Budget Statement

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Budget Statement

11 am

The Secretary of State for Wales (Mr. Paul Murphy): I beg to move,

    That the Committee has considered the matter of the Budget Statement and its implications for Wales.

Before I start the debate, Mr. Griffiths, it would be entirely wrong at this meeting of the Welsh Grand Committee not to mention Sir Ray Powell. Since we last met, Sir Ray has died, and we have all, quite rightly, paid our tributes to him in various ways and in different places. He assiduously attended this Committee—those of us who recall years past will remember that he always started proceedings with a rigorous and robust point of order on some issue that, generally speaking, had no relationship to the debate.

Today, Sir Ray would have made specific reference to the fact that it is far too hot in this Committee Room. He raised exactly that matter on a point of order some years ago, after which he walked out, although I am not recommending that course of action to hon. Members here today. He was a great character and he will be missed by Members of Parliament and by his constituents. I know that my hon. Friend the Member for Ogmore (Huw Irranca-Davies) will take back to Sir Ray's family and friends the condolences of members of this Committee.

The Budget is now nearly a week old, but it is still important that Members of Parliament representing Welsh constituencies are able to get together in a forum such as this Committee to talk about the Budget and its implications for the people whom we now represent jointly with the Members of the National Assembly for Wales. I begin by referring to the enormous change, which was mentioned during questions, in the economic fortunes of Wales in the past few years. Everything that flows from the Budget, whether increases in public services or methods of helping families, has been possible only because of the strong economic policies that my right hon. Friend the Chancellor of the Exchequer and the Government have introduced during the past few years.

During the year that has elapsed between the last time the Welsh Grand Committee met to consider Budget implications for Wales and today's meeting, the events of 11 September have occurred. I do not think that any country in the world, let alone Europe, has sustained itself economically and financially as well as we have done. We have done so only because of the strength of economic policy. Because of the measures introduced by my right hon. Friend the Chancellor, we have one of the strongest and most robust economies in the western world.

Our economy is growing by some 2.25 per cent. a year—the fastest growth in any G7 economy. There is strong consumer demand, which I see when I go around Wales and talk to different companies. Perhaps the greatest success story, which was touched on earlier by hon. Members, is something that we in Wales might take too much for granted. Every single one of us can recall that in our constituencies in the mid-1990s, and indeed later

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than that, unemployment was a disgrace. Thousands and thousands of people, particularly young people, had been cast on to the dole queues with no hope for the future. That has been turned around in the most dramatic way in modern political history.

Look at the figures: there are 1.5 million more people in work in the United Kingdom than there were in spring 1997. Unemployment in Wales is at its lowest for 27 years. That is a remarkable achievement. Everything we do in terms of spending on public services or on the economy in general has to be measured against that backcloth.

In Wales, the new deal has been enormously successful in each of our constituencies. The reason why it has been so successful is that whereas once there were millions of people out of work to whom the Government had to pay unemployment benefit and from whom we did not get tax revenues, we have been able to put people into work, with the result that we have not had to spend money on unemployment benefits and we have retained tax revenues.

That is coupled with the way in which the Chancellor has coped with the problem of national debt. We are paying only 31 per cent. of gross domestic product towards national debt, compared with 44 per cent. in 1997. This year, we have paid £8 billion less in interest repayments than in 1997–98. The billions of pounds derived from savings on unemployment benefits and reductions in debt interest have gone into our public services.

That is why, before we consider the questions raised by last week's Budget statement, we should read today's headline in the Western Mail's ''Business Wales'' section: ''Increase in optimism revealed by survey''. The Western Mail and other newspapers have been saying for the past few weeks that in Wales optimism and public confidence in the economy in general, and manufacturing industry in particular, have, despite what happened on 11 September, risen to an all-time high over the past few months.

All that is reflected in our constituencies. We have, of course, had setbacks, not least in my constituency, which has traditionally been based on coal and steel. We have had problems with Corus, where 3,000 jobs disappeared. Other manufacturing jobs have also disappeared, but we have not been alone in Europe or the world in suffering a decline in certain manufacturing industries.

