350
.3. This level of imports may be considered to be too austere. It implies that food imports will remain throughout the period at the reduced level programmed for 1952. Raw material imports would be just enough to allow for probable increases in output. No allowance has been made for any increased "liberalisa- tion" of our imports from Europe. I have adopted these figures, however, in order not to exaggerate the size of our export problem. If my colleagues consider that larger imports will be necessary, the metal goods problem discussed below will be made correspondingly more difficult.
4. To secure overseas earnings sufficient to cover an import bill of at least this magnitude, to make some provision for our overseas capital commitments, to cover the foreign exchange cost of our troops in Germany, and to do these things without courting disaster unless we receive substantial general economic aid from the United
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Patates after 1993, is of course a tremendous task. I estimate that furre an
increase in visible exports of the following dimensions:-
£ Million
Exports required (at March 1952
prices; actual in 1951)
1951
1953
1954
1955
2,710
3,060
3,300
3,320
3,110
5. This is a very large increase in exports. It becomes even more formidable when looked at in terms of the market prospects for different types of goods and the importance of obtaining most of the increase in non-sterling markets.
6. United Kingdom exports can be grouped into three broad categories:
(i) Raw materials (including coal and steel), and the products of the petroleum
and chemical industries.
(ii) Manufactured consumer goods (other than those of metal)--including food, drink and tobacco products, and the products of the textiles, clothing, leather, furniture, paper and similar industries.
(iii) Metal products including engineering goods, durable consumer goods,
motor vehicles, plant and machinery, ships and aircraft.
""
7. The market prospects for these products differ very greatly. Demand for the "raw materials group is not being satisfied and it would appear that substantially more exports of this kind could be sold if they could be made available. Obviously, however, we cannot count upon greatly increased exports of many of the items in this group although we must do everything we can to increase exports of coal and coke. Very different considerations apply to the non-metal consumer goods exports, which accounted for about one-third of our total exports in 1951. Export receipts from this class of goods appears likely to remain below 1951 levels for the next few years. Clearly, therefore, most of the increase in exports required over the next few years will have to be achieved by exports of metal goods. As I see it our prospects of achieving our balance of payments tasks wil be poor unless we can make available for export about £400 million worth of metal goods more in 1953 than we exported in 1951. In 1954 the task will be even greater and would call for some £550 million more metal goods exports than in 1951. There are two important problems to consider: (a) can these exports be sold in the right markets and (b) can they be made available.
8. Most of this increase in exports of metal products has got to go to non-sterling destinations, since in 1951 we were running a non-sterling deficit of £760 million. Our surplus last year with the Sterling Area is about the magnitude we shall have to maintain. This means that we have got to achieve this large expansion of exports in markets which are by no means easy for United Kingdom manufacturers. The required expansion in the volume of metal goods exports to the non-sterling markets between 1951 and 1953 is of the order of 50 per cent., with a further 20 per cent. expansion between 1953 and 1954.
9. Clearly there can be no guarantee that the total increase required in metal goods exports to the non-sterling world can be achieved. It is, however, abundantly clear that we must continue to rely heavily on the metal goods industries for the major share of the export task-no other sector of our export trade has anything like the "sellers' market
sellers' market " prospects that we hope will continue for a considerable range of engineering products over the next few years.
10. How difficult our task will be depends in part on the general growth of world demand for these goods. But it also depends on our ability to secure an increased share in this trade from other competitors. In 1951 our total share of world trade in metal products fell. One of the obstacles to the capture by the United Kingdom of a large share of the world markets at present is the long delivery dates which United Kingdom manufacturers have to quote because of the congestion of their order books. One way of helping to make British metal goods more competitive is to reduce the load on British industry. These exports will not be made if the resources which could make them are earmarked for other things. If they are not made we shall find all too soon that we are unable to pay for the raw materials our industries need; the total supplies of metal goods for all purposes would then inevitably be less. In this sense unless the export claim can be met in full all other claims are at risk. ⠀