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6.12 pm

Mr. Elfyn Llwyd (Meirionnydd Nant Conwy): As we have heard from the hon. Member for Ogmore (Huw Irranca–Davies), the extra money raised is to be pumped into the national health service, and that is welcome, but I am sure that after such an increase in taxation, we will want to see some change fairly soon. Following all the hype surrounding the Budget and the promised injection of cash, change will now be expected,

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and, for the sake of all our constituents, I sincerely hope that it happens. Unfortunately, according to many sources, unless there is root-and-branch reform, the increased investment will do little to improve the service but will merely limit further decline.

Because of Labour's election manifesto pledges, no rise in income tax could be allowed without—God forbid—the Government breaking a promise, so to raise enough income to cover all the promises that the Government have made, other appropriate means have to be used, one of which is national insurance. Despite the warnings given by the hon. Member for Twickenham (Dr. Cable) in his well-argued speech, I do not oppose that approach in principle. However, because of the relatively low ceiling on national insurance contributions, those on higher incomes do not pay proportionally as much as those on lower incomes.

In the days preceding the Budget, the press was full of speculation that the Chancellor would raise that ceiling significantly, but he did not. My party would have been happy if he had, as would many people outside, because now the net effect is that lower earners pay proportionally more in NICs than high earners. It can therefore be argued that the change is regressive. I refer hon. Members to the well-argued case made by the hon. Member for Twickenham, but continue to believe that raising NICs is a step in the right direction, subject to the caveat that I mentioned.

There is a problem, which is that the increase in national insurance will hit the public sector hard, almost with the effect of giving with one hand and taking with the other. It is estimated that the change will cost almost £1 billion per annum. Plaid Cymru believes that a more progressive system of taxation is needed in the United Kingdom. We think that the abolition of the national insurance ceiling would be helpful—

Mr. Mark Hoban (Fareham): It has gone.

Mr. Llwyd: Not absolutely. It has been raised, not abolished.

Increasing the personal allowance for those on the lowest incomes, increasing by 1p the standard rate of income tax, and setting a new 50 per cent. top rate for those earning more than £50,000 would have been more progressive. Such measures would have raised more than £20 billion throughout the UK, making an additional £1 billion available for use in public services in Wales.

Hitherto, the Chancellor's tight economic policies have helped to drive up the value of the pound, boosted the booming service sector, and rewarded big business and those on higher incomes, but we in Wales know that there are problems. Welsh agriculture is badly squeezed, in part because of the strength of the pound, and manufacturing and tourism are suffering. The Chancellor's seeming infatuation with the service sector has put more traditional industries at risk. Again, he has failed to target incentives to help business in deprived areas.

Wales needs a strong and targeted regional economic policy. Lowering corporation tax and employers' national insurance contributions in objective 1 areas would boost investment. Wales stands at the door of probably the greatest opportunity for economic resurrection since the end of the coal era, but objective 1 funding is an unfortunate sign of how bad things really are. If the state

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of Wales's economy were as good as Labour Members like to believe, it would not have been given objective 1 status.

Unfortunately, getting our hands on the money to take full advantage of that status has not been easy. To be fair, the Chancellor has awarded Wales extra money above the Barnett block in the current comprehensive spending review, but regardless of all the spin and reports, no match funding has yet been made available. Before 2000, grants from the European regional development fund were paid by the Scotland Office and the Wales Office out of the Barnett block, but no adjustment was made to the block to cover the extra cost. In effect, money from the ERDF was paid to the Treasury in London for projects in Wales but not passed on via the Barnett allocation. In other words, ERDF grants never reached Wales and the funding of all ERDF projects was at the expense of the core budget. I believe that the story is similar in Scotland.

Mr. Wayne David (Caerphilly): Will the hon. Gentleman give way?

Mr. Llwyd: No, I have only 10 minutes.

The practice was exposed in the National Assembly for Wales, and the subsequent comprehensive spending review allocated £421 million for the three years 2001 to 2004 in addition to Barnett, to cover part—but not all—of the European grants earmarked for projects in Wales. That allocation is a fixed amount that does not fully cover the European grants actually paid out by the National Assembly. That coverage could easily have been achieved by making the budget line an annual managed expenditure—thus passing on 100 per cent. of the money received from Europe for projects in Wales—rather than a departmental expenditure limit.

No contribution was made from the Treasury to public sector match funding, which increased substantially with the start of the objective 1 programme in January 2000. As a result, next year, £65 million of itemised expenditure will be taken out of the Assembly budget to supplement the match funding already in the system. As that money comes from the Barnett block, the budget available for core responsibilities such as health and education will have to be cut correspondingly. After 2004, it is predicted that the total match funding specified directly in the Assembly budget will increase to £90 million, and unless that increase is fully covered in the funding allocated to the National Assembly, further inroads will be made into the core budget for services such as health and education.

