Yesterday’s figures for the UK’s balance of payments made bad reading by the standards of this worrying series of figures. The deficit reach a new high of 5.2% of national output for last year, and 7% for the last quarter. These are records we do not want to break.
The deficit had three main components. There is first the running deficit on government account. Overseas aid payments combined with payments to the EU which we do not get back amounted to 1.4% of GDP or one quarter of the total deficit. As government policy is to continue to increase these payments in line with economic growth only Brexit could reverse this trend and cut this part of the deficit.
The second is the gap between money we have to send abroad to foreign owners of property, businesses and shares in the UK and the money UK investors receive as interest and dividends on their overseas investments. The gap is likely to carry on growing. All the time we run such a large payments deficit it means more foreigner buying more UK assets and expecting more interest, rental and dividend income to be paid to them.
The third is the gap on trade. The UK is still in trade surplus with the rest of the world, but is in massive deficit with the rest of the EU. Common EU policies from fish to steel and from farming to energy are pushing the UK into more and more dependence on imports. We now import electricity which we could produce at home, import steel and steel based products especially from Germany, import more fish as overseas vessels take more of our resource and import food as the vagaries of the Common Agricultural Policy do not always help us.
I would like the UK to adopt a policy of improving our balance of payments deficit. To do so it will be easier once out of the EU. We get the immediate benefit of not having to make contributions. We can then adjust domestic policies to help our industries more than the EU does. I appreciate that the UK has added to some of the difficulties created by the EU common energy policy, but the EU policy constraints are now being used as the main reason we cannot change. It is also the case that the UK feels very circumscribed in responding to the steel crisis by both the state aids rules and the public procurement policy. The problem with interventions in markets like the heavy interventions in energy cause distortions which then lead to the need for other interventions to try to offset them