Balance of Payments: Manufacturing Industry (Hansard, 10 April 1989)

§ Lord Strathclyde
My Lords, in the three months to February 1989, trade in manufactures was in deficit by £4.4 billion compared with a deficit of £4.1 billion in the previous three months.

§ Lord Dean of Beswick
My Lords, I am grateful to the Minister for that reply. Is he aware that during the last full year of the previous Labour Government—which was 1978—this country had a balance of over £5 billion on its manufacturing industries; a surplus of £5 billion? Is he also aware that under this Government, the adverse balance of payments in manufacturing industry last year was £14.5 billion? Will he tell us what has happened to show such appalling figures?

§ Lord Strathclyde
My Lords, I must say that the period of the last Labour Government was a very long time ago. I had hardly left school at the time that Government left office. This Government's policies have laid down the basis of sustained growth—eight years of growth. The economy has grown faster than in all major European countries since 1980. Public finances are strong. Employment has grown by more than 2.75 million since 1983 while unemployment has fallen for 31 successive months and is now below the Community average.

§ Lord Ezra
My Lords, does the noble Lord agree that, in spite of the commendable growth that has taken place in the last few years in manufacturing industry, our capacity is inadequate to meet the requirements of the nation? What steps will the Government take to make sure that we increase the competitive capacity of manufacturing industry so that the enormous deficit, totalling no less than £14 billion on our manufacturing account last year, can be overcome?

§ Lord Strathclyde
My Lords, I am sure that the noble Lord will be aware that he has a debate on 26th April when, naturally, we shall be able to discuss these questions far more fully than at Question Time. However, as regards his specific question concerning what the Government intend to do, it is not so much for governments but for industries to galvanise themselves to improve their export situation.

§ The Earl of Lauderdale
My Lords, does the noble Lord agree that the very fact that we have changed 5 from a public sector borrowing requirement to a public sector debt repayment of some £12 billion this year shows that the economy is in very good shape, and that that was unimaginable 10, 15 or 20 years ago?

§ Lord Strathclyde
My Lords, my noble friend is quite correct.

§ Lord Stoddart of Swindon
My Lords, will the noble Lord and the Government now accept that the warning given by the House's Select Committee on Overseas Trade three years ago was timely and correct? Would it not have been in the country's interests if the Government had taken note of the committee's recommendations and increased expenditure on exporting industries, particularly manufacturing industries? Will he say to what level interest rates will have to rise before we obtain a nil adverse balance of trade?

§ Lord Strathclyde
My Lords, the Government are continually offered the advice of forecasters and Select Committees. Very often, those forecasts are wrong. Sometimes, of course, they are right. The Government take all those factors into account. As to interest rates, companies are now in a far stronger financial position than they have been for a long time. I must point out that a 1 per cent. increase in interest rates, even if sustained for a full year, increases industry's costs by far less than a 1 per cent. increase in wage settlements.

§ Lord Campbell of Alloway
My Lords, with regard to the last question, is my noble friend aware of any economic law by which the Government could increase funds to manufacturing industry other than by straight subvention, which is contrary to the principles of the European Community?

§ Lord Strathclyde
My Lords, that is a question, I believe, for the noble Lord, Lord Stoddart of Swindon, to answer.

§ Lord Jay
My Lords, will the Minister confirm or deny the report that the Government intend to solve the balance of payment problems by abolishing the figures?

§ Lord Strathclyde
My Lords, no, that is not the case. There is a review dealing with the statistical office which will involve a transfer to the CSO of statistics work in the DTI and the Department of Employment.

§ Lord Harmar-Nicholls
My Lords, is my noble friend aware that, while the figures that he has given confirm the fundamental soundness of our manufacturing economy, it would be wrong to ignore the message that comes from the balance of trade figures? Can he find any way of encouraging the Opposition parties to urge people in industry to improve their productivity instead of using party political ploys to try to denigrate the Government?

§ Lord Strathclyde
My Lords, I am sure that, generally speaking, members of the Opposition are 6 as keen as we are on this side of the House to see the economy grow.

Lord Bruce of Donington
My Lords, the noble Lord has used the Government's own recently published figures, but is he aware that on the basis of the February figures relating to manufactured imports and exports there will be an annual deficit of £22 billion, which is rather more than the £14 billion that has been mentioned in respect of the last year? Is it the Government's case that the larger the deficit on overseas trade in manufactures the more prosperous is the country? That seems to me to be the impression given by his noble friend. Moreover, has the noble Lord seen the report in the Financial Times of 25th March and the statement by the Engineering Employers' Federation that in 1989 for the first time mechanical engineering will be in deficit?

§ Lord Strathclyde
My Lords, I have not read the Financial Times of 25th March but I shall certainly do so now. As I said previously, a balance of payments deficit in itself is not of great importance provided it can be financed. The noble Lord produced a figure of £22 billion. Perhaps I could refer him to my earlier point on the question of forecasts which are often wrong.

§ Baroness Seear
My Lords, the Minister mentioned that a 1 per cent. increase in interest rates had less effect than the corresponding figure in unit costs. Does he agree that by putting up interest rates he also puts up mortgage rates, which will greatly increase the pressure on pay claims? Particularly at a time when there are skill shortages, is it not very likely that employers will give way to those pay claims which will greatly increase their costs?

§ Lord Strathclyde
My Lords, I said that it would increase industry's costs by far less than a 1 per cent. increase in wage settlements. The real problem is that we are trying to eradicate inflation. Firm action has already been taken and we are now seeing signs that this is working. It is forecast to fall to 5.5 per cent. by the end of the year and will continue to fall throughout 1990.

§ Lord Mowbray and Stourton
My Lords, is not the imbalance between imports and exports in the manufacturing industry partly perhaps due to the citizens of the United Kingdom? If some of us bought fewer foreign cars, televisions, perfumes, calculators, etc., is it possible that there might be quite a considerable difference in the figures?

§ Lord Strathclyde
My Lords, to a certain extent my noble friend is of course correct. However, two-thirds of imports are of capital goods, intermediate goods, and semi-finished manufactures. These will be used to redirect the British economy enabling it to export more in the future.

§ Lord Hatch of Lusby
My Lords, the noble Lord answered my noble friend Lord Stoddart in relation to the report of the Select Commmittee of this House and said that some of the advice from committees 7 was wrong. But is it not the case that the report to which my noble friend referred was much more accurate than the forecast of the Chancellor of the Exchequer last year? He forecast a deficit of £4 billion when it was in fact more than three times that figure.

§ Lord Strathclyde
My Lords, that could well be true but last year an enormous number of economists were wrong.

§ Lord Dean of Beswick
My Lords, in his reply to me the noble Lord chose to remind me that the last Labour Government was in office 10 years ago. Would he take time out to remind the Ministers of Her Majesty's Government of that? They seem to be more intent than anybody on using that fact when it suits them. What does he think of today's published figures to the effect that the annual increase in the cost of raw materials and fuel to manufacturing industry has risen to 6.5 per cent? What effect will that have on competition with our overseas competitors?

§ Lord Strathclyde
My Lords, it is up to industry to decide how it reorganises its costs. What I believe counts is that a product should be well designed, well marketed, of good quality, made by a well-managed firm and a skilled workforce.