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Exchange Controls

Volume 973: debated on Thursday 8 November 1979

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asked the Chancellor of the Exchequer what estimate he has made of the net effect of industrial investment in Scotland as a result of his decision to abolish exchange controls.


asked the Chancellor of the Exchequer what is his estimate of the effect of the abolition of exchange controls on investment in United Kingdom manufacturing industry.

The removal of controls is likely to benefit industrial investment at home. Overseas investment helps our exports and strengthens our international trading position. The effects cannot, however, be quantified.

If the Chancellor is so confident that the effect will be beneficial, and if the reverse turns out to be the case—with a consequent net outflow of capital investment—will he guarantee that the outflow of private capital investment will be replaced by public investment? If he will not give that guarantee, will he explain why?

I do not give that guarantee because the experience of recent years does not suggest that the answer to our problems lies in an expansion of public investment. Much public investment has been used to little avail in terms of real return. The answer to our problems lies in the creation of conditions that are hospitable for successful and effective private investment. The Government are doing that.

If the Chancellor is so confident about the effects on investment of the abolition of exchange controls, will he explain two things? First, will he explain the projection by his Department on 29 October—leaked in the Financial Times—that over the next four years production in metal using and vehicle producing industries will decline by over 20 per cent? Secondly, will be explain why, since his announcement of the abolition of exchange conrols the Financial Times index has gone down by over 60 points? Is he aware that it is suggested in most of the financial journals that companies fear that money that should be used on investment in this country will be diverted abroad?

The hon. Gentleman's diagnosis on the last matter is entirely at fault. I do not know about the forecast that he has quoted, but if he believes that any forecast that points to a decline in the production of motor vehicles, or anything else, in this country in the years ahead is attributable to an announcement about the relaxation of exchange controls made only a few days ago, he will believe anything.

The hon. Gentleman must surely understand that the reduction experienced in the production of motor vehicles in this country was due not to Government gestures of that sort but to the continuing inability of some sections of the motor industry to achieve sensible patterns of industrial relations to enable them to compete with imported vehicles.

Will my right hon. and learned Friend confirm that there has never been a shred of evidence that industrial investment in Scotland has been seriously inhibited by a shortage of finance? Does he agree that the problem has been a lack of profitable opportunities?

Is it not serious that the problem of exchange controls is not quantifiable? Does the Chancellor agree that that is hardly surprising, since British banks and their subsidiaries can now lend abroad without the Bank of England knowing? Is not this a serious state of affairs?

It is a serious state of affairs only to those who seek to govern the country by attempting to gain knowledge of everything that happens. That is not possible. The hon. Member would do well to remember that the catastrophic economic conditions experienced under the previous Government developed as a result of their policies and had nothing whatever to do with the existence, or otherwise, of exchange controls.

Will my right hon. and learned Friend comment on a statement made by Sir John Methven, updating Professor Reddaway's report, that, with few exceptions, investment overseas will always encourage British industry and is likely to increase production and jobs?

I agree with that. The analyses that have been made of the likely impact of investment overseas have shown that the main reasons for decisions to invest overseas were related to the creation and expansion of overseas markets. In most cases such investment has been seen to stimulate our exports.

Is it not true that a side effect of the abandonment of exchange controls by the Government is the difficulty in controlling the money supply and the resulting pressure of interest rates created by that abandonment? Does the right hon. and learned Gentleman agree that if MLR rises next week, as is likely, one of the reasons for that will be the abandonment of exchange controls?

The right hon. Gentleman should not speculate on interest rate movements. Surely he appreciates that there are many other factors, of far greater significance, affecting this matter. They include, for example, the sharp upward movement in interest rates in the United States.