HC Deb 02 July 1981 vol 7 cc996-8
9. Mr. Jim Marshall

asked the Chancellor of the Exchequer if he will make a statement on present levels of overseas investment by United Kingdom financial institutions.

12. Mr. Foulkes

asked the Chancellor of the Exchequer what was the level of portfolio and direct investment overseas by the United Kingdom financial institutions during the last 12 months, compared with the preceding two years.

The Financial Secretary to the Treasury (Mr. Nigel Lawson)

Portfolio investment overseas has increased substantially since exchange controls were abolished in 1979. These investments will provide a source of valuable overseas income for the future. Figures for portfolio investment by institutions exclude banks, while complete figures for direct investment overseas are not available. Using available data, the information is as follows:

United Kingdom Private Investment Overseas (net of disinvestment)
£ million
1978 1979 1980
Portfolio investment by financial institutions other than banks 720 670 2,250
Direct investment by banks and insurance companies 450 900 630
Mr. Marshall

Does not the Financial Secretary accept that when real investment in this country is declining, the record level of investment overseas—now running at about £4 billion per year—shows how little faith the financial institutions have in the Government's ability to turn round the economy?

Mr. Lawson

No, Sir. Apart from the hon. Gentleman's confusion between portfolio and real investment, he is also overlooking the fact that the increase in overseas investment bears no relation to the level of investment in this country, which is determined primarily by the return on investment. That is agreed by everyone, including the authors of the Wilson report, chaired by the right hon. Member for Huyton (Sir. H. Wilson).

Mr. Foulkes

Does the Financial Secretary agree that withdrawal of capital is much more damaging to British industry than any withdrawal of labour? Will he condemn the banks and other financial institutions for failing to invest in Britain and British industries? In the light of the figures, will he change his policy on exchange control?

Mr. Lawson

No, Sir. I assume that the hon. Gentleman has in mind the announcement a fortnight ago by the mineworkers' pension fund that it proposed to take over at a cost of $265 million an American property company--Connecticut General Mortgage and Realty Investments. I suggest that he takes the matter up with the deputy chairman of the pension fund, Mr. Joe Gormley.

Mr. Foulkes

I shall.

Mr. McCrindle

Will my right hon. Friend take the opportunity to pay tribute to the continuing high level of invisible exports emanating from financial institutions, whether by direct investment overseas or by general trading, without which our trade situation would have been infinitely poorer over the years?

Mr. Lawson

My hon. Friend is absolutely right. I gladly pay that tribute.

Mr. Cook

Has no one told the Financial Secretary that in the past year investment by pension and insurance funds abroad exceeded the total for the preceding five years? Does he really believe that under this Government industry is so strong and healthy that it can afford that haemorrhage? If he does believe that there is that much spare capital around, will he and his colleagues at least stop insulting the House by stating that public sector investment crowds out private sector investment from a limited number of funds?

Mr. Lawson

As a result of the abolition of exchange control there has, of course, been an outflow of investment overseas. That is a clear consequence. However, there has also been a substantial capital inflow. Hon. Members on the Opposition Benches are as opposed to outflows of capital as they are to inflows, and their concept of the country as a seige economy is as politically unattractive as it would be economically damaging.

Sir Charles Fletcher-Cooke

Is not the capital inflow a direct result of raising exchange controls, because it gives the foreign investor confidence that if he puts his money into the country he can get it out if a Labour Government come to office?

Mr. Lawson

My hon. and learned Friend is right. That is certainly one factor; another is confidence in Government policies.

Mr. Skinner

Is the Financial Secretary aware that not all those who pay their subscriptions to the National Union of Mineworkers are over the moon at the prospect of the pension fund being used to prop up an American property company, especially when, not many years ago, during the property boom under the previous Tory Prime Minister, the mineworkers' pension fund was used partly to finance the Cedar Investment Trust, which collapsed with about 30 other banks, and most of the money was lost? Does he understand that some of us are, therefore, against such an investment?

Mr. Lawson

I understand that the hon. Gentleman against most things introduced by any Government at any time, not least against measures introduced by a Government whom he normally supports. The pension fund proposal is supported not only by Mr. Joe Gormley the deputy chairman of the fund. As the hon. Gentleman well knows, half the management of the mineworkers' pension fund is made up of representatives of the NUM. With his close links with the NUM, the hon. Gentleman is uniquely able to take the matter up directly with them.

Figures for portfolio investment by institutions exclude banks, while complete figures for direct investment overseas are not available. Using available data, the information is as follows:

United Kingdom Private Investment Overseas (net of disinvestment)
£ million
1978 1979 1980
Portfolio investment by financial institutions other than banks 720 670 2,250
Direct investment by banks and insurance companies 450 900 630