§ I come now to my proposals, and I deal first with the question of exchange control. Sterling is at present relatively strong, and I expect it to remain so. That strength flows partly from the realisation that, as a result of North Sea oil, the United Kingdom is better placed than most of our competitors to deal with present world oil problems. Moreover, our fiscal and monetary policies should maintain confidence in the currency. This is, therefore, an appropriate time to start dismantling our apparatus of controls on outward capital flows. Our present regime is more restrictive than that of any other major industrialised country. There is an overwhelming case, in this context as in others, for giving both companies and individuals wider freedom of choice. This should reduce the distortions and costs which controls are bound to impose on economic decisions. These costs bear particularly heavy on smaller companies.
§ We intend to move one step at a time. In the initial stage, the emphasis will be on direct investment overseas. Details are being made available in the Vote Office. The main relaxation will be to make official exchange, to the extent of £5 million per project per year, freely available for new outward direct investment. This should allow the majority of United Kingdom firms which invest overseas all the sterling finance they are likely to want. The two-thirds rule, which restricts the reinvestment of profits earned overseas, 245 will be abolished. In response to Labour Members, I must say that this greater freedom in the financing of direct investment abroad does not, as is sometimes feared, and as they suggest, threaten jobs in the United Kingdom. The weight of evidence is that overseas investment generally strengthens our position in world export markets to the benefit of output and jobs in this country. Moreover, additional investment overseas today will yield an income that will stand us in good stead when the overseas earnings from North Sea oil begin to decline.
§ During the sterling crisis of 1976, the last Government stopped the use of sterling to finance third country trade. That restriction has placed British merchants at a disadvantage in international business, and I am taking the opportunity to restore the facility to them as soon as the details can be worked out.
§ I have also decided that there should be some immediate easement of the controls affecting individuals. I am therefore, making significant relaxations in the rules concerning travel and emigration allowances, overseas property, and cash gifts and payments to dependants. In regard to portfolio investment, I am taking two modest steps at this stage. I am abolishing the requirement to maintain 115 per cent. cover for overseas portfolios financed by foreign currency borrowing, and official exchange will henceforth be available for meeting interest payments on such borrowing. The 1975 controls on gold coins will also be abolished. As the House knows, the liberalisation of exchange controls is one of our obligations under the EEC Treaty. I have accordingly discussed with the Commission the decisions that I am announcing today.
§ As time goes by, I intend to take further steps in the progressive dismantling of exchange control. The pace of relaxation will obviously be influenced by sterling's strength, as well as by the speed with which we can solve the economic problems that face us.
§ In our external policy we have also to take account of our official external debts. These at present amount to$22 billion—a massive increase on the$8 billion which the previous Government inherited in 1974. It is our intention to reduce that burden of external debt substantially during the life of this Parliament.