Business Investment (Hansard, 17 June 1993)

§ 8. Mr. Betts
To ask the Chancellor of the Exchequer if he will make a statement on the level of business investment in the economy.

§ Mr. Kenneth Clarke
Business investment remains at an historically high level, despite the recession. In 1992, the share of business investment in gross domestic product was over 14 per cent., higher than in any year between 1970 and 1987.

§ Mr. Betts
Has the Chancellor read the report by the Bank for International Settlements, to which my hon. Friend the Member for Birmingham, Northfield (Mr. Burden) referred, which shows a major structural weakness in the economy of this country caused by long-term low manufacturing investment? It shows that any recovery is likely to be short lived, since a balance of payments crisis will stop the recovery because of that low level of investment. Will the Chancellor explain to the House what changes in action and policy he will bring about—not words—to rectify the appalling situation 985 caused by 14 years in which his Government have put manufacturing industry at the bottom of the political agenda?

§ Mr. Clarke
I regret to say that I do not think that that is historically correct. At the moment, business investment is low because we are just emerging from a recession and are in the early stages of recovery, but there was a substantial investment boom in the latter years of the 1980s. Business investment in this country was up more than 45 per cent. in the three years to 1989, which was the fastest three-year growth since the war. We have a much better record of manufacturing and business investment in this country than there has been historically. I will, of course, consider measures that might sustain that good record once the recovery gets under way.

§ Mr. Ian Taylor
Does my right hon. and learned Friend agree that one form of assistance that he could give to business investment is not to crowd out the borrowing market by the high level of Government borrowing and that, therefore, one of his key responsibilities must be to get down long-term Government borrowing, which would allow long-term interest rates also to fall?

§ Mr. Clarke
I wholly agree with my hon. Friend, which is why the Cabinet, in its decision this morning, places such a high priority on getting down as quickly as we can the level of Government borrowing. That message is simply not taken by the Opposition, who merely come forward with opposition to any revenue raising and proposals for more spending. Indeed, in the debate last Wednesday, the Leader of the Opposition would have added £12,000 million to the public sector borrowing requirement by that one speech alone. The interests of industry and manufacturing investment in this country lie in the direction suggested by my hon. Friend.

§ Mr. Hoon
Before Britain joined the exchange rate mechanism, it was well known that the Chancellor of the Exchequer encouraged membership on the basis that it would assist business investment. Will he argue the same case again?

§ Mr. Clarke
Our membership of the exchange rate mechanism certainly helped us to achieve the low level of inflation which is one of the best bases for making industry competitive as we move into the recovery. The five-point reductions in interest rates before we left the ERM were as valuable as the four additional point reductions that we have made since we left the ERM. All were based on this Government's success in getting down inflation. We now have to demonstrate the same success in getting down the public sector borrowing requirement.