Address to the Welsh Grand Committee – March 2011

Diolch Mr Harvard,

Last June we had the so called austerity budget, and last week was labelled the growth budget; I can’t help feeling that in terms of the state of the UK economy the UK Government have got them the wrong way round.

The state of the public finance, and dealing with the deficit in particular became the key dividing line of the last General Election.In an attempt to undermine Labour’s hard won, and as it happens misplaced reputation for economic competence, the Conservative party focused all its guns on the finances of the state.

There was a secondary motive of course. By talking up the severity of the public finances the Tories could justify their life 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 this perception aim, the Tories ludicrously equated the finances of the state to that of a household. As a political strategy it’s worked beyond all expectations. However in the case of a nation state, reducing expenditure can directly lead to a reduction in income; neither can it possible take into account the effect income generation and expenditure has on overall economic growth and the fine balances that need to be achieved.

In reducing public expenditure the UK Government has actually been undermining economic growth as shown by the revised OBR and OECD projections – Whilst at the same time increasing its liabilities in terms of welfare payments for the new unemployed. No wonder the ONS have calculated that the Treasury are going to have to borrow far more in the medium term than planned.

This all of course has happened before the worst of the cuts outlined in Autumns CSR start to feed into the system this April. Robert Chote of the OBR said on Newsnight last week that his forecasts could be downgraded further.

Mr Harvard, the economy at UK level is facing grievous headwinds. Increasing inflation will hinder the ability to use monetary policy to ease the consequences of the UK Government’s fiscal policy. Increasing global oil prices as a result of increasing demand as the world economy recovers, further fuelled by unrest in the Middle East, is going to be a serious problems. The full effects of the tragedy in Japan, the world’s third largest economy have yet to be felt. Subdued economic activity amongst our major trading partners will hinder an export led recovery. The £1.4 trillion consumer debt bubble carelessly built up during the Labour years will dampen domestic consumption. The reduction in public expenditure by £81 billion will undermine direct investment in the economy. With so many growth pillars crumbling it’s difficult to share the optimism of the Treasury.

There were some measures to welcome in the Budget, not least the movements on fuel duty. In particular we welcome the development of a stabilising mechanism. Members will be aware that my party and our SNP colleagues have campaigned for a regulator for the best part of a decade. We tried to amend the 2005 and 2008 Finance Bills, and only last month I closed a debate on the floor of the House calling for such a mechanism which was confusingly voted down by both Coalition parties. However, my much more well informed colleague – the Honourable Member for Dundee East – informs me that what the Chancellor seemed to suggest yesterday was that his stabilising mechanism would only cancel the escalator in response to increasing global oil prices rather than a reduction in duty. If this is true we will not have a stabiliser at all and will continue to see spikes in the price of fuel.

We also welcome the simplified state pension at £140, a key Plaid policy going into the General Election. We also welcome the consultation on simplifying the taxation system by joining National Insurance and Income Tax. Although extremely complicated, such a s structure should be more progressive.

We also welcome the increase in the personal allowance but would like to supplement this by moving the 50 per cent rate to earnings over £100,000.

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

I welcome the emphasis we have heard in relation to the requirement to rebalance the UK on both sectoral and geographical terms. However, we need far more than just fine words. Action was sorely missing from the Budget.

In particular we need countervailing measures to help stimulate economic growth in those areas of the UK that suffered under the last Government and will now face a double hit as a result of the reductions in public investment.

For my country in particular I would have liked to see the Budget include measures to devolve corporation tax to the Welsh Government as proposed for Northern Ireland or at least its setting on a regional basis. This is something the Economic Commission of the Welsh Conservative Party has called for, it’s a shame their bosses in London haven’t been listening. We also need other positive interventions to stimulate economic growth in Wales, and in particular as a West Wales MP I would like to highlight the need to electrify the Great Western mainline to Swansea. By failing to go beyond Cardiff, the UK Government are essentially saying that the Welsh economy stops at the Welsh capital.

The setting of different regional rates of employers National Insurance is a step forward, but this alone will not address decades of neglect suffered by the traditional manufacturing economies such as we have in Wales.

If the UK Government is serious about geographical and sectoral rebalancing we need a far more comprehensive package than offered at this Budget.

I was very disappointed that the Budget did not address the financial injustice suffered by the Welsh Government. If the UK Government should learn one lesson from the overwhelming yes vote in the referendum for further powers for Wales, it’s that the people of my country are no longer prepared to be taken for fools.

Yet the UK Government continue to be ignorant of the ill effects of the Barnett formula. Four independent reports have clearly demonstrated the inequity of current arrangements. Indeed it is estimated that if had public spending in Wales between 1999 – 2010 matched public spending in England the Welsh block grant would be £1.4 billion more.

Let the UK Government be in no doubt that there will be no consensus on its proposed funding reforms unless a Barnett floor is first put in place followed by a change to a needs based system as advocated by the independent Holtham Commission.

Despite recently scrapping the Housing Revenue Account Subsidy Scheme for England, the UK Government continues to force the Welsh Local Authorities to pay £100 million per annum – and that any changes to the scheme must be Treasury neutral. There can be no justification for the continuation of the siphoning off of these funds from the poorest communities in Wales.

Only last month the so called Respect agenda was shot to pieces when the UK Government mugged the Welsh Government of its End of Year Flexibility accounting for £385 million pounds. Money that was being prudently accumulated by the Welsh Government as part of its Strategic Capital Investment Fund, earmarked for investment in projects to stimulate economic growth. This callous act undermines the credibility of yesterday’s pro growth message as far as Wales is concerned.

I make no apology for raising these issues during this debate. The CSR imposed on the Welsh Government a real terms cut of 11.4% over the next four years – an accumulative sum of £4.6 billion. The subsequent Welsh Government Budget was forced to announce cuts in capital spending by 41%. Of all public expenditure, it is capital investment that has the largest impact upon economic growth and cuts of these magnitude are bound to have a damaging effect on the growth prospects for the Welsh economy.

In light of the CSR settlement, the least Wales deserves is financial justice on the money that should be hers. Following the referendum this will be the major political issue over the medium term. It would be advisable for the Treasury to quickly address the injustices of Barnett, the Housing Revenue Account Subsidy Scheme and the End of Year Flexibility or the political consequences for both Coalition parties in Wales will be severe in May.

Man Trafod - Rhowch sylwad yma

Bydd eich ateb yn cael ei gymedroli, ac ni fydd yn ymaddangos yn syth. Medrwch baratoi eich testun mewn prosesydd geiriau cyn ei roi yn y bocs, ond ni fydd elfennau megis trwmder tecst a lliw yn ymddangos.