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Welsh Grand Committee Debates

The Budget Statement and its Implications for Wales

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Welsh Grand Committee

Wednesday 24 March 2004


[Mr. Martin Caton in the Chair]

The Budget Statement and its Implications for Wales

Motion made, and Question proposed [this day],

    That the Committee has considered the matter of the Budget statement and its implications for Wales.—[Mr. Hain.]

2 pm

The Chairman: I remind the Committee of the words of the Chairman this morning: if we keep speeches to 12 minutes, all hon. Members will be able to speak, and we will have a decent amount of time for the winding-up speeches.

Mr. Bill Wiggin (Leominster) (Con): I shall bear your comments in mind, Mr. Caton, and keep my remarks as brief as possible.

Before we broke for lunch, I was talking about how the Budget has failed to deliver, and there is no better example of that than the Welsh health service. As the people of Wales know all too well, in return for their tax bills they have had nothing but 96 administrative bodies and the fact that one in 10 people are on the waiting list. That is despite—I am prepared to admit this—a 40 per cent. increase in health spending. The Government's problem is that they continue to tax and to spend, and to fail.

The Prime Minister has broken his election promise that he had no plans to increase taxes. Before the Budget, the people of Wales had been hampered by 60 new tax levies, and six more have been added since last Wednesday. Those 66 tax increases have brought misery to the people of Wales, with average households having to pay £5,000 extra a year in taxes.

The six new tax rises discovered in the Budget Red Book are: a small business tax, which from next month will impose a 19 per cent. corporation tax profit levy on small owner-manager companies; a so-called ''white van man tax'' on employer-provided vans used for private purposes, costing users an extra £660 a year; tougher tax rules to apply to cross-border payments for goods and services; a new annual tax applied to trusts; an increase in red diesel duty from 1 September; and a rise in the levy applied to liquefied petroleum gas used as a road fuel.

The Chancellor hugely underestimated how much he needed to borrow, and now, with a £37 billion deficit, it is a huge amount. The Organisation for Economic Co-operation and Development predicts that the UK budget deficit will be 3.23 per cent. of gross domestic product by 2005, which exceeds the limit set by EU countries. It is a credit card Budget from a tax and spend and fail Government. To fill the £10 billion hole in the deficit, the Chancellor will inevitably have to increase taxes, which will have another devastating impact on Wales. Of course, he could cut spending, but then pigs might fly.

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One way to solve the problem is to slow the growth in Government spending so that it increases sufficiently less quickly than the economy as a whole. Labour has been increasing spending at a significantly faster rate than the economy has been growing. This year, the Government are spending £50 million an hour, but there has been an absence of real reform, so despite the extra taxes and spending, they are still not delivering the improvements in public services that the people of Wales want.

Under Labour, council tax bills in Wales have risen by 39 per cent. since 1999–2000, hospital waiting lists have risen by 81 per cent. since May 1999, and exports for the quarter ending December 2003 fell by £47 million compared with the same period a year ago. The number of manufacturing jobs fell by 3,000 between September 2002 and September 2003, but the number of civil servants employed by the Welsh Assembly Government has risen by 38 per cent. since 1999. The cost of the new Assembly building has risen by £45 million since October 1998.

The Chancellor announced an increase in the Welsh block, but it is important that the people of Wales benefit in reality with investment in education and skills training, to which the Conservatives remain committed. There has already been anger in Wales about the £27 million earmarked by the Chancellor for lowering council tax being taken by the Welsh Assembly for other things.

Albert Owen (Ynys Môn) (Lab): The hon. Gentleman says that the Welsh Assembly Government have diverted money to other things. Those other things are social services, including expenditure to tackle bed blocking. The Tories have called bed blocking a scandal, but when money is diverted to do something about it, the hon. Gentleman flippantly describes it as money on ''other things''.

Mr. Wiggin: The hon. Gentleman has raised two important points. First, does he believe that the health service in Wales is delivering the best possible conditions for its patients? Secondly, did the Chancellor provide that £23 million for the relief of council tax or for bed blocking? It is not for me to tell the Welsh Assembly Government how to spend their money, but it is for members of this Committee to ensure that the Welsh people get the best possible deal. The Assembly Government may have a problem with bed blocking, but dealing with that is a very different matter from taking money that is intended for the relief of council taxes. I know that the hon. Gentleman is sensitive to that issue, because he mentioned in his speech the £100 that the Government will tip to pensioners to provide council tax relief. He is acutely aware of people's difficulties with council tax, and I was surprised by his intervention, given that neither of the two significant problems that we face is being properly addressed. Does he want to intervene again?

