To ask Her Majesty’s Government what is their latest forecast for the balance of payments in the current financial year.

My Lords, the Government forecast for each calendar rather than financial year. The forecast for the balance of payments deficit for 2009 is 3.5 per cent of GDP, or £48.5 billion: up from a deficit of 1.7 per cent of GDP in 2008, or £24.5 billion.

My Lords, I thank my noble friend for that reply. Although the Treasury does not officially forecast the balance of payments other than at Budget time and on pre-Budget occasions in the autumn, I understand that the Chancellor of the Exchequer may not publish the usual spending review this autumn. Can my noble friend confirm whether this is so? The assessment of the borrowing of £175 billion this year and the next is that it is large and continuing, with necessary expenditure cuts affecting our economic recovery. When does he expect the financial position to be restored, with no further borrowing?

My Lords, those are two fairly fundamental questions. Both are wider than and somewhat remote from the balance of payments issue, which was the basis of my noble friend’s original Question, although I had anticipated that it might go a little wider in this short exchange. He will have to wait for any commitment on the pre-spending position. I cannot comment at this stage, but he will appreciate from the figures that we have on the balance of payments deficit that the United Kingdom’s economy remains one of the most competitive. We are actually benefiting at present. Repatriated income from investments is in fact less than earnings, so our balance of payments figures are better in those terms, but my noble friend will recognise that we are addressing the whole question of economic recovery and that developments in the balance of payments are a factor in that.

My Lords, does the Minister agree that the Government’s plans to borrow an additional £900 billion through the gilts market can be achieved only by a substantial increase in interest rates? What does each percentage increase in interest cost the Government?

My Lords, they are significant figures, which are unparalleled in recent decades, as the noble Lord will appreciate. But he also knows that they are reflective of a strategy of investment in this economy which is being pursued by every advanced economy in the world, including, most importantly, the United States and, to a great extent, China. In so far as public deficits occur from this, those are a price which has to be paid in order to minimise the sharpness of the recession and to keep the level of unemployment as low as we can. I am sure that the whole House applauds those developments.

My Lords, I think that I may have to congratulate my noble friend. Apart from being Deputy Chief Whip, he is also now a Parliamentary Under-Secretary at Defra. Just to cheer him up a bit, Defra is an area that does not interest me at all.

There are two interesting questions about the balance of payments. We have been in deficit in this country since, I think, 1985, which means that even though economists always say, “This can’t go on”, it always seems to go on. Specifically on the present state of affairs, bearing in mind that it is a duty of an economist never to look on the bright side, otherwise we would cease to be the dismal science, would one be accused of being complacent by saying that the remarkable thing about the balance of payments at present is that we do not seem to have the slightest sign of an emergency or crisis on the horizon? Am I being complacent in suggesting that possibility?

My Lords, if my noble friend is to introduce complacency to our discussion, I hope that he will concentrate on Defra in due course and make life a little easier for me. On the issue that he raises, it is obvious: our balance of payments forecast for our worst year is below the balance of payments deficit in the mid-1980s under a previous Administration. Therefore, this does not feature as a factor which should concern us over much, save for the obvious fact that the country has to earn its way. It is important that we move from deficit with regard to growth. The forecast for the end of 2009 is of deficit, but we look forward to a resumption of growth next year.

My Lords, in 1997 we had a surplus on trade in goods and services of £4 billion. Last year, we had a deficit of 10 times that amount. If you look behind those figures, last year we had a deficit on goods alone of £93 billion. Does the Minister think that these are signs of good economic management?

My Lords, it is a sign of economic management in difficult times. I notice that the noble Baroness did not take the opportunity of defending past strategies of her party that led to balance of payments deficits greater than we are facing in the middle of this worldwide crisis, which everyone recognises is of a severity unique since the 1930s. She will accept that these deficits have to be accounted for. They are part of the necessary recovery with regard to the economy. She will delight in the fact that we see improvements in the position in due course.

My Lords, my noble friend mentioned China and the United States. Last night on Radio 4, the deputy governor of the Bank of China said that the investment and trade relationship with the United States would decline and that that with the European Union would increase substantially. Does my noble friend agree therefore that talk in this House and elsewhere about China and globalisation versus the European Union is wrong and that we must do everything possible to be fully integrated into the European economy and everything that goes with it?

My Lords, China has certainly indicated how significant the European economy is in the demand for its products, which are, of course, part of its strategy for recovery. As for the United States, China will also, of course, be concerned about the progress of President Obama’s strategy of reinvestment in the economy. Significant though China is—along with India and other emerging economies—it is still the case that, until the United States economy makes a significant recovery, none of us can anticipate recoveries elsewhere.