HL Deb 26 March 1987 vol 486 cc304-11

4.7 p.m.

Lord Lucas of Chilworth rose to move, That an humble Address be presented to Her Majesty praying that the order be made in the form of the draft laid before the House on 16th March.

The noble Lord said: My Lords, I beg to move the order standing in my name on the Order Paper, which is the Statistics of Trade Act 1947 (Amendment of Schedule) Order 1987. We are proposing this amendment to the schedule to this Act of 1947 to allow the department's statistics division to conduct its annual and less frequent overseas transactions inquiries entirely on a statutory basis. At present these inquiries covering foreign direct investment are conducted on a part-statutory and part-voluntary basis.

The proposal—that is, the order before your Lordships this afternoon—comes at a time when there has been increased attention in economic circles to the value of the United Kingdom's invisible earnings. The proposed amendment to the Act is intended to improve the quality of the information on interest, dividends and profits, which are of course an important element of invisible transactions in the balance of payments accounts, by bringing them within the scope of the Act.

We have consulted the CBI. They accept, as I am sure your Lordships accept, the need for accurate estimates of invisibles in the balance of payments and they support the proposed amendment. It should not increase the form-filling burden; indeed, by enabling samples to be refined it should reduce the number of forms sent out. I do not believe that this measure is controversial and I ask your Lordships to give it your support.

Moved, That an humble Address be presented to Her Majesty praying that the order be made in the form of the draft laid before the House on 16th March.—(Lord Lucas of Chilworth.)

Lord Williams of Elvel

My Lords, I am most grateful to the noble Lord for introducing this draft order. It is, on the face of it, a fairly harmless looking order, but it raises a number of problems both of a general and of a particular nature. May I put the two general problems first. Your Lordships will be aware that the balance of payments statistics have caused, if I may put it at its lowest, a good deal of trouble in the last few months. Those of your Lordships who attended Question Time the other day when the noble Lord, Lord Diamond, raised the point of the revision of the 1986 outturn will be aware of what I mean.

It is on the question of invisibles, to which the noble Lord quite rightly returned, that the problem is greatest. I remember well in your Lordships' House responding to a Statement made in another place that the noble Lord was kind enough to repeat in our House when the Government—since these are government statistics—announced rather unexpectedly that the monthly surplus on invisible transactions in the balance of payments account was now valued at £900 million. This announcement was made in November.

Some of us from this side of the House were perhaps unwise enough to express a certain scepticism about that figure. Indeed, I am glad that the noble Lord, Lord Boyd-Carpenter, is in his place because he expressed the thought that I showed gloom at good news. I did not reply to the noble Lord on that occasion, but I have to remind him that the estimate of £900 million has now come down to £600 million. Indeed, in today's announced figures, it is £600 million. That is a drop of £300 million per annum; so the news was perhaps not quite so good as the noble Lord might have thought at the time.

Lord Boyd-Carpenter

My Lords, would the noble Lord allow me? Does that mean that his gloom is proportionately modified?

Lord Williams of Elvel

My Lords, it means that my scepticism was fully justified.

The second general point is the position of the Central Statistical Office. The noble Lord, Lord Brabazon, at Question Time said, and I quote from col. 117 of the Official Report of 24th March: estimates of the current account are the responsibility of the Central Statistical Office". The implication was that in some way the Central Statistical Office was not a government institution; that it was independent; that it had its own rules: and that it was not part of the government machine.

I hope that the noble Lord, when he responds, will reaffirm that the Central Statistical Office is an organ of government, and that the Government take responsibility for the statistics that the CSO produces. Clearly, the CSO has got itself into rather a muddle on the estimate of the monthly invisible earnings surplus.

If I may turn to the particular problems in this order, we are all in favour of the Central Statistical Office and the Department of Trade and Industry being given the proper tools to provide proper estimates—for that, indeed, is what they are—of monthly balance of payment figures on current account. We would certainly not wish to oppose the order, particularly since we have referred on a number of occasions to the integrity of government statistics not only on the balance of payments but on unemployment and other matters. The integrity of government statistics needs to be restored.

