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11657-Economic Survey Galley 4

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6. The execution of a greatly enlarged and accelerated rearmament pro- gramme has now become the first objective of the Government's economic policy. It cannot, however, be the sole objective. The potential military strength of this country depends upon a well-equipped industrial system, a healthy population at home and an order balance of overseas payments. It is above all vital that nothing should be done that would seriously impair our capacity to export the goods and services needed to pay for the imports upon which our livelihood depends. The export trade is indeed an indis- pensable foundation of the whole economy, and the failure of exports would hopelessly weaken the United Kingdom and frustrate its efforts to defend itself.

7. The problem therefore is how to rearm as fast as we can, while main- taining a strong and healthy economy. The second objective implies no rejection of the sacrifices or reversal of the drastic measures needed for the first. Rather the opposite. It means indeed that we must not seek to lighten the burden of rearmament by measures which would mortgage the future. Exports must therefore, as far as possible, be protected. particular types of exports are bound to be adversely affected by defence production, but the aim must be to make up for any such losses-and indeed more than make up for them-by increasing exports of other things. Home investment too needs to be maintained at a high level, and we must meet more of the cost of rearmament by sacrificing for the time being the improvements we had hoped to enjoy in the standard of living and indeed cutting it back somewhat below its present level. Only in this way can there be any assurance that, if all goes well and the rearmament of the West secures the peace we seek, this country will still retain the strength and independence painfully recovered in the last few years.

8. This will be a hard task, for we have to meet a huge new demand upon our resources at a time when there are almost none unused, when there are almost no spare men and no spare capacity to call upon. Moreover, this claim must be met here at a time when other nations are engaged upon exactly the same task. In particular, the giant economy of the United States is being switched over to arms production on an enormous scale. The resulting increase in world demand for raw materials has produced conditions of wide- spread scarcity and soaring prices, which have greatly aggravated our own problems of raising output and preserving financial stability at home. The shortage of raw materials is indeed much the most serious of all the difficulties with which the United Kingdom is likely to be faced in the immediate future. 9. Formidable though the problems are, this country is much better equipped to tackle them than at any time since the war, and in putting forward this survey of the prospects for 1951 the Government is confident that all the obstacles can be successfully overcome. At the same time the course of economic affairs in the months ahead must depend to a considerable extent upon decisions by Governments in other countries and upon the out- come of international negotiations in progress at the time this survey is published. For these reasons, it is at many points impossible to make a simple forecast of what will happen, and many of the quantitative statements which will be found below are therefore tentative and conditional. But the road ahead is clearly marked, even though we may be uncertain how fast we shall be able to travel.

CHAPTER I

IMPACT OF REARMAMENT

10. At its peak in 1944 the United Kingdom's defence expenditure exceeded £5,000 million and accounted for well over half the national income: in 1948 and 1949 it had been reduced to about £750 million. Up to this time the Services were still able to rely largely on wartime stocks of equipment, but in 1950, even before large-scale rearmament became necessary, provision had had to be made for greater production. Total defence expenditure has now to be raised at a rapidly increasing rate from £830 million in the financial year 1950-51 to £1,300 million projected in 1951-52 and over £1,600 million in 1952-53. Altogether, during the three years beginning in April 1951, the rearmament programme announced by the Prime Minister in his statement in the House of Commons on 29th January (Cmd. 8146) provides for a total Pagoedinte5ncluding civil defence, but excluding stockpiling, of 86ut 34,900587 million. These figures are based on present prices, with allowance only for such price increases as can already be foreseen with certainty. Table 1 summarises the main statistics.

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