The Budget

The Committee consisted of the following Members:

Chair: Mr Dai Havard 

† Andrew, Stuart (Pudsey) (Con) 

† Bebb, Guto (Aberconwy) (Con) 

Brennan, Kevin (Cardiff West) (Lab) 

† Bryant, Chris (Rhondda) (Lab) 

Cairns, Alun (Vale of Glamorgan) (Con) 

Caton, Martin (Gower) (Lab) 

Clwyd, Ann (Cynon Valley) (Lab) 

Crabb, Stephen (Preseli Pembrokeshire) (Con) 

David, Mr Wayne (Caerphilly) (Lab) 

† Davies, David T. C. (Monmouth) (Con) 

Davies, Geraint (Swansea West) (Lab/Co-op) 

Davies, Glyn (Montgomeryshire) (Con) 

† Edwards, Jonathan (Carmarthen East and Dinefwr) (PC) 

† Evans, Chris (Islwyn) (Lab/Co-op) 

† Evans, Jonathan (Cardiff North) (Con) 

Flynn, Paul (Newport West) (Lab) 

Francis, Dr Hywel (Aberavon) (Lab) 

† Gillan, Mrs Cheryl (Secretary of State for Wales)  

† Griffith, Nia (Llanelli) (Lab) 

† Hain, Mr Peter (Neath) (Lab) 

† Hanson, Mr David (Delyn) (Lab) 

† Hart, Simon (Carmarthen West and South Pembrokeshire) (Con) 

Irranca-Davies, Huw (Ogmore) (Lab) 

James, Mrs Siân C. (Swansea East) (Lab) 

† Jones, Mr David (Parliamentary Under-Secretary of State for Wales)  

Jones, Susan Elan (Clwyd South) (Lab) 

† Llwyd, Mr Elfyn (Dwyfor Meirionnydd) (PC) 

Lucas, Ian (Wrexham) (Lab) 

† Lumley, Karen (Redditch) (Con) 

Michael, Alun (Cardiff South and Penarth) (Lab/Co-op) 

Moon, Mrs Madeleine (Bridgend) (Lab) 

† Morden, Jessica (Newport East) (Lab) 

† Murphy, Paul (Torfaen) (Lab) 

† Newmark, Mr Brooks (Lord Commissioner of Her Majesty's Treasury)  

† Owen, Albert (Ynys Môn) (Lab) 

† Ruane, Chris (Vale of Clwyd) (Lab) 

† Smith, Nick (Blaenau Gwent) (Lab) 

† Smith, Owen (Pontypridd) (Lab) 

† Tami, Mark (Alyn and Deeside) (Lab) 

† Williams, Hywel (Arfon) (PC) 

Williams, Mr Mark (Ceredigion) (LD) 

† Williams, Roger (Brecon and Radnorshire) (LD) 

Willott, Jenny (Cardiff Central) (LD) 

Chris Stanton, Committee Clerk

† attended the Committee

The following also attended ( Standing Order No. 102(4) ) :

Alexander, Danny (Chief Secretary to the Treasury) 

Welsh Grand Committee 

Wednesday 30 March 2011  

(Morning)  

[Mr Dai Havard in the Chair] 

The Budget 

9.30 am 

The Chair:  I will explain the structure of today’s sittings. First, we will have a statement from the Chief Secretary to the Treasury followed by questions. Then, we will have the main debate on a motion moved by the Secretary of State. 

The Chief Secretary to the Treasury (Danny Alexander):  It is a pleasure to be back at the Welsh Grand Committee, having attended after the emergency Budget last year. I thank the Committee for inviting me to make this statement today. 

As a former Secretary of State for Scotland and a Scottish MP, I fully understand the importance of securing a fair deal for the devolved countries. Last week’s Budget was an example of that commitment. In it we confirmed that the Welsh Assembly’s Budget would include an additional £65 million as Barnett consequentials of some of the decisions that we took in devolved areas; that we will consider all aspects of the Holtham commission’s final report; and that under the new budget exchange funding mechanism, the Assembly will be able to carry forward planned underspends to subsequent years, which I know will be welcomed by the Committee. 

The main focus of this year’s Budget is reforming the economy so that we have sustainable growth and jobs across all countries and regions of the UK, yet none of that would be possible without the difficult decisions we have already had to take—decisions that have secured our international credit rating, and have been praised by the OECD, the International Monetary Fund, the World Bank and many others. In the Budget, we set out our vision for delivering economic growth. That vision has four key economic ambitions at its heart: that Britain should have the most competitive tax system in the G20; that we should be the best place in Europe to start, finance and grow a business; that we should be a more balanced economy, by encouraging exports and investment; and that we should have a more educated workforce that is the most flexible in Europe. 

We set out a plan that will be of significant benefit to Wales. On the tax side, from April this year, corporation tax will be reduced not just by 1%, as we announced last June, but by 2%; and it will continue to fall by 1% in each of the next three years, taking our corporate tax rate down to just 23%. [ Interruption. ] That is a different sort of disruption from last time—I suppose it is the drill at these meetings. That reduction will support enterprise across the United Kingdom and allow Welsh businesses to invest more of the money they retain, hire more workers and take advantage of new opportunities as they arise. 

We also made tax changes on the personal front. Anyone earning less than £35,000 a year will, as of next week, be better off because of our £1,000 increase in the personal tax allowance that we announced in the Budget last year. That is the largest single increase in the personal income tax allowance in history. More than 1 million Welsh taxpayers will be better off as a result and almost 10,000 Welsh taxpayers will be taken out of paying tax altogether. 

As well as a competitive tax system, we need a fair one, which is why we have responded to the concerns of hard-pressed motorists by cancelling Labour’s fuel duty escalator for the remainder of this Parliament. We have also cut fuel duty by 1p per litre, which is already feeding through to the prices at the pump, and we have reversed the planned 5p a litre rise in April. As of next month, fuel will be 6p per litre cheaper than it would have been under the plans we inherited, providing help for families, businesses, and the Welsh economy. 

Small businesses have been an interest of the Committee for some time and they in particular have been the innocent victims of the credit crunch. They have seen the flow of affordable credit dry up. That is why we have agreed with the major banks a 15% increase in the availability of credit to small businesses—an additional £10 billion of lending this year—but that is not the end of the story. We are also increasing to 30% income tax relief for those who put money into the enterprise investment scheme, which will allow more equity investment to be available for small and medium-sized businesses, providing access to alternative forms of finance. That is one of the ways in which we are providing help for our country’s smallest businesses. We are also putting in place a moratorium on new regulation for micro-businesses—those with 10 employees or fewer. All those things will help to make Britain the best place in Europe to start, grow and finance a business. 

Manufacturing is crucial to the rebalancing of our economy. Over the past decade, manufacturing as a share of our economy has fallen by almost half. It is now growing at a record rate, with 14,000 more jobs having been created in the sector in the past three months. To help that continue and to build on that progress, the Government are creating new export credits to help smaller businesses, launching Britain's first technology and innovation centre for high-value manufacturing, and funding a further nine new university centres for innovative manufacturing. We also want to encourage manufacturers to invest in the latest machinery and technology, so we are doubling the limit on the capital allowances for short-life assets from four to eight years, which will make a real difference to many manufacturers. That will be of great benefit to the Welsh economy with its long history—and continued success—in manufacturing. 

Helping all parts of our country to succeed is also part of the purpose behind the new enterprise zones that were announced in the Budget. Clearly, that policy applies only to England, and it carries some Barnett consequentials with it. We are committed—I wrote on the day of the Budget to the Welsh Minister for Business and Budget—to working with the Welsh Assembly Government to explore options for extending the enterprise zone model across the whole of the UK. The Committee will know that we have said that in certain locations, we are willing to consider looking at capital allowances as part of the enterprise zone model, which may be of particular interest in Wales. 

In conclusion, this Government are looking to right the wrongs of the past. We will reverse the trend of the past decade that has seen our outgoings surpass our income, our economy become unbalanced and employment held back by a mountain of bureaucracy. Instead, we will make the UK Europe's leading destination for enterprise, with the most competitive tax system in the G20, the most flexible work force in the EU and an economy that is able to compete on the world stage. That is how we will drive growth across the United Kingdom; that is how we will create the jobs of the future; and that is how we will build the more dynamic, prosperous and sustainable economy that Wales, and indeed the whole of the UK, deserves. 

9.36 am 

Mr Peter Hain (Neath) (Lab):  I thank the Chief Secretary for the advance copy of his statement and welcome him to the Welsh Grand Committee. Can he explain why, if Britain was in some sort of fiscal danger zone, so many City investors were prepared to lend so much to the Labour Government for so long at such low yields? It cannot have been lack of confidence in the future of public finances. Shortly before the Chief Secretary took over, in the first quarter of 2010, the market financed 87% of UK deficit at even lower yields than in the previous year, 2009. What sort of City investor lends £30 billion to a bankrupt borrower? 

Danny Alexander:  I am grateful for that question and for the gracious welcome to the Committee. It is worth pointing out in response that of course the UK continued to be able to finance its debt, but credit rating agencies were starting to put that in doubt. The right hon. Gentleman knows that during the last few months of the previous Government credit rating agencies were putting Britain on negative watch in relation to the triple A, gold-standard rating that we continue to enjoy. He knows that investors in the bond market were saying, for example, that we were resting on a bed of nitroglycerine, which suggested that they did not have confidence that the plan—such as it was—that the previous Government had set out was sustainable. 

The right hon. Gentleman also knows that in the first few months of last year, UK bond yields were tracking with those of countries such as Spain and Italy. Since this Government came into power and since the emergency Budget, they have been tracking much more closely with those of countries such as France and Germany. It is a testament to the credibility of the plan that this Government have put in place that, despite our having a larger deficit than countries such as Portugal, our bond yields are much closer to those of countries such as Germany and France. 

Roger Williams (Brecon and Radnorshire) (LD):  I apologise for being slightly late, Mr Havard. I welcome the emphasis that the coalition Government have put on self-employment. In my constituency and in Ceredigion, a greater percentage of the work force are in self-employment than in any other constituency in the UK. One of the hurdles that people face when they go into self-employment is that the child care voucher scheme does not apply to self-employed people. May I suggest to the Chief Secretary that he look at that as another way of encouraging self-employment? 

Danny Alexander:  I am grateful for that question, because self-employment is an important part of delivering the economic growth that we need. We have recently set in place a new enterprise allowance within the benefits system precisely to encourage people on benefits to set up a business and essentially to become self-employed as a route back to work. I hope that my hon. Friend welcomes that. I will take his point away and look at it. 

