HC Deb 23 February 1989 vol 147 cc1133-4
6. Mr. Allan Roberts

To ask the Chancellor of the Exchequer if he will make a statement on current foreign investment into the United Kingdom.

The Paymaster General (Mr. Peter Brooke)

I refer the hon. Gentleman to the reply which my right hon. Friend the Chief Secretary gave to the hon. Member for Bridgend (Mr. Griffiths) on 23 January at column 374 of Hansard.

Mr. Roberts

That is very illuminating. Does the Minister agree that the Chancellor has been sitting on a mountain of hot money which has been attracted into this country by high interest rates and is financing the £14 billion balance of payments deficit? What will the Chancellor do when the Government have no more assets to sell to overseas customers? That is also masking the extent of the balance of payments deficit. What will he do when the new green mantle which has descended on the Prime Minister stops the import of toxic waste, which is also masking the balance of payments deficit? Is that not why he cannot bring interest rates down?

Mr. Brooke

It is impossible adequately to distinguish between short-term and long-term capital flows on account of the greater mobility of international capital and also because large balancing items confuse official figures. Inflows take many forms. Nevertheless, the underlying strength of total inflows and of sterling indicates overseas confidence in the United Kingdom economy and overseas confidence that the Government will pursue sound fiscal and monetary policies.

Mr. John Townend

Are not many of these inward investments a major cause of our balance of payments deficit, and when they become productive will they not be a major reason for the future reduction of that deficit?

Mr. Brooke

I am delighted to agree with my hon. Friend that foreign investment into this country continues to be strong, for both portfolio and direct investment.

Mr. John Smith

Is the Paymaster General not concerned about narrowing interest rate differentials between the United Kingdom and, for example, West Germany, which have caused some downward movement in sterling in the past few days? Will that not make it more difficult for the right hon. Gentleman to attract and retain the short-term hot money which finances Britain's very large balance of payments deficit?

Mr. Brooke

I infer from the right hon. and learned Gentleman's question that he wishes us to increase interest rates further.

Sir Peter Emery

Will my right hon. Friend assure the House that the Government intend to take no measures to limit the free flow of foreign exchange and capital in and out of the country, which is the basis for keeping the City of London the leading financial market of the world?

Mr. Brooke

My hon. Friend is right to draw attention to the immense gains that the economy has derived from the free movement of capital.