Manufactured Goods: Trade Deficit (Hansard, 16 March 1989)

§ The Secretary of State for Trade and Industry (Lord Young of Graffham)
My Lords, in 1988 UK trade in manufactures was in deficit by £12.5 billion with the other countries of the Community and by£2 billion with the rest of the world.

§ Lord Dormand of Easington
My Lords, what are the reasons for these shocking figures?

§ Lord Young of Graffham
My Lords, the simple reason is that we have imported more goods from the Community.

§ Lord Williams of Elvel
My Lords, the noble Lord will be aware that the Budget Red Book projects a rise in exports of an annualised 7 per cent. by the first half of 1990. Can he tell the House how that rise splits down between exports to the Community and exports to the rest of the world?

§ Lord Young of Graffham
My Lords, it is true in the three months to January exports of manufacturers were some 6.5 per cent. higher than a year ago. If we look back over the past five years, it is also true that imports from the European Community have nearly doubled. They have gone up from £24 .1 billion to £45.7 billion but exports to the Community have just doubled from £16 billion to £32 billion. We are seeing a continuing rise in the value of our exports to the Community but also a continuing increase although at a slightly lower rate.

Lord Chelwood
My Lords, what proportion of overall British exports goes to the Community? Is it not rather more than half?

§ Lord Young of Graffham
My Lords, almost half of our trade now is with the European Community.

§ Lord Hooson
My Lords, is it not correct that the high exchange rate policy of the Government, whatever other merits it has, makes it very difficult for our manufacturing industry, particularly a manufacturing industry which seeks to sell within the European Community, and encourages such manufacturers to seek to manufacture abroad rather than in this country?

§ Lord Young of Graffham
My Lords, I fear I cannot agree with the noble Lord. Indeed, on the last visit which representatives of the CBI paid to me a few months ago, they said that they totally supported the Government's policy, even if it meant maintaining the current interest rates and the value of the pound, as they saw that the first priority must be to control inflation. Indeed, there is now considerable evidence that many countries are moving manufacturing capability to this country; for example, Japan, Germany and many other countries. Therefore, I believe that there is nothing to fear for the future other than that we should redouble our efforts to continue to manufacture the sort of goods which will export.

§ Lord Aldington
My Lords, does my noble friend not agree that the real problem which causes this deficit to the balance of trade on manufactured goods is that we simply do not have a large enough manufacturing industry in this country? As long as we do not produce as many manufactured goods as the British people wish to consume, we are bound to have a deficit. Can I ask my noble friend what he is doing to encourage increased output and increased manufacturing capacity to cure this terrible deficit, because it is terrible?

§ Lord Young of Graffham
My Lords, I am grateful to my noble friend. Perhaps I may make a fundamental point about our present balance of payments deficit. Only a quarter of the growth consists of imports of consumer goods, which include cars. The balance consists of raw materials, semi-finished intermediate manufactured goods and capital goods. There we have evidence that British industry is gearing itself up once again at a higher level.
If one takes cars alone, over 50 per cent. of cars are imported. In order to eradicate that balance, the Government have produced a climate in which manufacturers are now coming to this country in order to manufacture cars. I welcome the presence of Nissan in this country, since the 200,000 cars which it manufactures here will be 200,000 less to be imported. I hope one day to learn that Toyota will also help in that regard.

§ Lord Mellish
My Lords, can the Minister tell us the manufacturing output today compared with 10 years ago?

§ Lord Young of Graffham
My Lords, I shall certainly obtain that figure, write to the noble Lord and place the information in the Library.

§ Lord Ezra
My Lords, is the noble Lord aware that our trade deficit with Germany alone last year was in excess of £8 billion after taking account of £1 337 billion of oil exports to Germany? In view of those circumstances, is it not rather imprudent to push up the value of sterling in relation to the deutschemark to the extent to which we have?

§ Lord Young of Graffham
My Lords, last time I looked at the figures the value of the pound was slightly lower against the deutschemark. However, at the end of the day the Government do not manufacture goods; our companies manufacture goods. At the end of the day it is up to British industry to manufacture goods which sell not only at home but overseas. If we look back at the 1960s, the 1970s and early 1980s when we lost our share of manufactured goods, it was not so much down to the Government as to the quality and design of the goods.

§ Lord Rodney
My Lords, the Minister said that we should do everything possible to encourage exports. However, does he not agree that the encouragement of import substitution is just as important, and perhaps even more important? Do the Government have plans to encourage the alternative way of balancing our books?

§ Lord Young of Graffham
My Lords, under the Treaty of Rome there are restrictions on what the Government should do, and indeed whether they should do anything in that regard other than the programmes which they carry out today to encourage the spread of quality manufacturing systems by emphasis on design and on the many matters on which British industry should concentrate if it is to regain its markets both at home and overseas.

§ Lord Williams of Elvel
My Lords, perhaps the noble Lord will answer my question. Where does the increase in exports projected for 1990 come from? Are we to see a turn-around in our balance of trade with Germany, with the Community or with the rest of the world? Where does the projection come from?

§ Lord Young of Graffham
My Lords, the question did not concern forecasts. I shall look at the figures. We have a substantial balance of payments deficit in manufactured goods with the Community. Of course we have a considerable surplus in invisibles with the Community, and, as our exports are continuing to grow, that element of the growth will come out of manufactured goods.

§ Lord Hatch of Lusby
My Lords, do the noble Lord's figures not show, if I heard him correctly, that the deficit with the European Community is six times as high as that with the rest of the world? Does that not point to the lesson that it should be the objective of industry in this country, supported by the Government, as it is to a much greater extent in other countries, to widen the market and to secure customers, particularly in the third world, which is the market of the future, and that could lead to a reversal of the deficit of which he has spoken?

§ Lord Young of Graffham
My Lords, sitting where I sit, it seems that the best way to reverse the deficit we have with the European Community is for our 338 companies to manufacture the sort of products which the European Community wishes to buy. We are seeing exports increasing, and exports of manufactured goods to Europe increasing; that is a trend which, if it continues, will deal with the problem.

§ Lord Dormand of Easington
My Lords, is the Secretary of State aware that the trivial Answer which he gave to me does not do himself or this House any credit? Do not the figures which he provided in answer to my Question show that the main reason for the present disastrous situation is related, to a great extent, to the erosion, and, indeed, the destruction of the manufacturing base which has taken place under this Government's policies? What is to be done about that?

§ Lord Young of Graffham
My Lords, I am sure that the noble Lord will study Hansard tomorrow, reflect on the nature of the Question which he put to me and then see whether or not the Answer I gave was appropriate. Two or three years ago the United Kingdom saw its car manufacturing go down to 900,000 cars per year. We should look at that period of industrial strife, which was so symptomatic of the car industry, and consider how great a part that played in the growth of manufacturing industry in this country. Today we are manufacturing about 1,250,000 cars. As the years go by I hope that we shall climb back to the numbers of cars which we used to manufacture. However, this time the cars will have a reputation for reliability and delivery and the industry will not be marred by the sort of strife that it suffered so much in past decades.