Legislative Programme and the Budget

The Committee consisted of the following Members:

Chairs: Mr Dai Havard  , Albert Owen 

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) 

Fabricant, Michael (Lord Commissioner of Her Majesty's Treasury)  

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) 

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) 

James Rhys and Alison Groves, Committee Clerk s

† attended the Committee

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

Gauke, Mr David (Exchequer Secretary to the Treasury) 

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Welsh Grand Committee 

Wednesday 20 June 2012  


[Mr Dai Havard in the Chair] 

Legislative Programme and the Budget

9.30 am 

Oral Answers to Questions


The Chancellor of the Exchequer was asked—

Credit (Small Business) 

1. Simon Hart (Carmarthen West and South Pembrokeshire) (Con): 

What steps the Government are taking to improve the availability of credit to small businesses



The Exchequer Secretary to the Treasury (Mr David Gauke):  The Government have launched a package of credit-easing measures to improve credit availability for smaller businesses. Businesses are already benefiting from the £20 billion national loan guarantee scheme, which provides cheaper bank finance. The business finance partnership will provide £1.2 billion of additional finance through non-banking channels. The Government are also working with the Bank of England on the new funding for lending scheme, which will provide funding to banks, linked to their lending to the real economy. 

Simon Hart:  Unquestionably, the big issue for pretty well every business in Carmarthen West and South Pembrokeshire is the availability of credit. They have been tantalised for quite a long time. Will the Minister assure us that the recommendations will take rapid effect? 

Mr Gauke:  My hon. Friend is right to raise this issue. He is concerned about the matter from the perspective of businesses in his constituency. The Government are taking every step we can to free up credit and develop schemes such as the national loan guarantee scheme, which is already in operation. We expect to make good progress with the funding for lending scheme as well. 


2. Karen Lumley (Redditch) (Con): 

What steps the Government plan to take to encourage economic growth in Wales.



The Exchequer Secretary to the Treasury (Mr David Gauke):  Returning the UK to sustainable, balanced growth is the Government’s overriding priority. The actions the Government have taken to reduce the deficit,

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boost lending and remove barriers to business have secured stability in the face of continued uncertainty in the eurozone, maintained interest rates near record lows for businesses and families, and provided the foundations for growth in Wales and across the UK. In addition, Budget 2012 set out a number of measures to support economic growth in Wales, including the provision of enhanced capital allowances to support businesses at designated sites within the Deeside enterprise zone, working with the Welsh Government to consider electrification of the Cardiff valley rail lines, and funding to make Cardiff a super-connected city. 

Karen Lumley:  Does my hon. Friend agree that expenditure on our infrastructure, including on the electrification of the railways, will facilitate inward investment in Wales? 

Mr Gauke:  Yes, I agree with my hon. Friend. That is why we have made it a priority to work with the Welsh Government to consider electrification of the Cardiff valley rail lines. In addition, since the spending review, a further £350 million has been allocated for infrastructure funding in Wales. It is the responsibility of the Welsh Government to determine how that is spent. 

Owen Smith (Pontypridd) (Lab):  Does the Minister agree with his colleague and parliamentary neighbour, the Secretary of State for Wales, who said, when addressing the National Assembly recently, that local pay could lead to private sector growth in Wales? Or does he agree with his party’s finance spokesman in Wales, who said that he had 

“not seen any evidence at all of the benefits of introducing a regional pay system” 

and that he has 

“huge concerns” 

that it could 

“disadvantage thousands of public sector workers” 

throughout Wales and the UK? Which of his colleagues does he agree with? 

Mr Gauke:  I agree with my right hon. Friend the Secretary of State on local pay having a role to play. If we want to ensure that Wales is competitive and an attractive location, market-facing pay is the right direction for us to be going in. 

Mr Peter Hain (Neath) (Lab):  Last autumn, when the Chancellor expected the economy to grow, albeit more slowly than he had originally thought, he accepted that Government borrowing would be £150 billion higher than forecast in 2010. With the economy having since fallen back into recession throughout Wales and Britain, how far above that figure do the Government now expect borrowing to go? 

Mr Gauke:  Of course, at the Budget in March, the latest numbers showed a small improvement in the public finances from the autumn position. Had we followed the policies advocated by the right hon. Gentleman’s party, we would be borrowing a great deal more. 

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Mr David Hanson (Delyn) (Lab):  Does the Minister agree that a prerequisite for economic growth is stability of taxation rates? Will he therefore take this opportunity to apologise to tourist businesses in north Wales for proposing VAT rates on caravans of 0%, then 20%, and finally 5% in the course of only six weeks earlier this year? 

Mr Gauke:  During the consultation period, we listened to the arguments, and a number of Members engaged very constructively on the issue. It is right that we address the fact that static caravans fall neither within the regime that applies to touring caravans, nor under the council tax arrangements that apply to residents. The solution we have come up with is a fair compromise, and it is right that the Government are prepared to listen—[ Interruption. ]  

The Chair:  Order. I appreciate that people have comments to make, but I am finding it very difficult to hear the Minister’s reply. Will Members make their sedentary remarks more sotto voce, please? 


3. Geraint Davies (Swansea West) (Lab/Co-op): 

What assessment he has made of the effect of changes to VAT on the economy in Wales.



The Exchequer Secretary to the Treasury (Mr David Gauke):  Budget 2012 was fiscally neutral, maintains the Government’s commitment to deficit reduction and continues to meet the fiscal targets. That economic policy will benefit Wales as much as it will the UK as a whole. 

Geraint Davies:  A recent reduction in the number of Unilever jobs in Swansea of about 225 will probably decrease local consumption by about £4 million. Labour’s plan to have a holiday on VAT would inject £40 million into Swansea’s economy alone. Is it not time to think again about boosting consumer and investor confidence in business growth in the private sector? 

Mr Gauke:  Labour’s plan, to which the hon. Gentleman referred, would mean more borrowing and debt, which will not boost consumer confidence at all. 

Income Tax 

4. Ian Lucas (Wrexham) (Lab): 

What proportion of earners in Wales will pay less tax as a result of changes to the additional rate on income tax.



The Exchequer Secretary to the Treasury (Mr David Gauke):  The changes to the additional rate of income tax will affect approximately 5,000 individuals in Wales, representing 0.4% of the total taxpayer population. However, the amount of tax any one individual pays is affected by a range of other factors, including other policy changes. 

Ian Lucas:  Some 0.4% of the population of Wales is benefiting from the Government’s choice to cut the additional rate. Why do the Government not act to

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assist the recovery on our high streets by putting the money that they chose to put in the pockets of the richest on to the high streets instead, for the benefit of Welsh business, in order to get some demand in the economy? The Government do not seem to understand what we need to take us out of recession. 

Mr Gauke:  The hon. Gentleman will be aware of the measures that were announced in the Budget in March. The amount of tax that will be paid by the wealthiest is actually going up, not down, because of steps that we have taken, including with regard to stamp duty; we have imposed a higher rate of stamp duty land tax. We have also closed down avoidance opportunities and have placed a cap on reliefs. The wealthy will actually pay more under this Government than they would under the previous Government’s plans, with the 50p rate failing to raise revenue. 

The Chair:  I call Jonathan Morgan. 

Jonathan Evans (Cardiff North) (Con):  It is Evans. 

The Chair:  I apologise. I have a list of names here; there are too many Jonathans and too many Morgans. 

Jonathan Evans:  It is usually “Jonathan Davies”. 

Do not the revelations in the press this week about the tax avoidance opportunities for many celebrities, who are paying tax at a marginal rate of 1%, highlight the fact that the Government’s decision to reduce the top rate of tax will ultimately lead to less pressure, opportunity, and encouragement to employ accountants to avoid the highest marginal rate of tax in the UK? That will ultimately produce more revenue for the Government. 

Mr Gauke:  My hon. Friend makes an important point. For all our constituents, the issue is not what the rate is, but how much is collected from the wealthy, and the Government are doing more on that, not less. 

The Chair:  I will try to get this one correct, Mr Evans: I call Elfyn Llwyd. 

Rural Fuel Derogation 

5. Mr Elfyn Llwyd (Dwyfor Meirionnydd) (PC):   

What assessment he has made of the effect of the rural fuel derogation on fuel prices in the areas in Wales where it has been introduced.



The Exchequer Secretary to the Treasury (Mr David Gauke):  This is a pilot scheme for the Inner and Outer Hebrides, the Northern Isles, the islands in the Clyde and the Isles of Scilly. Pump prices in these remote areas are particularly high compared with those on the mainland due to the high costs of transporting and distributing fuel. 

Mr Llwyd:  I welcome the Minister to the Welsh Grand Committee, but I hope he does not make a habit of this. That answer was rather vacuous and meant nothing to me. The point of the question is that parts of

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Wales are suffering even more than areas that have been designated in Scotland, purely because the Minister’s Liberal Democrat colleagues forced the pilot through. Does he not realise that every household in Wales, both urban and rural, is suffering as a result? Is it not time to look at a proper fuel regulator process, which this Government were in favour of in their manifesto a few months ago? 

Mr Gauke:  The right hon. Gentleman will be aware that fuel prices are 10p a litre lower than they would have been under the fuel duty escalator plans that we inherited. The cost of not implementing that is considerable at a time when the public finances are so constrained. We have none the less taken steps to reduce the pressure on households as a result of fuel duty in very difficult circumstances. 


6. Mr Mark Williams (Ceredigion) (LD): 

What fiscal steps the Government plan to take to support pensioners in Wales.



The Exchequer Secretary to the Treasury (Mr David Gauke):  The Government are committed to supporting pensioners in Wales. We have introduced the triple lock, so the basic state pension now rises by either earnings, prices or 2.5%—whichever is highest. We increased guarantee credit by more than earnings in April 2012, so those on the lowest incomes would benefit from the triple guarantee. In addition, the Government have protected other key pensioner benefits, including winter fuel payments. 

Mr Mark Williams:  I thank the Minister for that answer and congratulate him on the triple-lock provisions, but does he agree that one enduring problem, which has blighted both Labour Governments and this Government, is the low take-up of pension credit? An estimated £2.8 billion of pension credit has not been claimed. 

Mr Gauke:  My hon. Friend is absolutely right to highlight that point. I know that my ministerial colleagues in the Department for Work and Pensions are aware of the issue and are endeavouring to take steps to increase take-up. 

Regional Pay 

7. Alun Michael (Cardiff South and Penarth) (Lab/Co-op): 

What assessment he has made of the potential effect on the economy of Wales of proposals for regional pay in the public sector.



8. Jessica Morden (Newport East) (Lab): 

What assessment he has made of the potential effect on the economy of Wales of proposals for regional pay in the public sector.



