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7.42 pm

Mr. Elfyn Llwyd (Meirionnydd Nant Conwy): First, I warmly and sincerely congratulate the hon. Member for Morley and Rothwell (Mr. Challen) on a fine maiden speech that was thoughtful and thought provoking. His confident contribution augers well for the future. I also congratulate the hon. Member for Teignbridge (Richard Younger-Ross) on his excellent speech. Those of us who are relative old lags have been fortunate to hear several good maiden speeches today. Perhaps there are more to come; we do not know.

I want to deal with key areas of the Queen's Speech that show a lack of cohesion in the Government's overall economic thinking. The hon. Member for Birmingham, Northfield (Richard Burden) referred to the need for a firm regional policy, but before considering regional policy, one must examine the public spending allowable under current taxation rates. We as a party will challenge that centre-right thinking of low taxation linked to low public spending.

Last year, for example, public spending was 38.3 per cent. of gross domestic product--the lowest since 1964. Like other parties, we call for a substantial increase in public spending. Otherwise, we will not be able to pay for efficient public services, decent schools and hospitals, safe and efficient public transport and investment in the future of the economy. Day after day over the past five or six weeks, we all heard about those matters from the electors. We need to make progress on them and to reverse current thinking about low tax, low spend. Obviously, we also need a fairer distribution of wealth, which was alluded to eloquently by the hon. Member for Morley and Rothwell.

Over the past 20 years, there has been a substantial shift of resources from Wales to richer parts of the UK. In the first two years under the Government, Wales' GDP

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unfortunately fell by 3 per cent., compared with the UK average. We want that trend to be reversed and Wales to have its share of general economic growth. Of course, having less inequality in various parts of the UK would benefit the whole economy.

I shall refer briefly to the Barnett formula. We in Wales demand a fairer system to work out the sum of money from the Treasury in London to which Wales is entitled. The current allocation is worked out purely on the basis of population, whereas we need a system that takes into account Wales' greater needs, which are due to such factors as relative poverty and the higher proportion of older and other economically inactive people. In some cases, the sparsity factor plays a part.

We want the Barnett formula to be replaced by a needs-based formula that considers the wider picture of public expenditure in Wales. It would have to include so-called non-identifiable expenditure, such as defence, which equates to £700 per capita in south-west England, but perhaps £100 per capita in Wales. Such expenditure should be described as non-identified, not non- identifiable, because, clearly, projects such as the Jubilee line extension and other large flagship projects are not reflected in any expenditure given to Wales.

We must have a needs-based funding mechanism. Establishing such a formula would be complex, but it is essential and the task should be undertaken by an independent body similar to the Australian Commonwealth Grants Commission. A needs assessment should be carried out to analyse public expenditure requirements across the UK and it should consider the range of major public spending programmes case by case. For example, school expenditure might depend on the number of children of school age, rather than on the total population, and roads expenditure might depend on population density as well as population itself.

The less private spending capacity there is in an area, the more public expenditure it should receive. In the Welsh valleys, there are numerous examples of high sickness rates, low employment and serious poverty. The valleys need more public investment to counteract those obvious and crippling disadvantages.

Labour, and the Chancellor in particular, has made bold claims that there will be no return to boom and bust while it remains in power. Those claims ignore the fact that there has already been a form of boom and bust. For the first two years of Labour's first term, there was bust in the public sector, and its effects are becoming increasingly apparent in the failure to deliver quality public services.

The comprehensive spending review seeks to reverse that trend by increasing public expenditure rapidly in real terms over the next three years. We all hope that there is delivery--I refer to the speech of the hon. Member for Morley and Rothwell--but this boom and bust is curious and such a stop-go approach is hardly conducive to effective and efficient management of the public sector.

As we know, at the end of the three years covered by the CSR, the Government will face the choice of either cutting the rate of increase in public spending or having to increase taxation. That is one reason why Plaid Cymru, the Party of Wales, advocates increasing taxation for those earning more than £50,000 per annum.

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There is another way in which Labour's claim to have abolished boom and bust rings hollow. I quote the Financial Times of 21 June, which encapsulates the point:

Superficially, the Government have enjoyed a good run of economic management in their first term. As Napoleon asked of his generals, "Is he lucky?" We may envy the Chancellor's good fortune, but the Government's second term is likely to be much more difficult and will test their mettle.

