Visible Trade Balance: Prospects (Hansard, 17 March 1994)

§ Lord Henley
My Lords, the prospects for visible trade remain good. Unit labour cost performance is excellent and competitiveness is much improved. The latest figures show that exports to non-EC countries are doing well.

§ Lord Ezra
My Lords, does not the noble Lord agree that the recently published figure of £13.5 billion for the visible trade deficit for last year is unacceptably high? Is he not further disturbed by the comment made by the Central Statistical Office when presenting those figures that it thought that the trend was likely to increase—that is, that the gap will further widen—even though the pace of economic recovery is fairly slight at present? Are we not then back in the old familiar cycle that as soon as the economy starts to recover, we move rapidly into a balance of payments crisis? Does the Minister recall that in 1985 the Aldington Report on overseas trade drew attention to precisely that problem? What have we been doing in the past 10 years?

§ Lord Henley
My Lords, I accept that the figures are high. They are higher than the original estimate. The figures that we announced last week, particularly for the month of December, were particularly high. We need to 386 be fairly cautious about reading too much into just one month's figures. Further, we ought to be aware that there have been considerable problems with the new system for measuring trade with our EC partners, which accounts for a little over half of our total. The noble Lord ought to note that revisions have been made to earlier months almost every time that a new set of figures has been produced under that new system; and, further, that the figures have been very erratic within 1993. Therefore, it might be rather rash to take just one month's figures, particularly as those December figures were the worst for a year. However, August's figures were the best for some six-and-a-half years. I think that that puts the figures in context. I do feel that there are good signs: the fact that our trade to non-EC countries is improving. The fact that they are weak in relation to Europe is not surprising given the weak activity there, but I believe that we are in a very strong position to benefit from any growth in activity there when that comes.

§ Lord Clark of Kempston
My Lords, does my noble friend agree that opting out of the social chapter has given us the edge on competitiveness? It has enabled us to control our unit costs of production far more than our competitors. Indeed, our export record is extremely good compared with Japan and the USA. Does my noble friend agree that while visible trade is extremely important, we should not overlook the value of our invisible trade, which is doing extremely well against all competition?

§ Lord Henley
My Lords, my noble friend is right to stress the importance of competitiveness. Noble Lords opposite ought to remember that. We have to produce the right goods at the right time. We have seen considerable cost competitiveness improvements of some 20 per cent. since we left the ERM, partly due to the lower exchange rate, but also due to a very good and improved unit labour cost performance. Further, my noble friend stressed the importance of invisibles. At the moment, we have only the final year figures for visible trade; but I can assure my noble friend that when one adds the surplus on invisibles to the deficit on visibles for 1992, that reduces the deficit from £13.4 billion to £8.5 billion. Therefore, the performance of invisibles in this sector is of crucial and vital importance.

Lord Bruce of Donington
My Lords, I agree that it is dangerous to take the figures for just one month. However, is the Minister aware that our £13.5 billion trade deficit with the rest of the world last year included a trade deficit of no less than £4 billion with the European Community, and that the average deficit with the EC over the past three years has been £4 billion per annum while over the past 12 years it has been £7.5 billion? Will the Minister ask his right honourable friend, who is at the moment in delicate negotiations in Brussels, to bear that in mind together with the fact that we pay £2.5 billion out of our own Exchequer into the EC? Will he be a little more robust when dealing with criticism from the Foreign Office of Luxembourg and with some unelected and unaccountable members of the Commission?

§ Lord Henley
My Lords, I doubt whether I could be quite as robust as the noble Lord. I can assure the noble Lord, that, yes, there is a deficit in our trade with Europe. That is regrettable. As I said earlier, we have to treat the figures for the past year with some caution because the new Intrastat system is just bedding down. If the underlying message of the noble Lord is that by pulling out of the European Community we shall dramatically improve our trade figures with Europe, I think that the noble Lord is quite mistaken.