Mr Elfyn Llwyd (Dwyfor Meirionnydd) (PC):  Many of us have suggested for a long time that Wales should be able to vary corporation tax, or at least have a lower rate. If I am right to think that that is actively being considered for Northern Ireland, why is it not being considered for Wales? 

Danny Alexander:  That is a very good question. We are considering that in the Northern Irish context as part of a consultation—in our coalition agreement we committed to carry out a consultation on rebalancing the Northern Irish economy, and the matter was put on the agenda there. We have made no decisions and no commitment to devolve corporation tax to Northern Ireland, but as part of a consultation, we think it is important to listen to questions on that. 

Following the Holtham commission report, there is potential in our debate on Wales to look at whether there is a demand for devolution of tax powers, as we are doing in Scotland at the moment through the Scotland Bill. If there is a consensus in the Welsh Assembly to take such matters forward, as we said in the Budget and as I have said before, I am happy to continue to have a conversation about the devolution of tax powers to the Assembly. 

The specific issue in Northern Ireland, as the right hon. Gentleman knows, is the land border with the Republic of Ireland. That is why the question has been put on the agenda in Northern Ireland. Clearly that circumstance does not apply to Wales. 

Jonathan Evans (Cardiff North) (Con):  My right hon. Friend mentioned the creation of the enterprise zones in England only and said that there will be Barnett consequentials, but in a sense the announcement on enterprise zones was no surprise in Wales because our right hon. Friend, the Chancellor had indicated some weeks earlier that such an announcement was likely. In that context, following the Chancellor’s announcement, has the Chief Secretary received any representations from the Welsh Assembly Government on how such a structure might operate in Wales? 

Danny Alexander:  As I said in my statement, I wrote to the Finance Ministers of all the devolved Administrations on Budget day to set out the policy we are pursuing on enterprise zones and to encourage contact between us. I am not aware of contact at official level, but it may have taken place. I will seek to get a more detailed answer on that, and I will provide it before the end of this sitting. 

Jonathan Edwards (Carmarthen East and Dinefwr) (PC):  The Chief Secretary mentioned Barnett consequentials of £65 million and trumpeted that as some sort of good deal for Wales. Despite the fact that the Barnett formula costs Wales £300 million per annum,

the housing revenue account subsidy scheme, although scrapped in England, continues to rob Welsh local authorities of £100 million per annum, and only last month the Treasury stole £385 million from the Welsh Assembly Government’s end-of-year flexibility. Does he regard that sequence as a good deal? 

Danny Alexander:  I think it is a fair deal for Wales. On the end-of-year flexibility, we have met the requests made by the Welsh Assembly Government. Unlike Departments in the UK, devolved Administrations have been able to carry funds over, should they wish, from this year to next year, but the Welsh Assembly Government have not requested to do that. 

On the question of the housing revenue account, I visited and gave evidence to Welsh Assembly Finance Committee and met the Finance Minister afterwards. I said to her that, should the Welsh Assembly Government wish to have further conversations about the mechanism we are putting in place in England for dealing with housing revenue account issues, we would be more than happy to discuss whether there should be a similar process in Wales, too. As the hon. Gentleman says, the process is fiscally neutral. 

Albert Owen (Ynys Môn) (Lab):  I welcome the Chief Secretary to the Welsh Grand Committee. On petrol prices, I very much welcome the timely suspension of the fuel escalator. The Chancellor said that he will watch the oil companies’ pricing like a hawk. Will the Chief Secretary tell me why gas companies are to have a windfall tax, and what studies have the Government made of the impact on gas companies, so that they do not put prices up on domestic fuel heating, which is causing so much anxiety for people throughout the UK? 

Danny Alexander:  I am grateful for the hon. Gentleman’s support for our measures on fuel, which I think will provide real help to people in rural areas such as his and mine. 

The hon. Gentleman’s question fuel for heating is an important one. He will know that we have put in place an additional supplementary charge on North sea oil extraction in order to provide the resources that we need to make the reductions in fuel duty, which are important. The Department of Energy and Climate Change has recently asked the Office of Fair Trading to look specifically into the domestic heating oil market, and we await its report with interest. 

If I may abuse this procedure slightly, in response to an earlier question from my hon. Friend the Member for Cardiff North, I am told that I have a letter, which I have not seen yet, from Jane Hutt, the Minister in the Welsh Assembly Government, saying that their officials will be in touch with ours to discuss enterprise zones. 

Jessica Morden (Newport East) (Lab):  The Chief Secretary mentioned growing manufacturing, but Tata Steel, whose Llanwern steelworks is in my constituency, has said that any possible benefits for it from the Budget are dwarfed by the introduction of the carbon price

floor. Does he understand that that is a real threat to jobs and investment in Wales provided by global companies that use energy intensively? 

Danny Alexander:  I have certainly seen the representations made on the carbon price floor. As the hon. Lady knows, it was subject to a full consultation before the decision to do it was taken. It is important that we are the first country in the world to put in place a floor price for carbon, because that is necessary to provide the continued support over the next few years, and building up over the years, for low-carbon industries, especially power generation. I know that that is considered to be an important potential opportunity for Wales, and I hope that in that context, it would be welcomed. I also hope that energy-intensive industries, such as the one that she has described, would welcome the fact that we have extended the climate change agreement regime, which applies to that sector among others, and extended from 65% to 80% the relief from the charges that are part of that scheme. 

Guto Bebb (Aberconwy) (Con):  I welcome the Budget, which in my view is a Budget for growth. In particular, I welcome the reduction in corporation tax rates. However, in my rural constituency, many businesses that are creating employment are small limited companies that will not be able to take advantage of the reductions in the main corporation tax rates. I would like some certainty that, in due course, there will be a further look at how small companies corporation tax may be reduced in line with the reduction in the main rates. 

Danny Alexander:  I am grateful for that question and for the welcome for the Budget. My hon. Friend will know that in last year’s Budget, we announced a reduction in small companies corporation tax rate. There are other measures in this year’s Budget that I think will be welcomed by small businesses, such as the extension of the research and development tax credit regime for small firms, taking it from the current rate to 200% and then to 225%. I hope that that will give small firms additional incentives to engage in R and D activities, which will help them to develop their businesses. 

Paul Murphy (Torfaen) (Lab):  The Chief Secretary will recall that some time ago there was a debate in the House on fuel. One of the questions raised in that debate was whether an application would be made to Europe for a derogation for parts of the United Kingdom, so that they could have lower prices for petrol, and we asked whether Wales could be included in that. What has happened? 

Danny Alexander:  That is a very good question, and I am grateful for the opportunity to update the Committee. We have applied to the European Commission—we made a formal application just before the Budget—for a derogation on fuel duty that would apply only to remote islands, including places such as Orkney and Shetland, the Western Isles and the Isles of Scilly. 

Chris Ruane (Vale of Clwyd) (Lab):  Not Anglesey? 

Danny Alexander:  The hon. Gentleman chunters from a sedentary position. He ought to be aware that the places that I have mentioned are places where everyone has high fuel prices, which I know is true in rural Wales as much as anywhere. However, in order to have a chance of being successful at a European level to deliver the process, we have to be able to present robust evidence to ensure that we get through the state aids approval, and then win support from the Finance Ministers of all 27 European countries. The process that we have to go through is onerous, and we have selected the pilot regimes on the basis that those are areas where we have a strong case and the best chance of winning that support. I am sorry to say that parts of rural Wales do not figure in that policy. 

Mr David Hanson (Delyn) (Lab):  Has the Chief Secretary undertaken an assessment of the likely impact of changes to the winter fuel allowance on excess winter fuel debts? If so, will he produce it for the Committee in Wales and the United Kingdom, and if not, will he get around to making one? 

Danny Alexander:  The right hon. Gentleman knows that the decision on the winter fuel allowance was taken by the previous Government and set in place by their Budget before the election. We have stuck to those plans, and we announced that at the time of the spending review—it is not a new announcement in this Budget. 

We have also set in place a new Warm Homes bonus scheme, administered by the Department of Energy and Climate Change, which will mean for the poorest pensioners an initial average of about £120 off their bills. That is alongside the decision to uprate the basic state pension in line with earnings, which will deliver lasting benefits to pensioners. Also, as announced in the Budget, we will publish a Green Paper on state pension reform, to put in place a single-tier pension to ensure that, subject to the consultation, in years to come most new pensioners will not have a means-tested regime. 

Owen Smith (Pontypridd) (Lab):  The Chief Secretary says that he wants to help families and that the Budget will deliver growth—as was said in the previous Budget—so I wonder how he interprets yesterday’s figures from the Office for National Statistics, which showed that in real terms wages in this country, and in Wales, shrank last year for the first time in 30 years, and projected that they would shrink by a further 2% this year. That is clear evidence for Opposition Members that Government policy is not working. 

Danny Alexander:  The hon. Gentleman draws attention to the figures, which I interpret as part of the consequence of the severe economic difficulties that this country has been through over the past few years. I hope he understands that this country has been through the deepest recession that we have had for many decades. We were left with a serious problem in our public finances, which has to be sorted out and for which, frankly, the country was not as well prepared as it could have been. 

In that context, in order to restore confidence in the economy and to provide some stability and a platform for economic growth, for the private sector to lead the recovery, we have had to make some difficult decisions

on public spending and taxation. However, where we can—I appreciate that it does not go as far as any of us might like—we are trying to take decisions, such as on the income tax personal allowance and fuel duty, that provide at least some relief to families from the pressures they are under. 

Nia Griffith (Llanelli) (Lab):  The Chief Secretary has recognised that for historical and geographical reasons residents in some areas of the UK face much higher water charges. Why has he announced in the Budget help only for the south-west of England, when Wales has the second highest charges? We, too, need extra money to clean up our coastline without hammering our consumers with additional costs. 

Danny Alexander:  The Department for Environment, Food and Rural Affairs will make further announcements on the subject in due course, but the hon. Lady knows that in the Budget we referred to a number of different water sector schemes, such as the WaterSure scheme, which is designed to provide support to the lowest-income customers throughout the regulated water sector, and to the potential for social tariffs, as well as to the particular issue in the South West Water area, which has significantly higher bills than anywhere else in the country. 

Nick Smith (Blaenau Gwent) (Lab):  The Chancellor promised to fund additional work experience placements for young people, ensuring that up to 100,000 places would be available over the next two years. Given that the successful but scrapped future jobs fund helped 500 young people in Blaenau Gwent, will the replacement plan cover all those lost opportunities in Blaenau Gwent? 

Danny Alexander:  To describe what the future jobs fund did as helping people is an overstatement, based on the evidence nationally. 

Nick Smith:  It is not an overstatement in Blaenau Gwent. 

Danny Alexander:  I accept the hon. Gentleman’s views of his own constituency—he knows it much better than I do—but the national assessments of the future jobs fund were that it did not provide lasting or sustainable employment. 

