Adam Price (Carmarthen, East and Dinefwr) (PC): Before we adjourned, I was pointing out that in the pre-Budget report, the Government predict a decline in gross domestic product of about half the size of the decline during the last major recession, in the early ’90s. Most independent observers would consider that wildly optimistic, on the basis of everything else that is happening with the world economy.

The closest parallel that I see is the recession of the late ’70s. The public sector borrowing requirement, as it was called then, was 9 per cent. of GDP; in 2008-09, it is predicted to be 8 per cent., and will probably go higher. In that recession, the pound fell by a third against the dollar over two years, and we have seen a similar fall in the exchange rate over the past two years. We have also seen investors fleeing from the pound. That is reflected not just in the value of the pound but in things such as the credit default swap—the insurance against the UK Government defaulting on their bonds has almost doubled over the past month to 110 basis points.

Those are all disturbing, worrying parallels, because in the 1970s, we ended up with the Labour Government having to go to the International Monetary Fund, as the previous Labour Government had done in 1967. We are not there yet, but there is certainly a parallel regarding the long-term consequences for public expenditure, because the quid pro quo of that IMF deal was substantial cuts in public expenditure two or three years later, which led indirectly to the election of the Conservative Government.

Some people are beginning to make analogies with the 1930s, and that is not overblown because once-in-a-century events are now happening almost every few weeks. The appropriately named Madoff fraud—he made off with the money—would usually be a once-in-a-century event, and yet we have had the case of Lehman Brothers and several nationalisations in the UK. This is a maelstrom, the likes of which we have never seen before, and we do not know where it will end. The US stock exchange has had its worse year since 1931. November’s US jobless figures were the worst for 34 years —530,000 jobs lost in one month—and the US working week is down to 33.5 hours, officially the shortest since US records began in 1964.

Regarding Germany, I do not know where Peer SteinbrĂ1/4ck gets all this hubris that he is exhibiting in his unbelievable rejection of a fiscal stimulus—exactly the same mistake, worryingly enough, that was made by a Social Democrat Chancellor in the 1920s. The German Government’s internal figures point to a fall in GDP of less than minus 3 per cent, but most independent commentators would think that it was higher. Spain is looking at a reduction in GDP of between minus 3 and minus 5 per cent. Those are incredibly worrying developments.

What crystallised it all for me was the chair of the IMF, a body not known for hyperbole in its rhetoric, this week warning of major social unrest—rioting on the streets of cities across the advanced industrial world, not just, as we have seen, in Athens. One commentator has said:

That is the scale of the problem. One therefore hopes—and this is vital—that the Government succeed in their strategy for all the reasons one can imagine. The Government deserve bipartisan support in that sense. Having said that, I think that the case for a fiscal stimulus is unassailable; I cannot understand why serious political parties are even having the argument. We are already on record as saying that we have serious doubts about the choice of value added tax reduction as a major tool of fiscal stimulus. It can work under certain circumstances, but although part of the Barber boom package in the early ’70s was a reduction in purchase tax, it did not work and it may have stoked up inflation later in the decade. It was also part of a package of raising personal tax allowances, and that, rather than the VAT reduction, would have been our preference.

We believe that cutting payroll taxes, including employee and employer national insurance contributions, would be a far better approach. It still provides the same demand-side input, but it stimulates employment directly by reducing the tax penalty for working and for hiring. It does not suck in imports in the same way as a VAT reduction does, and, we argue, the cut has a bigger psychological effect, because people can still see it on the bottom line, as it were. However, we hope that we are wrong and the Government are right—in all sincerity, because things are bad, and they will no doubt get worse before they get better.

Nick Ainger (Carmarthen, West and South Pembrokeshire) (Lab): I am grateful to the hon. Gentleman for his reasoned description of the situation and its seriousness. It is a truly global phenomenon. However, returning to the fiscal stimulus, I think that the Government chose VAT over his alternative, which is to put money into people’s pay packets and so on, because the American attempt, with across-the-board tax cuts, did not lead to any significant stimulus in the real economy, but, instead, put more money into savings. That is not necessarily a bad thing but, in these circumstances, we want to stimulate consumption.

Adam Price: That is a fair point. In the American case, they literally sent people cheques through the post in the form of a rebate. The argument for cutting payroll taxes is possibly stronger if one accepts the hon. Gentleman’s analysis. The evidence on VAT reduction is mixed; it is not clear either way. We have set out our doubts, and we have to wait and see—and hope and pray that the Government are right.

