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Balance Of Payments

Volume 175: debated on Thursday 5 July 1990

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2.

To ask the Chancellor of the Exchequer when the monthly balance of payments deficit was last under £1 billion.

3.

To ask the Chancellor of the Exchequer when the monthly balance of payments deficit was last under £1 billion.

Does not such a high balance of payments deficit need to be financed across the exchange rates? Does not it cause high interest rates? If the Government could control the deficit, would not that contribute to reducing interest rates?

The hon. Gentleman's question referred to the current account, not to the balance of payments which, by definition, cannot be in deficit. I do not believe that the current account deficit is a force for high interest rates. Interest rates are determined largely by domestic factors. The main reason why we need the present level of interest rates is to get on top of inflation.

Is the Minister aware that since the last election the balance of payments deficit figures have been utterly appalling? After 10 years of having a Conservative Government in control of our economic affairs, why do we have such huge balance of payments deficits, and the highest interest rates and inflation of any comparable western European country?

We also get the same questions week after week from the hon. Gentleman. It is a pity that he cannot comment on the highest rate of growth of any EC country other than Spain and that he cannot concentrate on the fact that Britain has had such dramatic investment growth and that our rate of inflation is very much lower than it was when the Labour party was in Government.

Is not one of the reasons that we have a balance of trade deficit the fact that whereas most people would obviously far prefer to buy British goods, which are of far higher quality and much more reliable, many people do not know what is British? For example, did my right hon. Friend know that Sierra and Granada cars are not assembled in Britain? Will he point out to people that if they want to buy a British car, they should take great care to buy British and not foreign-assembled goods?

I am sure that hon. Members will pay attention to what my hon. Friend has said, but the main reason why we have a current account deficit is simply excess demand because of changes in monetary policy in 1987 and not a lack of competitiveness. If it was a lack of competitiveness, we would not be experiencing such a spectacular growth in exports. Exports in the three months to May are up some 11 per cent. compared with the same period a year ago, whereas imports have gone up by only about 4 per cent. So the fundamental and underlying trend is strong and good and our rate of growth in exports now compares very well with any period in our history.

Will my right hon. Friend explain to me and the House why the Government do not give manufacturing industry far more encouragement, bearing in mind the fact that manufacturing industry is the only non-inflationary source of economic growth and that in most European Community countries where there is a balance of trade surplus, they have low interest rates and a healthier economy?

I do not know why my hon. Friend—I hope that he is my hon. Friend—does not think that the lowest rate of corporation tax in the western world is of considerable help to manufacturing industry and that the restoration of profits to the highest level for 20 years is not the biggest possible help that can be given to every sector of the economy.

Is not the hon. Member for Macclesfield (Mr. Winterton) perfectly right: the most worrying aspect of the trade deficit is the continuing high level of imports, particularly of manufactured goods? Since the trade deficit in manufactured goods first appeared under this Government—last year it amounted to £16 billion—is not it time that the Government reconsidered their refusal to take any serious steps to support manufacturing?

I totally reject what the hon. Lady says. As she says, manufacturing is extremely important from the point of view of the external trade balance, but the greatest help that we can give to manufacturing is to have low inflation and good growth. During the past decade we have had a far better combination of those two factors than the Labour party did when it was in government.

If we joined the exchange rate mechanism at broadly the current rates of exchange, would not West Germany be particularly pleased, as that would lock us permanently into a £9 billion deficit?

I certainly do not intend to comment on any particular exchange rate parity and policy on the exchange rate mechanism. My right hon. Friend the Chancellor of the Exchequer has made our position clear.