Below is the text of Mr Major’s response on Investment and Consumption, made on 4th May 1989 in the House of Commons.
Mr. Brazier To ask the Chancellor of the Exchequer what has been the rate of growth of (a) total investment and (b) total consumption over the past seven years.
The Chief Secretary to the Treasury (Mr. John Major) In the seven years to 1988, total consumption grew, in real terms, by 25 per cent., while total investment grew over twice as fast – by 54 per cent.
Mr. Brazier Does my right hon. Friend agree that total investment has grown so much faster than consumption not only as a result of the level of confidence that business feels in the Government’s economic policy, but as a reflection of the fact that there is some remaining over-manning from the grotesque levels that we inherited when we took office? Does my right hon. Friend further agree that it is a healthy feature of economies at this stage of development, such as those just ahead of us like America and Japan, that employment moves as a result of investment from manufacturing to the service sector?
Mr. Major My hon. Friend is right about the confidence of industry. As my right hon. Friend said a moment ago, total investment is now higher as a proportion of gross domestic product than it has been for many years. On the future of manufacturing industry in particular, the Department of Trade and Industry investment intentions survey forecasts further investment growth in 1989 of 11 per cent. My hon. Friend is right on over-manning, but he should observe that not only has it fallen in many industries, but has done so at the same time as employment has grown in the service industries and in other industries.
Mr. Beith Does the Chief Secretary realise that few people outside his own supporters – and not all of those – believe that the enormous switch in capacity from consumption to export will take place on a scale sufficient to wipe out our balance of trade deficit? Does he find it possible to believe that that will happen when world trade is expected to slow down? He is presuming that exports will rise 4 per cent. a year faster than imports.
Mr. Major Invariably, there are Doubting Thomases about. We shall have to wait and see. Exports have been doing extremely well in recent years and there is every sign that that will continue. The hon. Gentleman will welcome that when it comes about for it will be a considerable achievement by British exporting industry.
Mr. Soames Is my right hon. Friend able to quantify the proportion of the trade deficit that is accounted for in inward investment?
Mr. Major There is a substantial amount of capital inward investment, which reflects, to a large degree, the confidence of external investors in the management of the British economy. On the balance of trade, a substantial part of the growth in the trade gap relates to the growth of investment in goods for production and investment.