The Exchequer Secretary to the Treasury (Mr David Gauke):  The independent pay review bodies are considering how public sector pay can be made more responsive to local labour markets, and will report from July. UK civil service Departments are also considering their approach. 

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Public sector pay in devolved areas is a matter for the Welsh Government. Until formal proposals have been made, it will not be possible to assess the impact on non-devolved work forces in Wales. However, the Government believe that more local, market-facing public sector pay has the potential to result in more public sector jobs for the same level of spending, and to help local businesses become more competitive and expand. 

Alun Michael:  I am not surprised that the Minister had his head down and muttered his reply. Is it not obvious that regional pay would have a chilling effect on the Welsh economy, and that it would have a particularly damaging effect on small and micro-businesses, which depend on people in the local community having money in their pockets? Will he ensure that this policy is not pursued by his Government? 

Mr Gauke:  The policy that we are pursuing is market-facing pay. Given that there has been a differential in public sector pay for many years, including when the right hon. Gentleman was a Minister, with additional rates of pay within London, this is not entirely new, but it is right that we consult on this area to see whether there are opportunities for making particular parts of the country more attractive places in which to locate jobs. That would ensure that we had a strong private sector across the UK, which is not quite the case at the moment. 

Jessica Morden:  There are 23,000 public sector workers in Newport, which benefited in part from the previous Government’s relocation of jobs from the south-east to rebalance the economy. An example of that is the location of the Office for National Statistics. Does the Minister understand the impact that regional pay would have on areas such as Newport, where the public and private sectors are entwined? Does he really believe that there will suddenly be a huge private sector demand for statisticians as a result of bringing in local pay? 

Mr Gauke:  The point that I would make to the hon. Lady is that locations such as Newport may well become even more attractive locations for jobs in the public sector. We have to look at ensuring that public sector pay reflects local market conditions. 


9. Chris Ruane (Vale of Clwyd) (Lab):  What assessment he has made of the effect of changes to VAT on the economy in Wales.



The Exchequer Secretary to the Treasury (Mr David Gauke):  I refer the hon. Member to the answer I gave a few moments ago. 

Chris Ruane:  My favourite of the many Treasury U-turns to date is the U-turn on caravan tax. What representation was made to the Minister by the Wales Office to stop the tax before it was announced? The Under-Secretary of State for Wales voted for it and the hon. Member for Aberconwy hid, yet their constituencies have among the highest concentrations of caravans in the country. What representations were made from Wales and did he listen? 

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Mr Gauke:  I had extensive conversations with my hon. Friend the Wales Office Minister. We listened very carefully to the points he raised about caravans. The advice that he provided, like that of many hon. Members, was invaluable in helping us reach our conclusions. I am grateful for the opportunity to draw the Committee’s attention to the excellent work done by the Minister. 

The Chair:  We now move to the next series of questions. 

The Secretary of State for Wales was asked—

Children’s Commissioner 

1. Mr Mark Williams (Ceredigion) (LD):  What discussions she has had with ministerial colleagues and others on extending the remit of the Children's Commissioner for Wales.



The Secretary of State for Wales (Mrs Cheryl Gillan):  My office continues to work closely with the Department for Education on implementing the recommendations of the Independent Review of the Children’s Commissioner for England. 

Mr Mark Williams:   I thank the Secretary of State for that answer. Does she agree that the children’s Bill in the Queen’s Speech gives us an opportunity to deal with an anomaly whereby the Children’s Commissioner for Wales is unable to look at DWP and immigration matters? 

Mrs Gillan:  I agree with my hon. Friend. The review by John Dunford concluded that the Children’s Commissioners in the devolved Administrations should in principle be responsible for all relevant matters for children and young people who normally reside there. That is certainly an area that will require some close attention and some good co-operative working with the Welsh Government. I strongly support the roles of the Children’s Commissioner—indeed, Wales led the way on this subject. I am looking forward to making sure that we have a fully functioning system which, after all, is protecting one of our most precious assets. 

Mr Elfyn Llwyd (Dwyfor Meirionnydd) (PC):  As the first to argue in Parliament for a Children’s Commissioner for Wales, I fully agree with what the hon. Member for Ceredigion says, and I appreciate the Secretary of State’s answer, but may I add that young people who, unfortunately, are in custody in England and other parts of the UK are also outside the remit of the Children’s Commissioner, and that should also be looked at? 

Mrs Gillan:  I commend the right hon. Gentleman for his work in that area and with the all-party justice unions group, particularly as I used to be an officer on the group with him. I share his concern for young people in custody. I certainly will take that on board and will make sure that the matter is looked at by my colleagues who are responsible for taking the legislation through. As he will understand, I can give no guarantees at this stage of any changes. 

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2. Alun Michael (Cardiff South and Penarth) (Lab/Co-op):  What steps her Department is taking to reduce crime and increase public safety in Wales.



The Parliamentary Under-Secretary of State for Wales (Mr David Jones):  The Government are committed to reducing and preventing crime to ensure that people feel safe in their homes and communities. This is borne out by the recent decline in recorded crime. 

Alun Michael:  I am not sure whether a declaration is required, but for the avoidance of doubt I have been selected to stand as the Labour candidate to be police commissioner for South Wales. [Hon. Members: “Hear, hear!”] 

Will the Minister give an undertaking to protect antisocial behaviour orders, which have been a success in Wales and in parts of England, as was demonstrated only yesterday by a chief constable’s evidence to the Home Affairs Committee? Will he ensure that changes are not made at UK level that make it more difficult for us to continue the past Labour successes of reducing crime in Wales? 

Mr David Jones:   The Government propose to build on and develop antisocial behaviour orders. I am sure that the right hon. Gentleman, who no doubt will soon be acquiring huge further expertise to that which he acquired at the Home Office, will agree that such measures cannot remain preserved in aspic. They have to be developed. This is a matter that police and crime commissioners will have to consider. No doubt in due course, if he is successful, he will be telling the people of south Wales how he would propose to develop that. 

Nia Griffith (Llanelli) (Lab):  I congratulate my right hon. Friend the Member for Cardiff South and Penarth most warmly on his selection as Labour’s candidate for police commissioner for South Wales. I very much hope he will have success not only in the election, but in the challenging role of police commissioner. 

Will the Minister explain to us what decision he would make when faced with the choice of either closing police stations, taking policemen off the beat, or getting rid of a police helicopter? That is the stark reality facing us as a result of his Government’s 20% cuts for policing in Wales. 

Mr David Jones:   The shadow Minister assumes that there is a crude correlation between expenditure on policing and effective policing. What we need is a modern, effective, flexible police force. How that is achieved is, of course, a matter for chief constables, but I am glad to say that recorded crime in Wales across the board fell by 5% up to December 2011. 

Energy Policy 

3. Jonathan Edwards (Carmarthen East and Dinefwr) (PC):  What discussions she has had with the Welsh Government on the transfer of planning powers on energy projects above 50 MW to the National Assembly for Wales.



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The Secretary of State for Wales (Mrs Cheryl Gillan):  I have regular discussions with the Welsh Government on a range of issues including large-scale energy projects in Wales. We do not believe that there is a need to change the current system. 

Jonathan Edwards:  As the Secretary of State will be aware, in the last National Assembly elections, every party pledged to increase the responsibility of the Welsh Government for energy planning applications to at least 100 MW. Last week, the Cabinet Office published a new devolution guidance note, DGN17, which creates a clear framework for changing the legislative competence of the National Assembly in such cases. When will she initiate discussions between the Welsh Government and the Department of Energy and Climate Change, so that they can move forwards on this technical issue? 

Mrs Gillan:  Before the hon. Gentleman gets overexcited, I would like to say that we revise our technical notes from time to time, but the Government have always said that, particularly when it comes to energy, we support decision making at the most appropriate level, and we believe that the most appropriate level is with Her Majesty’s Government. However, I would be grateful if at some stage the hon. Gentleman’s party could let me know exactly what its policies are on energy, because they are at the very least opaque and at the very most two-headed. 


4. Kevin Brennan (Cardiff West) (Lab):  What assessment she has made of the effect on the number of front-line police officers in Wales of changes in funding for policing.



The Parliamentary Under-Secretary of State for Wales (Mr David Jones):  We have set a challenging but manageable funding settlement for the police service. It is a matter for the chief constable and the police authority in each force area to determine the number of police officers that are deployed within the available resources. 

Kevin Brennan:  Two constituents came separately to my surgery on Saturday complaining about front-line police numbers as a result of the Government cuts. I explained that there was very little hope of them getting any change out of this Government, but I could also have explained that they did have an opportunity to vote for a new police commissioner this November. Can the Minister think of anybody better qualified to be South Wales police commissioner than my right hon. Friend the Member for Cardiff South and Penarth (Alun Michael)? If so, will he name them now, and if not, will he endorse my right hon. Friend? 

Mr David Jones:   I commend the hon. Gentleman for his optimism, but I do not intend to go down that avenue. As I said to his hon. Friend the shadow Under-Secretary of State, there is no crude correlation between spending and front-line policing. It is interesting to note that Her Majesty’s inspectorate of constabulary has found that police forces that are planning to increase

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the proportion of police officers and front-line staff had increased from 68% in 2010 to 70% by March this year. 

Chris Evans (Islwyn) (Lab/Co-op):  I recently asked the Prime Minister about police numbers in Wales and got the usual waffle as he tried to get a nice soundbite out. I have a simple question for the Under-Secretary. Jeff Mapps, a serving police officer and chair of the Police Federation in Wales, says that 1,600 police officers are going to be cut—the equivalent of Gwent police force—but the Home Office says the figure is 800. Who is right—a serving police officer or the Home Office? 

Mr David Jones:   I have to assume, and I have no doubt that this is right, that the Home Office is correct. 

Regional Pay 

5. Mr David Hanson (Delyn) (Lab):  What her policy is on the introduction of regional pay for the public sector in Wales.



The Parliamentary Under-Secretary of State for Wales (Mr David Jones):  The independent pay review bodies are expected to report by July 2012 on how public sector pay can be made more responsive to local labour markets. Until formal proposals have been made by the review bodies and individual departments, it will not be possible to assess how it will be introduced in Wales. 

Mr Hanson:  Does the Minister think it fair that, in theory, someone working in the jobcentre in Flint in my constituency could be paid less than someone working in the jobcentre in Chester five miles away in England? Does he think it is fair that Wales and the north-west regions should have different pay rates and will he give a commitment to stand up for Wales and argue that, whatever else happens, because of the circumstances of our border areas, regional pay will damage the economy of Wales? 

