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Mr. Win Griffiths: I understand what my hon. Friend is saying, but I think that there is a difference between local government reorganisation and the creation of the Welsh Assembly. Local government reorganisation involves the merging of four or five administrations, but the overall administration will be the same, and, as we know from all the work that was done on the Government of Wales Act, they have done a superb job for us. Given the quality of the Labour candidates--members of my hon. Friend's family, for instance-- I have every confidence in their ability to assist in the creation of the Assembly.

Sir Raymond Powell: As one who had close connections on the Front Bench, was well acquainted with the Act and made a great contribution to it, my hon.

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Friend would know far better than I whether the newly elected Members will be in a position to serve. One person who will be a great asset, and will probably not have to wait for 12 months, is Janet Gregory--my daughter. She is absolutely marvellous. Of course, I could not have said anything different. She was bound to follow her father, although she has not listened to him since the day when she was born. I hope that she will be elected; she has a very good name.

I must now conclude my speech. Another intervention and another drop of that orange squash, and I will be off. I do not know whether anyone put gin in it! In any event, I am grateful for the opportunity to speak on an historic occasion. I hope that although by this time next year we shall have a Welsh Assembly, we shall continue to have Welsh debates in the House of Commons.

3.28 pm

Mr. Denzil Davies (Llanelli): I am sure that my hon. Friend the Member for Ogmore (Sir R. Powell) will have many more opportunities to regale us and interest us, even after devolution. I do not know whether this will be the last Welsh day debate, but, in any event, the House of Commons will still be the final arbiter--the final fund, as it were--in regard to money for the Welsh Assembly. It will also determine the level of public expenditure for areas outside the remit of the Assembly. I believe that all parties in the House have agreed to that system of financing, which will be annual. The Treasury will negotiate, following which--in theory at least--the estimates will have to be dealt with by the House.

Presumably, that could have been arranged differently. There could have been a charge on the Consolidated Fund, along the lines of--I hate to say this--the system of contributions to the European Union, which do not have to be dealt with by the House. Similarly, judges' wages need not be dealt with by the House: their salaries are not cut, for reasons that are fairly obvious in the administration of justice.

We could have chosen a different system; but all parties agreed that there should be an annual system, so we must not complain about the fact that it must come back to the Treasury and, indeed, the House, and that the House must debate it in some form or other.

Sadly, we are again debating Welsh affairs when the Welsh economy is not in very good shape, which is a source of great concern to us all. I have been a Member of the House for a long time and I am not talking my own country down. Every year for the past 18 years--although I do not think it was the case in 1979--Wales has been the poorest country, region or area in Britain and its level of gross domestic product is fairly close to that of Northern Ireland. That is not something to be happy about, but it is the reality that we face.

I represent a constituency where almost 30 per cent. of the employed work force still works in production and manufacturing. Manufacturing industry is under pressure because of the global economic situation and global deflation. It is also under pressure, I am sorry to say, because the Bank of England put interest rates up when it did not need to do so. At that time, of course, the Bank of England thought it was living in a world of inflation, and central bankers take a long time to change their orthodoxy.

I am not sure whether the central bankers have changed that orthodoxy, but we are living in a world of deflation. My right hon. Friend the Secretary of State said that one

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of the virtues of the present Government's tenure is that long-term interest rates are at their lowest for 40 years. That is a mixed blessing. Japanese interest rates are at their lowest for 40 years as well, but that is a consequence of deflation, and that is also the case in this country. If prices are falling, which they are not yet, interest rates fall, too, but one should not necessarily welcome that. We are living in a world of deflation and, as my hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) said, that is having an effect on manufacturing industry in particular, which seems to have far less ability to increase prices than service industries.

We have talked about devolution and the Welsh Assembly. One consequence of devolution is greater transparency in respect of the amount of money and public expenditure that goes to the devolved areas and the amount of taxation and public money that is produced by those areas. Years ago, the Treasury would set its face against producing budgets for various regions and countries in the United Kingdom. It would argue that the United Kingdom was a unified state--a single market, to use the language of Brussels--with a single currency, no trade barriers and complete freedom of movement of capital and labour: the ultimate in political, economic and monetary union.

Quite apart from the difficulty of doing so, the Treasury would say, "Why do we need to produce budgets for Wales, the north-west of England and Scotland, because we are living in a unified economic and monetary state?" There was also the difficulty of finding the figures. All that has changed because of the political pressures of the past 20 or 30 years and through the use of computers, which can store so much more information. We are now in a position to produce devolved budgets, or budgets for devolved areas, showing the amount of money that goes into the area and the amount produced by it. That transparency will become more and more relevant as the budget of the Welsh Assembly and of Wales has to be considered.

The figures show that the position of Wales is not good and we should not go into the Welsh Assembly with some starry-eyed idea of the prosperity of the Welsh economy. Figures for Government expenditure--not only that of the Welsh Office, but of other Departments--and for the tax base in Wales from the past few years show a massive fiscal deficit, and we might as well face that.

