HC Deb 06 April 1989 vol 150 cc328-30
9. Mr. John Garrett

To ask the Chancellor of the Exchequer when he expects the balance of payments deficit will begin to fall as a percentage of gross domestic product.

14. Mr. Galbraith

To ask the Chancellor of the Exchequer when he expects the balance of payments deficit will begin to fall as a percentage of gross domestic product.

Mr. Lawson

Probably this year.

Mr. Garrett

Does the Chancellor agree that the balance of payments deficit was 1.7 per cent. of GDP in 1979 and 4.4 per cent. of GDP in 1988? Does he further agree that we have become a country that imports capital goods and exports oil, and is that not characteristic of an underdeveloped economy?

Mr. Lawson

The hon. Gentleman is wrong on pretty well all counts. His figures for the balance of payments current account deficit in 1988—it was 3.2 per cent. of GDP, not the 4.4 per cent. It is 3.2 per cent. That, of course, is a high figure but it is worth bearing in mind that the United States has had a current account deficit averaging over 3 per cent. for the past five years.

As for the imports of capital goods, there the hon. Member is right. There has been a substantial increase in the imports of capital goods and that has been the counterpart of the massive investment boom which has been going on throughout British industry and which will stand us in very good stead in the future.

Mr. Galbraith

Has the Chancellor read the report of the Institute of National Economics which states that Britain's deficit is in a class by itself and is likely to reach £44 billion by 1992? What will the Chancellor do to prevent than horrendous outcome?

Mr. Lawson

The statement by the organisation to which the hon. Member referred is wrong as, if the hon. Member would listen to what I said, the Americans have had a current account deficit of this order as a percentage of gross domestic product for the past five years—

Mr. John Smith

The right hon. Gentleman criticised them.

Mr. Lawson

—which I have not criticised. I am happy to answer questions from the Opposition Front Bench from a sedentary position since they have been put. I have criticised them for their budget deficit, not for their current account deficit. So it is certainly not in a class of its own, but it is obviously necessary that we get it down in due course and that is what we shall do.

Mr. Batiste

My right hon. Friend will be aware of the scepticism with which the statistics on which the balance of payments figures are calculated are treated in many quarters. Is he satisfied with the accuracy of those statistics? If not, what action will he take to improve them?

Mr. Lawson

My hon. Friend is right; the statistics are almost certainly inaccurate, as is indicated by, for example, the fact that for 1988 there was in the balance of payments a balancing item of £15 billion, greater indeed than the recorded deficit—and a balancing item is just a polite name for errors and omissions. We are concerned to improve the quality of Government economic statistics, and that is why the measures were announced yesterday involving a substantial reorganisation and enlargement of the Central Statistical Office and a number of other measures which, over time, will lead, I believe, to an improvement in the quality of statistics.

Having said that, it is a balance that has to be drawn between the burdens on business—the burdens that are put on business through the collection of statistics—and getting the full amount of statistics; and also, now that the economy is a much more complex, more service-based economy, it is genuinely harder to get statistics of the quality that we had in the past. Clearly, we have got to do better, and the announcement yesterday is designed to do just that.

Sir Richard Body

Will my right hon. Friend explain how there can be both a balance and a deficit? Surely the balance of payments deficit on current account is matched exactly by a capital account surplus, which may well be to our advantage?

Mr. Lawson

My hon. Friend is absolutely right. Part of the point that I was making was that if my hon. Friend looks at the officially recorded figures he will see that there is a substantial deficit on the current account in 1988 but equally there is a recorded capital outflow, which clearly cannot be the case. The two things must match and counteract. Of course, my hon. Friend is also right that the overseas savings which are coming to the United Kingdom to finance investment here—because they feel that this is a very good place to invest—are extremely welcome and will strengthen the British economy.

Mr. Robert Sheldon

Since the high pound and the high level of interest rates are a disadvantage to the balance of payments, are not the Chancellor's remarks quite unconvincing on how he expects to improve the balance of payments so long as these factors remain?

Mr. Lawson

I disagree with the right hon. Gentleman, even though he has at one time been a Treasury Minister. What has been happening is that domestic demand in this country has been running at an unsustainably high level, and one of the things that will happen is that the rate of growth of domestic demand will slow down and, as it slows down, import growth will slow down. That is one of the mechanisms by which there will be an improvement in the current account.

What the right hon. Gentleman is proposing, however, which is lower interest rates and a lower exchange rate, would probably have very little benefit, if any, to the current account. What they would do is ensure that inflation took off in a major way, as it did during the period when he was a Treasury Minister.

Mr. Gow

As forecasts and statistics prove so frequently to be made in error, would the world come to an end if we were to suspend both for a trial period of 12 months?

Mr. Lawson

I can assure my hon. Friend that in those circumstances the world would not come to an end. However, it might be a somewhat controversial measure to put before the House.

Mr. John Smith

Will the Chancellor tell us whether the IMF is wrong in predicting a £17 billion balance of payments deficit? Why should his prediction for 1989 be treated with any more credibility than his prediction for 1988?

Mr. Lawson

My right hon. Friend the Chief Secretary answered that point earlier, when he pointed out that the IMF frequently gets its forecasts wrong. Indeed, it got its forecasts hopelessly wrong last year, just as all other forecasters did. If I may give advice to the right hon. and learned Gentleman, who is an up-and-coming politician, I suggest that, if he were to concern himself less with forecasts and more with what is actually happening in the British economy, he would do a great deal better.

Mr. Redwood

Will the Chancellor confirm that the £15 billion unidentified item may include substantial under-recording of exports? Is that not very likely given the completely out-of-date basis for the survey of the service sector which is now such an important component in our overseas earning capacity?

Mr. Lawson

My hon. Friend is absolutely right and that is why one of the recommendations of the scrutiny report that came out yesterday, which he will have read, is to try to improve just that sector. It would certainly strain credulity to believe that the entire £15 billion balancing item is accounted for by unidentifed capital flows and none of it by unidentified flows on the current account.