Nevertheless, while giving a general welcome to the draft order that the noble Minister is proposing, I have to note certain points in particular. The first is that under Section I of the Statistics of Trade Act 1947 there is no mention of the balance of payments. Section 1 reads that this Act is, For the purpose of obtaining the information necessary for the appreciation of economic trends and the provision of a statistical service for industry and for the discharge by government departments of their functions". I have no particular quarrels over whether the balance of payments is part of an economic trend or not, but I think it would be appropriate in an amendment to the schedule as drafted to refer specifically to the wording of the Act rather than to introduce a new concept which was not in the Act itself. That is however rather a technical point. I have some real problems about the interpretation of the new schedule that is in front of us.

The new schedule refers to an undertaking which may be related to a body situated outside the United Kingdom. In our discussion of the Banking Bill the other day we had an exchange between government Ministers and the Opposition on the meaning of the word "related". I should be grateful if the noble Lord could explain exactly what is meant by the word "related". Is it equivalent to "associated" in the terms of the Companies Act? Is the expression "related" here equivalent to "related" in the Companies Act, or is something else meant?

Secondly, the schedule refers to "the nature and extent of the relationship". What does "the nature and extent of the relationship" mean? What are undertakings required to do if they are asked to report in respect of inquiries from government departments as to "the nature and extent" of a relationship? What are they meant to reply?

Thirdly, there is the question of the financial interest mentioned in the third sentence of the new schedule. Again, "financial interest" can take a number of forms, and I am quite uncertain about what exactly the Government have in mind when they refer to "financial interest". Do they mean shareholding? Do they mean holdings in convertible stock? Do they mean holdings in privileged shares? Founders shares? What sort of things have they in mind? And about non-financial interests where there may be agreements between two independent companies which have a financial impact, and indeed may have an impact, such as licensing, on invisible earnings?

My fourth point refers to the fifth sentence in the schedule where the additional matters specify, particulars in respect of issued share capital, minority shareholders' interests, loans, reserves and provisions as recorded in the accounts of the undertaking". I emphasise the word "loans" because, of course, loans are a moving target. A parent company, or another company, can give a loan, or retract a loan, and other people can give loans, and it may be that at the date of the accounts there may be some loan figure outstanding. But it is unclear how companies are expected to respond to a request for particulars in respect of such loans.

The next sentence in the proposed schedule refers to, net gains or losses of the undertaking attributable to changes in exchange rates, being gains or losses arising out of the relationship". We are all familiar with the thought that gains and losses can result from foreign exchange contracts when they mature. But there is a thriving market in foreign currency options. It is quite normal to hedge a foreign currency exposure, and a foreign asset exposure, by means of an option. That option may, or may not, be taken up. How is an option going to be treated, because under the schedule as we have it in front of us options are not mentioned? Apparently it is only concluded contracts that are liable to inquiry

My last question refers to the last sentence of the schedule, which includes the words: where the undertaking is not a company incorporated in the United Kingdom, its net value to the related body". Again I emphasise the expression "its net value". What on earth is meant by the expression "net value"? Does it mean the attributable net assets of the foreign company? Does it mean the net value after paying capital gains tax that the undertaking might receive if it sold its investment? I have no idea what this expression can mean.

I hope very much that the noble Lord will be able to satisfy me on these points. They are important. As the noble Lord knows from our previous discussions on a variety of Bills that he and I have followed through your Lordships' House, I am very anxious to try to understand what the legislation proposed to your Lordships means. It is in that spirit that I ask my questions.

Lord Ezra

My Lords. I follow the points made by the noble Lord, Lord Williams, particularly in regard to the figures which are published from time to time on the invisible balance. We were all concerned last November when the Central Statistical Office, contrary to normal practice—having issued estimates month by month of the invisible figures which in due course, according to practice, were corrected when the firm figures were available—brought out some new estimates which considerably increased the previous estimates and then turned out to be wrong. This is what we are very concerned about.

My noble friend Lord Diamond raised this in a Question last week and we must press the Government to assure us that this business of introducing estimates upon estimates will no longer be followed. We are entirely in favour of trying to get more precise information and therefore we support the endeavour represented by this new schedule—supported also, as we understand it, by the CBI—that further information should be provided subject to the clarifications for which the noble Lord, Lord Williams, has asked.

What we are against, however, is a regular issue of estimates which apparently have no greater validity—indeed, in the case I have cited they have even less validity—than the original estimates. I hope we can have an assurance to that effect.

