Lord Haskel
To ask Her Majesty’s Government what steps they are taking to reduce the United Kingdom’s deficit on the balance of payments in overseas trade.
The Commercial Secretary to the Treasury (Lord O'Neill of Gatley) (Con)
My Lords, changes in investment income are driving the UK’s current account deficit. This has greatly reflected Britain’s attractiveness as a destination for investors. In 2014-15, UKTI provided support for 1,610 of the 1,988 FDI projects in the UK. Government efforts are continuing to help reach the Government’s £1.5 trillion target by 2020. However, the Government’s commitment to eliminating the budget deficit should help to narrow the current account deficit, as forecast by the OBR.
Lord Haskel (Lab)
I thank the Minister for that reply, which of course is entirely consistent with government policy over the last five years—funding the deficit by inward investment—but the problem is that it is not working. The current account deficit has become larger in each of the last five years and now stands at a record level of 7% of GDP. Are the Government going to continue with this failed policy or are they going to change it before the deficit becomes unsustainable?
Lord O'Neill of Gatley
My Lords, I emphasise, as I tried to do in my opening comments, that the current account deterioration is not being driven by a deterioration in the trade deficit. In fact, our trade deficit has been relatively stable at around 2% of GDP for the last seven years.
Lord Leigh of Hurley (Con)
My Lords, the Minister is right to say that the deficit is caused by the imbalance in FDI. Does he agree that the way to address this is to encourage industry to divert investments away from low-yield FDI into high-yield areas, such as China, which currently represents less than 1% of our overseas investments abroad?
Lord O'Neill of Gatley
I am very grateful for the accurate suggestion by my noble friend Lord Leigh as to what is really going on below the data. I emphasise—as, rather generously, Ernst & Young did yesterday in a very important report—that the recent deterioration is due to the growing attractiveness of the United Kingdom, especially areas outside London, in the minds of investors all over the world. Narrowing this deficit requires us to invest more in other places in the world that give a higher return.
Baroness Kramer (LD)
I wonder whether the Minister has seen today’s FT interview with the director-general of the WTO, in which he explains that, if we were to leave the EU, the UK would be required to put tariffs on imports from all 58 countries with which the EU has trade arrangements, and they in turn would be required to put a surcharge on UK exports. This is not an area where we will have a choice. We cannot say, “We’re not charging duties here”. That would be impossible and illegal. Hence, would the Minister recommend that Brexiters take note of the damage they could cause?
Lord O'Neill of Gatley
My Lords, I thought that I had read the Financial Times thoroughly this morning but I missed that particular piece. If we want to reduce our current account deficit by reducing our attractiveness to foreign investment, we need to be very careful on 23 June.
The Lord Privy Seal (Baroness Stowell of Beeston) (Con)
My Lords, I hesitate to intervene, but the House does seem to be calling for the noble Lord, Lord Pearson.
Lord Pearson of Rannoch
Do the Government accept that, according to their own Pink Book, we have had a growing trade deficit with the EU for the last five years totalling some £358 billion but a growing surplus with the rest of the world of £61 billion? Does not this also mean that the EU has many more jobs dependent on its free trade with us than we do on our free trade with it, which will therefore be in its interest to continue if we come to leave the European Union itself?
Lord O'Neill of Gatley
My Lords, the numbers that the noble Lord referred to in the Pink Book are broadly accurate but I do not share his interpretation of them. As shown in the timely piece from EY yesterday, the number of jobs being created by foreign direct investment in the UK is substantial.
Lord Davies of Oldham (Lab)
My Lords, the Minister is extraordinarily complacent. Does he not recognise that the deficit on goods and services is the largest since the post-war recession of 2008, which affected the country so adversely? He is indicating that the Government have got matters in hand, but in fact we are approaching catastrophe as far as these figures are concerned.
Lord O'Neill of Gatley
My Lords, I hate to be a statistical nerd about these things, but I am staring at the data. Last year, our overall trade balance as a share of GDP was minus 0.20%. In 2010, it was minus 2.8%. As I said a few minutes ago, the trade deficit today is smaller than it has been for 10 years.
Lord Lawson of Blaby
My Lords, in the context of inward investment, to which my noble friend rightly referred and which is in fact the driver of this, did he have time in his busy life to read the story in Le Monde a few days ago? It was reported that the important French internet company Valtech is waiting for the outcome of the referendum and, in the event of Brexit, proposes to move its headquarters from Luxembourg to London.
Lord O'Neill of Gatley
My Lords, I like to think that my talents are spreading as the years go by but I am not yet capable of reading a French newspaper and so have not read that particular story.
Viscount Hanworth (Lab)
My Lords, it is clear that the only way in which to mend the balance of payments is to increase substantially our exports of manufactured goods. For our goods to become saleable abroad, the value of the pound must be reduced. If nothing is done to overcome the balance of payments problem, it is inevitable that the pound will eventually plummet. Can the Minister envisage a more orderly way of reducing the value of the pound?
Lord O'Neill of Gatley
My Lords, it is time for repetition again: our trade balance is smaller than it has been at any time in the past 10 years. It has been stable at around 2% of GDP. The deterioration of the current account, which has been significant in the past two years, is due to a growing imbalance in the so-called investment account.