The United States is experiencing a major economic slowdown, and Germany is facing a recession. Stock markets around the world are in retreat, and in the United Kingdom the outlook for growth is deteriorating slightly. The Government's spending plans under the comprehensive spending review predicted growth of 2.25 per cent. a year, but even so the public finances will move into deficit in 2002-03. In the past, the Chancellor has relied on actual growth exceeding his projections to ensure that the public finances have a healthier outcome than planned. It is likely that that trick will no longer work, with actual growth being at or lower than planned. The Government will then face having to raise taxes, borrow more or cut public spending, and I hope that it is not cuts in public spending.

Much has been said in the debate about the euro. I appreciate that the debate is not often of a high quality. As always, comments in today's debate have been emotive. I seriously and honestly hope that when the debate begins--it should begin fairly quickly--we all have an informed discussion. I am no expert, nor I suspect are other hon. Members, and we need to be guided by independent analysts, good political thought and economists who understand what it is all about. I hope that we have a mature debate, because it is an extremely important issue.

The economy of many parts of the UK, and certainly of Wales, has suffered from the fact that we are now highly dependent on trade with the countries of the euro zone. Since the euro was introduced in January 1999, there has been a sharp drop in its value against sterling. That has placed a huge burden on manufacturing industry. It has become more difficult to export, and imports from the eurozone have fallen in price because of the rate of sterling. One of the most graphic examples of the impact of the strong pound has been Corus, although I have my doubts about the honesty of that company and whether we know the whole truth even now. The strong pound was cited as one of the problems.

The Government must not procrastinate about entry into the euro, because that is placing at risk manufacturing jobs not just in Wales but throughout the UK. I believe that it will also deter overseas companies from investing in the UK. Major employers, such as Ford, have made it clear that they are continuing to invest in Wales only because they assume that the UK will adopt the euro within the next few years. The signals that have emanated

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from the Government and from the Bank of England since the general election are not encouraging, and will do nothing for the confidence of manufacturing industry.

The impact of the euro is not confined to manufacturing. Agriculture and tourism also suffer, and again Wales is particularly vulnerable.

In his Mansion House speech last week, the Chancellor claimed that he favoured a "stable and competitive" currency. At sterling's current level, that is an oxymoron. The Government face a dilemma. It is generally accepted that sterling is overvalued against the euro by approximately 15 per cent. That will need to be remedied before the UK adopts the euro, but if that is done, the drop in sterling's value will lead to additional inflationary pressures. If the Government continue to rely solely on monetary policy to control inflation, interest rates will have to be increased and that will tend to increase the value of sterling against the euro. There will be only two ways out of that dilemma. I shall not go into them now, but there are clearly some important decisions ahead. I am sure that all parties would appreciate an indication from the Government that they are taking the euro debate seriously.

Another matter that has not been taken seriously in the Queen's Speech debate is the crisis in agriculture and in the rural economy. The hon. Member for Truro and St. Austell (Matthew Taylor) referred to agriculture, which is another vital part of the Welsh economy. Within the past five years, income for a typical 500-acre farm, often family run, has been cut by well over 70 per cent. Current average income from farming activity in the UK is £4,500. In the past two years, 40,000 jobs have been lost from UK farming, at a rate of 450 a week. In Wales alone, the number of workers on Welsh farms has fallen by 10 per cent. and jobs are being lost at a rate of 73 per week. Those figures were produced before the foot and mouth crisis.

We call for a young entrants scheme to help young people into farming, and an early retirement scheme that is not linked to coupling farms to make them larger. The average age of a Welsh farmer is 58 years, and such a scheme would enable farmers to have a proper, respectable retirement on a reasonable income. We should go to the European Union, because it caters for such schemes. Given the early signals that we had a couple of weeks ago, even though there was no reference to this matter in the Queen's speech, I hope that the Government will take it up urgently.

There is no mention in the Queen's Speech of any direct help for the agriculture sector specifically or the rural economy generally. The Government must realise that the sector is in great peril and deserves urgent and constructive action to avoid the utter devastation of rural communities, not just in farming but in all rural businesses and among rural dwellers who are beset by these awful crises. They will bring with them huge population moves, and will have a great impact on the lives of all rural dwellers, with additional hugely detrimental effects on the Welsh language and culture. Despite there being no reference in the Queen's Speech to that problem or to rural problems generally, I urge the Government to give the sector urgent and high priority over the coming months.

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7.57 pm

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