Araith Uwch Bwyllgor Cymreig – Cyllideb 2014

It is a pleasure to serve under your chairmanship this morning, Mr Havard.
Since we returned from the Easter recess, Welsh affairs have been dominating Parliament. We have had two days of the Wales Bill on the Floor of the House; last Thursday, we had two debates in Westminster Hall on inquiries conducted by the Welsh Affairs Committee into the bedroom tax and the Work programme; this morning, we have the debate in the Welsh Grand Committee; and simultaneously, some of our colleagues are debating the future of S4C in Westminster Hall. If we continue at such a rate, we will have to start making the case for more Welsh MPs. With Mr Cornock, Mr Williamson and Mr Phillips in attendance, I hasten to add that I say that in complete jest—[ Interruption. ] We need more Plaid Cymru MPs anyway, but that is another matter.
On assuming office in 2010, the Chancellor embarked on a ruthless austerity experiment with two goals: first, to eliminate the annual deficit in its entirety before the end of the Parliament in 2015; and secondly, to maintain the triple A credit rating. With those goals, the UK Government have failed completely. The triple A rating has been lost—without the resulting hike in borrowing costs that proponents of austerity argued would be the case—and the deficit is not now due to be eliminated until 2018-19, and even then only after more spending cuts.
Many economists and politicians such as myself were critical of the fiscal strategy pursued by the Treasury, on the grounds that it would reduce demand in the economy and hence performance, and that would exacerbate the deficit as a result of reduced tax receipts and increased welfare costs. The OBR is now forecasting a deficit of £110 billion for 2013-14, as compared with the £60 billion predicted in 2010. On a purely fiscal front, therefore, the Osborne plan has failed, and that is before the majority of the cuts feed into the system.
David T. C. Davies: The hon. Gentleman obviously has a concern about the high level of the deficit, which I share. Should the cuts have been faster and deeper in order to eliminate the deficit more quickly?
Jonathan Edwards: My case is that the speed of the cuts proposed by the Chancellor has failed to achieve the goals set, so a programme of even greater austerity
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would have been more disastrous, with even poorer economic performance results than we have seen to date.
Less than 46% of the fiscal tightening was planned to be achieved by 2013-14, and most of the progress to date has been achieved through tax increases. Only 36% of cuts, excluding social security and debt interest, will have taken place by the end of the 2013-14 financial year. Given the increased importance of public sector jobs in the Welsh economy, there is therefore some concern that the worst of austerity in terms of those public sector job losses is yet to happen. I acknowledge, however, the welcome news that private sector employment for Wales as a whole seems to be performing better than for the UK. Having said that, I echo the points made by the hon. Member for Newport East, who has just left her place.
Yesterday, the front page of The Independent was about a report by the Resolution Foundation: the self-employed who have led the job growth in the UK economy now equate to 15% of the UK work force, or some 4.5 million individuals, but they are earning 20% less than they were in 2008.
Huw Irranca-Davies: Does the hon. Gentleman agree with my earlier suggestion? When we have the bland quotation of claimant count statistics, we ought to challenge them at every opportunity, because of what lies underneath those statistics—exactly the same as back in the 1980s.
Jonathan Edwards: I fully agree. The Resolution Foundation report makes that case clearly. When statistics are announced by the UK Government, we must scrutinise them in great depth.
The length and depth of the great recession raises concerns that much of the economic capacity built up prior to the crash has been lost for good. Incredibly, UK GDP is 14% below the trend level it enjoyed prior to the economic crisis. It is still lower than its previous peak in 2008, making this recession hugely unusual. The GDP graphs for all the economic downturns of the past century show that at this stage in the cycle GDP should be much higher than the pre-crash level. Normally, there is a U or a V-shaped recession, with a sharp downturn followed by a short period of contraction and a quick uptick. Since 2008, we have had an L-shaped recession—there was a sharp contraction and we have been bumping along the bottom for five or six years.
We were promised a geographical and sectoral rebalancing of the economy in 2010, but there has been precious little progress in either. The economic growth in the past year has been driven by consumer spending, fuelled once again by a house price bubble that is largely focused on London. There are four elements of economic performance, and austerity has led to a reduction in public investment. Echoing the points made by the hon. Member for Pontypridd, according to the ONS’s latest data the UK’s goods exports slumped to a three and a half year low of £23.5 billion in February—the lowest level since November 2010. Business investment fell by 25% between 2008 and 2013, and the UK was ranked 158 out of 173 in the global league table in 2012.