The work experience programme will help many young people find routes into work. It will help, I hope, people in the hon. Gentleman’s constituency as well as elsewhere. It sits alongside our investment in apprenticeships and our other measures to reform the welfare system, giving people greater incentives to get off benefit and into work. Announcements will be made shortly about the Work programme, a highly innovative scheme, which will provide real incentives to back-to-work providers to help people off benefit and into work, an objective that both of us share. 

Chris Ruane:  As a former Secretary of State for Scotland, the Chief Secretary will be aware that Edinburgh South has 68% public sector workers. Of the 650 seats in the UK, that is No. 1. In 15th place is Cardiff North with 48%, 23rd is Vale of Clywd with 46%, and Clywd West is 26th with 45%, and we will get 10% to 25% cuts

in those constituencies. What specific—not general—help can the Treasury give to those public sector constituencies, so that public sector towns, especially the seaside ones such as Rhyl, Colwyn Bay, Prestatyn and Blackpool, do not become like the steel and coal communities of the 1980s? 

Danny Alexander:  I am grateful for the hon. Gentleman’s point. It gives me the opportunity to say that some of the other things that we have done in the public sector, which I know are difficult for public sector workers, such as the two-year pay freeze that we have imposed and the increase in pension contributions over the next few years, are measures to help us ensure that there are fewer redundancies and a smaller reduction in headcount. The precise impact in different constituencies will depend on the work force decisions of particular public service employers, who will have to work that through, but there are, of course, procedures and policies in place, organised by the Department for Work and Pensions, to support communities affected by large-scale redundancies in both the public and the private sector, and to help people get the best possible access to support to get back to work. 

The hon. Gentleman will also know that some of the economic development and other powers that he is talking about are devolved to the Welsh Assembly Government, who I hope will seek to emulate some of the things that we have put in place in England, such as the regional growth fund, which is targeted support, particularly for the areas that are most affected in the way that the hon. Gentleman suggests. I propose that he make that point to the Welsh Assembly Government. 

Chris Bryant (Rhondda) (Lab):  The Government propose changes to the national health service in England and, as I am sure the Chief Secretary knows, the elements of those changes that relate to the terms and conditions of GPs are set in Westminster for both England and Wales. What analysis has he made of their impact on finances for the Welsh Assembly in relation to the national health service? 

Danny Alexander:  I am tempted to say that if the hon. Gentleman had been here for my statement he would have heard me address some of those issues. It is a matter for the Department of Health, and that Department is working on it. 

The Chair:  Before we begin the main debate, I notice that there are two Members of Parliament in the room who are not members of the Committee. I will not call them to speak in any capacity—[ Interruption. ] You are welcome to stay and learn whatever you want to learn from the Welsh experience, but you will not be called in the discussion. I shall just make it clear to Members—you already know this—that you can disadvantage yourselves in being able to speak if you try to make lots of long interventions, and I appeal to the Front-Bench spokespeople to facilitate the debate that ought to come later so that Back-Bench Members can have as much time as possible to make proper contributions. 

Column number: 12 

The Budget 

9.58 am 

The Secretary of State for Wales (Mrs Cheryl Gillan):  I beg to move, 

That the Committee has considered the matter of the Budget as it relates to Wales. 

May I begin, Mr Havard, by welcoming you again to the Chair of this Committee, and by saying how pleased we all are to serve under your chairmanship? I also wish to thank now, as he is moving on to another meeting, my right hon. Friend the Chief Secretary to the Treasury for once again taking time to address our Committee and for delivering his assessment of last week’s Budget. I hope that Members find today’s meeting useful. 

Members will notice that we have used a statement and questions format today. Last time, when we had here the Minister of State, Department of Energy and Climate Change, my hon. Friend the Member for Wealden (Charles Hendry), we used a series of written questions. I would be grateful for any feedback from Members as to whether they prefer one of those formats, or are happy to vary the format whenever we have visiting Ministers. 

I also ask the Committee’s indulgence to forgive my absence from this afternoon’s proceedings as, like the shadow Secretary of State last time, I have to go to Wales and will not be here for the closing speeches. I offer my apologies to anybody whose speech I do not hear. 

I hope that these regular Welsh Grand Committee sittings are welcomed by all Members from Wales. I am very pleased that visiting Members are present to hear our deliberations. I can see that a lot of people are taking an interest in Wales and as far as I am concerned that is a good thing, particularly because I must put it on the record that I was most disappointed that, despite my best efforts and those of Members from all parts of the Committee, this year we failed to get a St David’s day debate on the Floor of the House. I offer to work with other Members to find out how we can secure such a debate, because as I understand things it passed into the auspices of the Backbench Business Committee and despite robust representations from members of this Committee from all parties we were not afforded that courtesy on the Floor of the House. So I hope that we will be able to work together in the future to see how we can secure that debate. 

Mr Peter Hain (Neath) (Lab):  I would certainly be happy to work with the Secretary of State on that issue. The absence of the Welsh day debate on the Floor of the Commons was felt very strongly by all Welsh Members, regardless of party. 

Mrs Gillan:  I am very grateful for that generous offer. 

Paul Murphy (Torfaen) (Lab):  I agree with the Secretary of State and with my right hon. Friend the Member for Neath about the importance of that debate, but we have not given up. My right hon. Friend the Member for Dwyfor Meirionnydd and I will appear before the Backbench Business Committee again on 26 April, to find out whether we can have a debate in May. There are plenty of Welsh saints that we can go through and we propose to have one St David’s day debate before this year is over. 

Mrs Gillan:  The right hon. Gentleman will have my full support on that, although we will not be able to call it a “St David’s day” debate if we get into April and May. Nevertheless, if there is any assistance that we can give we will give it, because I was bitterly disappointed not to have a debate on St David’s day, as I know many members of this Committee were. 

Mr Elfyn Llwyd (Dwyfor Meirionnydd) (PC):  On that point, the Secretary of State will know that one of the things that will carry weight with the Backbench Business Committee is the support for such a debate from Members from across the spectrum. My right hon. Friend the Member for Torfaen and I have worked hard on this issue and we would welcome some support from the Conservatives and the Liberal Democrats. Then it might be easier to drive the whole thing home. 

Mrs Gillan:  The right hon. Gentleman’s remarks on that issue are fine, but he should know that there has been support from the Conservatives already. Indeed, I was not aware that, as Secretary of State, I could not write to the Backbench Business Committee to request a debate once it had moved into its auspices. However, I wanted to bring this issue to the attention of the Committee and I am very pleased with the support that we have got across the Floor of the House, and I hope that we will be able to secure a St David’s day debate in the future. 

I know that many Members are keen to participate in the debate, so I will keep my remarks fairly short to allow them to contribute. Let me start by welcoming this Budget, which I think is good for families, businesses and Wales. We have listened to what businesses and people around the country say about what they think the Government should be doing, and we are moving to free up businesses so that they can provide the growth that Wales so badly needs. 

The Budget also delivers fairness and help for the poorest people in Wales. Another 10,000 of the lowest-paid workers in Wales will be free from the burden of paying income tax. That means that since we came to power a total of 52,000 people in Wales have been lifted out of the tax system and a further 1.13 million people in Wales will gain from the changes in personal allowances. 

We have also listened to people on fuel prices. We know that high fuel prices are hurting people, especially in rural areas, so we have cut fuel duty by 1p per litre and scrapped the planned increase in duty next month. That means that the owners and operators of the 1.7 million vehicles in Wales are already paying 5p less at the pump than they would have paid under the last Government. Despite that, much like last year I have read unfounded reports attributed to Opposition Members suggesting that Wales is being hit the hardest and that we are asking Wales to pay for tax breaks for the banks. Nothing could be further from the truth. In fact, we have increased Wales’s share of the pot and by increasing the bank levy we have offset any benefit from reductions in corporation tax that might otherwise have gone to the banks. 

The Welsh Assembly Government have £65 million more to spend—money that they received despite the economic situation, calculated using the same formula and in the same way as in Budgets put forward by the Labour party for over 13 years. While last year's emergency

Budget was a rescue mission for the country’s economy, this year’s budget moves us from rescue to reform and sets us firmly on the road from reform to recovery. 

Returning Wales to sustainable, balanced economic growth is our first priority. With the structural deficit remaining as forecast last November, the size of the challenge before us remains as daunting as ever. But we are up to the challenge and this Budget showed how we will achieve the growth that we need to rebalance the economy by freeing up our businesses. That is particularly important in Wales, where there is so much scope for the private sector to grow. 

That is also a challenge for the Welsh Assembly Government: the recent recession has been the worst in living memory and certainly the biggest challenge we have faced since powers were devolved. I hope the Welsh Assembly Government will rise to that challenge and listen to business in the same way as we have–– and we really have listened to business. Last week’s announcements were merely the first phase of the growth review but they followed more than 1,000 meetings with business across the country. That is shown in the level of ambition of the measures that we are taking. 

My right hon. Friend the Chief Secretary to the Treasury has already set out our plans for growth across the UK. Much of this will benefit Wales, such as the 2% cut in corporation tax, scrapping proposals for new regulations that would have cost businesses £350 million a year, increasing the small and medium-sized enterprise rate of R and D credit, and extending the changes to the support for mortgage interest scheme for a further year. That is to name but a few of our commitments. But I want to see Wales derive all the same benefits as England will from this Budget, and we cannot do it alone. Many of the growth policies being put in place relate to devolved matters. 

The Budget is an opportunity for the Assembly Government to show that, with the areas under their responsibility, such as economic development and planning, they can direct policy making to what businesses need to grow and thrive, even if that means the state taking a step back. 

Jonathan Evans (Cardiff North) (Con):  In that specific context, it is clear that it would be worth while to have some discussion with Welsh Office Ministers. Can my right hon. Friend indicate whether Welsh Office Ministers have met with her and what reaction there has been? [Hon. Members: “Wales Office?”] I mean Welsh Assembly Ministers. They would have been delighted if I had said “Welsh Government Ministers”. 

Mrs Gillan:  Yes, I have been to see the First Minister since the Budget and I have indicated clearly, as has the Treasury, that we are very willing to work across the board with Welsh Assembly Government Ministers to try to see what we can do, particularly on enterprise zones. I do not want Wales to be disadvantaged in any way because it will have enterprise zones on its borders in, say, Bristol, that will attract business. There is a good opportunity–– 

Nick Smith (Blaenau Gwent) (Lab):  Will the right hon. Lady give way? 

Mrs Gillan:  Hold on one second; just let me finish. There is a good opportunity here for joint working. Businesses and people in Wales would like to see the two institutions working together in maturity rather than always finding the differences and rowing about them. Constructive engagement will be the key to this. 

