Import Programmes

A control on dealings in foreign currencies was imposed in Sep-tember 1939 by regulation under the Emergency Powers Act. Resi­dents in Great Britain were prohibited from buying or selling foreign currencies except by permission of the Bank of England. The Board of Trade were authorised by the Import, Export and Customs Powers (Defence) Act, 1939, to prohibit or regulate by order, the import and export of all goods from and to the United Kingdom or any specified part thereof. Orders made under the Act prohibited the import of goods by private importers except under licence from the Board of Trade. With fuli employment at home, high money United Kingdom Balance of Payments table 7 £000,000'j Year Balance of Pay­ments on Current Account requiring to be financed Grants to U.K. under E.R.P. and payment schemes, etc. Borrowing ( + ) or lnvestment ( —) Sterling Liabilities (Sterling Balances) Gold and Dollar Reserves 1946 . - 298 Nil + 324 + 28 - 54 1947 . - 443 + 30 + 21 + 240 + 152 1948 . + 1 + 138 - 20 - 174 + 55 1949 . + 31 + 154 - 378 + 190 + 3 1950 . + 300 + 140 - 86 + 221 - 575 1951 . - 400 + 43 - 325 + 338 + 344 1952 . + 242 Nil - 71 - 346 + 175 1953 . + 211 Nil - 193 + 222 - 240 Source: United Kingdom Balance of Payments, 1946-54 (Cmd. 9291), Table 1. United Kingdom Balance of Payments table 8 Grants to (+) and from (—) the United Kingdom—EOOO.OOO'.? Year Grants to U.K. (from Table 7) Dollar Area (a) Other Western Hemisphere O.E.E.C. Other Non-Sterling Countries Rest of Sterling Area 1946 . Nil Nil Nil Nil Nil Nil 1947 . + 30 Nil Nil Nil Nil + 30 1948 . + 138 + 144 Nil - 6 Nil Nil 1949 . + 154 + 244 - 15 - 80 - 11 + 16 1950 . + 140 + 239 - 2 - 96 - 1 Nil 1951 . + 43 + 54 - 11 Nil Nil Nil 1952 . Nil Nil Nil Nil Nil Nil 1953 . Nil Nil Nil Nil Nil Nil (a) Principally European Recovery Programme (Marshall Aid). Source: United Kingdom Balance of Payments, 1946-54 (Cmd. 9291). For Definition of Areas—see notes, Table 6. incomes and the accumulation of wartime savings, the demand of the British public for imports right after the war would certainly have been greater than could be satisfied at the current level of foreign earnings. There were also outstanding at the time the sterling balances, debts owed overseas to certain Commonwealth and other countries. Sales of sterling if left unrestricted after 1945 would ąuickly have exhausted the free reserves of gold and foreign currencies and might conceivably have driven the pound well below those two dollars and eighty cents to which sterling was officially devalued in September 1949. Depreciation might have added to domestic difficulties by raising the costs of imports bought with dollars. It would of course have encouraged exports by cheapening British goods in the cur­rencies in terms of which sterling had been depreciated; but there was at the time a pressing demand for industrial goods in overseas markets which British exporters could not then satisfy. Reduetions in export prices could hardly have increased sales in foreign markets, for no greater volume of output could be exported than was already being sold. Permission to sell sterling continued to be withheld after as during the war except by consent of the control. Authority over dealings in exchange by residents in the United Kingdom was made permanent by the Exchange Control Act, 1947. Orders prohibiting the import of goods except under licence, though amended from Year Net (from Table 7) Dollar Area Other Western Hemisphere O.E.E.C. Other Non-Sterling Countries Rest of Sterling Area Non-Territorial Organisa- tions 1946 + 324 + 301 + 7 - 2 - 12 + 63 - 33 1947 + 21 + 784 + 10 - 92 - 20 - 307 - 354 1948 - 20 + 45 + 146 + 8 - 39 - 180 Nil 1949 - 378 + 100 + 14 - 9 - 31 - 279 - 173 1950 - 86 + 111 + 34 - 2 - 44 - 184 - 1 1951 - 325 - 43 + 28 - 62 - 68 - 176 - 4 1952 - 71 + 39 - 5 - 12 + 5 - 95 - 3 1953 - 193 - 5 + 18 - 45 - 12 - 148 - 1 Borrowing{+)and Investment{—)by the United Kingdom—£000,000'^ Source: United Kingdom Balance of Payments, 194&-54 (Cmd. 9291). For Definition of Areas—see notes, Table 6. United Kingdom Balance of Payments table 9 time to time, remained substantially in force. No goods could be imported (by private traders) except by licence of the Board of Trade and permission to buy foreign currencies was allowed only to traders (and others) who held valid licences or who were otherwise ąualified under the terms of the control. The control of imports was somewhat relaxed in 1948. "Open General Licences" were issued taking the form of a list of commodi-ties which, during the currency of the licence, could be freely im­ported without special application to the Board of Trade. Some of these goods could be imported without licence from all countries and others from all countries except the Western Hemisphere and Eastern Europę. Another list of goods could be imported without separate licence only if consigned from and originating in the sterling area; and a fourth list limited the privilege of import without licence to goods produced in certain specified countries. These Open General Licences were varied from time to time according to the condition