Although the Chancellor has cut corporation tax to record lows, those cuts are not targeted: they are not aimed at certain sectors or areas. Deprived areas need direct intervention to help to promote their businesses, entice investment and retain existing jobs. The Chancellor announced tax credits for businesses across the board—universal benefits for an uneven playing field. There is a two-speed economy in Britain: first, the booming south-east of England, and good luck to them; and, secondly, the rest of us. It might be more correct to say that there is only a one-speed economy, and the rest of the country is beginning to slip into reverse.

There is a strange dichotomy in the Chancellor's thinking. On the one hand he favours targeted tax credits in his social policy but on the other, he favours universal

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benefits for companies. He is willing to target poorer families, but unwilling to target poorer regions. If the Government lowered corporation tax and national insurance contributions in objective 1 areas—the most deprived in the UK—businesses in those areas would have a slight advantage over those in more prosperous regions. That would entice more investment and make conditions more favourable for success. Tax cuts and credits should be aimed at the areas that need them most. That is where we have lost out. For example, research and development tax credits are welcome, but, regrettably, few companies in Wales will benefit from them.

Unfortunately, Wales lies at the bottom of the UK competitiveness index. Nine of the 20 lowest-paid areas are in Wales, and the highest average wage in Wales by constituency is still lower than the UK average. The gap between the south-east of England and the rest of the UK is still growing, and the Government have missed an opportunity to do something to alleviate that grave problem.

Since 1979, when the Barnett formula was introduced, Wales's gross domestic product has fallen from 88 per cent. of the UK average to 80 per cent. A new formula is needed to replace Barnett, but there is no time to discuss that now.

Wales faces further problems caused by long-term ill health and a particularly high proportion of senior citizens.

According to the figures, over the next five years, Wales will receive an extra £300 million a year for the NHS. That is most welcome. However, the British Medical Association in Wales estimates that Wales is short of approximately 100 doctors, and a recent survey shows a shortage of approximately 800 nurses. Waiting lists have shot up—there has been an increase of more than 900 per cent. in patients waiting for their first appointment with a consultant. According to the Library, it costs more than £250,000 to train a doctor, so training the necessary 100 doctors will cost £25 million. Training the necessary 800 nurses will add an extra £28 million—

Mr. Deputy Speaker: Order. Time is up.

6.22 pm

Dr. Stephen Ladyman (South Thanet): This has been an interesting debate. I intend to focus a large part of my comments on research and innovation, so it is appropriate to begin by declaring an interest in that I am an unremunerated member of the Kent Innovation Centre, an organisation set up by Thanet district council to support innovative and knowledge-based start-up industries. That is an example of a Labour council working hand in hand with a Labour Government to ensure that we have industries for the future.

Listening to the debate, I wondered whether Conservative Members even understand why we have public services. I urge them to look at page 7 of a handy little Treasury document called "Budget 2002: a summary leaflet", which gives a breakdown of how taxpayers' money is spent. Having done a few sums, I discovered that the national health service costs about £1,200 a year per person—in other words, £100 a month. Do Conservative Members believe that a private or social insurance system could provide the benefits of the NHS for £100 a month? We have public services because they

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leverage in benefits of scale, of fairness and of innovation, and that gives us more bang for our buck. They enable us to deliver services to the people who need them, as they need them. It is time that Conservative Members learned that lesson.

I was also interested to hear Conservative Members' comments about the state of the country in 1997. Frankly, I have to wonder which country they were living in. I became a Member of Parliament in 1997, and I remember the hon. Member for Sevenoaks (Mr. Fallon), who spoke earlier but is unfortunately no longer in his place, telling the House in the Budget debates of that Parliament about the mess that the Government were making of the economy by plunging it into recession and doing nothing to bring it out.

I remember Conservative Members opposing every one of the measures that the Government introduced to build the stable economy that we have today—the strongest economy in the world, and the only one in the developed world to avoid last year's global recession. We have the lowest interest rates for decades, the lowest unemployment in the developed world and the highest employment in UK history—and we are still a week or two short of the Government's fifth anniversary. By any stretch of the imagination, that is a catalogue of achievements of which the Chancellor, the Prime Minister, the Government and all Labour Members can be proud.

Conservative Members can take no credit for those achievements, because they opposed all the measures that were needed to implement them. When they said that the national insurance increase was a tax on jobs, I was reminded of the last time they used that phrase—when we were introducing the national minimum wage, and they kept telling us that it would create 1 million unemployed. In fact, 1 million jobs have been created since we introduced the minimum wage.

From the beginning of 1997, the Liberal Democrats demanded extra expenditure on everything. They wanted to start spending money that we did not have before we had earned it or were in any position to do so.


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