Trade Deficit (Hansard, 29 June 1988)

§ The Secretary of State for Trade and Industry (Lord Young of Graffham)
My Lords, as my right honourable friend the Chancellor of the Exchequer has already said, recent figures suggest that the current account deficit in 1988 will be larger than forecast at the time of the Budget. A new forecast will be published in the usual way at the time of the Autumn Statement.

§ Lord Hatch of Lusby
My Lords, the noble Lord does not answer my question. If the Government have changed their forecast, why? Why was it that in March the Chancellor forecast a deficit of £4 billion, which has almost or totally already been reached? How does what he has said square with his constant reiteration in this House and in the country that the country is booming? Our trade deficit last month was the largest in history. Is this not a reflection of the Chancellor of the Exchequer's policy in the Budget of reducing taxes for his rich friends who are now spending the money on imports rather than investing in the productive activities of this country?

§ Lord Young of Graffham
My Lords, the noble Lord, should take more care. He confuses a deficit today with the conditions that existed in the early and middle 1970s, and indeed in the 1960s, when the economy was such that we were in considerable difficulties. We have today an economy that is growing as fast as, if not faster than, any other economy in the industrialised world. Today's deficit of £4.7 billion should be compared with our overseas direct and portfolio assets, valued at the end of 1986 at £236.5 billion equivalent to £4,200 per head. When an economy is growing as fast as ours is growing, it is quite likely that there will be temporary imbalances and periods in which imports will exceed exports. Any similarity between this and the middle 1970s exists only in the mind of the noble Lord.

§ Lord Barnett
My Lords, will the Secretary of State care to tell the House how he believes that personal tax cuts in the Budget will be helpful to this year's deficit?

§ Lord Young of Graffham
My Lords, I believe that tax cuts in the Budget will be helpful to the growth of enterprise and the economy, and will ensure that the economy continues to grow faster. That is the important question.

§ Lord Jenkins of Hillhead
My Lords, will the noble Lord accept that I agree with him that the massive nature of our reserves and overseas assets make an apparently qualitative difference compared with the position in the 1960s and early 1970s? Nonetheless, will he bear in mind the dramatic experience of the United States in the 1980s, which showed that with remarkable speed a country can turn itself from being the biggest creditor in the world to being the biggest debtor in the world? Will he therefore avoid being too complacent about the present position?

§ Lord Young of Graffham
My Lords, I shall resist being too complacent. I accept the fact that the noble Lord agrees with me and I look forward to that continuing in the future. However, I am sure that all noble Lords will accept that there is a difference between the years during which the United States of America ran at a substantial deficit and the economy of the United Kingdom which runs at a surplus.

§ Lord Harmar-Nicholls
My Lords, is my noble friend not surprised that, at a time when the industrial development in this country is obvious, so many well-informed people who have previously held office and who should have a real understanding of the matter should want to draw attention to the odd quirk which, of necessity, is bound to exist at some time?

§ Lord Young of Graffham
My Lords, I am aware that imports have increased substantially this year. In the three months to May imports of motorcars and consumer goods increased by 12 per cent. Imports of capital goods and intermediate goods, which are the components for manufacturing products, increased by 18 per cent. We are seeing industry gearing up and stocking up, and I believe that that will be a good omen for the future.

The Earl of Halsbury
My Lords, does not the Minister take comfort from a dictum of the Greek 1590 philosopher, Heraclitus, in the fifth century B.C.? He said, "Panta rhei"—all things are perpetually in a state of flux.

§ Lord Young of Graffham
My Lords, this Lord has been a Member of your Lordships' House for long enough to take comfort wherever he can.

Lord Bruce of Donington
My Lords, things may be in a state of flux but, on the assumption that the noble Lord has taken a serious interest in the structure of the trade figures that he has been kind enough to provide to Parliament, does the position between ourselves and the EC give him any cause for concern? Is the noble Lord aware that, whereas in 1972 we had a positive visible trade balance of some £200 million, in 1986 we had a deficit of £9.5 billion? Last year we had a deficit of over £10 billion, and on the basis of the results of the last five months the trade deficit with the remaining countries of the EC is running at an annualised rate of £14 billion. I ask the noble Lord not to give a purely rhetorical answer to this question. Has he given the matter serious consideration? What does he derive from an examination of the figures which he has provided? What do they hold for the future and on what basis can he predict any improvement in the balance of payments over the current year?

