HC Deb 23 July 1969 vol 787 cc1703-6
13. Mr. Blaker

asked the President of the Board of Trade what income elasticity of demand his Department estimates now attaches to United Kingdom imports and United Kingdom exports, respectively.

32. Mr. Patrick Jenkin

asked the President of the Board of Trade if he is aware of the low income elasticity of demand for United Kingdom exports relative to the elasticity of demand for United Kingdom imports; what steps he is tak- ing to remove this cause of Great Britain's present slow rate of growth; and if he will make a statement.

35. Mr. Alison

asked the President of the Board of Trade what estimate he has made of changes in the present respective income elasticities of demand for United Kingdom imports and United Kingdom exports; and if he will make a statement.

Mr. Dell

Reliable estimates of income elasticities of demand are matters of difficult and uncertain economic analysis. The trend in our exports in relation to world demand has been greatly strengthened by devaluation, the full effects of which have yet to work through in increased deliveries. Over the past year our exports have risen significantly faster than imports, the volume of which has changed little despite a rise in economic activity.

Mr. Blaker

Is the Minister aware that in an article recently published in the Review of Economics and Statistics it is argued that our export markets are ones in which an increase in local income generates a relatively small increase in demand for British exports and that in this respect we are in an unfavourable position compared with other industrial countries. Is it not urgent that the Government should produce their own figures and their own estimates to show whether they agree or not with that argument?

Mr. Dell

As the hon. Gentleman knows, there has been some transfer of our exports to more rapidly growing economies, but that, in any case, since this study was done the whole situation has been greatly changed by devaluation. I would have thought that in the existing circumstances what is most important are the supply conditions and supply elasticities rather than income elasticities.

Mr. Patrick Jenkin

Is it not a fact that, even granted that demand has to some extent overtaken the actual figures which Professor Houthakker quoted in his article, the Board of Trade simply does not accept the main thesis, that the ratio of income elasticity to demand for imports and exports in this country is substantially out of line with that of our major competitors?

Mr. Dell

We have examined these figures. We note that these two authors themselves have actually suggested two alternative and different elasticities. Many economists disagree with the analysis and the calculations. It does not seem to me that one can really base a judgment on the future economy on these calculations. The real question is how exports and imports are moving at the moment.

Mr. Alison

Is not the Minister dodging the issue by that answer? Particularly talking about imports, are we not really talking about income elasticity and demand for imports? With incomes practically unchanged for 18 months or two years in real terms because of the Government squeeze we do not know how elasticity has moved.

Mr. Dell

Surely what the hon. Gentleman is concerned about, as are other hon. Members in this House, is how the visible balance of trade is moving. We do know that, following devaluation, the volume of imports has become very stable and that the volume of exports is rising. That is a fact which differs from the implications of that particular article. Surely it is the facts that we ought to go for, rather than some theoretical calculation which is challenged by many experts.

Mr. Barnett

In view of the errors which have currently appeared, is my hon. Friend satisfied that he is now able to obtain accurate figures in so far as exporters are fully recording their exports? Is he satisfied about the compensating error that there must be in view of the figure of the balance item? Would he consider that this is accounted for by evasion of exchange control, and is he not aware that it is a fact that for most people it is not too difficult to obtain whatever funds they like abroad for a certain price?

Mr. Dell

Well, as my hon. Friend knows, since the discovery of the under-recording error a 100 per cent. check is being introduced. It is impossible to say yet that this has eliminated under-recording, and we do not expect to till the end of the year. If my hon. Friend will draw my attention to the facts on which the last part of his question was based I will, of course, examine them.

Sir K. Joseph

Is not the Minister of Sate being very detached? The Board of Trade Journal itself published an analysis only a few months ago which showed that for every 1 per cent. of growth in our gross national product, imports rise in value by 1⅔ per cent., which is the essence of Professor Houthakker's thesis. Is he throwing overboard the Board of Trade Journal's analysis? What will happen to the balance of payments in this country when one Government, or another, allow growth once again?

Mr. Dell

I do not see that that follows from the article from which the right hon. Gentleman has quoted. It is a well known fact that in an industrialised society imports grow faster than the national income. This is part of the process of the distribution of trade, which increases resources available. That does not mean that there is a difference in income elasticity affecting imports and exports in the way those two authors suggest for all purposes. I suggest that it is better to go for the facts of what is happening to our exports and imports at the moment.