CAB129-36 — Page 445

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INTERIM REPORT BY THE INVESTMENT PROGRAMMES COMMITTEE

PART I: General Considerations

1.

The object of this note is to examine very broadly the possibilities of curtailing investment in order to relieve inflationary pressures.

2.

In 1948 gross fixed investment reached the high level of £2,000 millions. It absorbed no less than one-fifth of the total national resources available for use at home. For the current year the approved programme, at the same prices, is £2,100 millions, though the actual out-turn may prove to be somewhat lower. For 1950 a still higher programme of £2,130 millions has been provisionally endorsed by the Production Committee.

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Programmes of this size clearly make a heavy draft on our total resources and inevitably compete powerfully in one way or another with our export effort. Moreover, with consumption demand and Government expenditure both running strongly, these large programmes present a constant threat to the stability of prices, unless enough purchasing power is held back through savings by the public and the Government to pay for them, To reverse or at least halt the growth of investment would, by limiting competition for available resources, help to reduce the pressure on prices and also permit resources to be used more freely for other purposes - notably for export.

4.

The present position differs from that of two years ago when an attempt was made to cut investment. Then the principal aim was to reduce the amount of investment in progress and pro- jected within the limits of the resources then employed on it. By now we have succeeded in bringing about a rough overall balance between work in hand and the resources currently employed on it. The numbers engaged in the building and civil engineering industries have been stabilised and indeed a re to-day the same as they were a year ago. It may well be that a moderate scaling down of the volume of new work allowed to start would stimulate greater mobility within the industry and in the end give a fillip to productivity. But it cannot be said that for this limited purpose any drastic adjustment of the amount of work in progress is required.

5.

There is, however, a new factor. The cut in imports from the dollar area will reduce the total volume of resources available for use at home and will have a two-fold effect on the investment programme. First, some supplies needed for investment will be reduced - notably softwood. Secondly, the cut in imported raw materials generally will impose a check on the growth of industrial activity and, therefore, of the national product available for investment and consumption. We shall thus be in a weaker position to support the present growth of our investment programme, and it will be more difficult to keep the investment attempted within the limits of private savings and the budget surplus.

16.

In the following analysis it is assumed that disinflationary measures would be taken simultaneously in other fields. Such measures would affect the level of investment in various ways. A cut in Government expenditure, for example, night automatically eliminato some investment that is wholly or partly financed from Exchequer funds. In the face of general deflationary measures industrialists might elect to postpone some of their investment projects. Likewise private individuals

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