Balance of Payments (Hansard, 15 October 1968)

§ 2. Mr. Bruce-Gardyne
asked the Chancellor of the Exchequer what is his latest estimate of the balance of payments out-turn in the second half of 1968; and whether he is still forecasting a surplus of £500 million in 1969.

§ 5. Mr. Judd
asked the Chancellor of the Exchequer whether he will make a statement on the balance of payments for the first nine months of 1968.

§ 6. Mr. Sheldon
asked the Chancellor of the Exchequer what estimate he has now made of the balance of payments in 1968 and 1969.

§ The Chancellor of the Exchequer (Mr. Roy Jenkins)
Our deficit fell substantially in the second quarter of 1968, and the recent trade returns suggest the third quarter may have been much better again. Exports are rising strongly and invisibles are doing well; imports remain higher than we had expected, though the increase has at least flattened out. I do not propose at present to give detailed forecasts, but there can be no doubt that we are now rapidly eliminating our deficit; next year should see us in substantial surplus.

§ Mr. Bruce-Gardyne
That does not, of course, answer the question about the £500 million estimate which the Chancellor gave. Clearly, he will have to go a lot further with the I.M.F. officials when they come next month. How will he explain the fact that the money supply has continued to rise despite the fact that the expected surplus has continued not to materialise?

§ Mr. Jenkins
The latter part of that question has nothing to do with the Question which the hon. Gentleman had on the Order Paper. The money supply was expected to rise in the second quarter because—as he will know, if he studies these matters as I thought he did—the pattern of taxation coming in means that Government borrowing is necessarily higher in the second quarter.

§ Mr. Judd
Would my right hon. Friend care to comment on how this welcome trend is related to the effectiveness of the prices and incomes policy to date?

§ Mr. Jenkins
The prices and incomes policy and the other measures which we have taken—the public expenditure measures, and above all the Budget measures—are now working themselves out in the trade figures which we have seen in the past two months.

§ Mr. Sheldon
While welcoming today's trade figures, may I ask my right hon. Friend whether he does not agree that the present level of imports gives greatest cause for concern? Is he aware that the latest forecast of the National Institute predicted a level of imports flattening out to a plateau over the second half of 1968 and the whole of 1969? Would he not agree that, in the light of the latest figures, this forecast may prove too optimistic?

§ Mr. Jenkins
The forecasts of the National Institute, like those of other people, have not always proved wholly accurate in the past. That is somewhat in the nature of forecasting. It appears to be the case—and I speak with all due caution—on the basis of any number of months' figures that imports have flattened out, though they are higher than I would like them to be.

§ Mr. Iain Macleod
Will the Chancellor return to the original Question which he was asked by my hon. Friend and which he was asked again in a supplementary question? I understand that he does not want to make a new forecast, and I do not press him on that, but is he still holding to his original forecast of a surplus of £500 million in 1969?

§ Mr. Jenkins
If the right hon. Gentleman looks at my Budget statement he will see that what I said was that we 176 should aim at achieving during 1969 a surplus at the rate of £500 million. That is precisely what I said in my Budget statement. If the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) does not believe me, he should look up my statement. I still think that a surplus at that rate is desirable and is within our achievement.

§ Mr. Barnett
As the rest of the world would in any case react very quickly to prevent us from sustaining a surplus of £500 million on the balance of payments, would it not be more realistic to go for a much smaller surplus which we could sustain for some considerable time?

§ Mr. Jenkins
No. I think that it is necessary in present circumstances to sustain a very high rate of surplus. In all these matters a particular figure is not of crucial importance, but I think that it has to be of the order of £500 million. I am bound to point out to my hon. Friend that some other countries have sustained a substantial rate of surplus over a considerable number of years.

§ Mr. Alison
When the Chancellor talks about the trend of imports levelling out, does he anticipate any sharp rise in imports for industrial stocks in the next few months?

