asked the Chancellor of the Exchequer if he will estimate the effect of his Budget on the balance of payments.
asked the Chancellor of the Exchequer what assessement he has made of the implications for the balance of trade for 1987–88 of his Budget proposals.
The current account may show a modest deficit this year as the full effects of last year's exchange rate adjustment take time to work through. But export volumes are already growing strongly and in the three months to February, excluding oil and erratics, they were 11 per cent. higher than a year earlier.
The Chief Secretary will be aware that the £2 billion forecast deterioration in the balance of trade is vulnerable to further movements in the exchange rate. Is the assumption that the exchange rate will remain broadly at its present level an adequate assurance to industry, which has to make plans for the future? What will the Chancellor of the Exchequer do if the exchange rate deviates?
My right hon. Friend the Chancellor of the Exchequer has made it clear that he believes that the current exchange rate is broadly satisfactory. Obviously he will bear the matter in mind as the year progresses. I am sure the hon. Gentleman has observed that we have had extremely good trade it figures for February, which have just been announced. I am sure he will be pleased that the manufacturing trade deficit is down by nearly £800 million in the three months to February compared with the previous three months.
Is the Minister saying that the forecast deficit in manufactured goods of £8 billion will be less in the event of the figure that we have been given? In any event, is he happy about the size that it will be? He seems to be unduly complacent today.
It is too early to say what the position will be for the remainder of the year, and I would not wish to change the forecast now. I hope the hon. Gentleman will agree that there has been a good start to the year. He will know that since 1981 the United Kingdom's volume share of developed country's exports of manufactured goods has held steady after decades of decline. The past three months figures are extremely encouraging.
The question refers to the balance of payments. Does my right hon. Friend agree that one of the positive factors of our balance of payments, as a consequence of the Government's policies, is that it has been possible to secure considerable earnings from overseas assets? Is it not likely that this will continue as North sea oil declines?
My hon. Friend is entirely right. There has been a large increase in overseas assets and we expect about £110 billion at the end of 1986. These assets have grown up very much over the past seven years, and, as my hon. Friend has said, they make a major contribution to our overseas earnings, and a permanent one. The current figure is about £4 billion.
Does my right hon. Friend agree that criticism of the prospects for our balance of payments comes from a rather extraordinary quarter—from parties whose policies are likely to increase substantially any deficit that will occur?
I entirely agree. I shall pick up one example from the many that I could choose. It is a near certainty that the Opposition's policies would greatly increase inflation. That would most seriously and adversely affect Britain's competitiveness, and, therefore, have a serious impact on the trade figures.
Does the right hon. Gentleman agree with the annual EC economic report, which the Government have accepted, which states that the modest recovery in investment in manufacturing is insufficient to reverse the continuing decline in manufacturing jobs and the fact that we always have more manufactured imports than exports?
I wish to make it quite clear that the report to which the hon. Lady refers is the Commission's report.I am sure that she will be as pleased as anyone to recognise that manufacturing investment is expected to rise this year and that we have an exremely good CBI March survey on that score. Manufacturing investment has been well up since 1983, and we want that to continue.
Does the right hon. Gentleman agree that one way in which British exports and manufacturing industry could be helped would be immediately to enter the European monetary system exchange rate mechanism? That would help by stimulating lower interest rates and bringing the continuity to the exchange rate that is so badly lacking, as is demonstrated by the present fluctuations.
The prudence shown in the Budget is clearly helping with lower interest rates. There are many other aspects of the Budget, including reductions in basic rate tax, which will help by putting downward pressure on wage increases, which will help industry's competitiveness and costs as well. Those measures are the best way in which to help manufacturing industry.As regards the European monetary system, I have nothing to add to what my right hon. Friend the Chancellor has often said in the House.