of the balance of payments and the demands of policy. On one occasion the Open General Licences were extended in the pursuit of a generał liberation of trade; and on another, sugar pro-ducts were removed and special licences reimposed "to guard against the risk that a substantial increase in imports would prejudice United Kingdom supplies of raw sugar under a Commonwealth sugar agreement". The relaxations of control were followed, as indeed it was intended, by an increase in the volume of imports. Sterling prices were then rising, partly as a conseąuence of devaluation in 1949 and partly as a result of the increases in the world prices of primary products gener-ally, which had been taking place sińce the war. The balance of pay­ments, which had closed with a surplus in 1949 and 1950, was again in deficit in 1951 and the reserves of gold and foreign exchange published ąuarterly were being drained at an alarming rate. Tem-porarily, at least, the policy of relaxation had to be suspended. In November 1951 and again in March 1952, Mr. (now Sir Winston) ChurchilFs newly-formed Administration removed from the Open General Licence many classes of goods consigned from "foreign" (that is, not sterling) countries. A licence restricting the ąuantities of goods which may be brought in does not successfully limit the alue of those imports when prices are rising, and it is the gross sum paid which so affects the balance of payments. Licence and exchange con­trol were accordingly strengthened by the imposition of a limit upon the value of the goods which might be imported. A quota was fixed for each class of goods determining the value of the imports which could be permitted and specifying the countries of origin from which the goods could be consigned. "Global" quotas were issued for countries sharing in the scheme of Marshall Aid (O.E.E.C.) and their dependencies and for certain other foreign countries, not situated in the Western hemisphere nor lying behind the Iron Curtain. Shares in the quota were allotted to importers on the basis of their trade in a past period. Each importer allowed a quota was entitled to apply for a licence to import this class of goods and licences were issued up to the value of each trader's quota. All applications had to be accom-panied by a certificate signed by an independent practising accountant showing the value of the goods already imported by the applicant in the period for which the quota was current. Quotas were allowed only to those already established in the trade. No provision was made in the scheme for the allocation of a quota to traders wanting to enter the business for the first time. To help fellow members in the O.E.E.C. overcome certain special cases of difficulty, facilities were offered for imports into the United Kingdom in addition to the ąuota and it lay with the country concerned to distribute these additions to the quota among their own exporters. The Board of Trade then issued import licences on presentation by the importer of a certificate from the foreign exporter that he had been allowed an export ąuota under the scheme by his own Goyernment.1 These drastic measures were apparently successful. The value of imported merchandise was brought down by one-seventh (£531 million). Exports rose by £77 million (3 per cent). A deficit which, together with the balance of other debits and credits had risen to £400 milhon in 1951, was turned into a surplus of £242 million in 1952 (Table 5). Late in the autumn the reserves began to rise and by 1953 the way was again elear to resume the march towards the liberalisation of foreign trade. The Chancellor was helped in all this, as his predecessor had been embarrassed, by the turns in the terms of trade. British imports rose in price relative to British ex-ports by 14 per cent between 1950 and 1951, a rise sufficient to account for three-quarters of the deterioration in the balance of payments which oceurred in the last year of Mr. Gaitskell's incum-bency at the Exchequer. The succeeding fortunate, but quite fortuitous, fali in the price of imports between 1951 and 1952 was worth nearly one-quarter of the amount (15 per cent) by which the value of imports was reduced during Mr. Butler's first year of office. 1 Import of Goods (Control) Order, 1940 (S.R. & O. 1940, No. 873, and S.R. & O. 1945, No. 1356). Board of Trade, Import Licensing Branch, Notices to Importers, Nos. 292, 401, 488, 490, 492, 518, 519, 520 and 527. The import of many foodstuffs and raw materials was concen-trated early in the war in the hands of the controlling departments, such as the Ministry of Food and the Ministry of Supply. Govern-ment bought, often in bulk, from the foreign suppliers, either directly or through the appropriate control who, in turn, might employ the trade as agents. Some of these schemes were continued after the war because it was considered at the time that centralised purchases undertaken by one buyer—the Raw Cotton Commission is an ex-ample—would provide more efficiently for the needs of the users. Others were kept on only until the trade had sufficiently recovered to resume its former functions. These arrangements