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The fourth element of economic performance is consumer spending, which accounts for more than 60% of the UK economy. I fear that the Government are repeating the mistakes of the past. As I said last Thursday in Westminster Hall, the current consumer spending and house price inflation bubble is happening at a time of stagnant wages, which means growth is being driven by increased personal borrowing. In 2008, the level of families’ borrowing was 100% of gross value added—the worst in the western world—and we are getting back to that level under this Government. The hon. Member for Cardiff North is not in his seat, but in debates on the Budget in the Welsh Grand Committee soon after the election he described that as the big elephant in the room. It continues to be the big elephant in the room for the UK economy.
Geraint Davies: Does the hon. Gentleman agree that the fact that banks are investing in mortgage lending at 2008 levels, while lending to businesses is 30% down, house prices are rising and real wages are falling means that when the interest rate goes up, as it will when unemployment falls below 7%, we will have a sub-prime debt disaster? We will see it all again, but much worse.
Jonathan Edwards: I share those concerns, which we debated last Thursday in Westminster Hall. It is even more unsustainable than the situation that we faced in 2008 with the disastrous bubbles built up under the previous Labour UK Government. The only hope for the Treasury and the Chancellor is if the increase in business confidence, shown by industry surveys, results in increased business investment and if the improved outlook for the eurozone, reported yesterday in the Financial Times , results in increased exports.
Before I deal with the actual measures in the Budget, I want to make the point that the economy is on the life support mechanism of ultra-loose monetary policy and the effective printing of money via quantitative easing.
Geraint Davies: On the point about increased confidence in Europe, does the hon. Gentleman agree that companies based in Wales, such as Airbus, Ford and Unilever, which should be increasing production to meet that demand, are now thinking of moving that production to mainland Europe because they are worried about the risk that a referendum will lead to us exiting the EU? Therefore, Tory policy is costing us jobs now.
Jonathan Edwards: That is an interesting point. We deliberately launched the Plaid Cymru manifesto for the European election at Mitsui Components, a factory in Capel Hendre, the village in my constituency where I was born, which employs more than 100 people living within a 10-minute commute of the Amman valley. It located in the Amman valley specifically because we are a part of the European Union. If we were not in the European Union and there was no access to the single market, we would not have those 100 jobs. I am very concerned about UKIP’s drive towards a referendum, and that the Conservatives, in particular, are playing to that gallery. The UK Government are playing with fire when they try to appease UKIP voters.
Huw Irranca-Davies: May I reiterate the comments made by my hon. Friend the Member for Bridgend and draw the hon. Gentleman’s attention to the comments
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made by the head of European operations of Ford, which employs 15,000 people in Dagenham and in Bridgend—it is a big employer in Bridgend? He said:
“I don’t want to threaten the British government”,
but went on to talk about the implications of toying with the idea of withdrawing from Europe.
Jonathan Edwards: I am grateful for that intervention. There is a need for pro-Europeans such as ourselves to start making the case for Europe. If we allow the right-wing media and UKIP to dominate the agenda there is a big danger that public opinion will form behind them.
I am very concerned about an in/out referendum. I am even more concerned about an in/out referendum based on a renegotiation in which the Westminster parties make the case to repatriate regional funding and agricultural support—two budgets that provide the communities I represent with a huge amount of funding to sustain the local economy.
Mr David Jones: Just to clarify the position, is it the case that Plaid Cymru does not believe that the people of Wales should have a vote on continued membership of the EU?
Jonathan Edwards: I am certainly not in favour of a referendum based on a renegotiation. If it was a case of a referendum on staying in with the status quo versus leaving, I would be happy to fight that campaign, but if it is going to be based on a renegotiation in which the UK Government want to repatriate regional funding and CAP funding, it would be, “Heads you lose, tails you lose,” as far as the communities I represent are concerned—although I am not sure how I managed to get into a debate on Europe when I am trying to talk about monetary policy.
The Chair: Order. Quite, Mr Edwards. Will you come back to the subject, which is more narrow?
Jonathan Edwards: I will take your guidance, Mr Havard, and concentrate a bit more on monetary policy.
Mr Mark Williams (Ceredigion) (LD): The hon. Gentleman mentioned agricultural support. Does he agree—I suspect he does—with the deep unease at the prospect of a referendum that has been expressed by the president of the Farmers Union of Wales, among others? Like me, the hon. Gentleman represents an agricultural seat and will know that there is deep unease about this matter.
Jonathan Edwards: I certainly share those feelings. I remember attending a meeting with the Farmers Union of Wales some years ago to explain the dynamics at play. I am glad that the Labour party seems to have ruled out holding a referendum, as I was concerned that it would jump on that bandwagon and make that referendum based on renegotiation inevitable, and along with it the loss of those two budgets, which are vital to the communities that the hon. Gentleman and I represent.