§ Lord Jenkins of Hillhead
My Lords, I accept that one should not put too much emphasis on one month's figures and that of course invisibles have always improved the visible trade deficit. Nonetheless, I find that the Minister's answers verge on the complacent. It is not a question of one month; it is a question now of a cumulative deficit over several years. To have that size of deficit at the hesitant beginning of a trade recovery would, frankly, terrify me if I were in charge of the Treasury. How is it possible to reconcile that persistent weakness in the balance of payments with the claim that the British economy has been improved out of all recognition in the past 10 years?

§ Lord Henley
My Lords, I totally reject the noble Lord's allegations of complacency. What I was trying to emphasise was that although the figures are bad—and although they are bad particularly in relation to Europe —there are more reliable figures than Intrastat for our trade with non-EC countries which show exports growing and doing rather well. In the three months to January 1994, export volumes to non-EC countries were up 10 per cent. on the same three months a year previously. Further, more recent evidence from the CBI survey of exports, which is a very reliable survey, does not indicate such poor export performance. After a slight dip in the summer and autumn of last year, the balance of firms with export orders above normal has improved and is well above the long-run average. We expect export deliveries to continue to show that improvement.

§ Lord Barnett
My Lords, if the Government achieve the level of growth this year which many of us would like to see, but if that comes from consumer-led growth, does the Minister think that that will help the visible trade balance or not?

§ Lord Henley
My Lords, I think that we shall have to wait to see exactly what will happen. It is difficult to say precisely what is being imported at the moment. Some of it is manufactures, which implies a growth in consumer expenditure. Some of it is semi-manufactures and some raw materials. The semi-manufactures and raw materials are needed to help industry as it recovers, and to help with further exports as they are processed and sent on.

§ Baroness Platt of Writtle
My Lords, can my noble friend tell the House what the Government are doing to encourage those firms which are making better products in Britain so that we can reduce our imports as well as increase our exports?

§ Lord Henley
My Lords, the DTI does a great deal to assist exports and to assist industry generally. The reorganisation of DTI export promotion services provides a better focus on the United Kingdom's top 80 export markets. Further, particular help has been given to exporters through the ECGD. In the last Budget—November 1993—measures were introduced to reduce premiums for exports to Mexico, India and Turkey this year and next, with an increase in cover for 1996ߝ97 of some £200 million on top of the provision of some £3 billion for markets where exposure is already high.

§ Lord Eatwell
My Lords, does the Minister recall that the Budget Red Book contains projections of the PSBR up to 1999? Is he aware—I am sure that he is —that it would have been technically impossible for the Treasury to make those projections without taking a view as to the path of the current account of the balance of payments, and hence of visible trade, up to 1999? The Treasury must have made those estimates. Will he share them with the House?

§ Lord Henley
My Lords, it is always very difficult to make any estimates. Our estimates about the PSBR prove my exact point. From yesterday's figures it appears that we are going to be well within our targets on the PSBR, which is in fact wide of the Question on the Order Paper. As likely as not, it will be well below the £50 billion that was originally forecast in the Budget Red Book in the PSBR.

§ Lord Eatwell
My Lords, the point I was making was not about the PSBR, but that the estimate of the PSBR must technically also involve an estimate of the current account. One cannot do one without estimating the other. Since the Treasury must therefore have estimated current account and visible trade balances up to 1999, will the Minister share with us those estimates of the current account?

§ Lord Henley
My Lords, the point I was making was that any estimate, by definition—as it is an estimate of something that is going to happen in the future—can change, and will not necessarily be the same in the end as one originally forecast. As I pointed out, the PSBR looks, from yesterday's figures—I should welcome some praise from the noble Lord—as if it will be well below the original level set by the Government.

§ Earl Russell
My Lords, is the Minister aware that the view is widely held in industry that it is a wanton handicapping of our competitiveness to transfer to industry social costs such as statutory maternity pay, which have hitherto been borne by government? Before he says that national insurance changes compensate for that, will he consider the argument that exchanging a temporary concession for a permanent cost is literally selling one's birthright for a mess of pottage? In the light of those points, will he concede that the noble Lord, Lord Clark, is only relatively right?

§ Lord Henley
My Lords, if the noble Earl believes that, perhaps he will persuade his party to rescind its support for the social chapter, which would put on industry the very cost about which the noble Earl is complaining.