CAB129-37 — Page 57

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burculated 20.10.49 at 9. 0pm

THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTY'S GOVERNMENT

OP SECRET

TRageirs avfor09f7 this paper has been strictly limitedge 58 of 4097 It is issued for the personal use of si homman

Brook

Copy No.

31

"Special"

30

C. P. (49) 205

20TH OCTOBER, 1949

CABINET

REDUCTION OF INVESTMENT PROGRAMME AND

GOVERNMENT EXPENDITURE

Memorandum by the Prime Minister

The Economic Policy Committee have considered at a series of meetings the memoranda by the Chancellor of the Exchequer on the internal financial situation (E. P. C. (49) 102 and 110) and on measures to combat inflation (E. P. C. (49) 111).

2.

The Committee accept as a general diagnosis of the situation that if we are to take advantage of the opportunities created by re-valuation to expand our exports to hard currency markets, we must, alongside positive measures to increase productivity and production, take steps to secure that our efforts are not frustrated by the pull of the home market. To this end, we must cocure that the increase of inflationary pross- ure which there has boon in recent months, arising in part from increased private spending and in part from the growth of Government expenditure beyond the budget estimates, and the further increase which will follow diversion of goods to cxport markets with a consequent diminution in the goods available for the home market without diminution of personal incomes, are corrected by appropriate disinflationary measures at home.

3.

It is not practicable at the present stage to attempt any precise quantification of the extent of this inflation. The time for such estimates will be in the spring in prepara- tion for next year's budget, in which it will be possible to consider all the measures of a budgetary character which will be required to meet the situation created by re-valuation as it will then be developing. It is, however, clear that significant contributions to these measures will have to be secured in the form of reductions of the capital investment programme to bring it into line with the savings likely to be available to meet it and reductions of Government expenditure to secure a true budget surplus of the amount we require. It is equally clear that if measures in these respects are to be in operation in time to have a significant effect on next year's budget, they must be started forthwith.

4.

The judgment of the Economic Policy Committee, after prolonged discussion of the situation, is that we should introduce measures designed to secure as soon as possible economies of between £250 and £300 millions, as compared with the forecasts under current policies and rates of expenditure, and that this sum should be roughly divided between capital investment and Government expenditure. But in view of the inevitable uncertainty of the factors from which this judgment is formed 58th 100m aimed at can only be reples of 10guide to the Cabinet of the magnitude of the measures required. tation to Parliament of our conclusions will be on broader lines without mention of any specific target.

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