I was saying that the economy is on a life support system of ultra-loose monetary policy: interest rates are at a sustained record low and we have the printing of money via quantitative easing. At some stage, as the hon. Member for Swansea West said, interest rates will
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have to normalise and increase, thereby increasing the cost of borrowing. That will inevitably create a serious headwind for the UK economy. Conveniently for the Treasury, the Bank of England has decided that it will not increase interest rates until after the next election to Westminster. Although Tory Members, and some Lib Dem MPs, try to claim credit for recent economic news, I and others will be painting a more cautious picture as we approach that election.
Economies always recover from recessions. The big issue with the last recession is why it has taken so long for us to get back to the previous peak. That is unprecedented in economic history. The real economic debate for when we face the election, however, is not about what has happened in the past few years but about who benefits from the recovery as we see improvements in the outlook for the economy and for employment. Following the great depression in the 1930s, successive US Administrations, along with Congress, launched new deal initiatives, focusing on what historians call the three R’s—relief, recovery and reform. Those were: relief for the unemployed and poor; recovery of the economy to normal levels; and reform of the financial system to prevent a repeat depression.
Roger Williams (Brecon and Radnorshire) (LD): Will the hon. Gentleman give way?
Jonathan Edwards: Let me finish this point. We require a similar transformative zeal in response to the great recession. Unfortunately, we are seeing a return to business as usual.
Roger Williams: The hon. Gentleman is quite right that recovery is such an important part of this issue, and that means more employment. At the previous election, the Labour party put forward policies to increase employer national insurance contributions by 1%. I was pleased that the coalition Government refused to go down those lines. We have now introduced a £2,000 rebate on employer’s national insurance for every business. Does he not believe that that is a real incentive for people to take on more employees?
Jonathan Edwards: I have welcomed those measures during my time here in the House, because we are essentially talking about a tax on jobs. I will talk specifically about the £2,000 allowance later in my contribution when I move on to the points that I welcome in the Budget, and I want to raise one point about that on which I hope the Secretary of State might be able to offer some guidance.
The economic debate that will dominate the next Westminster election will be about how we rebalance the economy on a sectoral and a geographical basis, and how we share the proceeds of increased wealth more equitably. Needless to say, I argue that an economic recovery based on the same old failed boom-and-bust models of the past, with increasing wealth polarisation at geographical and individual levels, is wrong. It would certainly be a failure as far as Wales was concerned. I read with great interest a story in the Daily Mail yesterday—not that I am an avid reader of that newspaper—based on the EUROSTAT figures, which once again indicated, unfortunately, that the communities
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that we represent in west Wales and the valleys are poorer than some of the former communist countries. There is something radically wrong with the UK economic model, which is why my colleagues and I would have liked to have seen a far more robust Wales Bill empowering the Welsh Government with far more job-creating levers to drive economic growth in our country.
Returning to the Budget, my parliamentary leader always tells me that I need to be a bit more positive, so I shall mention the measures that I welcome in the Budget. We support the increase in the income tax personal allowance to £10,500. We support the introduction of the £2,000 employment allowance in April 2014. However, I have received representations from independent pharmacists in my constituency who are not eligible for that allowance. The Treasury argues that they are public sector contractors, and therefore are not eligible. The pharmacists, however, argue that they do not receive an NHS salary or pension, and that that £2,000 allowance would enable them to invest in their businesses, which would have wider health and well-being benefits for the economy and increase economic performance.
Mr David Jones: I am grateful for the point that the hon. Gentleman makes. As the son of a pharmacist, I invite him to write to me about the matter.
Jonathan Edwards: I would be more than happy to do so. I have already written to the Treasury, and I will ensure that the Secretary of State receives a similar letter.
The Treasury has doubled the annual business investment allowance to £500,000 until the end of 2015, another encouraging measure that I hope will lead to increased business investment. We know that businesses are sitting on hoards of cash. A real indication of the health of the economy is whether business investment levels increase substantially, albeit from a very low base that is, as I said, among the worst in the world. My question to the Treasury is: why has it taken so long to come up with such a measure?
We welcome the measures concerning export finance, which will increase the direct lending programme to £3 billion. However, I ask the Secretary of State to make his best efforts to ensure that Welsh companies get a fair share of that lending. We welcome the provisions in the Budget to raise stamp duty for corporate purchases of housing, but I look forward to Royal Assent on the Wales Bill, which will give the Welsh Government the ability to introduce innovative policies, if they so decide, to curb speculative behaviour in the housing market. We also welcome the increase in the ISA allowance to £15,000, and the abolition of the 10% tax rate on savings. We agree that we must encourage as much investment by individuals and families as possible.