Owen Smith (Pontypridd) (Lab):  I do not want to prompt a row, but the Secretary of State seems to imply that the Welsh Assembly Government have some levers at their fingertips that they are not pulling. Can she point to any beyond the enterprise zones, which to the Opposition feel like a warmed-over policy from yesteryear that failed and that all the evidence shows cost huge sums to generate very few jobs? Beyond enterprise zones, can she point to anything that the Assembly should be doing but is not? 

Mrs Gillan:  I am actually grateful to the hon. Gentleman for that question, because it is quite important. If we look at the £65 million Barnett consequentials that are passed down, we see that they are attributed to several areas. There is a challenge for the Welsh Assembly Government—first, on supporting the creation of enterprise zones or working with the Treasury to try to ensure that there is not a disadvantage and that we get clusters of economic growth, and secondly, on exempting start-ups and micro-businesses from regulation. As the hon. Gentleman knows, that has been announced already, but there are regulations for which the Welsh Assembly Government are responsible, so it will be interesting to see whether they rise to those. 

The relief that we are providing to home buyers with FirstBuy is also a devolved matter, so it will be up to the Welsh Assembly Government whether they afford that to first-time buyers in Wales in the same way as it will happen in England. Then there are changes to the planning regime, which will not be replicated in Wales unless the Welsh Assembly Government decide to do so. Lastly, may I mention the support on apprenticeships? They are a devolved matter, and we have some excellent apprenticeship schemes, but of course we are broadening that possibility in England and I want to make sure that Wales does not get left behind, because we are starting to move ahead in England. There are challenges across all those areas. As I have clearly said, this is not about telling the Welsh Assembly Government what to do; it is about where we can help. 

Mr Hain:  That is very decent of you. 

Mrs Gillan:  I am a decent person. Thank you for that intervention. There is a real opportunity for politicians to be constructive about the future of Wales. I understand sarcasm, but I do not understand rudeness. 

Nick Smith:  On enterprise zones, has the Secretary of State, in consultation with the Welsh Assembly Government, given any thought to how many zones there might be in Wales, and will there be one possibly for the south Wales valleys? 

Mrs Gillan:  I am particularly keen to look at the areas that could grow, and the south Wales valleys is one of those areas. But it is not a matter for me; it is a

matter for the Welsh Assembly Government. I hope that we will be able to have constructive dialogue, despite the fact that we are moving up to a forthcoming election, where of course political hostilities will continue across the board. But we should be considering how we can build the economy together by taking joint action that could be complementary. 

Mr Llwyd:  May I ask a further question? The point raised by the hon. Member for Pontypridd needs further pursuit. What has been learnt from the first tranche of enterprise zones? Are we now looking at enterprise zones where there will be a mechanism to prevent relocation of jobs rather than creation of jobs? 

Mrs Gillan:  The right hon. Gentleman makes a valuable point. I certainly think that that is the sort of detail that needs to be explored. After all, with the money that was Barnettised, the Welsh Assembly Government have that money and they now need to be accountable for how they spend it, and they need to be able to fill in the detail. It will be interesting because, as I understand it, in part 2 of the Holtham report it was also suggested that there may be additional responsibilities for taxation. The First Minister has already ruled that out by saying that he wants no additional powers of taxation for the Assembly to take on board. It is up to the Welsh Assembly Government and the Westminster Government to try to work together to ensure that the outcomes for Wales and the conditions in which business does business in Wales are improved, so that it has competitiveness. 

With the 21 new enterprise zones that we are setting up in England, we will need to look at the detail, because in England businesses will benefit from superfast broadband, lower taxes and lower levels of regulation, and the business rates collected will be held and used locally. With zones already announced, for example in Bristol, as I mentioned earlier, we need to look at how Wales affords the same opportunities for business, while of course guarding against—the point made by the right hon. Member for Dwyfor Meirionnydd—disinvestment in other areas. We need to say that Wales is open for business and that it is offering less regulation and bureaucracy rather than more, which is what I am afraid of. 

Already, my Department and the Treasury have offered to work with the Welsh Assembly Government to set up similar schemes in Wales. I reiterate, however, that the ball is firmly in their court. We need to ensure that answers are forthcoming. 

Owen Smith:  The Secretary of State has twice implied that there are additional burdens on business in Wales. She used the phrase “additional regulation”, which business has been liberated from in England. Will she offer some specifics on what the additional burdens are in Wales, because they are news to the rest of us? 

Mrs Gillan:  They include planning in particular. If the hon. Gentleman would like me to write to him with some detail on that, I will. If he talks to businesses—particularly those in the construction industry in Wales—he will find that they are very fearful that, because of the change in building regulations, additional burdens put on them by the Welsh Assembly Government will

disadvantage them and mean that, when they are making a marginal decision on where to start a construction project, they may start it over the border in England, rather than in Wales. 

Owen Smith:  The Secretary of State has been extremely generous this morning. Does she also recognise the flipside of the changes in planning regulations that we have seen in England? They are causing great concern in local communities and with environmental campaigners, and will significantly worry people, particularly those in the south Wales valleys and in my constituency, north of Cardiff, where that green belt is cherished. [ Interruption. ]  

Mrs Gillan:  A conversation is going on across the Benches. In England, the green belt has been fully protected. I do not think that it is referred to as the green belt in Wales. He makes a valuable point. Perhaps he would like to make representations to the Welsh Assembly Government on it, because that is where the lever of power on this issue lies. It is a matter for them. I will be interested in what response he gets. 

Guto Bebb (Aberconwy) (Con):  It is important to point out that evidence has been presented to the Welsh Affairs Committee on the bad burdens and the barriers to businesses in Wales. The barrier in question is the Department of Economy and Transport, in Cardiff bay. We had the head of the German business federation in the UK, who said that numerous meetings of the Welsh Assembly resulted in no action. Great talk, wonderful promises, but no action. It is fair to say that there is a problem with the Department that is led by the leader of Plaid Cymru. 

Mrs Gillan:  My hon. Friend reflects his conversations with businesses that could be providing valuable inward investment into Wales. I am keen to ensure that we smooth that path for inward investment. That is why on Monday I accompanied my hon. Friend Lord Green, the Minister for Trade and Investment, to Wales, specifically to look at the opportunities we can have with the Welsh Assembly Government, UK Trade and Investment and the Foreign Office. Yesterday I accompanied my right hon. Friend the Secretary of State for Business, Innovation and Skills to Wales specifically to look at some of our big organisations, including Tata, where we addressed the point raised by the hon. Member for Newport East in questions to the Chief Secretary on the carbon floor price. We looked at the successful operation of Ford at Bridgend. Once again, we met with a series of businesses and listened to what they were saying to ensure that we are bringing down those barriers for inward investment, as well as supporting those companies that have made that investment in Wales under whatever Government, because we need to retain those employers and ensure that we grow those businesses. 

We will also introduce a moratorium exempting micro and start-up businesses from new domestic regulation. The hon. Member for Pontypridd will want to know the answer to whether the Welsh Assembly Government will exempt those businesses from the regulation that is under their control. We will help first-time buyers purchase new build houses of their own to help not only the construction industry, but those purchasers as well. In England, we will provide households with 20% equity

to top up their 5% deposit. That means that buyers will have access to conventional mortgages and will help them in making that first step onto the property ladder. The Welsh Assembly Government have been provided with the money for that for Wales. The Chartered Institute of Housing Cymru has called upon the Welsh Assembly Government to spend the full amount they have received on housing supply. I hope that they will provide the relief that we are providing to home buyers with Firstbuy in England and help to boost the recovery of the housing sector in Wales. 

Businesses tell me that they want Governments to work together, and planning systems to be more closely aligned and business-friendly in both England and Wales. Like me, they want to ensure that Wales is open for business. We have introduced a powerful new presumption in favour of sustainable development, but I have concerns that the changes that we are making to the planning regime, which we discussed earlier, will not be matched in Wales. I look forward to hearing what the Welsh Assembly Government will do to create the right business environment for growth in Wales, because in all those areas power rests with them and the onus is now on them to step up to the plate. I look forward to working with them to achieve our ambitions for a successful Welsh economy. 

Although it is the Government’s firm belief that future growth will come from business, we also believe that we need to rebalance the economy in a way that recognises that times are hard for many people, and that helps and protects the poorest people. The Budget sets out the next steps in realising the Government’s vision of a fair, simple and efficient tax, benefit and pensions systems—a vision that rewards work, saving and personal responsibility. 

I have already mentioned the changes to personal tax allowances, which will remove the burden of income tax from another 10,000 low-paid workers, and to fuel prices. I want to mention a couple of the other measures that we are taking. The work experience programme will give an estimated 5,900 young people in Wales, who have never worked before, the opportunity to develop work skills that will help them to secure permanent jobs in the future. With employers such as Hilton Hotels, De Vere, Carillion and McDonald’s already signed up, we can start to tackle one of the biggest barriers faced by unemployed young people. 

Owen Smith:  Will the Secretary of State give way again? 

Mrs Gillan:  I want to make some progress. 

The new enterprise allowance will support about 1,800 unemployed people in Wales to start their own business. In its provision of mentoring and financial support, it is another example of how we are ensuring that new entrepreneurs are not held back by barriers such as obtaining finance or making the difficult transition from benefits. To help out-of-work home owners who are facing difficulties, we will extend the changes to the support for mortgage interest scheme for a further year. Some 7,100 home owners in Wales currently claim that support, which helps to reduce their mortgage arrears and the risk of repossession. Even more people will now be able to benefit from the more generous waiting period and increased capital limit rules. 

I hope that the Committee will welcome the Budget as pro-growth and fair. Business organisations in Wales support it. The CBI has said that it will help business to grow and create jobs. The south Wales chamber of commerce said that it offers business a helping hand. The Farmers Union of Wales has welcomed our actions to tackle the price of fuel. Yesterday, members of our business advisory group told me that they were heartened by our approach to the Budget and that they had growing confidence in what the future might bring. 

In conclusion, the Budget has set out our plans to rebalance the economy away from unsustainable public spending towards exports and private sector investment. Stable public finances will benefit everyone in society, and we have shown that we will not accumulate debt to fund today’s generation at the expense of tomorrow’s. Finally, we have given our first report on the Government’s ongoing growth review, and we have shown that we will balance growth across the UK. I hope that the Committee will join me in welcoming the Budget as one that works for business, for families and for Wales. 

10.44 am 

Mr Hain:  I welcome you again to the Chair, Mr. Havard. I also welcome the fact that Government Members have re-educated themselves on the pronunciation of your name. At one stage in the last Welsh Grand Committee, I thought that your ancestors had founded the Harvard business school, such was their pronunciation. 

