Current Account Deficit (Hansard, 23 October 1990)

§ The Minister of State, Department of Trade and Industry (Lord Hesketh)
My Lords, the current account deficit for the first nine months of 1990 is estimated at £13.6 billion. The accumulated deficit since June 1987 is estimated at £51.7 billion.

§ Lord Donoughue
My Lords, I thank the Minister for that Answer. Does he agree that deficits on that stupendous scale for this year, which are heading beyond the Chancellor's forecast of £15 billion and which, under this Government, are far and away the highest of those under any government in history, are alarming? Now that we have entered the ERM at what may be a perilously high exchange rate, which puts the squeeze on exporters, what alternative policies do the Government have to eliminate those enormous deficits in the year ahead?

§ Lord Hesketh
My Lords, to answer the noble Lord's last question first, I am surprised to see that a supporter of his party is already flinching on the subject of the ERM. The evidence is that the trade figures that arrived yesterday were the lowest for three years. When that is combined with the more interesting figure which shows that for the quarter the volume of car exports rose by 23 per cent., it will be seen that the trend is in the right direction.

§ Lord Boardman
My Lords, does my noble friend agree that the credit balance earned by invisible exports in the past and at present is a major 1241 contributor to our balance of payments? Does he also agree that those who cast doubt on the City should bear this fact in mind?

§ Lord Hesketh
My Lords, it is particularly true that during a period of restructuring in British manufacturing the City of London has made an enormous contribution to the exports of this country, both visible and invisible. It is also important to remember that in the past 12 months the increase in the rate of exports was the highest since 1973.

§ Lord Barnett
My Lords, I welcome the reduction in the deficit this year. However, it is still, even at that rate, running at over £10 billion a year. Would the Minister care to give the Government's view as to whether their plan is not to relax the tight monetary control until the deficit is eliminated altogether or whether, as with interest rates and inflation, when we join the ERM the intention will be to take the prospective reduction of the deficit into account?

§ Lord Hesketh
My Lords, the noble Lord, Lord Barnett, asks an interesting question. The Government's policy is to curb inflation so that a beneficial effect will occur throughout the economy.

§ Lord Hatch of Lusby
My Lords, can the Minister confirm that in the past quarter the volume of exports from this country fell by 1 per cent?

§ Lord Hesketh
My Lords, the volume of exports, less oil erratics, rose by 8 per cent. on the previous year.

§ Lord Hatch of Lusby
My Lords, that is not an answer to my question. Will the noble Lord confirm that during the last quarter the total volume of exports from this country fell by 1 per cent?

§ Lord Hesketh
My Lords, the volume between quarter two and quarter three fell by the difference between £26.103 billion and £25.594 billion. I do not know whether that constitutes 1 per cent. I believe it is slightly less.

Lord Bruce of Donington
My Lords, is the noble Lord aware that the figures he has given conceal the fact that our deficit on visible trade has now accumulated to over £70 billion? The earlier contribution from invisibles to which the noble Lord, Lord Boardman, referred has now virtually disappeared. Over the past three months it is reckoned just about to break even and make no contribution.
Is the noble Lord further aware that the accumulation of this massive deficit on visible trade balance since 1986 can be roughly correlated to the 20 per cent. decline in competitiveness due almost entirely to an overvalued rate of exchange? Will he taken note of the CBI's observation this morning—although it changes its mind once every three weeks —that the overvalued exchange rate will present industry with a very serious problem?

§ Lord Hesketh
My Lords, the noble Lord, Lord Bruce, will use good news as well as bad news to support his claim that the British economy is in terminal decline. I resist that claim. To give one 1242 example, in the fourth quarter of 1989, a shortfall of £600 million was expected in invisibles. In fact, a surplus of £594 million occurred.

§ Lord Ezra
My Lords, like the noble Lord, Lord Barnett, I welcome this desirable result for the recent quarter. However, in order that we may understand the longer-term trends, will the noble Lord indicate the extent to which he believes that the import figures have been affected by the reduction in consumer demand in this country and by the higher level of sterling?

§ Lord Hesketh
My Lords, in the figure I mentioned earlier, car imports into the United Kingdom fell by 13 per cent. at the same time as car exports rose by 23 per cent. Clearly, a reduction in home demand contributed to that figure. We believe that a reduction in demand is essential to a reduction in inflation.

§ Lord Stallard
My Lords, would the noble Lord care to check his reply to my noble friend Lord Hatch? It seemed to me that in his figures he announced a decrease of nearer 4 per cent. than 1 per cent.

§ Lord Hesketh
My Lords, my education did not provide me with the benefit of producing the exact percentage of the differential between the two. I suspect that it is a small figure, whichever it is.

§ Lord Stoddart of Swindon
My Lords, will the Minister confirm that these huge deficits are being financed by capital inflows? Can he say what will happen and what instruments he will have to hand if foreign capital ceases to flow into this country because of a lack of confidence in the Government and their handling of the economy?

§ Lord Hesketh
My Lords, I am sure that your Lordships' House will be grateful to know that it will not be in my hands but those of the Chancellor. However, the instruments are already being used to reduce inflation and to continue to make the United Kingdom an attractive investment opportunity for outside capital.

§ Lord Donoughue
My Lords, arising from the Minister's reply to me when he cast aspersions on our commitment to the ERM, does he accept that the commitment is complete but does not involve believing that the measure was taken at the right time, when the divergence of inflation is very high; at the right rate, which is perilously high; or for the right reason, which is to disguise the political cut in interest rates?

§ Lord Hesketh
My Lords, the noble Lord, Lord Donoughue, asks three questions, none of which appears on the Order Paper. I point out to him that both Japan and Germany have not done too badly with a high and strong currency.

§ Lord Nugent of Guildford
My Lords, perhaps I may call attention to the fact that we have taken 20 minutes over the first two Questions. That is our allowance for the whole of Question Time. I suggest that the remaining two Questions should pass rather more quickly.

§ The Lord Privy Seal (Lord Belstead)
My Lords, I am grateful to my noble friend and I suggest we go on to the next Question.