To ask Her Majesty’s Government what steps they will take to improve the United Kingdom’s current balance of payments and industrial productivity levels.
My Lords, this Government are committed to boosting productivity and enabling our trade performance. Our productivity plan, Fixing the Foundations, is designed to ensure that we remain a dynamic, open and enterprising economy. It includes steps to improve our export support, which we built on at the spending review. This action, together with our commitment to eliminate the budget deficit, reduces the potential risks to our economic security associated with our external position.
My Lords, the trade deficit of the United Kingdom is as big as the Bay of Biscay. Manufacturing is once again in decline because of the failure to invest such that it is blocking the march of the makers, as proposed by the Chancellor. British productivity is failing to produce because of underinvestment in people and parts. Is not John Longworth of the British Chambers of Commerce right to criticise the Chancellor’s unbalanced economy? Would it not be helpful in our negotiations with the European Union, when highlighting competitiveness, if competitiveness started at home?
My Lords, in answering some of these questions, I have to resist the temptation to be a bit of an economics data nerd. First, as I think I pointed out in this House recently, our trade performance has stabilised in recent years. The biggest contribution to the deterioration in our current account balance comes from the so-called invisibles balance, particularly lower returns on our investments overseas.
My Lords, it is appropriate that the noble Lord, Lord Harrison, should raise the issue of the current account deficit. Many people seem to have forgotten about it. Over the past 15 years it has amounted to some £700 billion and it has been financed by selling the family silver. Even some 50% of buildings in the City of London are now foreign-owned. Would the Minister agree that the issue is essentially macroeconomic? What is needed is a higher savings rate and a higher investment rate. Both have been too low for a long time.
My Lords, my noble friend is technically correct that the balance of payments current account reflects the difference between our national savings and our national investment performance—one is the reverse side of the other. The best way to improve it is by reducing our domestic savings rate but remaining as attractive as we are to overseas investments.
My Lords, I draw attention to my interest in the register of Members’ interests. I am sure that the Minister has seen the verdicts of the EEF—the manufacturers’ association—on the current downbeat mood in manufacturing and of the respected OBR, which says that the apprentice levy is a workplace tax. Does he agree with those verdicts and can he explain how they will help with fixing the foundations and uplifting the mood of manufacturers?
My Lords, there were at least three questions there but I shall try to be brief. I speak frequently to the EEF and its survey unfortunately reflects similar and growing evidence from surveys all over the world of weakness in manufacturing. The UK’s most regular monthly survey of the degree of optimism, or otherwise, in business shows that it remains one of the strongest in the G7 countries.
My Lords, as the Minister has indicated that he is prepared to comment on statistics, I shall ask two straightforward questions. Is it the case that manufacturing output is now down the levels of 2009—just after the financial crash? The march of the makers is therefore becoming the slow movement of the disappointed. Is it not also the case that, with productivity set to fall over the next two years, the gap between the UK and the G7 countries is now down to 1991 levels? If these figures are correct, what on earth have been the so-called successes of the long-term economic plan?
My Lords, again there are many questions about the arcane world of economic statistics with which I am very familiar. I suggest that there is no clear correlation between the level of manufacturing and the overall level of productivity. I spent considerable time yesterday discussing this with my many friends in the north of England.
My Lords, there are signs that we may be on the brink of a recession. Is this really the right time to think of putting up interest rates?
My Lords, luckily the decision on what happens to interest rates has absolutely nothing to do with me and is the responsibility of the independent Bank of England.
My Lords, one of the factors that inhibits our exports is our overvalued rate of exchange. Should the Government not consider establishing a sovereign wealth fund to purchase foreign assets whenever the sterling rate of exchange exceeds a certain threshold value? This, after all, would compensate for our selling our family silver abroad.
My Lords, by and large as a result of the Bank of England’s responsibility for monetary policy, in effect the responsibility for what happens to the exchange rate in a very competitive world is hugely influenced by our monetary policy relative to others. We have been and remain in favour of open markets, where prices are determined in world markets.
Will my noble friend explain to most of the noble Lords who have spoken that nowadays, most manufacturing items have a huge service and knowledge-laden complex in them? Will he also explain that to the Office for National Statistics, which does not seem to understand the difference? Will he not concede that at the moment, as an economy, we have an £86 billion trade surplus on our services overseas, which indicates that the mixture of services and manufacturing that we are developing is the winning formula for the future?
My Lords, my noble friend Lord Howell points out some extremely important facts, which I encourage everybody to listen to and read more about. I would add, as I emphasised at the start, that there are some signs that our trade balance in goods and services in recent years has improved. The deterioration that so many people talk about is in another source; it relates to the difference between the returns of investors here in the UK and our return on our own investments overseas.