Mrs Gillan:  I apologise, Mr Havard, but as you are so intelligent and erudite, I thought that you must be part of the family that had founded it. 

Mr Hain:  We learn something every day. Before I come to the Secretary of State’s speech, may I respond to the Chief Secretary’s statement? It was significant to note that he was dishing out fuel help to the north of Scotland, Liberal controlled, and to the south-west of England, Liberal dominated. The south-west of England also got water help, but Wales got absolutely nothing—except punitive boundaries. Wales was treated in a completely discriminatory fashion. 

Nia Griffith (Llanelli) (Lab):  I wonder whether my right hon. Friend would also include a request for some explanation about the heating allowance? If it is going to come from DECC rather than in the usual way in which the winter fuel allowance has been allocated, are we seeing yet another way in which Wales will be deprived of money, because it will have to come out of the devolved budget for environmental issues? 

Mr Hain:  My hon. Friend makes a significant point. Time and again we see what the Government are doing here at Westminster—cutting the Welsh budget and discriminating against Wales, and then when they are challenged saying that it is up to the Welsh Assembly Government or local authorities, who are themselves being starved of funds, to cope with the consequences. That is completely unacceptable. Frankly, it is a transparent attempt to hoodwink the people of Wales about what is going on. 

Mrs Gillan:  On what basis are we funding Wales differently from the basis on which his Government funded Wales? It is exactly the same mechanism. 

Mr Hain:  I am grateful to the hon. Lady for allowing me to remind the Committee that we were funding Wales on a rising budget. [Hon. Members: “Borrowing.”] I am going to come back to that. This charge from the Conservative Benches is based on the big deceit of British politics and I want to address that. 

Mr Llwyd:  Does the right hon. Gentleman share my dismay that for weeks now Treasury Ministers have promised to put in the Library a copy of the business case for the decision not to extend electrification to Swansea? We have yet to see a copy—I wonder why. 

Mr Hain:  The right hon. Gentleman makes an important point. The Secretary of State knows the strength of feeling that there is in South Wales about this. While electrification to Cardiff was welcomed, the business case that existed very clearly under the Secretary of State for Transport, Lord Adonis, at the beginning of last year, has suddenly been lost and is no longer the same case under this Government. The second point I wanted to pick up from the Chief Secretary is that yet again a Treasury Minister refused to answer my question about why Government bonds were financed throughout the last period under our Labour Government, from 2007 to 2010, at such low rates. If the country was on the point of bankruptcy, why were Government bonds being financed at such low rates? Why was the market willing to lend at such low rates to this supposedly bankrupt Government and bequeath the country such a terrible state of finances? 

Guto Bebb:  Dare I say that it was because the market was anticipating a Conservative victory in the general election? 

Mr Hain:  I have to give the hon. Gentleman brownie points for trying to get out of an impossible hole. The truth is that throughout the worst banking crisis and recession since the 1930s, what we saw were Government bonds being financed at very low rates throughout that period. Indeed, the rate fell at the beginning of 2010 in the last period of our Government. 

Chris Ruane (Vale of Clwyd) (Lab):  Another reason for the willingness to lend at such low rates is that UK Government debt was serviced over a 14-year period, the US’s over a seven-year period and Greece’s and Portugal’s over a two-year period. That is a crucial fact that we never hear from the coalition parties. 

Mr Hain:  I am grateful that my hon. Friend is once again trying to educate Conservative Members in the truth about the last period of our Government and the reality of international economics. 

Owen Smith:  Further to that point, did my right hon. Friend note with surprise, as I did, that the Chief Secretary invoked another of the warnings that we have heard about the ratings agencies being on the verge of downgrading Britain, but failed to mention that only

last week, in light of the Budget and the revelation that there will be no growth in the economy, Moody’s is saying again that there is a danger that we could be downgraded, in this instance as a result of that lack of growth? 

Mr Hain:  My hon. Friend, as always, makes a telling and expert contribution on the matter. That is the truth about what has been happening to the economy and the dangers of the Government’s deliberate slowing of growth, to the point where it was actually negative last quarter. 

To respond directly to the Secretary of State, I am intrigued that she is attempting to reposition herself. Last year, she was a kind of John Redwood cross-dresser, imposing massive cuts on Wales and cancelling Budget projects with disdain and arrogance. Now she is—I am searching for the correct description—a Welsh Assembly Government mother hen. She is giving us a patronising lecture, directed at the Welsh Assembly Government, about how if she personally helps them out with her experience and wisdom, they will see the Conservative light. That posture is resented just as much as her previous incarnation by the Welsh Assembly Government and people in Wales. She should be supporting the Welsh Assembly Government and the people of Wales, rather than treating us punitively as her Government are. 

To come to the main point that I wanted to argue in my speech, Ministers have spent the past 10 months peddling the same succinct message: “Britain’s bust. Too much spending, too much borrowing, too much debt. The result? We’ve got to slash public spending, the sooner the better. It’s all Labour’s fault.” The subtext is, “If it’s not hurting, it ain’t working.” 

However, that is a tall story, a work of fiction and deception. For a start, it omits the characters who are key to Britain’s present predicament: the banks. Irresponsible action by banks triggered the global credit crunch, plunged the world economy into recession and produced today’s problems with the public finances. The banks made massive loans to borrowers who could not afford to repay them, creating a property bubble in the process. 

The Parliamentary Under-Secretary of State for Wales (Mr David Jones):  Who regulated them? 

Mr Hain:  The hon. Gentleman says they were not regulated. Actually, the Conservative Opposition wanted lighter regulation of banks and the financial system at the time. 

The banks ratcheted up the risk of financial disaster behind a cloak of complexity. When the bubble burst, Governments had to take action to prevent a seizure in the world’s financial system from creating an economic catastrophe. That is the truth about the real source of today’s sorry state of affairs. It was not the Labour Government’s level of public investment but reckless risk-taking by the banks that provoked the crisis, and it was radical action by Labour and other Governments around the world that prevented complete collapse. 

What is the truth about Britain being on the brink of bankruptcy? If there were any substance in the ministerial myth that Labour maxed out on the country’s credit card—we have heard it from the Chief Secretary and indirectly from the Secretary of State this morning—the

warning signs would have been flashing red all over the City. In fact, they have been signalling “steady as she goes” all through the last four years. 

Ever since the financial crisis erupted, as I have said, yields on British Government bonds have remained low. Throughout, City investors were keen to lend to the Labour Government at low rates, because they had confidence in the UK’s public finances—and with good reason. If Britain had really been a bankrupt borrower, no investor would have bought Government bonds on such low terms, but they did. That is the backdrop to the current Budget. 

What is the truth about debt? Investors had confidence because Britain’s national debt was low relative to national income, and it had been falling. Before the crisis, UK debt was lower than that of France, Germany, America or Japan. Labour had been paying down debt during our period in government—so much so, that UK debt was 6% of national income lower than when we took office in 1997, which is worth some £90 billion today. Lower Government debt meant that we saved the taxpayer some £3 billion in annual interest payments, so we did fix the roof when the sun was shining. That is the real story about debt and that is why this Budget is so badly wrong. 

Roger Williams (Brecon and Radnorshire) (LD):  The right hon. Gentleman’s point about debt relates to the national gross domestic product, not in absolute terms. In absolute terms, the debt was increasing. Indeed, because we had such a big deficit as a result of the Labour Government, that debt was increasing almost geometrically rather than arithmetically. 

Mr Hain:  I am disappointed that the hon. Gentleman, for whom I have always had a lot of time and respect, has reincarnated himself from a John Maynard Keynes supporter to a Milton Friedman supporter. The truth, as he should know, is that it is the proportion of debt that matters if an economy is growing and achieves record growth consistently, year on year. We had never experienced as long a period—10 years—of steady growth in Britain’s entire economic history as we did under our Labour Government. GDP went up and debt, as a proportion, was very low. 

As the backdrop to the Budget and why I oppose it so strongly, what is the truth about Government spending? Before the banking crisis, UK Government spending was lower relative to national income than in France, Germany, the Netherlands, Norway and Sweden. It was never out of control, as Ministers claim. If it had been, the Conservatives would never have accepted our spending plans. Before the banking crisis, however, they did. Up to November 2008, they kept promising to abide by our Labour Government’s public spending plans—indeed, to extend our plans to 2010. Their Liberal Democrat allies even demanded we spend more, most of the time. 

Government spending did not, therefore, cause the crisis. There was no crisis in the public finances until we got the bill to bail out the banks. That was when the deficit and the recession took off. Rebuilding bank balance sheets cost the taxpayer £90 billion by last June, according to the International Monetary Fund. 

The full cost of the recession, however, which was brought on by the financial crisis, has been much higher. With national output some 10% lower than it would

have been had the economy continued to grow as it had done year on year under Labour, incomes are £140 billion lower than expected. Consumer spending, business investment, and tax revenues are therefore down. The Labour Government’s spending had to increase, however, to help firms and families who found themselves in difficulties through no fault of their own, hence the big increase in Government borrowing. That is the true story of the crisis in the public finances. 

Jonathan Edwards (Carmarthen East and Dinefwr) (PC):  Does the right hon. Gentleman agree that the previous Government based all their eggs on the golden goose of the City and left the UK particularly exposed, which is why the financial meltdown has hurt us most? 

Mr Hain:  The hon. Gentleman has an important point. I accept his charge to an extent, although I do not remember Plaid Cymru making many points about it at the time. Our view was common to all parties. The financial system was expanding and financial services were booming in Britain. Yes, a lot of our growth—at least 40%, I recall, around the 2007-08 period—came from the financial sector and everyone was benefiting from that. In retrospect, however, the previous Government placed too much emphasis and reliance on the financial sector, and insufficient emphasis on manufacturing, which is why we changed course in the latter part of our time in office. However, nobody was criticising us at the time for the strength of our financial sector. 

We come again to one of the essential foundations used by the Government to argue for this Budget. What is the truth about the annual deficit? Before the financial crisis, borrowing was far lower than in the Tories’ final year in office. It shot up after 2008 due to the recession, but the deficit was never out of control under Labour. The Office for Budget Responsibility reckoned that borrowing last year would come out more than £10 billion lower than we forecast. Blaming the Labour Government for the extra borrowing caused by the global credit crunch is like blaming the coalition Government for the increase in the world price of oil. 

What is the truth about public investment? Yes, Labour increased investment in public services that the Tories had starved of funds for years and years. We built more schools and hospitals. We opened Sure Start children’s centres. We developed the road and rail networks. We built more houses. After the financial crisis struck, Labour also boosted public investment. We brought forward £30 billion of investment planned for future years, raising public investment to record levels. We invested for growth in the good times, we invested to stave off collapse in the bad times, and we invested for growth to secure the recovery. That is the true story about public investment. 