Mr David Jones:   The right hon. Gentleman speaks of regional pay, but he should know that it is not regional pay that we are talking about, but local market-facing pay. What the Government want to do is to create a more flexible public and private sector labour market that is more responsive to local market conditions. It is not about regional pay, it is about local market-facing pay, and there is nothing new about it. Of course, it was introduced by the Courts Service in 2007, as the right hon. Gentleman will know because at that time he was a Minister of State in the Ministry of Justice. 

Owen Smith (Pontypridd) (Lab):  Whatever the semantics that we have just heard from the Minister, he knows that public sector workers in Wales already enjoy lower median wages than their equivalents in, for example, the south-east region represented by the Exchequer Secretary and the Secretary of State. Does he think that fair? Right now the gap is about 10%. Does he think that that gap between Wales and more prosperous parts of Britain will get bigger before it gets smaller if his Government introduce regional pay? 

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Mr David Jones:   I must repeat, because obviously the hon. Gentleman has not understood it, we are talking not about regional but about localised pay. What we need to do is create the right conditions for the private sector to grow. He will know that in Wales there is a public sector pay premium of 18%. As long as that continues, private sector growth will not be encouraged. Frankly, he should know that. 

Geraint Davies (Swansea West) (Lab/Co-op):  In Swansea, 40% of work is in the public sector. A reduction in pay of 20% would be equivalent to a reduction in consumption of something like 8% in the private market at a time when the private sector is finding demand very difficult. Is this not a completely stupid way of going about things—hitting the private sector in the name of crushing the public sector? 

Mr David Jones:   It is quite the reverse, of course. The point is that at the moment the private sector is, in many parts of Wales, completely priced out of the market. I should have thought that the hon. Gentleman, if he wanted to see growth of the private sector in Swansea, would be encouraging local market-facing pay. 

Constituency Review 

7. Ann Clwyd (Cynon Valley) (Lab):  What assessment her Department has made of the extent to which local and historical ties have been taken into consideration during the review of parliamentary constituencies in Wales.



The Secretary of State for Wales (Mrs Cheryl Gillan):  I was expecting Mr Tami’s question next. 

The Chair:  Mr Tami withdrew his question. 

Mrs Gillan:  We had no notification of that. 

The Parliamentary Voting System and Constituencies Act 2011 allows the boundary commissions, including the Boundary Commission for Wales, to take into account geographical considerations and local ties when drawing up new parliamentary constituencies. It is for each commission to apply the rules set out in legislation. The Boundary Commission for Wales published the responses to its initial proposals for new parliamentary constituencies in Wales on 13 June. These responses are now subject to a four-week consultation period. 

Ann Clwyd:  I am not surprised that the Secretary of State’s reply was very quiet, because the answer to my question must be, “none”, otherwise the historical and community links within Cynon Valley would not have been ignored as they have been. In the local consultation, 20% of the responses came from Cynon Valley and there were 3,500 signatures on the Save Cynon Valley petition—the largest number raised by any single organisation. This is an absolute disgrace. I invite the right hon. Lady to come to Cynon Valley and explain why it is being eliminated from the political map of Wales. 

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Mrs Gillan:  I understand the right hon. Lady’s concerns. I have looked at these proposals and her constituency is to be divided between three new constituencies, if the proposals drawn up by the Boundary Commission go ahead. However, she also knows that the seats of Pontypridd and Rhondda are considerably below the electoral quota. That is probably part of the reasoning behind what the independent Boundary Commission’s proposal. Consultation is taking place, in which case she should be making her own representations. It is clear in the 2011 Act that the boundary commissions are able to take into account local ties and geographical boundaries when drawing up the new constituencies. It is a matter for them. I am sure that, with all her experience, the right hon. Lady will be quite capable of making vociferous representations to the boundary commission, and I look forward to reading them. 

Jonathan Evans (Cardiff North) (Con):  May I invite my right hon. Friend to encourage the right hon. Member for Cynon Valley to support the submission put forward by the Conservative party and Plaid Cymru that would respect the historical ties of Cynon Valley? There are four weeks to do that, It is interesting to note that the Labour party is vehemently opposed to the very thing that the right hon. Lady is proposing. 

Mrs Gillan:  I thank my hon. Friend for what appears to have been a statement rather than a question. He has revealed something that was not for me to reveal, but he is absolutely correct. I am sure that the right hon. Lady heard my hon. Friend and will certainly look into it. I think the Conservative proposals have a great deal of merit. 

The Chair:  Order. We have exhausted the time for questions. 

Mr David Hanson (Delyn) (Lab):  On a point of order, Mr Havard. Is it possible for you to arrange for the Exchequer Secretary to place in the Library a definition of local market-facing pay, so that in future we can be clear about the terms of debate? 

The Chair:  Unfortunately, it is not for me to instruct the Minister to do that, but I am sure that he heard your request. If he cannot do that, he will reply with an elegant response that will cater to your needs. 

We now move to the next item of business. The structure today is unusual. We start with a statement from the Secretary of State for Wales, on which Members will be able to ask questions. At the end of that—that is for me to judge in terms of who wishes to participate, but you know that this is your time today, and you know what the timings of the sitting are—we will propose to move to the general debate. The Secretary of State has agreed that in order to assist with the time, she will not spend a great deal of time introducing the general debate, having catered for much of that in her statement. We can then have a general debate. 

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Legislative Programme and the Budget 


10.2 am 

The Secretary of State for Wales (Mrs Cheryl Gillan):  May I begin by welcoming you, Mr Havard, to the Chair today? Just as he is slipping out, I thank my hon. Friend the Exchequer Secretary to the Treasury for taking the time to come here to answer directly questions relevant to Wales and in relation to the Budget. We do appreciate that, and it means that Welsh MPs have had a special time with a Treasury Minister to cross-question him. 

I intend to keep my statement brief to allow maximum time for others to participate in the debate. I want to outline the work that the Government are doing to ensure that we meet the economic challenges in a way that is fair and which increases prosperity in all parts of the United Kingdom. Returning the UK to sustainable balanced growth remains the Government’s overriding priority, and that theme runs through both the March Budget and the Government’s legislative programme for the second Session. 

We continue to face difficult economic times, but we have every reason to remain optimistic, for one simple reason: the Government are tackling our problems head on. We are dealing with debt and securing long-term stability; creating the right environment for businesses to get on with the job of creating prosperity; and restoring Britain’s competitiveness, bringing down tax rates and reducing regulatory burdens. We are also helping families with the cost of living. Those actions are all paying off. This year, for example, we re-entered the top 10 list of the best places in the world to do business. Recently, the International Monetary Fund has reconfirmed its support for the UK’s deficit reduction plan. 

In his Budget statement, the Chancellor maintained the Government’s strategy and set out further action to create a stable economy, make the tax system fairer and more efficient, and introduce reforms to support growth. The 2012 Budget will benefit the whole of the UK, including Wales. It has fairness running through it and provides a much-needed boost for enterprise and business. 

Yet again, in a Budget that was fiscally neutral for the rest of the UK, we provided more money for the Welsh Government—a further £11.7 million. Since the spending review in 2010, the Welsh Government have received nearly £500 million in additional funding. We have given the Welsh Government the resources they need to take action to rejuvenate the economy. They have the money and the power. The people of Wales want to see delivery and they want to see the Welsh Government working with us to achieve it. 

In addition to the benefits for the whole of the UK, Wales will benefit from specific decisions taken in the Budget, such as the commitment to work on the electrification of the valley lines, a project to which I have a long-standing personal commitment. I continue to press the economic case for this important investment in our infrastructure, as well as for electrification of the main line from Cardiff to Swansea. We also announced enhanced capital allowances for the enterprise zone in

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Deeside, with the possibility of more to come; broadband funding for the super-connected city in Cardiff, with the potential for other cities in Wales to receive further funding; and investment in mobile infrastructure on the A470 between Cardiff and Llandudno. 

The Budget also brought forward the Government’s plans to reward work and support families, to reduce tax rates and increase our competitiveness, and to ensure that everyone pays what they owe. Our action to create a fairer, more efficient and simpler tax system has taken another 42,000 people in Wales out of tax, bringing the total to 95,000 of the lowest-paid workers in Wales taken out of tax altogether. We are making work pay by making the first £10,000 of income free from income tax, and the increases in personal allowances in the Budget will mean that 1.1 million individuals in Wales will pay less tax. At the other end of the scale, the Government are reducing the top rate of income tax from 50p to 45p in April 2013, a rate that will still be higher than for almost the entire time that Labour was in office, while introducing other measures, such as a new rate of stamp duty and clamping down on tax avoidance. In all, that will mean that top earners will contribute five times more than they would if the top rate remained unchanged. 

For businesses, the Government reduced the main rate of corporation tax by an additional one percentage point to 24% in April this year. That will fall to 22% by April 2014, which is a full 6% lower than when we took office and a clear, tangible sign of the Government’s support for businesses across the United Kingdom. It is perhaps the most visible sign of our country’s competitiveness, and a demonstration that Wales and Britain are open for business. 

As with the Budget, the Queen’s Speech set out measures to support economic growth, as well as measures on justice and constitutional reform. We are introducing 15 Bills and four draft Bills in the next 12 months. That programme will continue the course we laid out at the Budget, taking tough long-term decisions to restore our country to strength, to rebalance the economy and to build a society that rewards people who work hard and do the right thing. Much of the legislation will benefit the whole of the UK, including Wales. From energy to enterprise, from the Courts Service to banking reform, the Bills in the Government’s programme cover Wales. They matter to those who live in Wales and to those who do business in Wales. The message is clear to those who think that, in the age of devolution, the UK Government and this House are an irrelevance to Wales. This House, with this legislative programme, is as relevant to Wales today as it ever has been. It does a crucial job in scrutinising Government Bills that impact directly on life in Wales. We are working closely with the Welsh Government, especially where Bills have particular relevance to Wales or where the devolution settlement needs careful consideration. 

I will not list every Bill, as I know many hon. Members are familiar with the second Session programme. Indeed, seven of the Bills have already had Second Reading. However, I wish to highlight some key measures that will benefit Wales. Our intention to establish a groceries code adjudicator has been welcomed by farmers and suppliers across Wales, as well as the Welsh Government. The legislation we have introduced protects those who

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supply large retailers and ensures that they are treated fairly. That was the subject of some lively debate during our last Welsh Grand Committee, so I hope hon. Members will join me in welcoming our progress. 

We are extending opportunity in the economy, and building on this country’s great reputation to do business, with the Enterprise and Regulatory Reform Bill, which began its Committee stage yesterday. The Bill establishes in statute the green investment bank to accelerate the transition to a green economy; improves the way competition is enforced to make it effective; provides encouragement for workplace disputes to be settled earlier; improves the employment tribunal system, including introducing financial penalties to encourage employer compliance with employment rights, and gives shareholders a bigger say over directors’ pay. 

