Invisibles: Balance of Payments (Hansard, 29 March 1990)

The Paymaster General (The Earl of Caithness)
My Lords, the United Kingdom's invisibles balance was £ 0–7 billion in deficit in the fourth quarter of 1989 partly because of erratically high contributions to the EC budget and exceptional insurance claims arising from disasters in the US.

§ Lord Jay
My Lords, are the Government not worried at all by the prospect that on the present Chancellor's own estimates by the end of this year this country's overseas borrowings will be £ 50 billion, mainly in the short-term, on which very high interest payments across the exchanges are now being paid? Those have already pushed us into deficit both on visible and invisible account for the first time in our peacetime history.

The Earl of Caithness
My Lords, as I said, there were exceptional factors in the last invisibles figures. The noble Lord will be pleased to know that the forecast published in the Red Book on Budget Day showed an invisibles surplus of £ 1–5 billion for 1990.

§ Lord Renton
My Lords, is my noble friend aware that an increasing number of foreigners, especially from the EC, have been bringing their money to this country in order that they may obtain justice in the High Court in London for which they have such admiration? Will that increasing factor be borne in mind as part of the invisibles earned by this country?

The Earl of Caithness
My Lords, I am grateful to my noble friend for that information of which I was not aware. That is not the only money coming into 969 this country. Many overseas firms are investing in this country because we have a good record.

§ Lord Barnett
My Lords, in the light of the Minister's reply, can he explain why the monthly balance of payments figures are shown as being broadly in balance rather than showing a surplus?

The Earl of Caithness
My Lords, the latest figures for the past quarter included those exceptional items. The reason why they are heading the balance now is that the exceptional items are not included.

§ Lord Taylor of Gryfe
My Lords, will the Minister say when we last had a deficit in our invisibles and confirm that it is an alarming trend? Does it affect the standing of the City of London as an international finance centre? If so, is that caused by our isolation from the European financial institutions?

The Earl of Caithness
My Lords, I do not know exactly when we were last in deficit in invisibles. I believe that it was just after the war, if my memory serves me right. It is not a trend. There were exceptional factors and, as I said, the forecast for next year is in surplus.

§ Lord Stoddart of Swindon
My Lords, in his reply to ray noble friend, the Minister said that one of the major reasons for the deficit on invisibles was a large payment to the EC. Will he confirm that we are now contributing to the EC four times more than we take out? We pay in four times more than we take out. Will he also confirm that in addition to the invisible deficit our visible deficit was over £ 14, 000 million last year? Under those circumstances will he say what trading benefit we get out of the EC?

The Earl of Caithness
My Lords, I know that the House appreciates the noble Lord's concern with regard to the European Community, but his question is rather wider than that on the Order Paper. I shall be happy to answer him on another occasion.

§ Lord Diamond
My Lords, is the noble Earl's view that the policy of Her Majesty's Government is the same now as it was when the noble Lord, Lord Young, had responsibility on the Front Bench opposite for these matters and expounded the view that it does not matter how much your manufacturing trade falls, the slack will automatically be taken up by an increase in services?

The Earl of Caithness
My Lords, manufacturing and services both matter. The noble Lord will be pleased to know that manufacturing exports are rising rapidly; they were up 11–5 per cent. in volume terms in 1989 over 1988.

Lord Bruce of Donington
My Lords, is it not a fact that the factors mentioned by the noble Earl far from being a temporary aberration, threaten to be a continuing process over the years ahead? With regard to the net contribution by the British taxpayer to the European Community, the government estimate 970 postulates nearly £ 2 billion across the exchanges for each of the next three years. Is it not also a fact that the high interest rates, which the Governor of the Bank of England recently said will probably continue for some considerable time, mean that we shall again pay across the exchange very high sums by way of interest on the hot money— around £ 40 billion— which is in the country at the moment in order to sustain the present rate of exchange? Will the Government say whether it is still their official view that invisibles will automatically cover any deficit on our visible trade?

The Earl of Caithness
My Lords, I stated the views of the Government clearly both this afternoon and in the Answer to the Question last week on exactly the same matter. The noble Lord referred to hot money, but that is a slightly outdated term. In our modem deregulated world of highly mobile capital the distinction between short- and long-term flows is not especially meaningful.

§ Lord Hatch of Lusby
My Lords, is there any reason to suppose that the figures given by the noble Earl from the financial statement— £ 1–5 billion surplus on invisibles this year— are any more likely to be accurate than the previous figures given on a variety of subjects? Following the question of the noble Lord, Lord Diamond, is he aware that the former Chancellor of the Exchequer told the Aldington Committee that, as manufacturing decreased, it would automatically be replaced by the proceeds of invisibles? How will £ 1–5 billion replace the £ 20 billion deficit which was seen last year in manufacturing?

The Earl of Caithness
My Lords, the noble Lord refers to the accuracy of forecasts. All economists agree that accurate forecasts are difficult to produce. Between the forecasts of the noble Lord and government advisers, my bet lies with the government advisers.

§ Lord Hatch of Lusby
My Lords, will the noble Earl answer the second part of my question, which was linked to the first? How are the invisibles to compensate for the deficit of £ 20 billion last year?

The Earl of Caithness
My Lords, the noble Lord is aware of the figures I gave on invisibles. He now knows that demand is slowing and therefore the deficit will reduce. That, together with increasing exports, will help.

§ Lord Jay
My Lords, is not the Minister also aware that the Chancellor in his Red Book predicts an overall current deficit of £ 15 billion this year? At that rate, by the end of the year we shall be approaching the South American system of borrowing overseas to pay the interest on our previous borrowings.

The Earl of Caithness
My Lord, I do not agree with the noble Lord's last remark. With regard to what he said concerning the Red Book, that is correct.