§ Mr. Jenkins
No. One must always speak with caution in these matters, as the hon. Member knows. I think that one factor in the relatively high level of imports in the last few months has been a high rate of stock-building. That is a factor which has been in the accounts for some months past. It could conceivably be a factor which would lessen in the future, but that remains to be seen.

§ 15. Mr. Boyd-Carpenter
asked the Chancellor of the Exchequer what steps he now proposes to take to strengthen the balance of payments.

§ 20. Mr. Dickens
asked the Chancellor of the Exchequer if he will give his latest estimate of the balance of payments out-turn in the second half of 1968 and in 1969.

§ 26. Sir C. Osborne
asked the Chancellor of the Exchequer, in view of the fact that the balance of payments deficit 177 is now running at the rate of £1,300 million per annum, how soon he estimates the undertaking to eliminate this deficit altogether will be fulfilled; and what new steps he is taking to achieve this end.

§ Mr. Roy Jenkins
I have nothing to add to the Answer I gave to the earlier Questions today on this subject.

§ Mr. Boyd-Carpenter
Can the right hon. Gentleman make it clear whether, on the present basis, he expects to move into surplus in the first or second half of next year?

§ Mr. Jenkins
I indicated when answering previous Questions, as I had done previously, that I was not prepared to give an exact date by which I thought we would move into surplus. I hope that it may be as soon as possible. I certainly hope that it may be in the first half of next year.

Several Hon. Members
rose—

§ Mr. Speaker
Order. The Minister is answering with this Question Questions Nos. 20 and 26. Mr. Dickens.

§ Mr. Dickens
In view of the fact that the private outflow of capital in the first six months of the year totalled about £348 million, of which perhaps £100 million went out in portfolio investment to Australia alone, will my right hon. Friend now turn his attention with all urgency to considering new restrictions to prevent the heavy drain which this represents on our balance of payments?

§ Mr. Jenkins
I think that my hon. Friend is giving the gross and not the net figure, which is a very different thing indeed. Naturally, one's view of the capital flow must have regard to both capital outflow and capital inflow; and present indications are that the position in the third quarter was substantially different from that in the first two quarters.

§ Sir C. Osborne
Since the Economist a few weeks ago estimated that our balance of payments was—that is, at that time—running at the rate of £1,300 million a year, what view would the right hon. Gentleman now give, if he does not accept that estimate, of the position; and why should we believe him when he says that by next year we should be in surplus to the tune of £500 million? What 178 evidence does he have to substantiate that claim?

§ Mr. Jenkins
I appreciate that the hon. Gentleman quoted the figure of £1,300 million in relation to the rate of the balance of payments when he put down his Question, which I suppose was tabled early in the Summer Recess. As he will be aware, matters have changed since then.

§ Sir C. Osborne
Answer.

§ Mr. Jenkins
I assure the hon. Gentleman that I will answer his question. If the rate of improvement since he tabled his Question—which itself was based on somewhat doubtful figures—remains what it has been since then, we shall be in very substantial balance of payments surplus indeed by next year, and at an early date.

§ 35. Sir T. Beamish
asked the Chancellor of the Exchequer by how much he now expects the balance of payments surplus in the second half of 1968 to fall short of the estimate of £100 million given to the International Monetary Fund after the £ sterling was devalued; and what are the main reasons for this shortfall.

§ Mr. Roy Jenkins
I have nothing to add to the Answer I gave to the earlier Questions today on this subject.

§ Sir T. Beamish
What is the right hon. Gentleman's answer to the charge that the main reason for the dangerous gap that has appeared between the forecast and the reality was his own blind refusal to face the facts of devaluation during the wild spending spree which followed?

§ Mr. Jenkins
In so far as the level of imports has remained our problem, and has remained a substantial problem, over the six months since the Budget, it did not respond, as did consumption at home, to the budgetary measures. Therefore, there is no reason to think, even if I accepted the hon. and gallant Member's premise, that this is a primary aspect of the matter.