The Energy Bill will reform the electricity market to ensure secure, affordable and low-carbon electricity into the future, including reforms that will help us to attract £110 billion in investment in the next decade. Crucially for Wales, the market reforms in the Bill will support us as we work to secure the future of Wylfa. We will publish a Water Bill, in draft, which aims to reform the industry and allow businesses to switch their water and sewerage supplier, at the same time encouraging new entrants into the market. At present, those benefits will be available only to businesses served by English water companies, but the Bill provides a lot of opportunities for Wales. Of course, the devolution settlement in that area is complex, but I have already discussed the legislation with the First Minister and we will continue to work closely with the Welsh Government to find solutions that are appropriate to consumers on both sides of the border. 

I know how difficult life is for hard-working families in these tough economic times, which is why our programme rewards people who work hard and who make a positive contribution to our society. We will bring forward a Children and Families Bill, which will include measures to make parental leave more flexible and reform the family justice system to speed up care proceedings. I hope that the Welsh Government will consider the measures that we are introducing to cut the time that ethnic minority children wait to be adopted, to see if they could usefully be extended to Wales. We will also publish a draft Care and Support Bill to modernise adult care in England. I am pleased that we already have agreement in principle with all three devolved Administrations to ensure that the internal borders within the UK do not impede the effective delivery of residential care. Finally, the Small Charitable Donations Bill will boost the income of Welsh charities, especially smaller charities, by removing the need for them to collect gift aid declarations on small donations. 

When I consulted the National Assembly about our legislative programme last month I gave one clear message, which I repeat today. I believe, as I have always believed, that only through co-operation between this Government and the Welsh Government will we be able to deliver effectively for people in Wales. In all aspects of our work, by learning from each other and from working together in the national interest, we can attract investment, sustain and create jobs, and support individuals and families. I believe that that essential partnership will ensure that devolution delivers for Wales. 

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The Budget and our legislative programme show that we are a Government who face up to tough decisions and meet challenges head on. We have taken decisive action to protect the UK economy in the current period of global uncertainty. We have the right plans in place to deliver our recovery from the biggest debt and financial crisis of our lifetimes. Our strategy, as seen in the Budget and legislative programme, spans every aspect of Government. Together, it will help us rebuild Wales and the whole of the UK and bring the prosperous future we all wish to see. 

Owen Smith (Pontypridd) (Lab):  It is a pleasure to serve under your chairmanship, Mr Havard, especially as this is the first time I have addressed the Committee in my new role. I would like to thank the Secretary of State for giving me advance sight of this morning’s statement, and I would like to thank my former sparring partner the Exchequer Secretary to the Treasury, the hon. Member for South West Hertfordshire (Mr Gauke), for coming to speak to us today. The newspapers have noted that he has been deployed by the Chancellor quite a bit recently as a human shield, to first defend and later backtrack on much of the Budget. It was good to see the Secretary of State putting him to similar good use this morning. 

It is said that a Budget is a problem if people are still talking about it a week after it is delivered. Three months, almost to the day, after the Budget was delivered we are still talking in Wales about its impact. Unfortunately, I had to read through the statement two or three times to realise just how complacent the Secretary of State remains about the lack of growth in our economy, the problems faced by people in Wales and the lack of action that is the key, defining characteristic of the Budget and of the subsequent legislative programme. We all know that this morning’s statement, the Budget and the Queen’s Speech are devoid of ideas to reform and improve our economy. They show that the Government are in denial about the scale of the problems faced by people in Wales and about the scale of the Government action that is required. 

What has happened during the three months since the Budget was launched? It is very simple. The recession has got worse. We have seen the growth figures revised downwards over that period from minus 0.3 to minus 0.2, which means that our economy has shrunk over the past six months by 0.6% and over the 18 months since the spending review by 0.4%. That is the scale of the problem we face. Britain under the Tory Government is not a safe haven but the only major European economy in recession apart from Italy, when France, Germany and even the eurozone as a whole have avoided that. 

What about unemployment? Today we got a bit of good news; over the three months to April, 2,000 fewer people were unemployed in Wales and 50,000 fewer across the whole of the UK. There are still, however, 2.61 million people out of work in Britain and 130,000 people out of work in Wales, where 17,000 more people are out of work today than a year ago. That is the reality of unemployment in our country. [Interruption.]  

Some 730,000 more people are to be laid off from public sector jobs. Living standards—[Interruption.] Perhaps certain Committee members would care to listen. Yet again, we hear more complacent chuntering from the Government Front Bench. Clearly, they want

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to close their ears to the desperate plight of our economy and the problems that we face in Wales, and unfortunately the Secretary of State gave us little cause to think that they were about to open their ears and do something to tackle the problem. 

The legislative programme contains 19 Bills—four in draft and 15 already available to us—but none of them impinges on the issues that I have been talking about and they will not do anything to increase the responsiveness of the economy. It is not for me to lay out the evidence for that; the Office for Budget Responsibility has done so in accounting for all the proposed changes and anticipates a paltry 0.7% growth in our economy over the next year. According to the OBR and the Federation of Small Businesses, business confidence will be at rock bottom. 

I should like to challenge some claims in the Secretary of State’s statement. First, she claimed that an additional £500 million has been put into the coffers of the National Assembly in the previous spending period. That might be true, but she fails to say that during the whole period of the spending review the budget for the National Assembly is being reduced by £1.8 billion—a 40% cut in capital expenditure. That is the reality of the first cuts to the budget of the National Assembly since its inception. 

What about the claim that 42,000 people are being taken out of tax? Of course, that fails to reflect the fact that the income of 9,000 households in Wales will be reduced by £3,870 a year as a result of the changes in working tax credits that were introduced in April. A further 43,000 households in Wales will become ineligible to receive any working tax credits at all. That is the reality. It is not as described by the Secretary of State. 

What about the claim that we heard the Secretary of State repeat today about the high rate of tax? The Government claim that wealthier people in Wales and elsewhere will be paying five times the rate. That number has been well and truly blown out of the water in successive debates. The Secretary of State would do well to discuss that matter with the Exchequer Secretary, her parliamentary neighbour, because he, too, has been forced to admit in debates in the House that it is not true that the high rate of tax was raising nothing, as the Prime Minister claimed. In fact, the high rate was raising, in static terms, £3 billion a year and the Exchequer Secretary has conceded that it raised £700 million in the past year. The sum that it raised would, according to the HMRC study, have risen to £3.9 billion over the spending period. Once again, that is the reality. 

We have an enterprise Bill that will not encourage enterprise, a banking reform Bill that will not tackle banking reform, an energy Bill that will not tackle energy prices in Wales and a water Bill that will not tackle water prices in Wales. Drift, dither and denial: that is the hallmark of this Government. We have heard it again today and I fear we will hear it in successive speeches from the Secretary of State until we get a different Secretary of State to bang the table for Wales in the Cabinet and ensure that we get our fair share of action from the Government. 

I will deal with some of the points I have mentioned in my speech later today. 

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Mrs Gillan:  First, I extend a warm, generous welcome to the hon. Member for Pontypridd in his Front Bench position. I am delighted to see him, but I should like to pay tribute to his predecessor who is sitting behind him, who will be much missed now he is no longer on the Front Bench. However, I am sure that I will enjoy meaningful conversations with the right hon. Member for Neath in future, particularly on the Severn barrage, which he is particularly keen on. 

Although I give a warm welcome to the hon. Gentleman, I am disappointed that he is such a doom and gloom-monger, and is sending out from this Committee a gloomy message for Wales. I would have thought he would welcome with open arms the improvement in the unemployment statistics. Although it is a small improvement, it is an improvement, and it means more jobs for more people in Wales. It is the fourth month that we have moved in that direction. I am far from complacent about unemployment. I know what it does to families, and I know how people suffer, but I believe that our work force in Wales is very talented and willing to work. It is a good country to come and do business in, but anyone who listens to the hon. Gentleman would be put off investing in Wales. 

I am also disappointed by the paucity of the hon. Gentleman’s response to the Queen’s Speech and the Budget, and our legislative programme. In talking down the amount of money that the Welsh Government receive, he gives the impression that Wales has been worse done by than any other area of government, but that is untrue. In fact, Wales has had to take far less of a cut, particularly because we protected the budget for the NHS, and he must remember that a large amount of the money that goes to the Welsh Government comes from the amount that goes into the NHS as a whole—[ Interruption. ]  

There has been no complacency on this side of the House. I believe that after 13 years of a Labour Government, not one inch of rail electrification was delivered. We are electrifying the railway line to Cardiff. We have made a major investment in broadband, and we are improving communications throughout Wales. The hon. Gentleman must remember that two Governments are involved, and it is the Welsh Government who are responsible for economic development. It is the Welsh Government who are failing Wales at the moment, not the UK Government. 

Several hon. Members  rose  

The Chair:  Order. Before we go further, let us be clear that we are discussing a statement, so there will be questions, not interventions, to the Secretary of State. I hope that those questions will be short and that answers will be pithy so that we can make progress. I have to manage the time—it is the Committee’s time—and I was hoping that we could move to the main debate by quarter to 11, but it is already after 20 past 11. How hon. Members behave is in their own hands. 

Hywel Williams (Arfon) (PC):  Whatever it is called, regional pay or local-facing pay means equal work but unequal pay. That is what it is about. Will the Secretary of State concede that the two effects of local-facing pay are low-pay ghettoes, which are bad for workers, or sucking demand from the local economy, which is bad for business? Which does the Secretary of State choose? 

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Mrs Gillan:  I think we have done this question to death—[ Interruption. ] The hon. Gentleman knows that we have said that we believe that more local market-facing public sector pay has the potential to help the economy in Wales. However, we are waiting to see what the review body proposes. 

I remind the hon. Gentleman that the Welsh Government are responsible for the pay and conditions of a large number of public sector workers, and I hope that he will extract a guarantee—I would be interested in hearing what the Labour party is saying about the guarantee—that the Welsh Labour Government will not alter the pay and conditions of those who work in the health service and for the Welsh Government. 

Dr Hywel Francis (Aberavon) (Lab):  Successive Labour Secretaries of State for Wales have placed great store on engaging with the Welsh TUC and the Welsh Local Government Association. Has the Secretary of State consulted, since the Budget, with those two bodies, and particularly the WLGA, given that it is now under Labour leadership? 

Mrs Gillan:  As the hon. Gentleman knows, our Department is not the largest in Whitehall, but I have considered engaging them, and we will see what we can do to ensure that that dialogue takes place. 