Lord Diamond

My Lords, I apologise to the Minister that I was at a meeting and therefore unable to be present at the very start of these discussions. This matter arose last week and the Government are now taking the stance that if the CSO publishes figures, that is the end of the matter. The CSO has the responsibility and it exercises that responsibility in an absolutely proper manner to the best of its ability. We understand that. But the Government have the responsibility of accepting these figures and giving government authority to them. It is no use the Minister saying, "This is the case and the Government are doing very well relying on CSO figures" and then alternatively saying "No, we are awfully sorry the Government are not doing so well, but this is nothing to do with the Government; it is the CSO which puts up the figures".

The Government cannot claim credit and at the same time deny responsibility for the advice they get. They receive advice in all sorts of ways. One of the ways is by means of statistics from the CSO. It is perfectly clear that on the occasion we are referring to the Government were criticised—"criticised" is not too high a word—by almost universal informed opinion for taking an optimistic view when the normal practice is to take a cautious. if not a pessimistic, view, and altering estimates, as my noble friend Lord Ezra has said, upwards when it was clear to most people thinking about it that an alteration was due but it was due downwards, as has now been demonstrated to be the case.

It is possible for those who prepare statistics to make errors. It is just possible, and the Government have the commonsense responsibility for saying "No, that trend could not possibly work. There must be a mistake somewhere in those figures". This happens to everybody who has a responsibility for finally signing a report about statistics. It is the Government's responsibility to do the same.

I obviously make no charge against the CSO except to repeat my appreciation for its co-operation and enormous help during the five years in which it was supplying the figures to the Royal Commission of which I happen to be chairman. I make no criticism against it whatsoever. I say to the Government that they have a clear responsibility for using their common sense and deciding which figures make a reasonable trend and which do not, and which therefore should be accepted. They have a responsibility for not altering the figures in a most irresponsibly optimistic way when the normal procedure is to be cautious about it and when they had no really good reason for being so wildly optimistic.

Lord Lucas of Chilworth

My Lords, a number of points have been raised on this order. Some of them are not totally relevant to the order, but I shall do my best to respond.

I want first to turn to what seems to be uppermost in the minds of noble Lords who have spoken; that is, the quality of the invisible figures, the published estimates and projections which are based on the best information that can be assembled on each occasion. It has been said on a number of occasions that estimates of invisibles are based on a variety of sources, including quarterly, annual and less frequent surveys. The latest figures are simply projections of those.

I say both to the noble Lord, Lord Diamond, and to the noble Lord, Lord Ezra—I think this is something of a repetition of what I have said before—that these figures are very difficult to estimate. The net figure is a balance between very large gross flows in and out of the United Kingdom. Statisticians do their very best with the information they have. I assure noble Lords that there is no question of the figures being doctored or massaged. I recall the statement to which the noble Lord, Lord Williams, referred—a statement that I made. I was bitterly criticised for the statistical office moving the figures upwards.

The noble Lord, Lord Williams, and the noble Lord, Lord Ezra, will recall that during the passage of the Consumer Protection Bill we discussed the difference between estimates and quotes and firm figures. These are estimates built with the best possible information available. We were heavily criticised for moving the figures upwards. In the light of events subsequent to that adjustment, we adjusted the figures downwards. My God, which does the noble Lord want us to do? We are criticised for putting them up, and we are criticised for readjusting them down. This is precisely what statistical information on estimates is about.

Lord Ezra

My Lords, it is not whether the figures had been moved up or down that we are concerned about. The normal practice with invisible figures is to put in estimates and to leave those estimates in the figures until the real figures are known. The Government seem to have departed from that practice last year in replacing estimates with further estimates which in turn turned out to be wrong. That is what we are criticising.

4.30 p.m.

Lord Lucas of Chilworth

My Lords, I accept the criticism, I deny the charge. The statistical office is, as is the Civil Service, politically impartial. The noble Lord, Lord Diamond, said that he did not want to question the integrity of professional statisticians. Indeed, I do not believe that the noble Lord, Lord Ezra, or the noble Lord, Lord Williams of Elvel, wish to criticise the integrity of professional statisticians. The estimates are readjusted—upwards or downwards—as evidence comes to light. There is no question of any influence whatsoever being brought by government departments.

