Investment

Oral Answers to Questions — National Finance – in the House of Commons at 12:00 am on 26th January 1989.

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Photo of Nigel Griffiths Nigel Griffiths , Edinburgh South 12:00 am, 26th January 1989

To ask the Chancellor of the Exchequer if he will provide the latest available data on net flows of (a) direct investment, (b) portfolio investment and (c) banking flows into the United Kingdom in 1988.

Photo of Peter Lilley Peter Lilley The Economic Secretary to the Treasury

In the first three quarters of 1988, the latest official estimates identify net outflows of £6·3 billion on direct investment and £5·6 billion on portfolio investment, and net banking inflows of £10·5 billion. However, the balancing item indicates that there are net inflows of foreign exchange amounting to a further £12·3 billion which cannot be identified.

Photo of Nigel Griffiths Nigel Griffiths , Edinburgh South

How does the Chancellor explain his high interest rates if not in terms of his record balance of payments deficit and the need to lure in to the economy highly speculative funds from abroad?

Photo of Peter Lilley Peter Lilley The Economic Secretary to the Treasury

The hon. Gentleman clearly does not realise that, in all countries, it would now be true to say that all money is hot money because we live in a world of free exchange rates where people are free to move money about. Therefore, all Governments, whether they have a surplus or a deficit, are required to maintain the confidence of their people and of international financial markets. This Government have the confidence of international markets because their policies are sound and because the prospects of election of the Labour party are negligible.

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

Will my hon. Friend confirm that the balancing item is now so large that it exceeds the balance of payments deficit? Does not that mean either that the deficit is overstated or that the figures for capital inflows are understated? Which does the Treasury think it is, and, whichever it is, does it not show that all the figures should be treated with some caution?

Photo of Peter Lilley Peter Lilley The Economic Secretary to the Treasury

My hon. Friend is absolutely right. The answer to his question is, "A bit of each" and he is right to say that we should treat with scepticism those figures, whose importance is grossly exaggerated.

Photo of Mr John Smith Mr John Smith , Monklands East

Will the Minister confirm that the balance of payments deficit with which we have been saddled as a result of the Government's policy is one of the principal reasons for high interest rates? We have the highest interest rates among the industrialised countries because we have to pay the price of attracting into the system the hot money to which he has just referred.

Photo of Peter Lilley Peter Lilley The Economic Secretary to the Treasury

No. The right hon. and learned Gentleman has got it wrong. High interest rates are necessary to bring down inflation and keep pressure bearing down on inflation, as we shall do. I hope that he will soon take the opportunity to explain how his recipe of cutting interest rates and reimposing credit controls could possibly work in the modern world.