David T. C. Davies (Monmouth) (Con):  The Secretary of State for Wales will be aware that members of the armed forces in Wales have made a huge contribution to defending Britain, none more so recently than the Queen’s Dragoon Guards. Will she join me in paying tribute to that regiment? Will she consider supporting the regiment over the next few months as its future is decided by the Ministry of Defence? 

Mrs Gillan:  I assure my hon. Friend that I am very proud of our armed services in Wales. Everyone is invited to visit the Wales Office. The people there know that one of the first things that I did was ensure that we collect and display proudly in the entrance hall at Gwydyr House—[ Interruption. ] New furniture? No. 

Mr Peter Hain (Neath) (Lab):  One of the first things she did was get a new carpet and new furniture. 

Mrs Gillan:  One of the first things I did was repair a building that was falling down, that was an absolute disgrace and that I thought dangerous. Be very careful of heckling from a sedentary position. 

I had the privilege of attending the homecoming parade for the Welsh Cavalry. I am well aware of the discussions. I have met many former members of the QDG, who have made direct representations to me. Of course, I have been discussing matters concerning defence in Wales for the past two years with the Secretary of State for Defence. I am well aware of the injuries and am very supportive of our Welsh regiments. 

Mrs Madeleine Moon (Bridgend) (Lab):  The Institute for Public Policy Research announced today that it considers that the number of people without a job for a year will rise again. Those struggling to find jobs are women, men over the age of 50 and young people. The

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Secretary of State referred to a pending decision that may impact on 1st the Queen’s Dragoon Guards. That could mean a potential 10,000 further jobs lost in Wales. What steps will the Secretary of State take to ensure that jobs in Wales do not continue to fall? 

Mrs Gillan:  I hope the hon. Lady will look at the unemployment figures that came out at 9.30 am. I was very pleased; they gave me hope and an optimistic view of where we could go. 

I have been trying to work closely with the Welsh Government on the matter. They are entirely responsible for economic development; but particularly when it comes to attracting inward investment and looking at how we can make the operating environment better for businesses in Wales in order to attract more businesses, I am second to none and will take no lessons from anyone. One of the first things I did was to ensure that my colleague Minister, Lord Green, visited north and south Wales to understand the differences within the economy and what we have to offer in Wales. 

I have undertaken a small trade mission, as part of a larger mission on behalf of the Foreign Office and others, and I am continuously looking for ways in which we can promote Wales. I look forward to seeing the full programme from the Welsh Government and their participation in the business embassy that is being run alongside the Olympic games. I hope they will be doing much of what Scotland is doing. I believe the Naval and Military Club—known as the In and Out Club—is being turned into the Scotland Office in order to promote Scotland and to participate fully in the business programme. I have not heard that the Welsh Government are doing the same but I very much hope so, because that will bring jobs to Wales and provide employment that is much needed by families, and particularly women in the work force. 

Chris Evans (Islwyn) (Lab/Co-op):  Businesses I have spoken to have reacted with amazement at some of the barmy ideas in the Beecroft report. Will the Secretary of State give a guarantee that none of his madder ideas, such as no-fault dismissal, will be contained as Government amendments in the later stages of the Enterprise and Regulatory Reform Bill? 

Mrs Gillan:  The hon. Gentleman has been around long enough to know that I cannot give him that guarantee, and it would be false of me to say so. However, his robust question and his view on the matter will be noted by my colleagues in other Departments when I draw them to their attention. 

Jonathan Edwards (Carmarthen East and Dinefwr) (PC):  We welcome the proposal in the Queen’s Speech to introduce a grocery ombudsman, for which my party has campaigned since 2005. Will the Secretary of State impress on her colleagues the importance of the ombudsman having real teeth and the ability to fine, not just to name and shame? 

Mrs Gillan:  I know that that is the view of Plaid Cymru and that it wants to see some financial penalty, but at the moment that is not an option that we are putting on the table. We have said that we will see how

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the Groceries Code Adjudicator Bill works in its current incarnation, and we hope that it will provide farmers and small businesses in Wales with much-needed protection against any over-enthusiastic actions from the large supermarkets. The hon. Gentleman’s suggestion is not on the table at the moment, but it is in reserve and may be considered in future. 

Mr David Hanson (Delyn) (Lab):  At a time of tax rises for ordinary working people, will the Secretary of State tell the Committee precisely how many people in Wales have benefited from the 5p reduction in the 50p tax rate? 

Mrs Gillan:  No, I will not, because— 

Mr Hanson:  It is 4,000. 

Mrs Gillan:  What a silly thing it is, Mr Havard, for someone to ask a question to which they know the answer. 

Jessica Morden (Newport East) (Lab):  Given what we have heard this morning, will the Secretary of State now confirm that she will not be campaigning to change the Chancellor’s mind on regional local-facing pay, in spite of her party in the Assembly? 

Mrs Gillan:  I was not aware that the Treasury had actually put forward any concrete proposals. At the moment, the proposal is out for review, and we do not know what will be proposed. However, perhaps the hon. Lady will confirm to me that she will have a cast-iron guarantee from the Labour Government in Wales that they will not be making any alterations to the pay for which they are responsible. 

Chris Ruane (Vale of Clwyd) (Lab):  Some 46% of workers in my constituency work in the public sector, and some 45% of workers in Clwyd West work in the public sector. If regional pay is introduced, the impact on individuals and on the local economy in the central part of north Wales will be devastating. Will the Minister explain the difference between regional pay and local-facing pay in terms that I can explain to my electorate? If local-facing pay is introduced, will there be sad faces in Wales and happy faces in Bucks? 

Mrs Gillan:  As the hon. Gentleman should know, geographical pay differentiation is commonplace in the private sector, with many businesses responding to local markets when setting pay. I would have thought that he needed no help in getting a definition from me, because I am sure that he knows all about it as the Labour party introduced the measure. 

Alun Cairns (Vale of Glamorgan) (Con):  Is the Secretary of State aware that the previous Government introduced a regional pay structure into HM Courts Service? 

Mrs Gillan:  This exchange seems to bear some resemblance to the Alun Michael advertising session that we had earlier on. We are repeating the same point over and over again. However, I absolutely stress that reducing overall public spending is not the aim. If the

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pay review bodies were to recommend lower wages in some parts of the country, that would not reduce overall spending, but rather allow more people to be employed in the public sector in such areas, which is important. However, the hon. Gentleman is absolutely right, and it is hypocritical for Labour Members to stand there and object to our looking into something that they introduced into the public sector. Although other people differ in their view of it, I must say that even the London weighting is a form of local market-facing pay. 

Geraint Davies (Swansea West) (Lab/Co-op):  Hewlett-Packard has ambitious plans to build an IT hub for south Wales based in Swansea and is planning to increase the numbers of highly skilled jobs by hundreds over the years. Will the Secretary of State undertake to do whatever she can to support those ambitious plans, including meeting them in Parliament—ideally before the recess—and subsequently visiting them in Swansea? 

Mrs Gillan:  I have no hesitation in saying that I will ask my office to look into what would be suitable and relevant and what I can do to help. 

Geraint Davies:  Will you speak to them? 

Mrs Gillan:  It may be me or it may be my Parliamentary Under-Secretary of State, but we will see how we can assist in some way. 

Mr Mark Williams (Ceredigion) (LD):  I understand that the Secretary of State said in her earlier answer that it has been a long wait to reach the point of introducing the Groceries Code Adjudicator Bill. Many dairy farmers have gone to the wall. I know that she is personally committed to robust arrangements and penalties against offending supermarkets. May I urge her to ensure that we have those? 

Mrs Gillan:  May I make it clear? Bearing in mind the detail of the Bill, my answer is similar to the one that I gave to the hon. Member for Carmarthen East and Dinefwr. We have said that the ability to name and shame supermarkets will be sufficient and effective in enforcing the code. However, if it becomes clear that further powers are necessary, we will ensure—and the Bill provides—that the Secretary of State has a reserve power to grant the adjudicators the power to fine. We do not believe that that is necessary now, but we are not taking the option off the table; it will remain as a reserve power. 

Ian Lucas (Wrexham) (Lab):  The UK Government plan to sack 42 of my most vulnerable constituents at Remploy in Wrexham. As a direct result of the Government’s announcement, the organisation’s main customer has terminated its contract with effect from the end of July. What is the Secretary of State doing personally concerning those 42 disabled people? Does she care? 

Mrs Gillan:  I care deeply, and I resent that sort of personal remark—it is quite unnecessary. I reassure the hon. Gentleman and the people who work at Remploy, both able-bodied and disabled. I have considered the

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statistics and the figures for each of those factories, and able-bodied people also work alongside the disabled. I have met with the Minister responsible, as has the Under-Secretary of State. The Minister with responsibility for disabled people has met with the Welsh Government. She continues to have talks and we continue to look at what we believe will be a better outcome for each and every one of those individuals. I can tell the hon. Gentleman that I have taken a personal interest in the matter from the start and will continue to do so. I hope that that is reassuring. 

The Chair:  Thank you for your co-operation in relation to the time. I apologise, because I said that I would give formal announcement about taking jackets off and all the rest of it before we started. It is fine—there is not a problem with it. I just think that some of you are rather brave, because we have not even had “vest off” day yet in Wales. It will probably be tomorrow, but it will be off in the morning and back on in the afternoon, before it starts getting darker. 

We move to the main debate. I ask for the co-operation that we outlined earlier, for short introductions, because I hope at least to get through the Front-Bench contributions before we adjourn and perhaps to start on the Back-Bench ones. Again, I am in your hands, because it depends on how much time you take for yourselves. 

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Legislative Programme and the Budget 

Main debate

10.38 am 

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

That the Committee has considered the matter of the Government’s legislative programme as outlined in the Queen’s Speech and the Budget statement as they relate to Wales. 

As I said to you, Mr Havard, I have no intention of making a speech, but I have every intention of staying throughout the debate, perhaps barring a short exit at some stage. I shall listen to the points of view, and hope to intervene when necessary. 

There was some uncouth heckling from the Opposition Benches about the format of the sitting. When we contacted the Opposition to make arrangements for today, they requested that we have both oral questions and a statement. We were happy to meet that request and we provided for my hon. Friend the Exchequer Secretary to answer questions directly, as we thought it important for hon. Members to have that opportunity. I am not dyed in the wool about arrangements for Welsh Grand Committees; I am quite willing to engage in any format. This is a different format, which was provided specifically at the Opposition’s request. I am always open to suggestions. 

Plainly, we have a very ambitious legislative programme and, I think, a very fair Budget. We have shown that we are a Government who are willing to listen and adjust what we do in response to what happens to people. An elegant example of that is what has happened on VAT. I am sure that in his first chance to do an opening speech the hon. Member for Pontypridd, who now speaks for the Opposition on Wales, will fill us with doom and gloom and tell us what a terrible Government we are, but we will listen to it, and I hope that at some stage we will be able to refute each and every point. 