Mr Jones: The hon. Gentleman rightly mentions the importance of the housing market. Does he agree with the points that I made earlier about the fact that the Welsh housing market is being significantly depressed by the over-regulatory policies of the Welsh Government?
Jonathan Edwards: That is certainly an interesting point. I am not sure what my colleagues in the Assembly did in relation to the measures that the Secretary of
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State has mentioned; we probably supported them. I have received representations from developers about the matter, and I have an open mind. I have yet to come to a firm conclusion, and when I do so, I will let the right hon. Gentleman know. That is the sign of a healthy debate. If there is evidence that it is affecting house building, clearly we need to analyse the National Assembly’s policy.
Huw Irranca-Davies: On that point, while it is worth having a debate on the right balance between measures imposed on new as well as existing housing stock, I assume that, like me, the hon. Gentleman would support measures to increase the energy efficiency of our housing stock in Wales, which is among the worst in the United Kingdom, so that people could afford to pay their bills, and to provide new housing in the future. I assume that the Secretary of State is not arguing against good regulatory measures on housing stock.
Jonathan Edwards: That would certainly have benefits in terms of the huge fuel poverty levels we have in Wales, but, as with all of these matters, the issue is about hitting a fine balance. As I am not a National Assembly Member—such issues are decided on a pay band far higher than that of me and my Westminster colleagues—I admit that I have not studied them in any great detail.
The Government set the level of the welfare cap from 2015-16 to 2018-19 in the Budget. That is a pernicious political measure. If we have another economic crisis and unemployment increases, there will be less money for more people. A better way to reduce the welfare bill would be: to create jobs through investment in infrastructure; to cap rents; and to invest in social housing to tackle the rising the housing benefit bill. Despite all the regressive measures, the Office for Budget Responsibility projects that that bill will be more than £1 billion. It would also be better to have a living wage to ensure the end of subsidising poverty wages through working tax credits. We were surprised that the Labour party voted with the Tories for the cap and that, should it form the next UK Government, it has pledged to match those spending policies.
We disagree with the real-terms cuts to public sector workers’ wages announced in the Budget, with an increase of only 1%. Again, we are seeing public sector workers paying the price for the mistakes made by the financial sector at a time when bankers’ and executives’ pay is rocketing. That shows that we are far from being all in this together.
The Budget’s signature policy was the measure to abolish the need to purchase a pension annuity. No one here will defend the current annuity market. However, I am concerned that individuals might make significant draw-downs and use that money to buy property and further fuel the housing bubble, seeing that as a more attractive return on investment than accruing money in a pension pot. That may result in even more buy-to-lets, a bigger property bubble and the distortions we see currently in the housing market. An alternative to the measure to abolish annuities could have been to tackle the skimming that has been going on in the pensions industry for decades and to regulate the industry better to ensure that people got better value for money.
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On measures that we would have introduced, should we have been in such a position, I have long championed the case for an economic fairness Bill to rebalance the economy on a geographical andsectoral basis. That would place statutory duties on central Government Departments, such as the Department for Business, Innovation and Skills and its agencies, to distribute wealth geographically across the British state. That has been done in Germany. The UK is by far the most unequal country in the European Union in terms of regional wealth. It is more unequal than Germany, which was literally divided by a wall for decades but has managed to tackle those issues. UK Trade & Investment should follow the example of its German counterpart, Germany Trade & Invest, and manoeuvre foreign direct investment into the poorest parts of the state, instead of the free-for-all approach we have at the moment, which inevitably means that foreign direct investment is concentrated in London and the south-east.
We would like to see the creation of a bank for Wales—a Welsh public development bank to lend to small and medium-sized enterprises and local industries. I appreciate that that is, in particular, a matter for the National Assembly, but I was visited by a business man last weekend who is developing a business manufacturing élite bicycles, which is a huge growth market. Whenever I go around my constituency—[ Interruption. ] Well, I do try to cycle sometimes, but not as much as I would like—although I have bought a new road bike, so I have little excuse not to get out more often.
That business man is developing élite bicycles, which is a huge growth market—for instance, Leekes, the great department store in Cross Hands, has got rid of its golf department and now has only a cycle department in its sports section, which gives an indication of the direction of consumer habits—yet he has failed to get any support from the Welsh Government’s structures, namely Finance Wales. It offers loans, but he could get more competitive rates from commercial banks. He needs a one-off grant investment to help him develop his business to the next stage.