for Government purchase have now been wound up. The business of importing has been returned to private hands; but many commodities are still subject to import licence, and exchange control, including all those which have to be paid for in dollars and other hard currencies. Applications for licences from private traders were made direct to the Board of Trade or in the case of some raw materials and food­stuffs and certain other classes of imports, through the sponsoring department. Traders applying for licences to import machinery, plant, scientific instruments and parts thereof had to declare the purposes for which the plant was reąuired and what increase in pro-duction (and exports) could be expected. Licences were issued only on a showing that the goods in question could not be procured except from abroad and applicants were asked to "give particulars of the steps which had been taken" to obtain similar goods from sources within the United Kingdom. An assurance was also reąuired that the necessary raw materials and labour were available and that no extra building would be needed. Applicants for licences to import all other goods (goods, that is, other than vehicles and the commodi­ties specified) needed to state the purposes for which the goods were reąuired. But both classes of applicants had to declare the countries of origin, the terms and means of payment, and whether any royal-ties, rentals, service charges or other similar transactions had been agreed to. Such agreements must be submitted to, and approved by, the Bank of England before an application for a licence can be enter-tained. A smali ąuantity of certain manufactures was imported from certain countries as a token. Licences were issued for goods on this token import list up to 20 per cent of the pre-war value of the im­porter^ trade. The privilege was intended as a concession to the generał principle that nobody, in this case the importer, should be wholly depriyed of the opportunity of keeping his business alive if so drastic an interference with the interests of an individual could reasonably be avoided. The import programme was drawn up showing the expected re-ąuirements for imports over a period of six months. These reąuire-ments were assembled under the direction of the Treasury; and estimates of supplies in prospect from overseas sources were furn-ished by the departments and controls arranging for import of the commodity either directly or through their trade agents. Reąuire-ments and supplies for the commodities imported in great ąuantity —foodstuffs, petroleum products, softwoods and so on—were ex-pressed both in terms of the physical ąuantities and in terms of value. In^ome cases the volume of imports which could be procured was absolutely confmed by a continuing world scarcity. In others the limit upon British capacity to import was imposed by the shortage of the means of payment in the appropriate "hard" currency, particu-larly, of course, in dollars. The commodity statement had therefore to be supplemented by a budget comparing reąuirements expressed as a demand for foreign exchange with a forecast of the resources in foreign currencies accruing and available for expenditure upon im­ports during the period in ąuestion. The Board of Trade estimated foreign receipts from goods exported and sold abroad (yisible items); the Treasury, earnings from commissions, services of one kind or an­other, borrowings and proceeds from the sale of overseas invest-ments, together with the amount to be expected from gifts, aid, drawing-rights under payment schemes and so on. The compilation of the import programme as a whole has been complicated by the shortage of dollars and by the limited con-vertibility of sterling and many other currencies. Imports into the United Kingdom from all countries of the Commonwealth except Canada are paid for in sterling; but imports from other sources must be paid for in the currency of the country from which the goods are obtained, or in one or other of the limited rangę of currencies which are generally acceptable, that is convertible. The British demand for goods and seraces from some countries and some parts of the world exceeds in value the British exports which those countries and those parts of the world are normally accustomed to buy. From certain other countries and from other parts of the world, the United Kingdom imports less than the sum of the British exports sold to those regions, and the other credits arising therein. A deficit accumulates in transactions with the first group of countries and their currencies are "hard". With the second group, there is a surplus of foreign receipts in Great Britain's favour and the currencies of these countries if inconvertible are correspondingly "soft". Convertible currencies such as the dollar can be freely exchanged and credits earned in one convertible currency can be used to ex-tinguish debts incurred in any other currency. Some currencies are convertible into no other currency; others, such as sterling, can be exchanged into a limited rangę of foreign currencies and converted into others only on certain terms and with official