10.40 am 

Owen Smith (Pontypridd) (Lab):  I do not intend to be full of doom and gloom. I merely intend to relay the facts as I see them in relation to our economy and the impact on it of the Queen’s Speech, the legislative programme and the Budget. First, I will put on the record our confusion over the suggestion that the format of today’s debate is at our request: the Opposition responded to what was put to us as a proposed programme for today. We do not have an objection to today’s programme, but it was at the request of the Secretary of State and the Government that we have the rather convoluted structure that we are grappling with. However, that is an aside. 

I wish to take the opportunity to pay tribute to my predecessor, my right hon. Friend the Member for Neath, who served in government in the Wales Office with great distinction over a long period—perhaps an unprecedented period if we add it all up—and of course he served in many other Government roles too. He has set a very high bar for me to try to reach in this position in opposition, but I shall endeavour to do that. If I ever get the opportunity to do so in the real position of

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Secretary of State, I shall once again try to live up to the standard that he has set. On behalf of all Labour Members, I thank him for all of his service. 

When the Secretary of State came to the National Assembly for Wales in May to talk about the Queen’s Speech, she commended it to the National Assembly as 

“a legislative programme to help rebuild Wales”. 

I have looked through the legislative programme in detail and, in my previous role, I studied the Budget in detail. To be truthful to you, Mr Havard, and to the people of Wales, I do not see much in either the measures in the Budget or in the 19 Bills included in the Queen’s Speech that will rebuild Wales. In rather shameful contrast, I see measures that will demolish job security for many in Wales; erode living standards for others in Wales; and chip away at the edifice of our communities in Wales. I see measures that will undermine the work of the National Assembly in trying to protect those communities rather than strengthen the foundations of our economy 

Both the Budget and the Queen’s Speech were billed as measures to increase growth in our economy. It is increasingly clear that such claims ought to be challenged under the Trade Descriptions Act. Of the 19 Bills in the speech, only two pertain to the economy: the banking reform Bill and the Enterprise and Regulatory Reform Bill. We now know a little more about those Bills, as we have seen them in rather fuller form since the Queen’s Speech. We see a banking reform Bill that has watered down the recommendations made by the Vickers commission on capital ratios and that will see banks in future holding less money in reserves than Sir John Vickers advised the Government, and we will therefore see less protection for Welsh taxpayers when it comes to the prospect of banks falling over and having to be bailed out by the taxpayer. That is the reality of the banking reform Bill. 

David T. C. Davies (Monmouth) (Con):  I congratulate the hon. Gentleman on his position. Does he think that banks should be lending more money, as most people do, or less money? If he thinks that they should be lending more money, surely he would accept that they need to be keeping less in capital reserves. 

Owen Smith:  I definitely do not accept the latter point. A clear line was drawn in the sand in the Basel III agreements. Sir John Vickers reflected that in his proposals. The Government have decided to ignore both of those and put through lesser requirements in respect of capital ratios. The key issue we must remember here is that the Government have failed to get bank lending going. Only last week we saw the funding for lending announcement, which is further admission that Project Merlin and credit easing have not worked to get funding from banks through to businesses. Crucially, it ignores the fact that it is not really a question of supply, but of demand. Right now demand is at rock bottom in our economy because business confidence is at rock bottom. I will come on to some of the evidence of that in Wales and across the rest of the UK later. 

Jonathan Edwards (Carmarthen East and Dinefwr) (PC):  I congratulate the hon. Gentleman on his elevation to the post of leader of the Labour party in Wales at

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Westminster. I am not sure whether he is number one or two in Wales—perhaps he can explain. Does he agree that what we saw during the Labour years was light-touch regulation and what we are seeing now is light-touch reform? So both parties are up to their necks in the mess we find ourselves in. 

Owen Smith:  I will resist the hon. Gentleman’s cheeky temptation on the issue of the leader in Wales, who is, of course, Carwyn Jones, and there is absolutely no question about that. We have said repeatedly that regulation was not employed rigorously enough prior to the banking crash. We have conceded that we should have done more to employ tougher, more stringent, regulation on the banks. The Government, when in opposition, at no juncture told us to tighten regulation. Indeed, siren voices repeatedly told us to relax regulation. The reality of their attitude to banking regulation is revealed in the way they have lessened the strictures that John Vickers suggested, listened to the banking lobby, listened to the financial elite in this country and failed to put in safeguards that would protect the many—the taxpayers—who have had to bail out the banks in the past. 

What about the Enterprise and Regulatory Reform Bill, the second measure that really relates directly to growth in Wales and elsewhere? That too is set to sell the pass. It was unveiled in the Budget as being about increasing the control of shareholders over top pay; dealing with crony capitalism, as the Prime Minister put it; and dealing with the fact that some of the top in that elite are gleaning rewards that do not reflect their performance. That Bill too will be watered down; the Business Secretary’s desire for more stringent measures is to be significantly diluted, and that is a further indictment of this Government and their inaction. 

Mrs Gillan:  I have been listening to what the hon. Gentleman was saying about banking. He is encouraging us to impose additional costs on banks rather faster than is proposed. If we do that it may incentivise them to increase their prices to consumers and shrink their balance sheets, or take action that may reduce lending to the real economy. That is not what we need. If that is what the hon. Gentleman seriously proposes, we are looking at a fairly dangerous policy from the Labour party. 

While I am on my feet, Mr Havard, we have in Wales an excellent example of Labour in action and in government with a legislative programme. Could the hon. Gentleman tell me what Bills in the current legislative programme before the Assembly from the Labour Government will encourage economic growth in Wales? 

Owen Smith:  I will come on to that latter point in a moment. In response to the Secretary of State’s first point, we are asking the Government to adhere to what Sir John Vickers said in the independent review on banking, which is that we should have capital ratios of 4%, not the 3% being suggested. Others on the Banking Commission suggested that perhaps those capital ratios should be even higher; the Basel III agreement suggested that they certainly should be higher. The Government are taking further risks with banking regulation and listening to the bankers and the lobby from the City instead of acting in the interests of the taxpayers. 

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The second question was about what the Welsh Government have been doing to try to encourage investment in growth in our country. I will list a few things: £55 million in the SME investment fund and the Wales economic growth fund; £30 million in Skills Growth Wales to invest in skills and training; £75 million in Jobs Growth Wales, providing employment opportunities for 12,000 people over three years; £25 million on the life sciences programme, designed to leverage a further £100 million in private capital for the life sciences in Wales; and a proposal just a couple weeks ago for a £15 billion infrastructure plan. 

Karen Lumley (Redditch) (Con):  Will the hon. Gentleman comment on the report from Ernst and Young this morning that says that Wales has attracted 1.3% of foreign-sourced companies in the past year, a drop of 50% on 2010? 

Owen Smith:  Foreign direct investment is down right across the UK— 

Mrs Gillan:  They have responsibility. 

Owen Smith:  The Secretary of State says from a sedentary position that they have responsibility. Yes, some levers are held in Wales, but critical issues, such as how much foreign direct investment we get into Wales, is not contingent on the relatively smaller and less significant levers in the control of the Welsh Assembly. The key issue is the macro-economic circumstances faced by Britain. The key to driving both indigenous growth and investment in this country and foreign direct investment is the level of confidence that this is a good place to invest because our economy is going to grow. All the evidence shows that there is no confidence in Britain as an economy that will grow, either from overseas or from the UK. If there were evidence of that, the Office for Budget Responsibility would not be suggesting that business investment was going to go up by only 0.7% this year, as opposed to the 8.9% it thought two years ago. 

Alun Cairns (Vale of Glamorgan) (Con):  I am astonished by the shadow Secretary of State’s statements. If we look at the figures for foreign direct investment, we will see that the Welsh Government have a significant part to play in the decline over recent years. There has been a confused message. The previous Administration said, quite plainly, that they did not want to attract foreign investment because they wanted to grow indigenous business. There has been an about-turn in policy. That is a confused policy, and Wales is paying the price. 

Owen Smith:  The notion that anyone in the Welsh Government has ever said that they do not want to attract FDI is complete nonsense. We may have said that we want to grow indigenous businesses, and that would be the right priority, but the suggestion that anyone in the Welsh Government would ever have said that they do not want FDI to come to Wales is arrant nonsense. 

Geraint Davies (Swansea West) (Lab/Co-op):  My hon. Friend will know that the four councils across the Swansea bay region—Swansea, Neath Port Talbot, Carmarthenshire and Pembrokeshire—want to be established as a city region. In a recent cluster group

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of business, local authorities and academia that I hosted in Swansea on that subject, all of them—including Hewlett Packard, which I mentioned earlier had ambitious plans for growth—wanted the Government to electrify the railway system from Cardiff to Swansea. Does my hon. Friend agree that, rather than messing around with all the little Bills on enterprise innovation that do frankly nothing other than to cut people’s pay, what we need is investment in strategic infrastructure that networks the south Welsh economy, particularly in the Swansea bay city region, with England and Europe? That would help to make Wales more successful in the future. 

Owen Smith:  I agree entirely with my hon. Friend. We look forward to an announcement from the Department for Transport, perhaps in the coming weeks or months, that will hopefully result in that investment for electrification of the valleys lines and the main line to Swansea, including the line through to Maesteg and Ebbw Vale, which is vitally needed. 

The Parliamentary Under-Secretary of State for Wales (Mr David Jones):  I am glad that the shadow Secretary of State acknowledges the importance of foreign direct investment. Traditionally, Wales was always the No. 1 or 2 destination for FDI, but now it is regularly either at the bottom or next to the bottom. To that extent, does he agree that it is necessary for the Welsh Assembly Government to work extremely closely with UK Trade and Investment? Will he prevail on his Labour colleague, the Welsh Business Minister, to ensure that Wales has a presence at the British business embassy in Lancaster house during the Olympic games? 

Owen Smith:  I will happily take up the invitation to talk to the Welsh Business Minister about that. I am spending each and every Monday in Cardiff, talking to all the Ministers in turn on all their portfolio issues, and I will happily take that issue up. 

The fact that Wales has gone backwards on FDI is a reflection of the changing nature of our economy. We saw very high FDI during a period in which a low value-added manufacturing economy in Wales benefited from relatively low costs in the UK. In Wales, under the auspices of the Welsh Government, we are trying to change the nature of our economy, reforming it so that we become a high value-added economy. Projects such as the £25 million life science fund in Wales are about trying to create that newly reformed economy. 

If only the Government and Ministers understood the value of such interventionist policies to stimulate our economy, but unfortunately, all we have seen in the Bills introduced in the legislative programme is a Government who do not understand action, or what they need to do to get us out of our economic situation. If they did, Ministers would be far less complacent than they are right now about sitting on the Front Bench, representing a Government who have presided over a double-dip recession. 


