CAB129-52 — Page 83

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Page 8$1200 Much of the increase in the output of metal gbogewch fwd30 achieved last year appears to have been made possible only by running down stocks of steel and work in progress. As a result, difficulties over steel supplies are being felt particularly acutely this year, and this is likely to affect the rate of expansion of output next year as well as this. Moreover, we cannot be confident that even by 1953 steel supplies will be sufficient to meet full requirements, even with imports of the order of 1 million tons, because raw material difficulties (especially scrap, coke) are holding back United Kingdom steel output. This paper assumes that steel requirements will be met in full after 1953 and sufficient imports of steel and iron ore are allowed for in the import programme. The rate at which output of the metal-using industries could expand with ample steel supplies clearly depends on the pattern of the demand the output is being expanded to meet. For some goods where overseas demand is likely to be strong additional capacity will have to be created before output can expand to any considerable extent. I have assumed, however, that by 1954 and 1955 output will be expanding at about the same rate as in 1950, namely, 8 per cent. per annum, and that it will be building up to that rate of expansion in 1953 from the much lower rate that now appears inevitable in 1952.

12. On the basis of these rates of expansion we could assess the likely increase in total metal-using output as of the order of £375 million between 1951 and 1953, and about a further £300 million between 1953 and 1954. Part of this increase would take the form of spare parts, supplies of industrial goods for other industries and similar types of goods which cannot be assigned at will to different uses. The increase in supplies is on any reckoning insufficient to cover both the full increase in exports required and the rapidly growing requirements of the present defence programme.

13. Could the output of the metal-using industries be increased more rapidly than this in the kinds of output we want?

Even in 1953 these industries appear unlikely to get all the steel they could use. None the less I doubt whether even the removal of all their difficulties over steel could add more than about £50 million to the output I have assumed for that year, on the condition that the increase has to be exported. While the shortage of steel persists any extra steel for them would have to be at the expense of some other use. The only important use outside the metal-using industries which could be reduced without effect on defence or on the balance of payments is in the field of social investment. If the amount of steel going to schools, houses, hospitals, &c., were reduced below the levels implied in the investment programme for this year, and the steel thus saved allocated to the metal- using industries, their output would rise more rapidly than indicated here though the effects might not be immediate. This possibility, however, raises a number of important issues of general policy.

14. Home Uses other than Defence.-Can room be found for both exports and defence by reducing the other home uses of metal goods, which (apart from the repair work and industrial goods mentioned above) are home civil investment, passenger cars and consumer goods?

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15. Home Civil Investment.-Current plans for reducing the load on the metal goods industries envisage a substantial reduction in home investment in plant and machinery. This is to be brought about largely through the withdrawal of the initial depreciation allowances and the raising of export targets for capital goods, vehicles and agricultural machinery. It is quite clear, however, that in order to be able to achieve the export tasks, British industry will have to be able to meet the requirements of the overseas customer and do so at competitive prices. This will require increased investment in many branches of manufacturing industry. Invest- ment in manufacturing industry has probably never been sufficiently high in the United Kingdom since 1914 to give us a sound competitive position. It is difficult to say how high it should be or how high it could go if unrestricted, but we should at least restore it to the highest level we have been able to achieve since the war, namely, that of 1950. Moreover, investment in the basic industries will have to rise if we are not going to hamper industrial efficiency by power cuts and transport bottlenecks. Even a minimum programme of industrial investment will, therefore, call for an increase in home investment in plant and machinery of 2 to 3 per cent. per annum. Indeed, it is arguable that this is too small a provision to contemplate if we are not to prejudice our future industrial output.

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