§ Lord Young of Graffham
My Lords, I recall well the conditions in the early 1970s. The noble Lord, Lord Bruce of Donington, may be aware that I existed in the outside world in those days and knew well the conditions.
It is my privilege to spend some time travelling up and down our land, seeing the conditions in the country today. There is no comparison between the two periods. I do not believe that one can take part of the trade figures and from that make judgments. I take comfort from the economy as a whole and so, I believe, do most people in industry today.

§ Lord Ezra
My Lords, is the noble Lord aware that in financial circles the estimate is that the net effect on the balance of payments for the end of this year will be a deficit of approximately £10 billion? That may or may not be right. However, bearing that prospect in mind, will the noble Lord indicate whether, in addition to increasing interest rates, which appears to be the policy of the Government, they have in mind any other measures which may deal with the situation?

§ Lord Young of Graffham
My Lords, there are forecasts and forecasts. It is an occupation of many people in the City to continue to make forecasts. I look forward to my right honourable friend the Chancellor of the Exchequer publishing an estimate of the forecast for the balance of payments deficit or surplus in the usual way at the time of the Autumn Statement. I do not believe that at this time it is for me to speculate about the course of interest rates in the future. It is for the Chancellor of the Exchequer to deal with the situation as and when the condition arises.

§ Lord Taylor of Gryfe
My Lords, while not being complacent will the Minister confirm that the adverse balance of invisible payments deficit was £9 billion in 1591 1987 but that there was a balance of over £8 billion in invisible exports? Can he give an indication of the buoyancy of the banking, insurance and other services in this year?

§ Lord Young of Graffham
My Lords, I admit the great difficulty of measuring the invisible balances and I believe that is well accepted. It causes us concern and the provision of the statistics is being examined at the present time. For example, 10 million or 15 million tourists visit this country each year. Many of them, if not the vast majority, acquire goods in this country. They may be registered, not registered at all or registered in some way as invisible when perhaps they should better be registered as visible. It is difficult for us, and I believe that it would be dangerous, to take too much from one month's figures. The long history of such figures has shown that they continue to be revised, and almost invariably revised for the better, as the months and years go by. I believe that we must see what the future brings.

§ Lord Northfield
My Lords, will the noble Lord give a broader breakdown than he gave in answer to a supplementary question when he contrasted the growth in the imports of motorcars with growth in the imports of capital goods? For example, can he say whether there has been a larger growth in the import of consumer goods than in capital goods and raw materials? We should all like to hope that it is the growth of the latter which is creating the deficit at the moment rather than a huge surge in consumer goods?

§ Lord Young of Graffham
My Lords, I have only the percentage increases, which are notoriously difficult if one does not know the base figures. They show that motorcars are up by some 19 per cent. in the first three months while other consumer goods are up by 10 per cent. However, both are up by far less—one-third less than capital goods and equipment for industry. I shall write to the noble Lord and give him a breakdown of the figures. I shall also cause a copy to be placed in the Library.

§ Lord Hatch of Lusby
My Lords, is the noble Lord aware that he still has not answered my Question? Why in March did the Chancellor of the Exchequer make that forecast of £4 billion, which has already been achieved in June? Is that the way in which the Government handle the economy? Has the noble Lord read the report of the Committee on Overseas Trade chaired by his noble friend Lord Aldington which forecast precisely what is now happening since the oil revenues began to decline? Is the noble Lord's idea—

Noble Lords
Order, order! Too long!

§ Lord Hatch of Lusby
My Lords, is the noble Lord's idea of a boom one led by credit which will lead to a crash or a boom led by exports which the present figure shows are in decline?

§ Lord Young of Graffham
My Lords, I have no doubt that the noble Lord, Lord Hatch of Lusby, believes that he is infallible but as a Minister I know that I am not infallible and nor does my noble friend Lord Aldington believe that the report of his Select 1592 Committee is infallible. They were the best estimates made at the time and that is what estimates are intended to be.