Moving on to other elements of the pre-Budget report and other announcements, a proposed Government policy that is entirely wrong in principle and in timing is the privatisation prospectus that they have laid—before whom, I am not sure. We have had the announcement about Royal Mail, and the work force have real worries about it. I notice that in Richard Hooper’s report, there is a reference to a “significant reduction in jobs”. He goes on to say:

the service could be provided—

That is very concerning, because we are talking about a rough estimate of 6,000 jobs in Wales. If we are talking about cutting half the mail centres, few Members in this Committee will not be affected, and I do not think that now is the time to talk about reducing public sector jobs in that way.

Similarly, I have asked the Secretary of State for some clarity about the Royal Mint. It is referred to in the pre-Budget report in a box relating to the asset strand of the operational efficiency programme. I have asked for clarification of the PBR’s reference to exploring

What on earth does that mean? Most newspapers read that reference as meaning privatisation. The trade unions have taken it as meaning privatisation, so I tabled a written question asking whether the alternative funding models being considered included the option of privatisation. The Exchequer Secretary replied:

It was a completely circular answer. The workers at the Royal Mint deserve clarity. If privatisation is one of the models that is being considered, they should be told, so that the trade unions can mount a vigorous campaign of opposition as they did the last time that privatisation was mooted.

The study is being conducted by Mr. Gerry Grimstone, who first came to prominence under Mrs. Thatcher as assistant secretary at the Treasury. He was in charge of privatisation. He was actually given the nickname, “Mr. Privatisation”. His entire career in the civil service was based on privatisation. He was responsible for 20 of them while he was there. He then went to the private sector, where he continued to advise on state sell-offs. We cannot be guilty of a conspiracy theory when he is the man to whom the study will be reporting. Are we wrong to assume that privatisation is at least on the agenda?

The Secretary of State said that I was reading too much into matters, but all we want is an assurance that privatisation is not part of the study. He is strangely impassive, so we can assume that privatisation is not being ruled out for the Royal Mint. At this time, why are public sector workers facing the threat of a sell-off to the private sector, which at least implicitly entails job cuts? I have already put on the record our disappointment at the way in which the workers at General Dynamics are being treated, as the company was the preferred bidder for the future rapid effect system utility vehicle. It now seems that that contract is no more, but it is unclear why that is so. Did the Ministry of Defence misunderstand the Army’s requirements? The effect on General Dynamics is serious, because we now have to find an alternative to make up for the substantial contract that would have gone to the company.

We had hoped to receive extra help from the United Kingdom Government in public sector procurement contracts for Wales. Instead, we lost contracts. Network Rail is another example of the way in which we were told that emphasis would be placed on major infrastructure projects to create jobs. Having examined Network Rail’s decision on where it will spend its money, how much of the £26 billion to 2014 will be spent in Wales? If my maths serves me right, £24 million out of £26 billion is less than 0.1 per cent.

The response was that several projects were cancelled in Cardiff. For example, it was said that the valleys lines were no longer needed. Well, they are needed now, not only because of their contribution to public transport infrastructure, but to jobs. Wales has borne an unfair brunt. Given that we are getting such a tiny share of the pie anyway, we should not have cuts in an already ridiculously small share of the Budget. The argument is that we benefit from expenditure on lines such as the Great Western main line coming into Wales, but even there we have seen cuts that harm us. They are not going to upgrade to dual track the Stroud valley line, which would vastly improve the service over the weekend when the Severn tunnel is closed into south Wales, to give one example. Let us look at the long-term plans—where does the electrification of the Great Western main line end? One mile into the Severn tunnel—we could not have a better example of why Wales is not a priority, not on the radar, than no electrification coming into Wales.

Ian Lucas (Wrexham) (Lab): Nonsense.

Hywel Williams (Caernarfon) (PC): Well, a short perusal of the evidence provided to the Welsh Affairs Committee by ASLEF and the other union only three weeks ago pointed out that trains coming into Cardiff travel at 15 mph. The employment is useful, but there is a need to invest, to get the speeds up to where they were. I think we were told—the hon. Member for Aberavon (Dr. Francis), the Chairman of that Committee, is here, so perhaps he will enlighten us—that the journey from Swansea to London is slower now than it was 60 years ago, so investment is needed.