Balance of Trade Deficit (Hansard, 22 June 1999)

§ The Minister of State, Department of Trade and Industry (Lord Simon of Highbury)
My Lords, the global downturn has had a significant impact on UK trade performance, with lower exports to South-East Asia accounting for more than half of the widening in the UK trade in goods deficit last year. However, other areas of UK trade have continued to perform strongly, with record surpluses on both trade in services and investment income in 1998. The Government are continuing to encourage policies underpinning economic stability so that all businesses, including exporters, have a firm platform for long-term sustainable growth. They are also pursuing a wide range of measures to help increase UK competitiveness and promote UK exports.

§ Baroness Sharp of Guildford
My Lords, I thank the Minister for his Answer. Is he aware of the depth of the problem? The current deficit on the balance of trade is £27 billion; it is forecast to be more than £30 billion next year, 5 per cent of GNP. Large areas of this country are still dependent on manufacturing industry and it is on manufacturing that our trade depends. Is not the Minister concerned about the degree to which the high level of the pound is currently dividing the country between the haves and the have-nots and about the deprivation that that is causing in some areas which are 785 losing jobs rather than gaining jobs? Is he not also concerned about the long-term effect this may have upon growth in this country?

§ Lord Simon of Highbury
My Lords, the noble Baroness is correct. There are always regional disparities within a national economy. As I said in my Answer, while we are aware of the difficulties that the high exchange rate is causing exporters, particularly to Europe and South-East Asia, we wish to ensure that the long-term stability, low inflation rates and sound public finance that the country desperately needs are achieved. I, as a former industrialist, know that we need to achieve that. We do not want to take short-term palliatives which will blow us off that fundamental course. There are many ways in which we can help the regions without losing our overall approach to stable economic management.

Lord Renton
My Lords, does the noble Lord agree that our balance of trade depends largely upon the value of the pound and that if we replace the pound by a common European currency the Government will lose a large part of their power to help our balance of trade?

§ Lord Simon of Highbury
My Lords, I am afraid that I do not agree. My memory of industry is that our exports largely demand skills on the part of people, quality goods, great marketing, and a great deal of enthusiasm and technical knowledge. To rely on the exchange rate of the pound is a chimera that is long past.

§ Lord Hylton
My Lords, as regards imports, does the Minister know of timber and wooden products entering this country at prices that constitute dumping?

§ Lord Simon of Highbury
No, my Lords, I am not aware of that particular sectoral problem. If there ever is evidence of that being the case, the courts, and indeed the European courts, are the places to look on issues of dumping policy. I should be happy to accept a letter if there is evidence of that kind, and we shall take the case forward.

§ Lord Stoddart of Swindon
My Lords, will my noble friend confirm that, in 1972, manufacturing in this country accounted for 32 per cent of GDP, and in 1997 the percentage was 20.7? Is he aware that that enormous, and serious, reduction in the capacity of our manufacturing industry has taken place against the background not of a rising pound, but in general of a falling pound? Is it not therefore merely an excuse on the part of manufacturers and traders that the high pound is hurting their export potential, when in fact a little more effort on their part would achieve a lot more?

§ Lord Simon of Highbury
My Lords, there is something in what my noble friend says. It is clear that in almost all sophisticated industrial regions, whether the USA, the UK or continental Europe, the share of manufacturing and the total GDP is now broadly around the 20 per cent mark as manufacturing has shifted to lower cost areas; and, as I said, we have had great 786 success in developing service industries. There is no doubt that our manufacturing will always need to rely on greater flexibility, better products, better quality, better sales abroad and sustained investment. The greatest weakness in our manufacturing sector has been too little investment, which has come about largely because we have not had the stable economic environment that our policies now seek to maintain in place.

§ Lord Mackay of Ardbrecknish
My Lords, is not the Minister just a tiny bit worried about the decline in manufacturing industry, given that closures and job losses are still being reported, including one this morning? Despite the Minister's previous answer, will he agree that the high value of sterling is at least one of the factors? Will he share with the House his view on the remarks made by Sr. Prodi in Italy regarding the likelihood that Italy may have to consider leaving the euro and the consequence of the continuing weakening of the euro, leading to a further increase in the value of sterling and causing yet more damage to manufacturing industry?

§ Lord Simon of Highbury
My Lords, I assure the noble Lord that I am always concerned where we appear to lack competitiveness. Manufacturing is a sector where our relative competitiveness, not as far back as 1972 but certainly over the past 20 years, has been a worry to all of us. So I share the noble Lord's concerns. Much of our competitiveness White Paper and the sustainable economic policy that we are putting in place are aimed precisely at rectifying our weaknesses. Like the noble Lord, I am aware that a strong pound does not help. However, I am absolutely certain that a weak pound would not be the answer to that problem. We have to work on the constituent parts of competitiveness in a much more effective way in the partnership that we have set up between management and the workforce throughout the country.
As to Sr. Prodi, his remarks were in Italian and were addressed to the chemical industry. The noble Lord's grasp of Italian chemical knowledge may be better than mine. I believe that Sr. Prodi was saying that the Italians, too, require long-term sustainable growth and that double the inflation rate in the rest of Europe would not be a good position for Italy over the long term. I fully agree. His comments were reported quite differently—but then my Italian is also specious.