Mr David Jones:  Are you not ashamed? 

Owen Smith:  The Minister is the one who should be ashamed, given that he has been sitting in that seat for the past two years. He has watched our growing economy and our society that was starting to mend itself go into

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recession. That is the reality of his Government; there has been a 0.6% reduction in GDP over the past two years. That is the pathetic performance of our economy on his watch. He should be apologising, and he should be ashamed. 

Alun Cairns:  If the hon. Gentleman wants to debate GDP in Wales over the past 15 years, I will happily do so. I want to focus, however, on specific comments that he made on FDI. Will he tell me whether he thinks it was a good move or a bad move to wind up the Welsh Development Agency and the WDA brand? 

Owen Smith:  That question is entirely irrelevant to today’s debate. We are not debating the performance of a previous Labour Administration, or that of the current Labour Administration in Cardiff; the debate is about the performance of this Government on the macro-economy of Britain, and what the Secretary of State is doing to drive growth in the Budget and the Queen’s Speech. So far, we have not heard a single intervention from the Government side detailing any practical measure in the Budget that would deal with the question at hand: how do we grow our economy, improve living standards, and deliver better job security and improved wages? All we have heard from the Secretary of State and Government Members are more measures that will do none of the above. 

Mrs Gillan:  I do not think that the hon. Gentleman is making good progress. We need to remind the Committee that youth unemployment was up 40% under Labour, female unemployment was up 24%, and the number of workless households increased by 200,000. 

There are plenty of special measures in this legislative programme to promote growth. We are ring-fencing banking services and introducing the depositor preference, and we are introducing the green investment bank to promote sustainable growth. We have a new competition and markets authority that will promote competition, a reformed electricity market, and an independent nuclear regulator. A large number of measures will promote growth, which is what the Government are focused on. 

Susan Elan Jones (Clwyd South) (Lab):  She cannot even remember all of them. 

Mrs Gillan:  The hon. Lady makes a personal attack on me. Perhaps she would like to stand up and list all the pieces of legislation to promote growth that are coming out of the Labour Government in Wales, and perhaps she could list the legislative programme to show us what a great memory she has. Perhaps she remembers what the previous Labour Government did to the economy. 

The Chair:  Order. I am in a situation where what we are doing is rather innovative, and I am trying to allow both a debate and a statement to meld themselves together. The clock is ticking, however, and it is your time. Interventions should be interventions, and responses should be responses please, so that we can make some progress. 

Owen Smith:  Thank you, Mr Havard. I shall try to make some progress. 

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None of the measures outlined by the Secretary of State will do a jot for the 1 million unemployed young people in Britain, and that is the shameful truth. Were that not true, the Office for Budget Responsibility, the official independent body created by the Government represented by the Secretary of State, would surely in its calculation have anticipated growth in our economy of greater than 0.8%. That is not because the OBR did not take into account the proposals in the legislative programme or the Budget; the OBR factored in those proposals, and it still thinks that we are going to see only 0.8% growth. Even that figure may be heroic, given that the previous quarter’s growth was downgraded from minus 0.2% to minus 0.3% 

Leaving the statistics and the percentage points aside, all of that has an enormous impact on real people in our communities who face greater job insecurity and rising prices. Although we have seen some stabilisation in inflation in recent months, which is extremely welcome, the reality is that food prices, energy prices, fuel prices and everyday costs are going up for ordinary working people in Wales, and they have gone up significantly over the past few years. 

Ultimately, what does that lead to? We saw one snapshot yesterday, when the Resolution Foundation published a harrowing picture of the extent of poverty in our communities. I looked at the numbers and tried to calculate—I think accurately—the average across Welsh local authorities. On the foundation’s measure—the standard internationally accepted measure—15% of Welsh families are on the cusp of poverty. Those families are not out of work; by and large, they are in work and have been in receipt of working tax credits. Many of those families will no longer be in receipt of working tax credits after the measures undertaken by the Government in the Budget. 

That 15% figure contrasts with the 5% of families in a similar awful predicament in the Chilterns, which will be familiar to the Secretary of State. Will she reflect on those realities and ask herself, truthfully, what measures in the programme she has relayed today will make a jot of difference for those families? What measures will improve the living standards of ordinary working families in Wales? The Institute for Fiscal Studies has repeatedly pointed out that, on average, those working families in Wales will be between £500 and £700 worse off, whichever way the numbers are cut—that is not disputed by the Government or by anyone else—because of the changes made across the board to benefits and welfare. 

Dr Hywel Francis (Aberavon) (Lab):  I welcome my hon. Friend to his new position. I know his parents had great hopes for him when he was born, although I am not sure whether that was because I told them that it was the centenary of Lenin’s birth. I welcome my hon. Friend’s sober and positive analysis. Will he join me in welcoming Neath Port Talbot county borough council’s decision yesterday to give planning consent for a science and innovation campus in my constituency of Aberavon? Will he visit the campus in the coming months, before it is built, to indicate his support? 

Owen Smith:  That was an excellent proto-Leninist intervention by my very old hon. Friend—he is an old friend, rather than old in years, of course. I would be

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delighted to go to the new campus, and I join him in congratulating Neath Port Talbot county borough council on its investment. Like the Welsh Assembly Government, Neath Port Talbot county borough council understands that we need investment and economic stimulus, and that the Government’s laissez-faire policies will not result in growth in either private-sector-generated or public-sector-generated jobs or wealth in our country. Neath Port Talbot county borough council understands that a different course needs to be taken. 

Before I close my remarks, I must return to regional pay, an issue that emerged in the Budget despite the fact that the Secretary of State said earlier that she did not think that the Government were proposing anything on regional pay. The reality is, of course, that the Budget included specific plans for regional pay. Paragraph 2.9 of the Red Book states: 

“The Government has provided evidence to the Pay Review Bodies on the economic case for reforming public sector pay to better re?ect local labour markets”. 

That, in my book, is a recommendation from the Government and an indication that they think that it is a good idea. 

What I have heard from the Secretary of State today is further defence of that position and further confirmation that she and her colleagues in Government believe that regional or local pay will improve competitiveness in Wales and deliver private-sector-led growth. I put it to her that that is absolutely fanciful and, ultimately, entirely unfair. It would be grossly unfair if we pursued a policy that saw Welsh workers earning less money for doing the same jobs as workers in England. What we did in the Labour Administration with the Courts Service was very different. She will know that Labour boiled down more than 50 separate pay bands to five, which in some instances raised the rates of pay of Court Service workers to reflect local conditions. 

Mr David Jones:  That reflected local conditions. 

Owen Smith:  If the Minister is about to tell us that introducing local reflecting pay, or whatever he wanted to call it, would result in increased wages for workers in Wales, I would be delighted to hear it. I bet, however, that he will not say that. I bet that he will assume that, as the Exchequer Secretary said earlier, we would see less pay for public sector workers in Swansea, Newport or elsewhere in Wales. He can disagree with me if he wants. 

Mr David Jones:  Given that the hon. Gentleman does not yet know what the proposal is, why is he dismissing it? 

Owen Smith:  The proposal is already fairly well sketched out. If the Minister wants to tell us that he thinks that a reasonable interpretation of the documents produced to date, or of the statements made by the Government, is that we will see increased wages for public sector workers, I would be delighted to hear it. I do not think, however, that anyone out there in the real world—whatever the semantics and logic-chopping of the arguments that we hear from the Minister—or anyone in Wales feels that regional pay will benefit Welsh people. Everyone thinks that it will result in lower wages. If he wants to intervene and tell me that that is not the case, I would be delighted. 

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Jonathan Edwards:  The reality is that when the Labour party was in power, it introduced regional pay for the courts and for others. I notice that there is a debate on this issue on the Floor of the House today, as well as on the closure of Remploy factories. The Labour party closed my Remploy factory in Brynamman. Is not the reality that, were the hon. Gentleman in government, the only difference would be that he would be on the other side of the Chamber? He would be in exactly the same boat as the Secretary of State. 

Owen Smith:  I wish I had not given way now, because that was nonsense. The key difference between us, Plaid Cymru and the Government on this issue is that we still believe in national pay bargaining across the whole UK. That is the benchmark against which the Government have to be measured. Any suggestion from the Government that we should reduce the value of national pay bargaining, with the result of more unequal, disaggregated pay across the UK, will be opposed by this party in debate here and wherever else we debate it. 

In conclusion, we do not see any measures from this Government to improve growth in Wales. That is not a gloomy view; it is a realistic view. In stark contrast, we see in Wales a series of measures—I outlined them earlier—investing in Wales, seeking to stimulate and reform our economy. That is the difference that the Secretary of State should reflect on. She should also reflect on her duty to speak for Wales when she is at the Cabinet table, to understand the needs of ordinary Welsh people who are suffering under her Government, and to speak for them. She says she does, but there is little evidence of that to date. Perhaps we will see a change in the coming months. 

11.9 am 

Jonathan Edwards:  I am grateful for the opportunity to contribute to the debate and make some comments on the recent car-crash Budget—a Budget that has seen more U-turns than an alpine hill climb in the Tour de France. Part of me thinks that those U-turns have been an act of genius, because all the fanfare has concentrated on pasties, caravans and charity donations. The real, major policy, and by far the most politically significant element of the Budget, which we have not seen a U-turn on, is the tax cut for those who earn more than £3,000 a week. One act has smashed the coalition’s most successful propaganda line: “We’re all in this together.” 

The announcement was made at the same time as the announcement of a further cut of £10 billion in the social protection budget from 2013 onwards, leaving the clear impression that tax cuts for high earners were being funded by cuts in welfare provision for the poorest in society. Considering that the human cost of the great recession since 2008 is rising unemployment, pay freezes for those in employment and real-terms reductions in the living standards of ordinary working people, a tax cut for high earners showed us exactly the priorities of the political elite here in Westminster. Labour MPs, with the honourable exceptions of the hon. Members for Newport West and for Bolsover (Mr Skinner), missed the key vote on the issue. 

However, the real decisions on economic policy were made during the general election of 2010, in which the key dividing line between the parties was the rate of

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deficit reduction. The Tories argued that the deficit needed to be eliminated in one parliamentary term; Labour and, at the time, the Lib Dems argued that it should be halved. I personally agreed with the comment made by the right hon. Member for Morley and Outwood (Ed Balls) during his ill-fated leadership bid: even the Labour argument, which would have meant cutting harder and faster than Thatcher, was over-optimistic. 