Mr Llwyd: Does my hon. Friend agree that we need to look back at some of the successes of the Welsh Development Agency and the Development Board for Rural Wales? They targeted small and medium-sized enterprises and were easy to deal with. Yes, they were quangos, but they did a good job of work. I hope that at some point someone will seriously consider emulating the good work they did. It would certainly increase productivity and improve the economy of Wales.
Jonathan Edwards: My right hon. Friend has always championed the work of the Development Board for Rural Wales, which was led, of course, by the hon. Member for Montgomeryshire. The point that we are making is that we need more flexible financing and funding structures to help businesses develop, and my right hon. Friend has only good words for what the board achieved. That is why our party now advocates the creation of a business bank to make those private decisions, rather than civil servants working in the Welsh Government.
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We would have introduced a financial transaction tax, and increased the top rate of income tax to 50p again. I tabled amendments to the Finance Bill a few weeks ago and was glad to receive the support of more than 231 Members of Parliament for that policy.
We would have introduced a fuel duty stabiliser mechanism to address some concerns to do with fuel price increases, which would be far more sustainable and long term than the piecemeal approach of the UK Government. We would obviously scrap Trident renewal, which would save £100 billion over the project’s lifetime. We would scrap higher rate relief for pensions. That would save £7 billion for the Treasury.
We would increase and improve strategies to tackle tax avoidance and evasion. I welcome the fact that the UK Government have taken some steps to deal with it. However, they are drastically cutting the resources of HMRC—the very people in whom we should be investing to tackle the tax gap, which is estimated to be at least £35 billion per annum.
We would also support the Labour party’s policy of introducing a mansion tax, but we would deliberately exclude productive agricultural land. There is a danger, without an exclusion, that many agricultural businesses in my constituency might get caught up in that tax. We would want specific Government measures to work towards a living wage. That would reduce dependency on tax credits and in-work benefits such as housing benefit, as I mentioned earlier.
We would want swift adoption of the Silk commission part 1 recommendations, some of which have been included in the Wales Bill. For the second year running I moved an amendment to the Finance Bill on devolving air passenger duty, and unfortunately we lost for the second time, but that was something cherry-picked from the Silk commission and has not been included in the Wales Bill. We believe it should have been devolved to the Welsh Government, especially now that we own our national airport.
Geraint Davies: Would the hon. Gentleman support London having devolved air passenger duty for Heathrow? Does not he see that there would be a copycat effect? The same applies to stamp duty. Boris Johnson is jumping up and saying he wants £1.3 billion for that. Does not the hon. Gentleman see any problems?
Jonathan Edwards: I am making the case for and fighting for the national interest of Wales, and all those recommendations were made by the Silk commission, which the hon. Gentleman’s party signed up to fully. It is disappointing that it has not used the Wales Bill, as we have, to try to preserve the integrity of those recommendations; that was of course a compromise for all the parties in Wales. Instead, the only Labour amendments have been wrecking amendments, putting further road blocks on the Wales Bill.
A matter of concern about the Wales Bill is the fact that the measures included in it will not be devolved until 2018. We are concerned about the lockstep. It makes it virtually impossible to use those powers. The only benefit I can see in holding a referendum with the lockstep model is the increased borrowing capacity that would be available to the Welsh Government should the referendum be won; but it is highly losable, and the drafting of the Bill has created a world of problems. Perhaps that was the intention of the Secretary of State.
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We want the reform of the funding formula. I was interested to see the shadow Secretary of State for Scotland, the hon. Member for Glasgow East (Margaret Curran), on television over the weekend saying that the Labour party completely oppose reform of the Barnett formula.
Owen Smith: The hon. Gentleman will know that my hon. Friend the shadow Secretary of State for Scotland said that we would nevertheless be dealing with the specific problem of Barnett as it relates to Wales and the underfunding that Holtham and others have referred to.
Jonathan Edwards: I did follow that, and I have to admit that the Barnett formula is extremely complicated. I would not profess to be an expert in it; there are probably only about three people in Wales who do understand it.
Owen Smith: Name them!
Jonathan Edwards: Gerry Holtham, Eurfyl ap Gwilym, and probably Ian James Johnson, who served the Plaid Cymru parliamentary team with great distinction before he went to work for the Assembly group. I am not clear how that would work, to be perfectly honest. It seems to me that the Labour party, in order to preserve its position of opposing Barnett reform in Scotland and in trying to protect the statements that the First Minister has been making every week in the National Assembly, has now come up with some sort of hash of a statement, which means nothing—it is jam tomorrow. I would be grateful to see how that would work in practice.
To conclude, the next UK election will be fought once again on the economy and I look forward to making the case for our alternative vision during that election. It is one that rejects a return to boom-and-bust economics and instead makes the case for depolarising wealth at both individual and geographical levels.

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