Balance of Payments (Hansard, 9 October 1989)

The Paymaster General (The Earl of Caithness)
My Lords, the Government will publish a revised forecast at the time of the Autumn Statement.

§ Lord Ezra
My Lords, I wonder whether the noble Earl could not be a little more precise. Virtually everyone else in the country has worked out that, unfortunately, on present trends, the figure is likely to be around £20 billion for the year as a whole. Furthermore, does the noble Earl not agree that the recent increase in interest rates, which may have been necessary for other reasons, is likely to widen the gap further by making British goods less competitive, as recent business surveys have stressed?

The Earl of Caithness
No, my Lords. I cannot be more precise in order to satisfy the question of the noble Lord. He must wait for the Autumn Statement, as must the rest of us. As regards interest rates, I should be happy to discuss them although they are rather a separate matter. However, unit labour costs are very important.

The Earl of Halsbury
My Lords, does the noble Earl recall that when, about four years ago, a Select Committee of your Lordships' House under the chairmanship of the noble Lord, Lord Aldington, predicted that the outturn for 1989 would be an adverse balance of £14 million, this was regarded almost with derision by the Government, who did nothing whatever to reverse the trends—that is, the lack of recruitment to manufacturing industry?

The Earl of Caithness
My Lords, three-quarters of the current deficit that we are encountering at the moment is due to investment coming in from overseas. That in turn will make enormous inroads into reducing the deficit in due course.

§ Baroness Seear
My Lords, does not the noble Earl agree that in the past six months the amount of the balance of payments deficit due to investment has fallen dramatically and that it is alleged that no more than 6 per cent. of it can be accounted for in that way?

The Earl of Caithness
My Lords, in particular the figures of the past three months or so have been distorted by the large number of cars that have been imported.

§ Lord Jay
My Lords, forecast or no forecast, as the present appalling balance of payments deficit is the main cause of the persistent weakness of sterling, have the Government any policy whatever for reducing the payments deficit?

The Earl of Caithness
My Lords, I am afraid I missed most of what the noble Lord asked me. 9 However, I think the gist of it was such that I could sum up by saying, if I am right in interpreting what I heard, that we still have a sound basis for the economy and a strong monetary policy.

§ Lord Renton
My Lords, is it not a fact that the present Government in their early years succeeded in repaying vast overseas debts incurred by their predecessors? That is a factor to be borne in mind by the Government when considering the present adverse conditions of the balance of payments, which we hope are temporary.

The Earl of Caithness
My Lords, my noble friend is right. That is one of the significant differences between the deficit that existed under the party opposite, which was due to gross overspending, and the current deficit which has nothing to do with the Government but is a private sector deficit. However, the paying off of debt will be a great relief on the burden on our children and grandchildren.

Lord Bruce of Donington
My Lords, is the noble Earl aware that the statement that he has just made that three-quarters of the deficit is due to the importation of goods and investment is grossly inaccurate and should be withdrawn? Is he further aware that the correct figures were those which I gave in the course of the debate on the Finance Bill on 20th July (which remain uncorrected) as brought up to date by the noble Baroness, Lady Seear?
In view of the fact that most of the forecasts set out on page 37 of the Budget Statement have proved wildly inaccurate, will the noble Earl cause an inquiry to be made into the method of assessing those forecasts in the Treasury at the outset and the extent to which they may have been corrupted by creative accounting? Will the Minister give the House an assurance that future figures published in respect of the balance of payments and the trade deficit will be accurate and will not be corrupted by creative accounting? Furthermore, will he meet the request from the Royal Statistical Society for the establishment of a separate institute in order that we can have adequate and uncorrupted statistics?

The Earl of Caithness
My Lords, as I am sure the noble Lord will appreciate from his own recollection, forecasting is a difficult science. Regarding the deficit, only about one-quarter of the growth in the value of manufactured imports—less erratics—between the two latest 12-month periods is accounted for by consumer goods, including cars, with the remainder—fully three-quarters—made up of goods, production and investment.

§ Lord Boyd-Carpenter
My Lords, is my noble friend aware that those of us who have direct experience of the Treasury very much resent the suggestion made by the noble Lord, Lord Bruce, that the officials of that great department would produce accounts other than the most accurate possible? Will he repudiate very firmly the suggestions of the noble Lord?

The Earl of Caithness
My Lords, my noble friend has stated the obvious. I am happy to do so.

§ Lord Jenkins of Hillhead
My Lords, does the Minister not agree with the following point? Whatever small variations may be revealed in the Autumn Statement, it is now clear that our deficit will be as bad as or worse than the worst achieved in relation to the size of the economy by the United States—which was regarded as almost outside the bounds of possibility—without sterling having the special qualities of the dollar to be able to finance such a deficit over a long period. In view of his remarks about the part of investment in the Budget—which seems to be open to dispute—will the noble Earl also tell the House this? Is it the view of the Government that the balance of payments has little to do with the Government, because it is the sum of a series of private decisions and may even be a sign of investment strength, or that Government measures are designed to deal with the balance of payments and that it is likely to improve in the near future?

The Earl of Caithness
My Lords, the noble Lord's first question takes me into the area of forecasting, which I am not prepared to enter into. Regarding the second question, I believe that the balance of payments will improve. However, as my right honourable friend the Chancellor of the Exchequer has said, it will be one of the last items to show improvement.

§ Lord Stoddart of Swindon
My Lords, is it not a fact that the Chancellor and his estimates have become a laughing stock throughout the world? Is it not also a fact that great damage is being caused to sterling and to this country's economy by the continuing disagreement between the Prime Minister, who is also First Lord of the Treasury, and the Chancellor of the Exchequer? When can we expect the Government to act in unity?

The Earl of Caithness
My Lords, the answer to the first question is no. The answer to the second is that the Government always act in unity.

§ Lord Dormand of Easington
My Lords, in view of the answers which the Minister has given so far, may I ask why are the world's currencies shunning this country in which an economic miracle is taking place?

The Earl of Caithness
My Lords, I do not believe that world currencies are shunning this country.

§ Lord Hatch of Lusby
My Lords, will the noble Earl answer the question put by the noble Earl, Lord Halsbury, regarding the warning that the Government were given four years ago, and the fact that the current deficit is even larger than the deficit which was forecast on the basis that the Government continued with the economic policies that they were pursuing at the time? Is the Minister aware that members of that committee were told by the Chancellor that the fall in manufacturing would be more than compensated for by services? How is it that the Government have not changed their policy in the light of that warning from all sides of this House?

The Earl of Caithness
My Lords, unlike the noble Lord, I do not have the advantage of having served on that committee. If I understood the basis of his question correctly, I think that the noble Lord is wrong. The Government are not running a deficit; they are running a surplus. But there is a deficit due to the activities of the private sector.

§ Lord Cledwyn of Penrhos
My Lords, will the noble Earl not concede that the country is approaching a grave economic crisis? Does he not agree that the increase in the base rate to 15 per cent. has done nothing to ameliorate the position? On the eve of the Conservative Party conference, at which his right honourable friend the Chancellor of the Exchequer is expected to make a major speech, can the Minister give an assurance to the House and to the country that the Chancellor will say something constructive at last which will relieve the serious concern which exists at present thoughout the country?

The Earl of Caithness
My Lords, I am sure that the noble Lord the Leader of the Opposition will agree with me that when it is right to make a decision, even though that decision may be very unpopular in certain areas, that decision should be made. It was right for my right honourable friend to make that decision.