consent. Incon-vertibility, whether absolute or conditional, prevents foreign income in the hard (and generally convertible) currencies from being in-creased by the sale of credits accumulated in those softer currencies of the countries with which the balance of trade is favourable to Britain. Additional income in hard currencies can in these circum-stances only be earned the hard way, by the promotion of direct exports to hard currency markets. As long as soft currencies con-tinued to be inconvertible, the hard currency budgets had to be balanced by restriction of expenditure, by the limitation, that is, of imports from hard currency areas. Currencies which are inconvertible can be used for no other pur-pose but that of buying goods and seraces (and paying debts) in the particular country in which the currency is earned. Soft currencies, being inconvertible, may also be unacceptable (at the official rates!) outside the countries in which they circulate. British demands on these countries being less, ex hypothesi, than the value of the goods and sendces which the foreign suppliers are able and willing to provide, any surplus in these currencies, earned but un-spent, is amassed as a paper credit which can be put to no better purpose than that of increasing imports from those soft currency countries. There is conseąuently no ąuestion of scarcity in our deal-ings with these areas. The problem, rather, is one of plenty—how best to make use of the surpluses arising in the soft currency accounts. The world, trading with the United Kingdom, is split up for the purposes of exchange control into a number of distinct areas— dollar area, other Western hemisphere, O.E.E.C, other non-sterling countries, rest of the sterling area and non-territorial organisations such as the International Monetary Fund.1 The sterling earned in foreign trade by residents in these several areas is paid into one or other of these accounts, each with its own degree of convertibility. Sterling earned in trade within the United Kingdom and the sterling area and paid into an account in one of the "scheduled territories"2 1 See note to Table 6 above, p. 110. 2 Below, p. 125. is freely convertible into any currency circulating in the "scheduled territories". Rights of conversion into other non-sterling currencies, particularly into gold and dollars, vary. The claims of the dependent colonial territories are considered together with domestic reąuirements for dollar goods arising in the United Kingdom. Some members of the sterling area, such as Australia and New Zealand, have undertaken broadly to enforce much the same limitations upon dollar expenditure as are currently being imposed in the United Kingdom; and other members make their own arrangements with the U.K. Treasury as generał managers of the sterling area. Sterling earned by residents in countries with whom the United Kingdom has concluded bilateral agreements is to all intents and purposes completely inconvertible into any other currency within the limits specified in the agreements, and there is generally provision for the conversion or other disposition of cur­rencies earned or accumulated outside those limits. Sterling earned by merchants shipping from countries party to such arrangements as the European Payments Union is paid into transferable accounts. This transferable sterling cannot be freely converted into gold and dollars, but may be transferred by the (non-resident) holder (that is, used by him, not being resident in the United Kingdom) to pay for exports from, and debts due in, certain other specified countries and groups of countries, the currency authorities of which are themselves willing to accept and hołd sterling. Sterling paid by merchants im-porting under hcence goods purchased in the dollar area is fully con-vertible. "American account" sterling, as these funds are called, may be exchanged into gold and dollars at the current rates. Care has to be taken, of course, to ensure that sterling goods, ostensibly sold within the sterling area, are not subseąuently "shunted" and sold in the dollar area. Inconvertible (sterling area) sterling can thus be con-verted into dollars—but for the credit, not of the sterling area pool, but of the intermediary, who is in a position to buy with incon-vertible sterling and sell for dollars. The import panel, in drawing up the programme for imports, had to strike a separate balance in respect of each group of currencies. They were at pains to ensure that all reąuirements were satisfied, to the limit of their capacity, by supplies drawn from soft currency markets. There was no other way of recovering the value of credits earned in trade with these regions. The maintenance of employment and the standard of life at home both demand that no stricter limits shall be imposed on imports of foodstuffs and raw materials than is necessary and it became, indeed, one of the chief functions of the planners to exploit to the fuli the soft currency areas of the world as sources of supply. Hard currencies, on the other hand, have to be severely economised. Reąuirements, particularly for dollar imports, have to be confined within