Mr. Jon Owen Jones (Cardiff, Central): On the subject of setbacks, does my right hon. Friend agree that the decision made yesterday by AMP to close its offices in Cardiff with the loss of 300 jobs, which are to be relocated to Peterborough and Tunbridge Wells, is yet another example of companies closing down branches and relocating headquarters? Better value for money would be obtained by transferring workers from Tunbridge Wells to Cardiff rather than the other way around.

Mr. Murphy: I accept that and very much regret what has occurred, especially given my hon. Friend's constituency interest. It is, as they say, highly regrettable. However, he would probably agree that many firms are doing that in reverse—coming from

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England to my constituency and others—and when companies relocate to Wales, Members of Parliament for English constituencies would say the same thing as he has.

Although that individual case is, at the end of the day, a blow, when we consider the overall picture and the amazing fact that there are more people at work today in Wales than there were at this time last year, we see proof that our policies are working despite the loss of manufacturing jobs that has gone on in between. We are ensuring that people do not go on to the dole queues. Now, through the new deal and other schemes, young people are going on to real jobs in the business sector, the service sector and so on—not just in manufacturing, although I understand my hon. Friend's point.

We in Wales have to look at the Budget against the backcloth of what has happened to unemployment and jobs in our constituencies. To that end, last week, the Chancellor talked about ensuring that enterprise in Wales prospers. We will give special help to small companies in Wales because of the staggering fact that 98 per cent. of Welsh companies are small and medium-sized enterprises, which between them employ more than 500,000 people in Wales. Of course, there are some big companies that will benefit from the research and development tax credit for large companies. That will benefit about 50 large companies in Wales.

The bulk of our constituents do not work in big companies. The corporation tax cuts in the Budget will benefit 19,000 small companies, 6,000 of which will pay no corporation tax at all. Every member of the Committee will welcome the simplification of the VAT rules, which will benefit about 40,000 Welsh companies in their dealings with VAT.

Mr. Elfyn Llwyd (Meirionnydd Nant Conwy): The Secretary of State is right to say that the small and medium-sized companies sector is very important in Wales, but I do not know of many incorporated companies that trade on profit of less than £10,000 a year and employ people. Such firms are normally small partnerships. It may sound good, but in fact it is of little consequence to Wales.

Mr. Murphy: To say that the measures are of little consequence to Wales is entirely wrong. The hon. Gentleman may well be right in saying that there are other companies that fall outside the definitions, but the figures that I just gave—almost 20,000 companies in a country of only 3 million people—mean that an enormous number of people will benefit from those packages. He must add to that the measures introduced in the pre-Budget report abolishing stamp duty in the majority of wards in Wales. The community investment tax credit scheme will give help to small companies in Wales to ensure that they prosper.

Mr. Roger Williams (Brecon and Radnorshire): Does the Secretary of State agree that all the benefits that accrued to businesses during the Budget statement were completely undone by the increase in employers' national insurance rates?

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Mr. Murphy: Of course I do not accept that. Business is never going to be exempted from paying taxation or national insurance. The hon. Gentleman knows as well as I that the companies to which I have just referred benefited in other ways. They have benefited even more during the past few years. I will address later remarks to the question of why national insurance has been increased. However, in terms of overall taxation of businesses and individuals, the hon. Gentleman is aware that of all the major economies in Europe, ours is the least taxed. However, there is another very important principle that we must observe, which is that businesses must play their part in ensuring that we have decent public services, including health services.

Mr. Simon Thomas (Ceredigion): The Secretary of State has talked a great deal about companies and corporation tax. Does he accept that not only are 98 per cent. of companies small and medium-sized businesses, but the vast majority of those who run them are self-employed? It is the self-employed who drive the economy in a rural area such as mine. What does the Budget offer self-employed business people?

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