Mr David Jones:  You borrowed. 

Mr Hain:  I hear the hon. Gentleman heckling from a sedentary position. If we had not done that, the recession would have been even worse. That is the truth. As the people of Wales consider the Budget, they need to consider the truth, and the background to the Budget. 

What is the truth about Labour’s record? The truth is that we make no apology for recruiting hundreds and thousands more nurses, doctors, police officers and teachers. We make no apology for bringing forward public sector capital investment programmes to save jobs and to help businesses keep going. We make no apology for cutting VAT, for the car scrappage scheme and for extra investment in new technology, businesses and jobs. We make no apology for helping home buyers in difficulty to keep their homes. We make no apology for stopping a slide becoming a slump, for stopping a recession becoming a depression and for rescuing the economy. 

Simon Hart (Carmarthen West and South Pembrokeshire) (Con):  Did the voting public of the UK not have an opportunity to assess the truth in May last year? Did they not express a pretty clear view about what they thought the truth was when judging the Labour record? 

Mr Hain:  No party won the last election. 

Simon Hart:  One lost. 

Mr Hain:  I do not doubt that. I am not seeking to deny it. We lost and we lost badly. We lost for many other reasons than simply being blamed for the banking crisis. No party won. If the British public had thought that the Conservative mantra of savage cuts and 19th century free-market economics was the recipe for the future of Wales and Britain, they would have voted Conservative in record numbers. As we all know, they did not. 

As I was saying, we make no apology for investing to ensure that the recession did not become a depression and to secure the recovery, as we were successful in doing. Sadly, the real, but fragile, recovery that Labour handed over to the coalition Government looks like a faltering recovery today. By the autumn, it was clear that the economy was already losing momentum in the face of drastic coalition spending cuts, and that momentum was further weakened by the extra £7 billion of cuts announced in the October spending review. Instead of keeping growth going, the Government have opted for cuts that are far too fast and far too deep. They are front-loaded cuts that risk stalling the recovery, as we see from the growth figures in the background to the Budget. 

Jonathan Evans:  If I understand the right hon. Gentleman’s narrative, he is now complaining about cuts announcements. It was surely the case that the Labour party had already announced that it would be introducing cuts at somewhere near—they claim—half the current level. Will he share with us the specific areas in Wales where those cuts would be made? 

Mr Hain:  We made it absolutely clear—in fact, we put it in our manifesto—that we would reduce the deficit by half over four years. We also said that we would get growth going. Indeed, we had got growth going. The best way to reduce—[Hon. Members: “Where in Wales?] If I am allowed to finish my point I will explain what the future would have held. 

The main way to reduce the deficit is growth. If we simply cut and cut, what happens? Businesses go bankrupt. They are not paying tax. Individuals lose their jobs.

They are not paying tax but are drawing benefits. The deficit gets worse. The best way to reduce the deficit is to get the economy growing, as it was. We would have had a comprehensive spending review in which we would have revealed what was necessary. 

Jonathan Evans:  Reveal it now. 

Mr Hain:  No. I shall not accept that false challenge. The baying Members on the Conservative Benches know that their argument has been completely destroyed. If that growth had continued on an upward trajectory and if through our policies the recovery had turned into a sustained upward trajectory we would not have had to cut as much as we had originally anticipated. In the comprehensive spending review, where we set out our policies, programmes and departmental budgets for the coming three years, we would have spelled out what was necessary. That is why, if we had got a Labour Government last year, we would have seen a very different future for the Welsh economy and a very different Budget from the one we have just had. 

Jonathan Edwards:  Is it not the case that the independent Wales Audit Office estimated that based on Labour’s spending plans, £1.5 billion a year would have been taken out of the Welsh Government’s budget over the next three years, which equates to the £4.6 billion that the Conservatives have taken out? 

Mr Hain:  That ratio indicates the depth, or the width, of the difference between what was likely under a Labour Government and what we have under a Conservative Government. We never said that we would not cut budgets; we were quite clear that budgets had to be cut, but not as far and as fast as this Conservative Government have done for Wales. It is based on an essential deceit that I seek to explode in this speech. 

Mrs Gillan:  I am grateful to the right hon. Gentleman for giving way. He is not only reinforcing his credentials as a serial deficit denier, but painting a picture of economic fairyland. Yesterday, I looked at an independent report on the Welsh economy by Experian which says that the Wales economy was growing more slowly than the UK before the recession. In fact, pre-recession public sector employment was growing at 2.1% per annum and private sector employment was growing by only 0.6% per annum. Where was this miraculous growth going to come from? 

Mr Hain:  I am grateful for that intervention because it allows me to repeat my point and for the public to understand the truth even more. I notice that the right hon. Lady has not challenged any of my arguments or any of my figures about debt, borrowing, the deficit, spending and so on. As a result of our policies, growth was increasing last year from the miserable situation during the recession caused by the banking crisis. We get a Conservative-Liberal Government and immediately we get a reversal of growth; it goes down. The OBR revised its forecasts into much lower growth. It is one of the lowest growth rates against any comparable economy in the world, as a result of these misguided policies that are so punitive towards Wales. 

Instead of underpinning the recovery as they could have done last year, the Government through this Budget, the CSR and their first Budget, are undermining the economy. Slamming on the brakes by slashing spending is no way to go for growth. What they should be cutting is their haste to bring down borrowing. By rushing to reduce the deficit they have now produced two botched Budgets. 

There is an interesting historical parallel. The American Government made exactly the same mistake in the 1930s. Having launched the new deal, which was a brave and successful attempt to get the American economy out of that desperate depression, President Roosevelt, who was under pressure to balance the budget, eased off on the new deal prematurely in 1936, only to see his economy stall and unemployment soar again. The lesson that the Government have failed to learn is to adjust the rate of deficit reduction to the pace of economic recovery. That is the point that needs to be understood. 

The Prime Minister used to talk about sharing the proceeds of growth between public spending and tax cuts. The Government should be investing for growth again, and should have done so for Wales in the Budget. Growth is the key to bringing the budget back into better shape. However, instead of advancing steadily through the gears as the economy picks up speed, the Chancellor is trying to force the pace of deficit reduction, which risks stalling the motor of growth and disabling the economy. His whole enterprise could condemn the Welsh economy to bumping along for years ahead, instead of forging forward, creating many more jobs, fulfilling the British promise, and giving hope to the new generation. 

The clocks have just gone forward, but the economy is going backwards. The recovery should be picking up speed. Instead, it is losing momentum, as the report by Office for Budget Responsibility confirmed. As we heard in the Chancellor’s statement last week, growth this year is forecast by the OBR to be only two thirds of what it would have been if based on Labour’s previous Budget. It is predicted to be only 1.7%, against Labour’s 2.6%. Other forecasters put the figure even lower; the National Institute of Economic and Social Research and the OECD both forecast only 1.5% growth in 2011. What a contrast that is with Germany, for example, where growth this year is forecast to be 2.6%. 

Growth is slowing, even before the big spending cuts have begun to bite. The Government’s policy is not working, but it is certainly hurting Wales. The Budget only prolongs the pain. Growth is slowing down, unemployment and inflation are going up, and families on low and middle incomes are suffering in the tax and spending squeeze. Only yesterday, the Office for National Statistics pointed out that real incomes fell last year by 0.8% for the first time in 30 years. That approximates to more than £1,000 per person in Wales. This year, it will be worse. The ONS projects that they will fall by 2% in real terms, as a result of the Government’s policies. The Chancellor is sticking to his debt and deficit targets, but he is already falling short of his growth, jobs, and prosperity targets. 

Mr David Jones:  The shadow Secretary of State mentions the Office for National Statistics. Is it not the case that ONS statistics indicate that after 13 years of Labour Government, Wales is the poorest part of the

United Kingdom, and that five Welsh local authorities are actually the poorest local authority areas in the United Kingdom? Is that not the legacy of 13 years of Labour? 

Mr Hain:  The legacy of 13 years of Labour is that the wealth of Wales, until the banking crisis, grew year on year. There is no question about that. In every respect, the wealth of Wales grew, and poverty was reduced. That is the truth about the Labour Government’s record, at least before the banking crisis. 

One way that the Government could have eased the squeeze is by reversing January’s rise in VAT on road fuel, which is pushing up petrol prices. That would have helped everybody, especially people in rural parts of Wales. Even after the Budget reduced the cost of petrol by 1p, the VAT rise to 20% on petrol has added nearly 3p to the price of a litre, or £1.35 to the cost of filling up a 50-litre tank. That is a crippling burden to motorists in Wales, especially for those on low and middle incomes. [ Interruption. ] The Secretary of State shows breathtaking complacency—in a way that motorists in Wales bitterly resent—about the impact of the higher fuel prices, and especially, the VAT increase, which was a voluntary decision by the Government. It did not need to be applied. The dramatic rise in fuel prices is punitive and completely indiscriminate, hitting the poorest hardest, because fuel is an essential resource for day-to-day living, in Wales especially. 

The Budget policy on taxing oil investment was questioned yesterday by the Norwegian oil company, Statoil, which suspended work on new developments off Shetland that were worth £10 billion to the Welsh economy. That is an example of misplaced policies and an unwillingness to go for growth and encourage private sector investment. 

Better still, the Government could have done what Labour proposed, and repeat last year’s bank bonus tax and use the additional £2 billion raised to support jobs and growth in Wales. We proposed a £600 million youth unemployment fund to help 90,000 young people into work, £1.2 billion to fund the building of 25,000 affordable homes and 20,000 jobs in construction, and a £200 million boost for regional growth funds, all from the additional £2 billion that would have been raised had our tax on the banking bonuses have been maintained instead of cut by the Government. It would have resulted, on a Barnett consequential, of at least £100 million invested in Wales in those three key areas. 

Last December in the Welsh Grand Committee, I welcomed October’s fall in the unemployment rate in Wales, but noted warnings that the figures might give a false sense of security. Unfortunately, those warnings were only too prescient. Hundreds of thousands of public sector workers are facing redundancy, tens of thousands in Wales. Like HMS Cumberland, they are still on duty and doing sterling service, but counting down the days before being decommissioned by the Government. 

In Wales, it feels as though we have become the Cumberland sister ship, HMS Cymru, also dumped on the disposal list. The scale of the cuts and the Welsh dependence on public sector jobs is so great that nothing can stop the Welsh economy being hit hard. Neither Offa’s Dyke nor devolution can form an effective barrier

against the onslaught of coalition Government cuts that is about to hit the economy in Wales, at the head of which is the Secretary of State. 