Although the Tory line was a good political dividing line, as it served to undermine Labour’s hard-won and misplaced reputation for economic competence under the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), it was economically stupid. UK debt matures over a 14-year period, so there is no reason to get rid of the deficit within four years. Total debt as a percentage of gross domestic product at the time of the Westminster election was 71%—only 11% above the fiscally conservative European Commission debt reference level under the terms of the Maastricht treaty. Considering the scale of the economic downturn that we witnessed in 2008, there was no reason whatever to push the panic button. Indeed, when the NHS was created in 1947, debt as a percentage of GDP was well above the 150% mark. 

Without challenging the Lib Dems to explain their complete change of heart on the key political dividing line at the last Westminster election when they entered Government, we can say that that fundamental decision has shaped the direction of domestic political travel since. In his years in opposition, the Secretary of State for Business, Innovation and Skills wrote a whole book, “The Storm”, warning about overt fiscal consolidation. As it happens, I have a signed copy, and I was amazed to see him on “Newsnight” the week after the election explaining why he had now come to an agreement with the Tories on a very extreme deficit reduction policy that is seen across the world as a great experiment. 

The Office for Budget Responsibility predicted after the general election that growth in the UK economy by the end of this year would be 2.8%. As a result of this year’s Budget, it reported that growth would be only 0.8% by the end of the year. That is a disastrous reflection on the policies pursued by the Treasury. 

There was a secondary motive, of course. By talking up the severity of the position of the public finances, the Tories could justify their life’s ambition of declaring war on the public sector. A war on waste was declared, and ever since the creation of the new Government, Ministers have been competing for the biggest right-wing press headlines. To sell that perception, the Tories ludicrously equated the finances of the state to those of a household. As a political strategy at the time of the general election, it worked beyond all expectations. However, in the case of a nation state, reducing expenditure can lead directly to a reduction in income. In addition, it cannot possibly take into account the effect that income generation and expenditure has on overall economic growth and the fine balances that need to be achieved. 

Labour’s great mistake at the time of the election was to engage in a Dutch auction with the Tories, which led to an orthodoxy quickly developing about the need to tackle the deficit first, rather than getting the economy back on the road to sustainable growth. 

Let us return to the present. It is clear that the Treasury’s economic course is reducing growth. We are in a double-dip recession, and it looks as though there

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will be a period of prolonged stagnation or, at best, below-trend growth. The competing narratives at the moment seem to be either that it is all Europe’s fault, or that there is a double-dip recession made in Downing street. There is an element of truth in both, but clearly the latter is more important. By slashing public investment in the economy at the rate that they have chosen to, the Government are sucking demand out of the economy. 

Jonathan Evans (Cardiff North) (Con):  I respect the hon. Gentleman’s knowledge of economic matters, but he is, in a sense, being economical about events that have occurred since the election. He will know that the Government had to pay a significantly higher rate of interest on the sale of Government bonds at the time of the election in 2010—a rate similar to Spain’s. Looking across Europe, what has happened to that rate in the UK, and how has that compared with what has happened in almost every other country in Europe? 

Jonathan Edwards:  The hon. Gentleman and I have had a few jousting sessions on the radio, and we have had some interesting debates. I will address some of the issues he raises later in my contribution, if he will hang on. 

There are four main drivers of economic growth. One is public investment, which is being cut by £83 billion in real terms during the comprehensive spending review. That is a huge economic headwind. The second is consumer spending. The Labour years saw massive asset bubbles based on personal debt and house prices, and total personal debt is equivalent to 100% of gross value added in the UK, at an incredible £1.4 trillion, so there will not be a consumer-led recovery in the next few years. The third main economic driver is exports. The strategy in the UK is being sold on the example of Canada in the 1990s, but the major difference is that Canada was exporting to a booming US at the time. The major problem that the UK economy faces is that our major trading partner, Europe, is in even more difficulty than we are. The fourth driver is private investment. As a result of a lack of confidence in the economy, private businesses are sitting on their cash. They are not using that money to invest in the economy. It is difficult, therefore, to see where the growth will come from in the next few years. 

Basically, we are in a Blanchflower-type death spiral. The only way out of it, as argued by Nobel prize-winning economists such as Krugman and Stiglitz, is for the Government to pursue a policy path that we have been advocating since 2008, based on ensuring that there is infrastructure investment to stimulate demand. That would require direct Government spending, which would stimulate private investment. We have to learn the lessons of the great depression. We cannot cut our way out of a severe economic downturn. The hon. Member for Cardiff North mentioned the low interest rates in the UK. They are a direct result of the troubles in Europe, because investors pump money into the UK, rather than a reflection on the Treasury’s policy. With those interest rates at an all-time low, now is the time to use that money to invest in infrastructure and stimulate demand. 

Jonathan Evans:  I do not want to delay the Committee, but I think it is worth making the point that Joe Stiglitz, whom the hon. Gentleman quotes as an authority, has for the past three years been the advisor to the Greek Government. 

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Jonathan Edwards:  Stiglitz also said—I have quoted this many times—that negotiating with markets is like negotiating with a crazy man: you may give him what he wants and he may still shoot you. That is what has happened in Europe and might well happen in the UK. I notice that the credit rating agencies are already downgrading the forecast for growth and suggesting that the triple-A credit rating is under threat. 

The pity is that the Government seem to be obsessed with supply-side reforms in the economy; there were the infamous Beecroft recommendations recently. As Naomi Klein argues, the political right never lets a good crisis go to waste. It is completely the wrong policy response, and unless the Treasury stimulates demand, things will get far worse. “Sack on the spot” would be a further erosion that would suck demand out of the economy, because working people will be afraid of losing their jobs and will not spend any money. 

I would like to concentrate the remainder of my remarks on the content of the Budget. The most worrying aspect, as far as we are concerned, is the implementation of localised pay, although there are rumours in the press that there might be a U-turn on that. I was somewhat bemused to see the First Minister claiming immediately after the Budget that he had single-handedly defeated regional pay, and I respectfully request that the No. 1 in Wales makes a bit more effort to get out of Cardiff Bay. Labour introduced regional pay for court workers and prison workers, and its hysterical opposition to the Treasury’s proposals reeks of hypocrisy. That is another good example of the Labour-Tory tag team in operation. 

Mr David Hanson (Delyn) (Lab):  As the hon. Gentleman knows, I oppose regional pay. His party is called Plaid Cymru, “the party of Wales”, and he seeks ultimately to have an independent Wales. Is that not surely, downstream, independence? 

Jonathan Edwards:  If pay devolved to the Welsh Government, that would become national pay, would it not? Indeed, that point was made by the First Minister when the ideas were first mooted during the pre-Budget report. The First Minister—the leader of the Welsh Labour party, the No. 1 in Wales—was calling for the devolution of pay, which is exactly what the Tories want. Why is the right hon. Gentleman doing a U-turn? 

Mr Hanson:  In my constituency, 3 to 4 miles from the English border, people who live in the town I live in, Flint, work in England and Wales. They do the same job in both, and they should not be paid differently for doing equal work. Under his proposals, as well as those of the Government, that will ultimately be a possibility.  

Jonathan Edwards:  The right hon. Gentleman obviously has expert knowledge of the situation, because he introduced regional pay for court work. That is exactly what has happened with regard to court work in Wales. 

Regional or local pay will institutionalise many Welsh communities as low-pay areas, lead to a brain drain of our best public sector workers and also hit the private sector, as there will be less disposable income and less money circulating in local economies. I have some sympathy with the argument regarding differing costs of living,

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particularly housing cost; I believe that that was the rationale used by the Labour party in its early days in government and by the current Government to introduce the policy. However, the way to address that seems to be to introduce rent caps, in particular in the private rented housing sector, as in New York and countless other parts of the world, including the Republic of Ireland. That would regulate living costs, help control housing benefit bills and curb housing speculation. It seems to be complete no-brainer and a win-win. 

We welcome the rise in the personal income tax allowance in the Budget. It was a clear policy that we had, going into the general election, and it looks like the only red line the Lib Dems will keep to in their five years in coalition. I congratulate them on that small victory. 

I fear that the Treasury has scored a massive own goal with the removal of age-related allowances, which basically means a tax increase for pensioners. Her Majesty’s Revenue and Customs estimates that 4.4 million people will be worse off in real terms in the next financial year. 

Mr Peter Hain (Neath) (Lab):  I agree, as would the Labour party, with the hon. Gentleman on many of his attacks on the Budget. However, on pay, I must point out to him that an independent Wales would set its own pay. Is he seriously saying that pay rates for nurses, teachers and police officers in an independent Wales would be higher than in the rest of Britain? Of course they would not be. There would be pressure on them to downgrade. 

Also, I take this opportunity, since I cannot be here this afternoon, to thank the Secretary of State for her gracious remarks, and my hon. Friend the Member for Pontypridd for his warm words. I wish him all the best. After seven years as Secretary of State and two years as a shadow of my former self, I am happy to give way to him and his youthful dynamism. I think he will be the Secretary of State for Wales after 2015. 

Jonathan Edwards:  In Scotland, where such issues are devolved, the pay levels of police and health workers are higher— 

Mr Elfyn Llwyd (Dwyfor Meirionnydd) (PC):  And it is not even independent yet. 

Jonathan Edwards:  It is not even independent yet. 

Hywel Williams (Arfon) (PC):  On the subject of Scotland, the Ernst and Young report today says that the Scottish Government have been the most successful in the UK in attracting foreign direct investment and job creation. I wonder what my hon. Friend ascribes that success to. 

Jonathan Edwards:  That is an extremely interesting point. It seems that if we follow the Labour party’s line of thought in today’s debate, which is “London bad, Cardiff good”, it is making a case for more economic powers for the Welsh Government. I would like to see the Labour party develop that thought and provide some evidence to the Silk commission, which is under way. 

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Mrs Gillan:  I have been following the hon. Gentleman’s speech with interest, but I do not think that his aspirations are workable. He will be pleased to know that UK Trade and Investment has offered to put a permanent UKTI representative in Treforest, in the Welsh Minister for Business, Enterprise, Technology and Science’s organisation there, to try to ensure better co-ordination. That is something that I have been pushing and shoving quietly at for a long time, because I think it is important. If, through the Welsh Development Agency, Wales was able to attract some of the biggest and best businesses in the world over its borders, there is no reason why Wales cannot do that again. I want to give it a fair wind and every chance, and I hope that he will welcome close

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working, and the hand of friendship that I offer to the Welsh Government, despite the politics, so that we can try to achieve that together. 

Jonathan Edwards  rose—  

The Chair:  Order. We have exhausted the time available for this morning’s sitting. You will have to wait until 2 pm this afternoon for the excitement of the answer. 

11.25 am 

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

Adjourned till this day at Two o’clock.  

Prepared 21st June 2012