Balance of Payments

HC Deb 22 May 1980 vol 985 cc693-4

4. Mr. Knox

asked the Chancellor of the Exchequer by how much the current account of the balance of payments was in deficit for the most recent 12-month period for which figures are available.

Sir Geoffrey Howe

The most recent figures indicate a current account deficit of £1,923 million in the 12 months up to 30 April 1980.

Mr. Knox

Does my right hon. and learned Friend agree that that figure would have been much more satisfactory had the exchange rate been at a more sensible level? When will the Government take steps to get the exchange rate to a more realistic level in relation to manufacturing costs?

Sir G. Howe

My hon. Friend may claim to have insight into what is either a sensible or a more realistic level for the exchange rate. However, the exchange rate is determined primarily by market factors. The influence that we can have on it over a sustained period is limited. If we attempted to achieve more than would make sense we would be repeating the experience of the right hon. Member for Leeds, East (Mr. Healey) and finding ourselves losing control of the money supply.

Mr. Dubs

Will the Chancellor put the figures that he has given the House into more realistic perspective by indicating what the non-oil deficit has been?

Sir G. Howe

The non-oil deficit would be a misleading factor. If we sought to unwind the clock of history as if oil did not exist, we should not have had an inflow of investment to oil and an outflow of revenue in respect of investment in oil, and many other factors would have been different. I agree with the hon. Gentleman that the availability of North Sea oil has made and is making a substantial contribution to the position of this country.

Mr. Dorrell

Does my right hon. and learned Friend agree that it may be more sensible to regard oil revenues to some extent as a capital inflow, and to intervene as a Government, through the institutions, to create a balance in capital outflow, so that the manufacturing sector would be dealing with an exchange rate against which background it could better compete?

Sir G. Howe

My hon. Friend's analysis was part of the background and justification for the speed and completeness with which we abolished exchange control.

Mr. Stoddart

Does the right hon. and learned Gentleman agree that our total non-oil deficit is £10,000 million and our non-oil deficit with the EEC is £5,000 million, and that the measures that he is taking are making our non-oil deficit worse than it need be?

Sir G. Howe

I urge the hon. Gentleman not to indulge in a too over-simplified breakdown between oil and non-oil deficit. However, I repeat that, if oil were not there, the factors leading to a greater deficit would be substantial. As a result of the availability of oil revenue, we are in a stronger position to reduce the borrowing requirement and so reduce interest rates, which is a sensible linkage policy.