I find this line of question just a little unnecessary. Frankly, I find it a little offensive that, after so many years, we should question the integrity of the CSO. Because the CSO is quite independent and because it has not been totally satisfied with the way that the figures are gathered, it has been consulting for some years on a better way of gathering the information. A planned improvement in the quality of all items in the balance of payments is becoming more and more important as the value of our overseas assets increases. I believe that the improvements made to the service, which will be further enhanced if your Lordships approve the order, will add to the total picture of figures.

Having dealt with the CSO, may I answer a number of the points raised by the noble Lord, Lord Williams of Elvel? Many of the companies that already provide us voluntarily with information find little difficulty in providing precisely the data for which the order asks. The amendment is aimed simply at obtaining information from all those to whom inquiries are addressed. It is grossly unfair that volunteers should provide information that is available to the free-riders, if I may put it that way—the non-contributors, who may well benefit from them. As I said in opening, the statutory nature that we now seek will refine and reduce the number of inquiries that we have to make.

I turn briefly to some of the detailed points in the schedule raised by the noble Lord. I think that he perhaps knows most of the answers because he took part in consideration of the Banking Bill. The noble Lord knows that the relationship was dealt with there. The requirement under the Companies Act 1925—that is, 20 per cent. interest—was the relationship. That applies to subsidiaries, branches and, indeed, associates.

Lord Williams of Elvel

The Companies Act 1985?

Lord Lucas of Chilworth

Yes, the Companies Act 1985. As to the true nature and extent, what is relevant is whether the subsidiary branch or associate has a relationship in the shareholding, one with the other.

With regard to the particulars, as I said, we have asked these questions previously and companies have not found difficulty in understanding what we mean. The noble Lord asked me about the financial interest. The financial interest is really the assets. In response to his other question, I say that options do have values and at some time they can be taken up or not. There is a value because options are bought and options are sold.

The noble Lord addressed the question of exchange rate gains and losses. The intention is that only those gains and losses arising from the relationship that have a bearing on the balance of payments are required. Finally, the noble Lord asked what we meant by net values in the last paragraph of the schedule. I do not wish to be trite with the noble Lord, but it is assets, net of all liabilities.

Lord Williams of Elvel

If the noble Lord says that net value means assets, why does he not say net asset value?

Lord Lucas of Chilworth

I should think because those who were consulted about this, the companies and so on, felt that this was the best way of expressing what was meant.

Lord Williams of Elvel

I am grateful to the noble Lord, but I do not think that he has answered my question fully, if I may say so. I wonder whether he has understood all the questions that I have put. Nevertheless, I understand that, in his view, companies are able to answer these questions, however imperfect they may be. I understand the Government's view that, if they wish to write this into legislation, even if we do not understand it, that is really their business. I understand that he wishes to introduce what, in trade union terms, is called a closed shop so that everybody should be involved in the same procedure and those who have opted out of it may be caught.

I am bound to say that I am still unhappy with the schedule as drafted. I hear what the noble Lord says; that there has been wide consultation. I am unhappy with the drafting. Nevertheless, in the interests of improving government statistics, I shall not oppose it.

Lord Lucas of Chilworth

My Lords, if your Lordships will permit me, I must confess that I had not anticipated that noble Lords would read into the schedule a number of matters which most certainly are not included. It may well be that I have not been able to provide noble Lords with all the answers that they wanted, and perhaps not even with answers that are totally satisfactory to them. Nevertheless, they are the answers. I will, of course, look carefully at the points raised. If I find that my responses are inadequate or do not fully cover the points raised, your Lordships may be assured that I will write to interested noble Lords and ensure that a copy is placed in the Library.

Lord Diamond

My Lords, will the noble Lord be good enough to take on board that nobody is criticising the Government for reducing their estimates and taking a prudent view on figures of which they have no detailed knowledge? The criticism arises only on increases in estimates for which there is no justification.

Lord Lucas of Chilworth

My Lords, I take on board the point that the noble Lord, Lord Diamond, makes. If he reads Hansard very carefully, he will see that that is exactly what has happened this afternoon. With that less than pleasant remark, which I certainly did not wish to make, I beg to move.

On Question, Motion agreed to, and it was ordered that the Address be presented to Her Majesty by the Lords with White Staves.