Balance of Payments (Hansard, 12 May 1988)

§ 7. Mr. Henderson
To ask the Chancellor of the Exchequer what impact he expects the taxation changes announced in his Budget to have on the balance of payments.

§ 12. Mr. Darling
To ask the Chancellor of the Exchequer if he will assess the impact of the taxation changes in the Budget on the current account of the balance of payments.

§ The Chancellor of the Exchequer (Mr. Nigel Lawson)
None.

§ Mr. Henderson
What action will the Chancellor take to prevent the rich from further damaging our balance of payments by spending their tax cuts on European cars, Japanese electronics and perhaps even Swiss chocolates?

§ Mr. Lawson
If I may say so, that is an extremely foolish question, even from the hon. Gentleman. I do not know whether we shall be told, in one of the new policy documents on public enterprise culture that are coming from the Labour party every day, what people may or may not spend money on, but the plain fact is that what distinguishes the rich is that they save a higher proportion of their income.

§ Mr. Darling
Despite the Chancellor's answer, is it not inevitable that increased consumer spending as a result of the tax cuts is bound to suck in more income? Will he consider what changes he can make to company taxation to encourage spending on research and development so that British manufacturing industry can improve its position, which in some cases is quite woeful?

§ Mr. Lawson
We all know that the Labour party is against tax cuts, that the Labour party voted against the basic rate tax cuts in the Budget, and that the Labour party, if it ever had the mischance to gain office again, would put taxes up, but that is not the road to economic success, as we saw when the Labour party was in office. The tax reductions in the Budget are part of a supply side programme which will improve the performance of the economy, and, over time, strengthen not only our economy as a whole, but the balance of payments in particular.

§ Mr. Tim Smith
Does my right hon. Friend recall that in the past United Kingdom Governments have deliberately devalued the currency in an attempt to increase export competitiveness and have usually failed to do so? Will he compare that with the performance of the strongest economies, such as Germany, Switzerland and Japan, which have the strongest currencies and also the strongest export performance?

§ Mr. Lawson
My hon. Friend makes a very good point. It is very difficult to know what is the current policy of the Opposition. The hon. Member for Dagenham (Mr. Gould) does have an exchange rate policy—that, whatever the exchange rate, it ought to be 20 per cent. lower. He has made that clear on a number of occasions. Perhaps the right hon. and learned Member for Monklands, East (Mr. Smith) will tell us whether he agrees with that.

§ Mr. Yeo
Does my right hon. Friend agree that the exceptionally strong overseas asset position that we now enjoy, coupled with the healthy state of public finances, means that we can regard with equanimity the prospect even of a balance of payments deficit? Is it not clear that since the Budget the foreign exchange markets have taken the same view?

§ Mr. Lawson
My hon. Friend is right. The temporary current account balance of payments deficit after six or seven years of continuous surplus is not a matter that should cause alarm. Certainly it is striking how overseas opinion has confidence in the British economy, despite the temporary current account deficit. That is shown by the popularity of sterling at the present time. It is also shown 457 by the Fortune (9 May, 1988) article to which my hon. Friend the Member for Mid-Worcestershire (Mr. Forth) referred, which said: Britain is Back … the 20th century's archetype of unstoppable industrial decline has suddenly stopped declining and come roaring back.

§ Mr. Cryer
Will the Chancellor of the Exchequer talk about the booming economy and explain what the Government are going to do to remedy the current balance of payments deficit of about £4.5 billion? What are they going to do about the balance of trade deficit in manufactured goods with the Common Market, which is in excess of £10 billion? Does he regard those massive balance of trade and payments deficits as a mark of economic success, or of economic disaster, along with the 2 million jobs that the Government have disposed of in the manufacturing industry—more than Adolf Hitler achieved between 1939 and 1945?

§ Mr. Lawson
Manufacturing industry is doing very well indeed and is doing better all the time. That has been recorded in CBI survey after CBI survey. I do not think that the hon. Gentleman's crude mercantilism is a help in understanding these economic matters. The plain fact is that if monetary policy is sound, inflation is low, fiscal policy is sound—indeed, we have a balanced Budget and we have a surplus—and British industry is getting steadily more efficient, there is very little wrong with the British economy.

§ Mr. Watts
Does my right hon. Friend agree that his Budget tax changes will help to sustain our extremely satisfactory rate of economic growth and the improvement in the performance of our economy, upon which our trading performance ultimately depends?

§ Mr. Lawson
My hon. Friend is right. Our growth throughout the 1980s has been consistently at the top of the major European league table, and I expect that it will again be at the top of that league this year. As for the future, that is the whole point of the supply side policies that we have been pursuing in successive Budgets—to create a climate in which British industry and the British people can give of their best. That is why the British economy is doing so much better than it has ever done at any time since the war.

§ Mr. John Smith
As the Chancellor raised the question of exchange rate policy during earlier exchanges, can he tell us straight what his policy is on the exchange rate? He told us when the pound was less than Dm3 that the pound should follow the deutschmark. Since then it has gone up, through various so-called unsustainable levels, until it now stands at Dm3.16 and may go higher. Do the Government want the pound to be worth more, or less?

§ Mr. Lawson
Perhaps the right hon. and learned Gentleman can answer that question. I put it to him earlier. I have explained the policy very clearly to the Treasury and Civil Service Select Committee. That explanation is now available and it is well known to most hon. Members on both sides of the House. We also know the policy of the hon. Member for Dagenham (Mr. Gould), which is that whatever the exchange rate is, it should be at least 20 per cent. lower. That is not my policy. What is the Opposition's policy, and what is the right hon. and learned Gentleman's policy?