Albert Owen indicated dissent.

Mr. Wiggin: The Budget Red Book forecasts that council tax receipts in Britain will rise to £19.7 billion in 2004–05. That is an increase of 5.9 per cent.—three times the rate of inflation. In 1997–98, council tax

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receipts were £11 billion, so they have risen by almost 80 per cent. under Labour.

Meanwhile, savings are being attacked. In 1997, the savings ratio was 10 per cent., but page 232 of the Red Book shows that it was just 5.25 per cent. in 2003. The Chancellor expects it to be 5 per cent. in 2004 and not much better in 2005–06, when it will be just 5.5 per cent. That is half what it was before.

Last Wednesday, the Budget brought bad news for home owners in Wales, with the announcement that stamp duty will continue. The average Welsh first-time buyer now pays more than £800 in stamp duty, which is equivalent to about 7 per cent. of their deposit or two weeks of their annual income. The Government have refused to index link the £60,000 threshold, so more and more first-time buyers are falling into the stamp duty net. For those in Wales, that comes on top of the fact that they faced the second-largest house price increases in the UK in 2003, when first-time buyers paid 32 per cent. more for their homes than they did in 2002. There are now only 10 towns in Wales with affordable housing for first-time buyers, compared with 17 in 2002. Unfortunately then, the Chancellor's decision to continue stamp duty will impose an added burden on home owners in Wales, who are already struggling in a over-inflated housing market.

The Chancellor announced in the Budget that households with a pensioner over the age of 70 would receive a one-off £100 payment to help with council tax bills. That payment looks like a bribe, unless it is intended to remain in place during a Labour third term, although I could get no confirmation of that this morning.

The Chancellor also attacked those in Wales who want a cleaner environment and who own LPG-fuelled vehicles. He announced an end to the four-year freeze on LPG fuel duty, which is a blow to our environment and will mean more taxes for people in Wales. Four years ago, the Government encouraged people to buy greener vehicles and offered the incentive of lower fuel duties. Now, they have hit them with a tax rise.

Such things will continue under a third-term, tax-rise Labour Administration. The 2.4p increase in red diesel duty, which comes into effect next September, will cost the Welsh farming and food industries millions of pounds. That is a real blow to farming, which is only just beginning to recover from the foot and mouth disaster. The increase in duty will impose considerable costs on farmers who use red diesel.

The Conservatives welcome the Chancellor's overdue war on waste and Whitehall bureaucracy; the Government are finally embracing pre-existing Conservative policies. We have consistently called for massive cuts in Whitehall waste, and we would get rid of the £15 billion-worth of Whitehall waste identified by Peter Gershon.

We must consider the implications of cuts in the number of civil servants in Wales. Of the 20,000 civil service jobs to be relocated, Wales is likely to receive only 500. That is a concern for several hon. Members,

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who raised the issue this morning. Given that an estimated 2,000 civil service jobs will be lost in Wales, it is important that Wales receives a proportionate number of relocated jobs. It is equally important that the cuts in Whitehall waste are mirrored in the National Assembly for Wales; otherwise, there will be an even tighter squeeze on spending on front-line services.

The Budget continues to constrain Welsh business with regulations and targets, tying firms up in red tape. There were 3,990 new regulations in 2003, and further Government interference this year threatens the livelihoods of businesses throughout Wales.

There are worrying times ahead for Wales, as the National Assembly must decide between cutting jobs in public services. The Conservatives remain concerned about where the extra savings will be made, and we believe that spending will be funded by higher taxes if Labour wins a third term. This is a borrow now, tax later Budget from a tax and spend Government, and it will see the people of Wales facing higher taxes under a Labour third term. It has set out the clear question for the electorate in Wales: do they want those tax rises? In this year's Budget, the Chancellor had nothing more to say to the people of Wales than that he wants to spend their money. The Government continue to throw money at problems rather than looking for real reform.

2.10 pm


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Prepared 24 March 2004