Overseas Investment (Hansard, 15 July 1982)

§ 5. Mr. Hooley
asked the Chancellor of the Exchequer if the increase in overseas investment since the abolition of exchange controls has had any effect upon the level of (a) industrial and (b) other investment in the United Kingdom.

§ The Economic Secretary to the Treasury (Mr. Jock Bruce-Gardyne)
I know of no evidence to show that the abolition of exchange controls has had a quantifiable effect on investment in the United Kingdom. But, if anything, it might have led to an increase in investment, particularly in sectors exposed to international trade, by keeping the sterling exchange rate from rising in 1980–81 as much as it would otherwise have done.

§ Mr. Hooley
Is the Minister aware that since the Government took office £10 billion worth of valuable capital has gone overseas, that the rate is now £4 billion a year and that since exchange controls were abolished industrial investment in the United Kingdom has slumped by 20 per cent? Is the hon. Gentleman not the slightest bit worried about these figures?

§ Mr. Bruce-Gardyne
I am not sure that the hon. Gentleman has watched what has been happening to business investment in the United Kingdom, which has held up remarkably well to output. The latest Department of Industry investment intentions survey foresees a modest rise in investment in 1982, which will increase in 1983. I remind the House that much investment overseas helps to build links between companies in the United Kingdom and overseas and thereby helps United Kingdom exports.

Mr. J. Enoch Powell
If we continue to have a large surplus on our current payments, is it not inevitable that we must have a corresponding outward investment?

§ Mr. Bruce-Gardyne
Yes, the right hon. Gentleman is entirely right. The alternative to the outflow of productive investment overseas would be the accumulation of reserves, which would reflect official investment in under-pinning the PSBRs of other countries. I doubt whether that would be a more sensible use of our resources.

§ Sir Albert Costain
Does my hon. Friend recall that during the Public Accounts Committee's examination of the heavy losses incurred by Rolls-Royce, witnesses observed that the losses would not have been suffered and the company would not have found itself in financial trouble were it not for exchange controls, which stopped the company buying dollars forward? Surely that is a good example of how exchange controls have caused unemployment?

§ Mr. Bruce-Gardyne
My hon. Friend is right. There is no doubt that exchange controls were ineffective in insulating the United Kingdom from the judgment of the market place on the performance of successive Governments. Among other things, they implied distortions of trade and payments, such as those to which my hon. Friend has drawn attention.

§ Mr. Cook
Does the hon. Gentleman agree that since the Government came into power capital has been flooding out of Britain, for whatever reason, at twice the previous rate? Is he aware that in the first year after the abolition of exchange controls, 22 per cent. of direct British investment went abroad, compared with 4 per cent. in the United States, 2.5 per cent., in Germany and 0.6 per cent. in Japan? Can he not see that those figures show one of the reasons for the decline in British manufacturing industry? Can he not grasp the fact that unless we check the flight of capital from Britain we shall not arrest the decline of our manufacturing base?

§ Mr. Bruce-Gardyne
Britain was entering a period of substantial oil surpluses when the Government took office. As I have already explained to the right hon. Member for Down, South (Mr. Powell), the alternative to the outflow of capital and private investment account that occurred would have been a build-up of Government holdings of overseas gilt-edged securities, which might have helped the borrowing requirements of other Governments, but it would have been of no long-term benefit to Britain.

§ Mr. Hal Miller
Does my hon. Friend agree that one of the reasons why our industrial companies have invested overseas is that they are able to exploit their technological advantages and inventions there and that they are able to supply firms abroad which are not content to rely on one United Kingdom source of supply? Does he agree that that investment protects British jobs and British design?

§ Mr. Bruce-Gardyne
I entirely agree with my hon. Friend.