Mrs Gillan:  I am not quite sure where the right hon. Gentleman is going because he once said that he thought that the private sector was too small in Wales, and that we are over-reliant on the public sector. If he considers that growth will come from the public sector, he should say that and say from where his Government would raise the money. Furthermore, is he also telling me that the CBI, the Association of British Insurers, the Federation of Small Businesses, the Institute of Directors and the British Chambers of Commerce—all of which have welcomed the Budget and say that it is a good Budget for growth—are wrong and that he is right? 

Mr Hain:  On the point about the weakness of the private sector in Wales, I stick to what I said in 2008, but the solution to that is not to cut the public sector, because the private sector depends in great part in Wales on the contracts that it receives from the public sector. The solution is not to cut the public sector savagely, knocking into bankruptcy lots of Welsh businesses and the jobs that go with them, but to increase and boost the private sector. That is the answer to that particular conundrum, as indeed I argued in 2008 and am happy to repeat for the Secretary of State’s benefit today. 

On 7 March, the Cabinet met at Rolls-Royce in Derby and the Prime Minister conjured up images of enemies of enterprise in the town halls of Wales and Whitehall. A better clue to what is wrong with the British economy came the same day when Barclays declared how big this year’s bonuses will be. The new boss of Barclays, Bob Diamond, received a bonus of more than £6 million and a potential total pay package of £9 million. At Rolls-Royce, the incoming chief executive, John Rishton, can hope for less than half that figure, however well he performs. What a comparison and what an insight into the Government’s priorities. The bonuses at Barclays had so many zeros, and so many bankers were awarded one, that Barclays’ remuneration report was 17 pages long. 

Chris Evans (Islwyn) (Lab/Co-op):  When I worked at Lloyds TSB, I was always told that poor performance would get people the sack. Why, under the Conservatives, has poor performance has been rewarded with huge banking bonuses for people such as Bob Diamond? 

Mr Hain:  My hon. Friend, as always, has made a very telling point. The Parliamentary Under-Secretary of State for Wales should reply to it and see what argument he can come up with to try to justify it, especially given that the Prime Minister and the Deputy Prime Minister, when in Opposition, ranted on almost every day about banking bonuses. [ Interruption. ] I will not repeat exactly what my hon. Friend the Member for Vale of Clwyd said. 

The Chair:  We did not hear it. 

Mr Hain:  No you did not hear it, Mr Havard. The Government promised to give people a hand up, not a handout. Instead, they are handing out P45s to the

people of Wales by the bucketful. People now know for sure that the Prime Minister’s big society really means bigger holes in Welsh society. They see it for what it is—a see-through society, a threadbare society—and they do not like it. Ministers are hiding behind the label of localism as they force councils, including Welsh councils, to make savage cuts to public services. It is not localism, but vocalism that will triumph as the voices of protest are heard in the Assembly elections on 5 May. Just like in the days of the poll tax, people will deliver their verdict on Government policy in the ballot box. They will punish those responsible for inflicting such unfair, unnecessary, and painful measures with a Labour victory on 5 May. 

Several hon. Members  rose—  

The Chair:  Order. I remind hon. Members that we have 25 minutes before the Committee is suspended. I would like to try to make an opportunity for Back Benchers to speak before we finish. It may be a forlorn hope, but I will try. 

11.1 am 

David T. C. Davies (Monmouth) (Con):  I am amazed by what I have heard today. This was not so much a history of finances, but more akin to Grimm’s fairytales. Allow me to explain my understanding of the economics of the last 10 years or so. When the Labour party came into Government in 1997 we had a national debt of around £350 billion. I fully accept that that was too high, but the important thing was that the deficit— 

Mr Hain:  We reduced it. 

David T. C. Davies:  I hear that comment from a sedentary position. Somebody said that Labour went on to reduce the national debt further, and indeed they did. They accepted the previous Conservative Government’s spending plans, and for two years they paid off the national debt. We were running a surplus, and I congratulate them for that. Then, in about 2001, for some reason they suddenly decided to start spending. I am sure that it had absolutely nothing to do with the election that started to loom. They began spending at a rate that must have averaged well over £30 billion a year, because by 2008, before we had had any problems at all with the banks, they had increased the size of the national debt from £350 billion to £650 billion. 

Chris Evans  rose—  

The Chair:  Order. Before the hon. Gentleman intervenes, may I say that while context is important and historical debate very interesting, the motion under discussion concerns the Budget as it applies to Wales. So could you please measure that in your contributions and interventions? 

Chris Evans:  Will the hon. Gentleman answer one question? Why did the then shadow Chancellor, who is now the Chancellor of the Exchequer, commit to following Labour’s spending plans for two years under the next Tory Government? 

David T. C. Davies:  The then shadow Chancellor was not aware of the true scale of the problem. For example, we are only now beginning to discover the role of private finance initiatives, and the amount of money that that has cost. The right hon. Member for Neath made several references to the number of schools and hospitals that his Government built, but he failed to mention that they were not built using the money that is now part of the national debt. They were all funded by PFIs, and so we will be paying the cost for another 30 years or so to come. 

That is one of the reasons that we had to take such drastic steps in the budget. The £950 billion to £1 trillion debt that we have on the books is not the full story. There are many independent observers who estimate that it is double that £1 trillion figure, if one takes into account PFIs, liabilities on things such as Network Rail and Metronet, and of course public sector pension liabilities. We have a very serious problem, and that is the reason why we have to take the drastic steps that are in the Budget. 

Owen Smith:  The hon. Gentleman used to work in business, as did I. Even if we were to accept the numbers that he has just presented, would he not accept that one does not cut one’s way to growth, either in business or a national economy? That is the very clear message of this Budget, and it is a message he should understand, having worked in business. 

David T. C. Davies:  I assure the hon. Gentleman that all of the figures I have given will be on the record, and he can check them. Let me give the hon. Gentleman another figure. In the last financial year in which his Government were in office, the tax revenue was around £520 billion and the spend was £680 billion. We had a deficit of £160 billion. That is completely unacceptable. He and I both know that no business could have operated on such figures and spent above its revenue to that degree. 

I genuinely do not understand this point. All measurements of the deficit are quoted in terms of general gross domestic product. I genuinely do not know why we do not look at the deficit as a percentage of revenue, because to me that is a far more relevant figure. As a percentage of £520 billion, £160 billion is a very high amount indeed. 

Owen Smith:  There is a simple answer to that and it is where the analogy between a business and the national economy falls down. In respect of the national economy, one can borrow over a far longer term and at much lower rates than a business can. We had our debt serviced over 14 years. That is what allows us, under a Keynesian understanding of economics, to invest in order to grow. 

David T. C. Davies:  There we come to the crux of the difference between the Conservatives and Labour, whether one is a Keynesian or a member of the Austrian school. I am married to a Schwäbische-Hungarian, so the hon. Gentleman will not be surprised that my sympathies are entirely Germanic in this matter. I remind the hon. Gentleman, for whom I have the utmost respect, that it was he who raised the business analogy, which I think

is a good one. He would know that any business that operated in the way the nation was operating would have been declared bankrupt very quickly. 

The hon. Gentleman then left that analogy and tried to say that we can borrow over much longer periods. In fact, the right hon. Member for Neath asked why people were willing to lend to the UK. I think he put it rather well. He asked why it was that the Government were able to borrow vast amounts of money. I might throw that question back at him at some point. 

Jonathan Evans:  Will my hon. Friend give way? 

David T. C. Davies:  I will but may I answer the question since it has been posed? A few years ago, I visited the European Central Bank. I was asking about the chances of Hungary entering the euro, not that I am a big supporter of the euro, but if it had entered, it would have been convenient to me for personal reasons. I was told laughingly by banking officials what the problem with Hungary was. They said, “The thing about you politicians is that you’ll make all sorts of promises before an election but you never keep them, which is a good thing. The trouble with the Hungarians is that before an election they make all sorts of promises about what they will do and, when they are elected, they try to carry them out. That is why we can’t possibly let them anywhere near the euro at the moment.” 

The reason that so many people were still willing to lend Britain the money is that Britain has never defaulted on its debts in 1,000 years. The ratings agencies, when they looked at Britain in the run-up to the last general election, all agreed that all the parties at the time—Labour and Conservative certainly, one of which was likely to be the major party of Government—had both said clearly that, after the election, they would take drastic measures to prune public expenditure and get the deficit down. On that basis alone, those people were happy to lend to us, although they made it clear that our triple A rating was very close to being downgraded and that it would have been had we not taken the steps that they required after the election. 

Jonathan Evans:  My hon. Friend will know that directors in any business have to form a judgment on whether the business is a going concern—that is, whether it is able to meet its liabilities as they fall due in the next 12 months. Applying that analogy, as we were invited to do by the hon. Member for Pontypridd, what assessment does my hon. Friend make of the situation that our country was in at the time of the last general election? 

David T. C. Davies:  I am grateful to my hon. Friend for that intervention. That situation has many parallels with the situation in 1979, when the IMF was on the brink of stepping in to take a long hard look at this country’s finances because we were spending far more money than we took in revenue. 

I do not accept that we can blame this on the banks, as the right hon. Member for Neath tried to do. By his own analysis, the banking crisis cost us £90 billion. I believe that the Treasury Committee looked at the matter and said that, although it was hard to come up with a

figure, the cost was about $50 billion. I accept that its report came out some time ago and that things may have changed. However, it also said that the cost might be a lot less than that, because a lot of that money was put into the banks in the form of shares, which may at some point result in a net profit for the Government. 

Let me take the right hon. Member for Neath at his word and accept that it has cost us £90 billion. When his Government left office, the national debt was £950 billion, of which £350 billion was the responsibility of the Government in 1997. Let us say that £440 billion of that debt of £950 billion was arguably not the fault of the Labour party. That still leaves around £500 billion that clearly was its fault—it cannot get away from that. It cannot say on the one hand that the whole thing was down to the banks when the maximum that we have given to them is £90 billion out of a total of £950 billion. What about all the other hundreds of billions of pounds? Whose fault is that? 

Now we come to the crux of the Labour party’s economic thesis, which is that if we spend lots of money that we do not have, somehow it will create growth and mean that we can pay off all the money that we have spent and have some sort of profit left over. I find that that economic argument, which I suppose is Keynesianism, has been disproved on many different occasions. I thought that it was finally put to rest by a former Labour Prime Minister in 1978, Callaghan, who I think said, “We used to think we could tax and spend our way out of recession. I tell you in all honesty that that is no longer possible.” I believe that it was either a Labour Prime Minister or Chancellor of the Exchequer who said that to a Labour party conference in 1978. He realised, as most people understand, that someone cannot simply borrow money, spend money that they do not have, and hope that that is going to create some sort of profit that will allow them to pay the whole thing back. 

