HC Deb 30 March 1995 vol 257 cc1174-5
9. Mr. Livingstone

To ask the Chancellor of the Exchequer if he will made a statement about the impact of the decline in the bond market and third-world stock markets on prospects for the United Kingdom economy. [15283]

Mr. Nelson

The United Kingdom economy remains fundamentally healthy, with sound prospects. The decline in world bond markets last year and recent falls in some third-world countries' stock markets are unlikely to have a material effect on the United Kingdom economy.

Mr. Livingstone

Have the Government considered the fact that one of the reasons preventing the decline in third world stock markets from feeding through into the British economy, and ours from following them down, is that it is still easy to borrow cheaply in Japan to invest in the stock market here, which is sustaining stock market levels? As the money supply in Japan increases, inflation takes off and interest rates rise, that restraint will be cut out and our stock market will decline and precipitate another recession.

Mr. Nelson

The hon. Gentleman seems to have omitted the subject of exchange rates, which certainly have some bearing on borrowing in one country and investing in another. I dare say that the proposal that he has just made would not have been profitable for anyone who had taken his advice. There is plenty of investment in this country from abroad. We take the lion's share of investment in Europe, and that is regenerating growth in our manufacturing industry and capability. Our prospects are sound. In decrying the prospects for this country, the hon. Gentleman fails to mention that in the last quarter of last year we had a current account surplus, for the first time in eight years, of £800 million. Surely he would do better to welcome statistics of that sort.

Mr. John Greenway

Following what my hon. Friend has said, does he agree that deregulation and the ability to invest internationally across the world has enabled this country's economy to grow significantly over the past 15 or 16 years? Are not the excellent trade figures published last Friday, which my hon. Friend has just mentioned, the result of much of the international overseas investment by British institutions and companies? Will he ensure that Government policy is to permit that to continue, and to have no truck with the Labour party, which would favour more regulation that would close down those investment opportunities?

Mr. Nelson

My hon. Friend is spot on. Our healthy current account figures derive in large part from the investment return on substantial foreign investments made. One reason for that is the fact that the Government got rid of exchange controls early on. The consequences of what is proposed by the hon. Member for Brent, East (Mr. Livingstone), who speaks for old Labour, would be the reimposition of exchange controls, capital controls and, presumably, penal rates of taxation on investment income.