the strait-jacket of current earnings plus funds obtained from loans or outright aid and the permissible draw-ings (if any) upon the reserves. There is no alternative, sińce dollars (as long as some currencies are inconvertible) can be got from no other source. Licences to import from hard currency areas conse-quently had to be limited in the days of stringency and indeed refused, if a substitute commodity could be got from a country willing to accept currencies which were softer and more easily earned. Only those demands which could not be met from anywhere else and that excess of the minimum reąuirements over the maximum expected supplies from elsewhere could be accepted for provision from sources asking payment in dollars and other hard currencies. But dollars might always be saved, though at the cost of a certain extravagance in terms of the softer and more easily earned curren­ cies. The Ministry of Food could (and did) add to the volume of foodstuffs by importing supplies bought in soft currencies at prices which exceeded the cost of the equivalent comestibles in the dollar area; and the supply of raw materials was also enlarged on occasion by purchases at higher prices from soft currency sources rather than a cheaper dollar market. The excess of the soft currency over the dollar price had to be limited, however, particularly in the case of raw materials. Too great a concession to the soft currency seller over the price ruling in dollar areas, by raising costs of manufacture in Britain, could impose a hindrance on British exports which would be the greater the more directly the raw materiał in ąuestion was consumed in the production of goods for sale in hard currency markets. The completed import programme, consisting of a series of com­modity budgets and an estimate of the income in foreign exchange likely to be available for the purchase of foreign supplies during the forthcoming period, was considered by a body representing all departments interested in the procurement of imports, either as claimants or as advisers on supplies. The Treasury, concerned to ensure that expenditure upon imports did not outrun disposable resources in foreign currencies, was in the chair. It was the business of this committee to ascertain that reąuirements had been formed upon an acceptable statistical base; that none exceeded a reasonable minimum and that no worthwhile economies had been neglected; that adeąuate allowance had been made for income expected from each source, and, finaliy, that policy had been correctly interpreted by each department in formulating the reąuirements. The instrument for securing these objects was that mutual scrutiny of estimates (already described in other connections) by expert de-partmental representatives. Each was aware that too generous an assessment of another's reąuirements, an unreliable forecast of over-seas supplies or of foreign income,, would jeopardise the fulfilment of his own claim. Fuli and free discussion between officials was the as-surance that all would come to agree upon the reasonableness of the finał assessment of each reąuirement and also, it may be presumed, upon the generał order in which the reąuirements should be ranked according to the priorities laid down by the Cabinet. These delibera-tions concluded, the committee prepared a report, setting out the estimated minimum reąuirements for each class of import and the maximum supplies which could be expected; or the amounts which could be bought with the foreign income allocated for this purpose if this should be the smaller. The draft programme finaliy agreed upon by the panel of officials was submitted to the Cabinet. The ąuantities included had been accepted by the departments and the Treasury; and the report recommended how the two sides of the account could be brought into balance. It was for Ministers to decide whether reąuirements should be reduced and which should suffer; or whether more foreign exchange should be provided for imports and the budget balanced at the cost of a greater draft on foreign resources and possibly of a reduction in reserves and other foreign assets. The size of the import programme and its constitution raise large ąuestions of policy. Decisions about imports imply decisions about the ąuantity of foodstuffs to be provided, about the raw materials to be bought and about the supplies of foreign-made eąuipment which can be allowed for the improvement and development of British industry. The first directly affects the standard of life of the people, the second the volume of employment and the third the technical efficiency and capacity of British industry. Questions such as these cannot be left to an official and necessarily anonymous committee, however highly placed. As long as import reąuirements exceeded supplies, or at least, the means of foreign payment (and once reąuirements for imports had fallen short of current foreign earnings the need for this elaborate machinery of a budget for imports had disappeared), the responsibility for deciding which claims on foreign income should be accepted and which should be excluded had to be reserved for Ministers.