The Labour party accepted that before the general election, when it was happy to talk about cutting public expenditure to a level of around four fifths of the amount that the Conservative and Liberal Democrat parties are now doing. To say the least, it is very disappointing that, finding itself in opposition, it now opposes every single cut that the Government are making and refusing outright—we saw the right hon. Member for Neath wriggling like a fly on a hook when he was asked this question—to say what cuts they would make when they would have made four fifths of the same cuts that we are making. 

I know that many Members wish to speak today. I would like to end the fairy tales and talk about finance. We had more humbug from the right hon. Gentleman than one would have found in the old pick-and-mix at Woolworths. It was the hon. Member for Islwyn who made the most sensible comment today when he said that we all know that, in business, poor performance leads to the sack. Opposition Members have been given the sack, and it is now up to the Conservatives and Liberal Democrats to get the finances in order and get the country back on its feet again. 

11.13 am 

Jonathan Edwards:  Diolch, Mr Havard. Last year, we had the so-called austerity Budget, and last week’s Budget was labelled the growth Budget. I cannot help

but feel that the Government have got them the wrong way round because of the state of the UK’s economy. 

The state of the public finances, and dealing with the deficit in particular, was the key dividing line of the last general election. In an attempt to undermine Labour’s hard-won and, as it happens, misplaced reputation for economic competence, the Conservative party focused all its guns on the finances of the state. To answer some of the points raised by the hon. Member for Monmouth, in order to sell the perception aim, the Tories ludicrously equated the finances of the state to those of a household. For example, during an interview last week on the Budget, someone said that the UK economy had maxed out on its credit card. As a political strategy that has worked beyond all expectations. However, in the case of a nation state, reducing expenditure may directly lead to a reduction in income. Nor can such an analogy take into account the effect that income generation and expenditure have on overall economic growth and the fine balances that need to be achieved. 

In reducing public expenditure to the proposed level, the UK Government have been undermining economic growth, as shown by the revised OBR and OECD projections, while increasing their liabilities in welfare payments for the newly unemployed. No wonder the ONS has calculated that the Treasury is going to have to borrow far more in the medium term than planned. All that has happened before the worst of the cuts outlined in the autumn’s comprehensive spending review start to feed into the system this April. Robert Chote of the OBR said on “Newsnight” last week that his forecasts could be downgraded further. 

The UK economy is facing grievous headwinds. Increasing inflation will hinder the UK Government’s ability to use monetary policy to ease the consequences of their fiscal policy. Only last autumn, the UK Government used a series of quantitative easing and other monetary policies to ease any troughs that resulted from the reduction in public expenditure. 

Increasing global oil prices resulting from increased demand as the world economy recovers, further fuelled by unrest in the middle east, will be a serious problem over the next few years. The full effects of the tragedy in Japan, the world’s third largest economy, have yet to be felt. Subdued economic activity among our major trading partners, especially in the eurozone, will hinder an export-led recovery. The £1.4 trillion consumer debt bubble will dampen domestic consumption, and the £81 billion reduction in public expenditure over the next four years will undermine direct investment in the economy. With so many growth pillars crumbling, it is difficult to share the Treasury’s optimism. 

There were some measures to welcome in the Budget, not least the movements on fuel duty. We particularly welcome the development of a stabilising mechanism. Members will be aware that my party and our Scottish National party colleagues have campaigned for a regulator for the best part of a decade, and we tried to amend the Finance Bills of 2005 and 2008 accordingly. Only last month I closed a debate on the Floor of the House by calling for such a mechanism, which was confusingly voted down by both coalition parties. However, my much better informed colleague, the hon. Member for Dundee East (Stewart Hosie), informs me that the Chancellor seems to suggest that a stabilising mechanism would only cancel the escalator in response to increasing

global oil prices, rather than reducing fuel duty. If that is true we will not have a stabiliser at all and will continue to see spikes in the price of fuel. 

We welcome the simplified state pension of £140 a person. That was a key Plaid policy going into the general election, but it was much ridiculed by the other three parties. And we welcome the consultation on simplifying the taxation system by combining national insurance and income tax. Although extremely complicated, such a structure, if it were implemented, would be more progressive. We also welcome the increase in the personal allowance, which was also a key Plaid policy going into the general election, but we would like to supplement it by moving the 50% rate to incomes of more than £100,000. 

The major trajectory of the UK Government’s economic policy was announced in the comprehensive spending review last October. One thing we can be certain of from the public spending limits imposed by the CSR is that over the coming spending round, unless subsequent Budgets intervene, poverty levels among individuals will increase and individual and regional wealth polarisation will increase at an even faster rate than under the previous Labour Government. 

I welcome the emphasis on the requirement to rebalance the UK on both sectoral and especially geographical terms. We need far more than fine words, however. Action was sorely missing from the Budget, especially as far as Wales is concerned. We particularly need countervailing measures to help stimulate economic growth in those areas of the UK that suffered under the previous Government and will now face a double hit as a result of the reductions in public investment, because they are more reliant on public sector employment. 

For Wales in particular I would have liked the Budget to include measures to devolve corporation tax, as my right hon. Friend the Member for Dwyfor Meirionnydd mentioned in his earlier question to the Chief Secretary. 

Roger Williams:  I still harbour some Keynesian tendencies—unlike the shadow Secretary of State, to judge by his comments. Wales recently had a tranche of European money, and it looks as though we will qualify for the next tranche. What worries me is the way in which Wales uses that money, because we seem still to be at the bottom of the European wealth spectrum, despite having spent that money. 

Jonathan Edwards:  That is a valid point, and it brings me on to the next sentence of my speech. 

My right hon. Friend the Member for Dwyfor Meirionnydd talked about the devolution of corporation tax, as has seemingly been proposed for Northern Ireland. Another option would be to vary corporation tax within the convergence area, which is something that we should be looking at. It is something the Treasury can do, and it would be permissible under state aid rules. It is also something that the economic commission of the Welsh Conservative party has called for. It is a shame that its bosses in London have not been listening. 

We also need other positive interventions to stimulate economic growth in Wales. In particular, as a west Wales MP, I would like to highlight once again the question of electrifying the Great Western main line to Swansea. The Secretary of State for Business, Innovation

and Skills stated that the Government would intervene positively in the economy to promote growth across the different parts of the United Kingdom through transport infrastructure and high-speed rail electrification. By stopping in Cardiff—although that was a welcome step, as other Committee members have mentioned today—the UK Government are effectively saying that the Welsh economy stops at the Welsh capital. That is a worrying message for us in west Wales. 

Mrs Gillan:  May I thank the hon. Gentleman for his welcome of some of the detailed parts of the Budget? He is making a much better speech than the one that I heard from the shadow Secretary of State, who seemed to stick to macro-economics and was not concerned with the state of the Welsh economy. I understand the concern about the electrification not going down to Swansea, but the Government have said that we will work with the Welsh Assembly Government on the business case and the electrification of the valleys lines. We have not ruled out further electrification down to Swansea; that is still on the table. That is being done in stages, and I hope that he will welcome that, because I think it is an important point on the whole improvement of the infrastructure—[ Interruption. ] I can see that the hon. Gentleman is being prompted by the right hon. Member for Dwyfor Meirionnydd, but I can assure him that that is the case. 

Jonathan Edwards:  I can tell the Secretary of State that the announcement last month has gone down like a lead balloon in the communities that I represent in west Wales. People are extremely angry about the fact that once again we are seeing investment targeted only at the Cardiff region. 

Mrs Gillan:  I hope that the hon. Gentleman will work with me to allay that anger, because that is not the case. We are looking to improve that transport infrastructure, and he should be working with us and not allowing that anger and resentment to build up, because it is not right. We are trying to improve the lot of those communities and improve what will happen in their economy, and I look to him to put them right. 

Jonathan Edwards:  That might well be the case, but the reality is that the perception is out there, which will be damaging. The fact that electrification will not go all the way to Swansea in the first phase of the scheme creates the perception that we are a second-class region as far as the UK Government are concerned, which is deeply worrying. I am grateful for those words from the Secretary of State, but we need action on that to ensure that we get that electrification all the way to Swansea. 

I was disappointed that the Budget did not address the financial injustices that are suffered by the Welsh Government. If the UK Government learn one lesson from the overwhelming yes vote in the referendum for further powers for Wales, it should be that the people of my country are no longer prepared to be taken for fools. The UK Government, however, continue to be ignorant of the ill effects of the Barnett formula. It is estimated

that if public spending in Wales between 1999 and 2010 had matched public spending in England, the Welsh block grant would be £1.4 billion more than it is today. Let the UK Government be in no doubt that there will be no consensus on the proposed funding reforms unless a Barnett floor is put in place, followed by a change to a needs-based system as advocated by the independent Holtham commission. 

Jonathan Evans:  The hon. Gentleman’s party operates with the Scottish nationalists in co-operation in a number of votes. Will he tell us whether the Scottish nationalists are prepared to support the proposition that he has just put forward? 

Jonathan Edwards:  The hon. Gentleman is well aware that I am not here to battle the case of Scotland; I am here to fight the case of Wales, which is what I am doing. 

Despite recently scrapping the housing revenue account subsidy scheme for England, the UK Government continue to force Welsh local authorities to pay £100 million per annum. Any changes to the scheme, as the Chief Secretary outlined earlier, must be Treasury-neutral. That means that the Welsh local authorities, despite the fact that the scheme does not exist anywhere else in the UK, will continue to have to pay £100 million to the Treasury. There can be no justification for continuing to siphon off these funds from the poorest communities in Wales. 

Roger Williams:  Given Plaid Cymru’s prime position in the coalition in Cardiff, the hon. Gentleman will perhaps be able to answer this question. We have been promised a Calman-style commission. Does the hon. Gentleman think that his Labour colleagues in Cardiff would support that? 

Jonathan Edwards:  Personally, I do not see the need for a Calman-style process. We have had four independent reports on the funding formula for Wales; let us just get on with the business of reforming the way in which Wales is funded. 

Mrs Gillan:  Is the hon. Gentleman telling me that he supports part 2 of the Holtham reports, and that he wants complete tax powers for Wales? 

Jonathan Edwards:  The Holtham recommendations are quite clear, but before we start moving towards taxation powers we need to have the floor in place and reform of the Barnett formula. That is the point that I was making earlier, and I think it is more than fair. 

Only last month, the so-called respect agenda was shot to pieces when the UK Government mugged the Welsh Government of its end-year flexibility, which accounted for £385 million. That money was being prudently accumulated by the Welsh Government as part of their strategic capital investment fund. 

11.25 am 

The Chairman adjourned the Committee without Question put (Standing Order No. 88).  

Adjourned until this day at half-past Two o’clock.