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World Economic Growth

Volume 492: debated on Thursday 28 January 1988

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3.22 p.m.

My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

The Question was as follows:

To ask Her Majesty's Government what is the latest forecast for growth in the world economy taking into account the fall in share prices round the world.

My Lords, my right honourable friend the Chancellor's latest published assessment of world growth prospects was given in the Autumn Statement when he forecast GDP growth in the major seven economies of 2 per cent. in 1988, after allowing for the effect of the stock market falls.

My Lords, I thank my noble friend for that reassuring news. Can he say whether 500 new businesses are still being started each week? Can he also say whether small or medium-sized businesses, to which his department has paid a great deal of attention recently, are contributing to this satisfactory growth?

My Lords, yes. On average over 500 new businesses have opened and closed every week of this decade. That process appears to be continuing. There is no doubt that small and medium-sized business are responsible for a great deal of the growth in employment and the economy of the United Kingdom. I am sure that your Lordships' House appreciates that my right honourable friend the Secretary of State for Employment is responsible in the Government for looking after small firms. My department looks after the interests of all companies.

My Lords, does the Secretary of State accept that, given the still fragile situation following the crash, growth in the world economy, including that of the United Kingdom, could yet be rather lower than has been forecast? In those circumstances, whatever the political case for tax cuts, does he accept, especially as he is Secretary of State for Trade and Industry and given the worry that there is in industry about the balance of payments, inflation and interest rates, that at the present time it would be better to have an increase in public expenditure especially in the field of capital investment?

My Lords, over the past few weeks I have spent some considerable time travelling around the country, and I have spoken to many industrialists, but nowhere, I fear, have I met one who would agree with the noble Lord, Lord Barnett. Indeed, it is quite the contrary..

In the year from the third quarter of 1986 to the third quarter of 1987 growth in the United Kingdom was 5.2 per cent. higher than it was in any one of the Group of Seven. We are not for one moment saying that that trend will continue. Next year the OECD forecasts -that the United Kingdom will have a growth rate of 2.75 per cent.—that is its figure, not mine—and so far nothing appears to have changed since the reduction in share prices on 19th October.

My Lords, can the Minister tell me something that I ought to know? How is growth in world trade calculated? In the estimates of GDPs of various countries, is everything taken into account, including drugs, tobacco and luxury goods, which are of little use to some countries? Is there an index which shows what is happening to the standard of living of the majority of the people in the world, who are extremely poor?

My Lords, luxury goods are part of the GDP calculation. I suppose that tobacco would be also, but drugs are surely an illegal activity and form part of the black economy, which is not normally calculated in any assessment of GDP.

If the noble Lord cares to put down a Question—I suggest it would be better asked in the form of a Written Question—I shall be happy to provide him with details of the complex way in which GDP is calculated.

My Lords, is my noble friend aware that, on the hypothesis that the diagnosis of the noble Lord, Lord Barnett, was accurate, his prescription—to increase public expenditure—is the exact opposite of what the situation would require?

My Lords, I suspect that increased public expenditure would be just as welcome as increased taxation.

My Lords, the Minister has said that there has been a remarkable degree of growth and the economy has been responding over the past two years, but that growth may lessen in the year ahead. Despite the good growth, there has been a serious diminution in the resources that our National Health Service requires. Does that mean that the cuts that were imposed when we had reasonably good growth will be worse if that growth declines, and that the NHS is in danger?

My Lords, the funding of the NHS is another question. I think all in your Lordships' House will be aware that the increase which the health service will receive next year is approximately equal to my entire budget.

My Lords, am I right in thinking that the Secretary of State said that 500 businesses opened and closed every week? Is it 500 of each; if it is 500 in total, how are the openings and closings divided on average?

My Lords, I am happy to assure the noble Lord that I said 500 more businesses opened than closed each week. There is an average net increase of over 500 a week.

My Lords, is it not reassuring that in its latest survey the CBI has shown that, despite the fall in the stockmarket, manufacturing industry is still expecting substantially to increase, to maintain its growth, to increase investment and to increase employment? Would it not be immensely damaging if it were now to be faced by the increase in taxation which apparently the noble Lord, Lord Barnett, is prepared to see?

My Lords, I am extremely grateful to my noble friend. It is significant that the two reports issued by the CBI after 19th October, referring to opinion within manufacturing industry collected after 19th October, should be the two most optimistic reports for the past 10 years.

My Lords, will the Minister tell the House how the balance of payments deficit fits into his forecast?

My Lords, the balance of payments deficit which the Chancellor of the Exchequer has estimated for the year—I say this from memory—will be about £2·5 billion and has long been forecast. It should be taken into account at a time when this country has net overseas investments well in excess of £130 billion.

My Lords, will the noble Lord inform the House whether the Chancellor of the Exchequer's predictions in regard to the world economy, which after all was the subject of the Question, have taken into account the possibility of yet another fall in share prices throughout the world during the year to which his forecast relates? Will the noble Lord agree that the last crisis of 19th October, which the Chancellor of the Exchequer described as a disastrous aberration, was not forecast by the Government and came as a complete shock to them? In view of the world debt situation, and the probability of further large-scale down-writing of debts, is he prepared to assert that there is likely to be stability in monetary conditions throughout the period to which the forecast relates?

My Lords, I cannot possibly say what was in the minds of those who built up the detailed forecasts, not only the one which the Government made but the one made by the OECD. However, I notice with alarm that the noble Lord used the word "crisis". I think that all in your Lordships' House should recognise that today share prices on the London Stock Exchange are 3½ per cent. above those of this time last year. That hardly represents a crisis.

My Lords, has the noble Lord or the Chief Whip noticed that the time has stopped at the figure 13? Apparently we are going on at incredible length, because the time has not moved on.

My Lords, will the noble Lord say whether his answer to my noble friend Lord Barnett indicates that, as Secretary of State for Trade and Industry, he regards the expenditure of public money as money being thrown away rather than it being an investment in British industry?

My Lords, it depends very much on the way in which the money is spent.