Capital Investment (Hansard, 4 June 1981)

§ 7. Mr. Woolmer
asked the Chancellor of the Exchequer when he expects capital investment in the United Kingdom to start rising again.

§ Sir Geoffrey Howe
The latest intentions inquiry by the Department of Industry into fixed investment by manufacturing, distributive and service industries points to a recovery in the volume of investment next year.

§ Mr. Woolmer
Has the Chancellor seen the official publication British News which shows that his Government inherited a record level of manufacturing investment from the Labour Government and that the CBI's latest monthly report shows that investment in manufacturing fell last year, will fall by 15 per cent. this year and again next year? Is that not a disastrous record? When will the Chancellor accept that his policies are causing the destruction of manufacturing investment? Is it not time that he changed his policies, rebuilt investment in industry or resigned?

§ Sir Geoffrey Howe
The hon. Gentleman gives a distorted picture of what is happening. It is true that there has been a reduction in investment last year and this year, but all that must be read subject to the facts that I have given to the House, that there is likely to be a reversal of that and an increase in the following year. If one is looking at surveys of business opinion, it is important to take into account the fact that, since the end of last year, there has been a steady upward movement in business confidence as expressed in surveys carried out by theFinancial Times and the CBI.

§ Mr. Richard Wainwright
When will the Chancellor's change of mind on finance for capital investment by British Telecom be followed by his change of mind on capital investment by British Railways, the National Coal Board, the Post Office and the sewerage authorities?

§ Sir Geoffrey Howe
The hon. Gentleman must understand that there is no question of a change of mind on this matter. The announcement by my hon. Friend the Minister of State, Department of Industry, about the British Telecom investment was of a planned increase in profitable investment within existing programmes. If a nationalised industry's investment is running at broadly the same real level as in 1975 and, over the next three years, will rise from £4½ billion to £5¼ billion, it is important to keep that in mind and to continue considering such investment proposals by the test: is the investment profitable and are the resources available to finance them?

§ Dr. Mawhinney
Does my right hon. and learned Friend agree that the level of capital investment will be adversely affected, as a number of firms are claiming, if clause 30 of the Finance Bill, on sickness payments, is enacted?

§ Sir Geoffrey Howe
The link between the point made by my hon. Friend and the question on the Order Paper is so tenuous that I must congratulate him on his ingenuity. A number of people are concerned about clause 30. My right hon. Friend the Financial Secretary has seen a deputation about it. The Standing Committee will be debating that clause tonight.

§ Mr. Cook
Does the Chancellor bother to read the publications of the CBI survey section? If he does, how can he reconcile his answer with the conclusion of the survey that over half the firms surveyed will be investing less in the next year than they did last year? How does he 1060 expect to achieve the leaner and more competitive industry that he is always promising on the basis of falling investment in manufacturing?

§ Sir Geoffrey Howe
All these changes take place at different times in relation to each other.

§ Mr. Cook
What does that mean?

§ Sir Geoffrey Howe
The reality is that there are substantial signs of rising productivity throughout British industry. [HON. MEMBERS: Where?"] I have already given the facts. Reports from companies throughout British industry have disclosed the prospect of an upturn in investment in 1982. The point that should be emphasised by the Opposition and the Government is that the most effective contribution to be made to expansion is continued progress, the reduction of unit labour costs and the achievement of reasonable pay settlements.

Several Hon. Members
rose—

§ Mr. Speaker
Order. I will call one more hon. Member from each side.

§ Mr. Whitney
When my right hon. and learned Friend considers the problems of capital investment, will he accept that there is inevitable competition between the claims of the private wealth-producing sector and the public sector? Will he also take account of the fact that some of the propositions being put to him by the public sector may be based on projections and statistics which are highly questionable in terms of productivity and returns?

§ Sir Geoffrey Howe
The points made by my hon. Friend are entirely valid and important. It was accepted by all sides at the NEDC meeting yesterday, for example, that questions of public sector investment should be related to the prospective profitability of that investment and the record of the enterprise seeking the capital. It must be noted that for nationalised industries the real rate of return has for a number of years not exceeded nil per cent. There are many examples of public sector investment that have turned out to be disasters rather than shining successes. All these things have to be taken into account in deciding the realistic size and shape of a public sector investment programme.

§ Mr. Joel Barnett
In current economic circumstances, does the Chancellor accept that there is a case for allowing a higher PSBR to finance increased capital investment in the public sector?

§ Sir Geoffrey Howe
One of the cases that can be made is the one made by the right hon. Gentleman. But again, it was universally acknowledged—it is widely acknowledged now—that any significant increase in the scale of public sector borrowing is likely to have an upward impact on the level of interest rates. If we are considering that, let us consider its effect on the prospects of investment for the private sector.