HL Deb 24 March 1998 vol 587 cc1092-4

3 p.m.

Lord Islwyn asked Her Majesty's Government:

Whether they have had any discussions with the British Steel Corporation concerning the current exchange rate and its effect on exports.

The Minister of State, Department of Trade and Industry (Lord Clinton-Davis)

My Lords, the Government have a continuing dialogue with British Steel at many different levels. This ranges widely over current issues, including the exchange rate and export related matters.

Lord Islwyn

My Lords, will the Minister remind the Chancellor of the Exchequer about the concerns over unemployment levels that may arise later this year? Will he bear in mind that British Steel has already halved its capital expenditure from £400 million per annum to £200 million, and that, overall, manufacturing industry feels it is bearing the brunt of anti-inflation measures yet it employs 4 million people and a further 4 million indirectly? Does the Minister consider that the fiscal measures contained in the Chancellor's Budget are sufficient to stave off further cuts in investment, job losses and factory closures?

Lord Clinton-Davis

My Lords, British Steel is engaged in a long-term programme to ensure cost and efficiency improvements so that it continues to be one of the most effective and efficient steel producers in the world. As regards the wider issues, the difficulty was that this Government inherited an accelerating exchange rate because action which ought to have been taken earlier had been deferred for electoral purposes. We believe that is one of the most important reasons for ensuring that the Bank of England takes over objective control of that issue, free of political considerations. I believe that is the appropriate way to proceed to ensure that we have a stable economy, low inflation and therefore in the medium and long term a much more stable rate of exchange.

Lord Hardy of Wath

My Lords, does my noble friend accept that while the present problem relating to the exchange rate may be unavoidable, the difficulties experienced by British Steel and by the engineering industry in particular will be exacerbated if unfair competition continues in the EU, especially from Germany and Spain? My noble friend will be aware that the Council of Ministers established a monitoring committee to consider the matter. Will he consider the work of that committee and perhaps ensure that a report on its activities is circulated widely?

Lord Clinton-Davis

My Lords, of course we are deeply concerned about unfair competition. But one has to establish as a matter of proof that the competition is unfair and that it would be appropriate therefore for action to he taken at European Union level to deal with that situation. The Government, of course, take into account evidence that we receive from time to time, but much of it is generalised and does not constitute a convincing reason for seeking a remedy at European Union level. We must reject trade protection because often flimsy reasons are advanced for it which do not in the long term protect our economy.

Lord Bruce of Donington

My Lords, will my noble friend inform the House what further information is required by Her Majesty's Government as to the existence or otherwise of subsidised steel in the case of Germany?

Lord Clinton-Davis

My Lords, that is an example of what I mean. That is a generalised allegation that steel is being subsidised and that that situation ought to be condemned by the competition authorities in the European Commission. If substantive evidence is forthcoming, this Government will have no hesitation in acting. We have already referred a number of complaints to the Commission from time to time, and latterly the question of coal from Germany.

Lord Ezra

My Lords, will the noble Lord indicate to us the Government's latest estimates of the outturn of visible trade for this year, and to what extent that could have been affected by the present level of exchange rates?

Lord Clinton-Davis

My Lords, it is much too early to do that. The statistics that we shall ultimately produce will depend on many other matters—for example, the downturn in south-east Asia and problems regarding the fluidity of the situation in the Soviet Union and its impact upon Germany. There is an amalgam of reasons which constitute the possibility of a downturn in trade. However, exports overall have held up remarkably well.

Viscount Montgomery of Alamein

My Lords, can the noble Lord say whether there are any strong economies that have weak currencies?

Lord Clinton-Davis

My Lords, that is a good point. I have often prayed in aid the fact that Germany has over the years—despite, until recently, the high level of the mark—been able to capture export markets. Japan has done likewise. That demonstrates the importance of productivity, which has been too low in this country over many years. It also demonstrates the importance of quality, quality control, quality of after-service and delivery on time. All these are factors which contribute to the success of exports. There is undoubtedly at present a high quality level in British exports.