The fiscal deficit is probably about £5 billion or £6 billion. One could argue a little about the figure, and it is never possible to be completely precise, but let us round it down to £5 billion. About £10 billion or£11 billion is raised in taxation, and there is about £16 billion of public expenditure, including the £7 billion that will go to the Welsh Assembly. That is the order of the deficit that has to be financed.

Let us be clear about the fact that that £5 billion comes from the United Kingdom--the London Government, or the dreaded British state, as some people call it. We can call it what we may, but that money comes from the centre--the dreaded Treasury, which, apparently, will not give us any additionality money on top of the £5 billion.

The £5 billion can be broken down into regional budgets, but it does not come from Scotland, I am sorry to say. It does not come from Northern Ireland. I do not know how much of it comes from the north of England. It must come from the more prosperous areas of England.

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The English will be providing the £5 billion that is necessary to fund the Welsh economy. They are doing so now, and have been for the past few years. There is nothing wrong with that in a unified state, but we must be clear about where the money is coming from. It probably comes from the home counties.

Mr. Hain: Does my right hon. Friend agree that that is one reason why the economics of separatism, which are pursued by the nationalists, are pure fantasy?

Mr. Davies: That is what I am trying to say, in my less dramatic way. They are, indeed, pure fantasy, because Wales could not possibly sustain a borrowing requirement of £5 billion: it could not possibly borrow that kind of money. We would either have to raise taxation--which we could not do, because we do not have the tax base--or cut public expenditure. Without that £5 billion, the Welsh economy, certainly in terms of public expenditure, would lie somewhere around the level of Slovakia, or one of the other countries that have left the Soviet empire. That is the reality, and it is better for the Welsh Assembly to face it.

Dr. Fox: The right hon. Gentleman is arguing that the taxes that finance the block are levied across the United Kingdom as a whole and under policies set by this House. Does he therefore agree that it is logical to retain in this House a mechanism for scrutinising how that money is spent?

Mr. Davies: Logical or not, such a mechanism will be retained. That is the reality of devolution. These days, we are apparently all in favour of transparency, which is the vogue word. There will be transparency. When my right hon. Friend the Secretary of State negotiates with the dreaded Treasury, the figures will be on the table and will show quite clearly the payment of £5 billion a year, which comes from the Exchequer to the Welsh economy.

Some people in Wales--certainly among the chattering classes--believe that there is an escape from all that reality in Europe. I do not want to discuss Europe in the way that it has been discussed in some interventions, except to say that those people seem to think that Europe can provide a substitute for the £5 billion, which the English are providing for the Welsh economy.

I predict that one of the first acts of the Welsh Assembly will be to acquire expensive premises in the rue de la Loi, not too far from the Charlemagne building--although its name may have been changed since asbestos was found in it. The hon. Member for Brecon and Radnorshire (Mr. Livsey) will know it well, because he spent some time in Brussels. Expensive premises, flying the red dragon banner, will be acquired. People will get on the Brussels cocktail circuit and acquire influence, and perhaps other things as well, in the process.

We have heard about the Institute of Economic Affairs and we have heard about Professor Kevin Morgan and such people. They are also financed by the English money that comes in. No doubt there will be an attempt to escape into Europe, but there is no escape in Europe from the position of the Welsh economy.

I return to the £5 billion deficit and take my cue from the references to the single currency. If the budget deficit was related to GDP--which is about £30 billion, or

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perhaps more in the past year--Wales could never qualify for the single currency. With a £5 billion deficit and a GDP of £30 billion, Wales has a budget deficit of more than 15 per cent., so it does not meet the criteria set out in the Maastricht treaty. Even if we round the figure down to 15 per cent., we have to remember that Greece has a deficit of 8 per cent. and cannot get into the single currency. On that score alone, there is no escape in Europe from the reality of Wales being part of the United Kingdom.

We have rightly talked a lot about objective 1 status. It is not easy to find out how much money comes to Wales from the various European funds. I have excluded from my estimates any payments under the common agricultural policy, because I cannot work that figure out. I have also excluded any notional expenditure that Wales makes into Europe, because Britain is a net contributor. Perhaps they balance each other out--I hope so.

I estimate that, over the past five years, Wales has received about £300 million a year from European Union structural funds--under objectives 2 and 5b--and Community funds such as RECHAR and various other odds and ends. That is a lot of money, but set against the £5 billion a year that comes from the British Union it is a mere drop in the ocean.

If the assorted ranks of Plaid Cymru had all been present for the debate, rather than just the reasonable hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd), they would no doubt have jumped up and shouted at me about the cohesion fund. The Republic of Ireland receives payments from the cohesion fund because its GDP is lower than that of the United Kingdom. As Wales is not treated as a separate nation state in the Council of Ministers, we do not receive such funds. However, let us add the cohesion funds, which would be about the same as Ireland receives--

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