Company Profitability (Hansard, 6 May 1993)

§ 6. Mrs. Lait
To ask the Chancellor of the Exchequer when he last met the CBI to discuss company profitability; and if he will make a statement.

§ Mr. Portillo
My right hon. Friend the Chancellor of the Exchequer has frequent contacts with. the CBI.

§ Mrs. Lait
Does my right hon. Friend agree that one of the biggest problems facing companies in my constituency and throughout the United Kingdom in their return to sustained profitability is the difficulty in getting working capital from banks? When my right hon. Friend the Chancellor next meets the CBI, will he be able to say that the Treasury plans an issue of two to three-year gilts especially designed for banks to buy, as foreshadowed in the Budget? Does my right hon. Friend agree that that would be the best way to ease liquidity in the banking system, thereby helping companies to get the working capital that they so desperately need?

§ Mr. Portillo
I do not want to disappoint my hon. Friend, but I have nothing to add to what my right hon. Friend the Chancellor said about funding in the Budget statement. Indeed, I would have anxieties about the pressure that such short-term gilts might have on inflation. The key to liquidity, about which my hon. Friend is worried, is the maintenance of low inflation and the restoration of profitability, which depend on the recovery. I think that she will be encouraged by the forecasts for company profitability.

§ Mr. Austin Mitchell
Given that company profitability was regenerated only when Britain was forced out of the exchange rate mechanism, why are the Government now indulging in nonsense about interest rates not coming down further and trying to talk up the pound again? Do they not realise that the only answer to the problems of a country that is in horrendous deficit and whose manufacturing base has shrunk below the levels of 275 viability is competitiveness, competitiveness, competitiveness—competitiveness and competitiveness, now and for ever? Why not put Group 4 in charge of the pound?

§ Mr. Portillo
The hon. Gentleman was in some danger of repeating himself during that question. I agree that competitiveness is very important, which is why the fact that unit wage costs have fallen in Britain while they have continued to rise in Japan and Germany is extremely encouraging. The hon. Gentleman should note that the encouraging performance of exports and retail sales began during the first half of last year. He should not put his faith in devaluation, which has never been the way out of problems for this country. He should consider the improvements in our competitiveness, which have been achieved in the last year by company managers getting control of productivity and quality and ensuring that they keep down wage and other costs.

§ Ms Harman
Given the importance of levels of investment on profitability, the fact that the Red Book forecast that business investment is to fall by half a per cent. this year and the fact that CBI industrial trends show that manufacturing firms are cutting investment, is the right hon. Gentleman satisfied with the present level of investment? If not, what is he going to do about it?

§ Mr. Portillo
The hon. Lady often repeats statistics, and I have had the privilege of hearing her make that point many times. However, she has not read the figures carefully. If she excludes investment in the North sea—investment which, because it is lumpy, rises and falls—she will find that investment has been rising. Even at the very lowest level predicted for the first half of 1994, business investment will be 14 per cent. of gross domestic product. That is historically a very high figure and is higher than that achieved for any year between 1970 and 1986. The hon. Lady will recall that her party was in power for some time during that period.