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Page 112 or over a longer period. Or we might be able to devise some special saving system, the product of which would be directed towards house building and which would encourage house building and saving at the same time. I suggest that a committee of Ministers (perhaps those studying the Town and Country Planning Act with me) might go into all this. I am ready.
Every house built without any form of subsidy saves the Exchequer £577 per house and saves the local authorities £192 per house; £769 in all. It will be seen, therefore, that even substantial help in other ways will be a gain to the national
economy.
The Socialists built on the average of the last three years 180,000 houses in Great Britain to let. If we can build 260,000 next year we ought to try to get a larger number of houses both to rent and for the owner occupier. We have a margin of 80,000. If we can add to some thousands to those available to rent we shall be in a strong political position. At present, private starts run at the rate of about 40,000 a year. But they may dry up.
Somehow or another, we must get them up to about 70,000 in 1953 and more in 1954
Among other things, the strict" comparable needs test will have to go or be
modified.
It may be necessary to alter the system of distributing licences, in order to over- come recalcitrant local authorities.
These problems require further studying; but no action can, or ought to be taken, until we know what timber and steel will be available for next year's programme.
Ministry of Housing and Local Government, S.W.1,
26th June, 1952.
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C.(52) 217
28TH JUNE, 1952
CABINET
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23
EXTERNAL FINANCIAL POLICY
Memorandum by the Chancellor of the Exchequer
On Tuesday next we are to consider certain very important matters concerning our external financial policy. I have prepared the attached papers before the week-end, though I myself, and no doubt all closely concerned, will wish to spend the next two days in further thought. It will be noted that my memorandum includes the message from the Governor of the Bank of England which gives urgency to the question.
Treasury Chambers, S. W.1.,
28TH JUNE, 1952.
R.A.B.
1.
EXTERNAL STERLING PLAN
At the end of last February, I proposed to my colleagues a major change in external financial policy which became known as the External Sterling Plan. After a thorough discussion, the Cabinet decided not to proceed with the Plan at that time.
2.
I have since received the following message from the Governor of the Bank of England:-
*
"In various talks since that time and in my memorandum of 6th May, I have expressed the view that, while measures taken in your Budget and the rise in the Bank Rate had had considerable effect on the exchanges, the improvement could not wisely be regarded as setting an end to our troubles; that the crust was thin and that we could not continue long on the present basis without risking the re-emergence of pressure against sterling.
"As I said to you this morning, the signs are now all pointing to a gradual reappearance of this pressure (not, happily, at present on the sort of scale experienced in the months before your Budget statement). It is impossible to give exact reasons or to predict exact developments. But world financial opinion is beginning once again to believe that it is risky to acquire or hold sterling at present rates and in present conditions, and that a short position in sterling
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21st June, 1952.
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3.
the Bank's view that a decision to allow our arrangements in these fields to remain substantially unchanged over the Summer months would involve a grave risk to the currency and therefore to the economy of the United Kingdom and the Sterling Area,'
In the four months since the beginning of March we have had a welcome respite in the losses from the gold reserves, and the loss for the present quarter will be much smaller than I advised my colleagues to expect two months ago in C. (52) 111. This has resulted partly from the confidence created by the Budget, particularly by the credit measures, which have led to abnormal receipts (chiefly the payment of overdue bills), and partly from the very rapid inflow of Defence Aid from the United States.
4.
I have never concealed my view, however, either from my colleagues or from the House of Commons, that the respite has been only a temporary one. The latest forecasts of our situation in the second half of this year which I presented in C. (52) 195 show that the value of the measures taken in the Budget cannot last indefinitely, and that the other Sterling Area countries will not be able to achieve the targets set at the Commonwealth Finance Ministers' Meeting. At some time in the next few months there may therefore well be a resurgence of the crisis of confidence in sterling with which we have been battling ever since we came into office. I do not myself claim that our powers of prediction in this field can be absolutely accurate, but I must record the result of the official calculations and of the impressions I have been able to get of the state of opinion outside.
5.
Stern measures on defence, imports, etc. are necessary in any case. Yet the hard fact remains that the gold reserves have fallen so low, both in relation to the turnover of transactions and in relation to our sight liabilities, that we can continue our present external financial system only at great risk to ourselves and to the Sterling Area. Our capital position is too weak. On our present basis, we can never know from one week to another whether some new adverse turn of events will not place the reserves and so the whole system in jeopardy.
6.
Furthermore, this is not a passing phase. It will obviously be a long time before we can build up the gold reserves by earning a substantial gold and dollar surplus. The amounts which we could borrow through the channels which are at present open to us are small in relation to the size of the reserves which we need to feel reasonably protected, and in any case it is wrong to borrow and pledge securities without a positive policy for righting the difficulties which give rise to the need for borrowing.
7.
Can we find a way of running our affairs without taking the whole strain of the balance of payments of the whole sterling area upon our wholly inadequate reserves?
8.
I have set out in the Appendix the essential features of a Plan on the same lines as that submitted before. It is a combination of a floating rate of exchange, convertibility of sterling in the market for people outside the sterling area, and holding action on the sterling balances. The main difference between this and the former plan is that the present one contains no provision for the formal funding of the sterling balances of sterling area countries, since this does not now seem to be necessary (see paragraph 19 below).