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Welsh Grand Committee Debates
|©Parliamentary copyright||Prepared 2nd December 2010|
Publications on the internet
General Committee Debates
Welsh Grand Committee Debates
Comprehensive Spending Review (Implications for Wales)
The Committee consisted of the following Members:
James Rhys, Committee Clerk
† attended the CommitteeThe following also attended, pursuant to Standing Order No. 102(4) :
The Secretary of State for Wales (Mrs Cheryl Gillan): On a point of order, Mr Caton. May I welcome you as Chair of the Welsh Grand Committee? This is our second Welsh Grand Committee, and I am sure that you will conduct it in a firm-handed fashion from the Chair.
I also welcome the Economic Secretary to the Treasury. This is the second time that we have had a Treasury Minister here to answer questions on a topic of great concern to all Members of Parliament in Wales. I am grateful for her attendance, and I look forward to your chairmanship, Mr Caton.
The Economic Secretary to the Treasury (Justine Greening): With permission, Mr Caton, I should like to make a statement. I am delighted to be here today with the Grand Committee. It is absolutely freezing in this room, but I am sure that the debate and my statement will warm up the Committee’s interest.
I have limited time today, as has been explained, so I want briefly to set out the background to the spending review as a whole and then discuss the impact on Wales. I will do my best to answer people’s questions but, if any can be amplified with further details after the Committee, I am happy to do that.
First, given the background to the spending review, it was clear that we as a Government needed a plan to pull Britain back from the brink—a plan that would deal with our debts and put our country’s finances back on a sustainable path. When we came to power, we inherited an economy that was on its knees. Our country was borrowing £1 for every £4 that it was spending. We were running the highest deficit in our peace-time history and the highest in the G20.
Britain was simply not living within its means, so in May, we announced immediate reductions to in-year spending, avoiding the sovereign debt crisis engulfing the eurozone. Shortly afterwards, in June, we set out the emergency Budget, returning credibility to the nation’s finances. In October, we had the spending review, which brought to an end years of irresponsible borrowing.
We had to tackle the deficit—that was unavoidable. However, we have chosen to spend the money we had on the areas that matter the most: the education of our children, the health care of our people and the infrastructure that supports a prosperous economy.
Mr Elfyn Llwyd (Dwyfor Meirionnydd) (PC): On infrastructure, does the Economic Secretary regret that Wales has been denied electrification of its railway line across south Wales? At the same time, £1 billion has been spent on one tube station in London.
Justine Greening: I am happy to answer questions on capital spending, because they are important. I understand, absolutely, why the hon. Member for Dwyfor Meirionnydd raised that issue. Hopefully, we will deal with that later.
Of the three key values that underpinned our spending review work, the first was the need to support growth—in places such as Wales, it is important for us to tackle unemployment. Secondly, we needed to ensure that our choices were fair. Thirdly, we needed to deliver reforms to public services, making them fit for the 21st century.
The bottom line was that, if our country lost control of its finances, it would lose control of its ability to choose how to spend its money. The country’s priorities would become those of its debtors and not those of its people. That is why we had to outline a clear and credible plan to deal with the deficit when we came into government and why we will stick to that plan.
The Government are firmly focused on achieving sustainable growth. Tackling the deficit will help to provide a strong economic bedrock on which the private sector can build. The Government plan to spend more on capital infrastructure than the previous Government planned to do. In the next four years, we will invest more than £30 billion in transport projects, of which £14 billion will fund maintenance and investment in our railways, and £10 billion will be spent on road and local transport schemes. We are creating the new green investment bank to help finance sustainable infrastructure for the future, and we have launched a £1.4 billion regional growth fund.
On devolved matters, it is for the Welsh Assembly Government to make their choices on how to spend their capital budget, although Wales will potentially benefit from UK-wide expenditure, such as that planned to come from the green investment bank. Even when faced with the economic problems bestowed by the previous Government, we are still investing tens of billions of pounds in Britain’s future. That goes alongside the reduction in corporation tax that we introduced in the emergency Budget, and our reduction in national insurance, which has scrapped the worst effects of the so-called jobs tax that the previous Government pencilled in. If we had not done that, small and large companies that are struggling to keep people employed across Wales, during the recession and coming out of it, would be faced not with reductions, but with increases in corporation tax over the next few years, at the very time at which we want them to expand and to take on more Welsh people to work.
The second principle behind our decision was to ensure fairness so that those with the biggest shoulders bear the largest burden, while protecting the most vulnerable in our society. That is why we have restored the earnings link for the state pension and ring-fenced NHS funding. We also want to give children the best possible start in life by increasing child tax credits for the lowest-income families and by protecting our investment in schools. On the impact of such decisions on the Barnett formula, the decision to protect schools funding in cash terms and to protect the NHS have clearly had a direct effect on the Barnett consequentials.
Even when spending was being reined in, we found more resources for our schools and for our children’s early years. That has meant that other Departments have taken bigger cuts, but we believe that that is the right choice for our country’s future. That is why the schools budget will rise from £35 billion to £39 billion, and why we are introducing a new £2.5 billion pupil premium to focus our resources on children from the most deprived backgrounds in our country. As I have said, the Welsh Assembly Government have benefited from the protection that we have given to health and education in England through the Barnett consequentials provided in the spending review.
The Welsh Assembly Government have also benefited in that way from our decisions on welfare, in that the funding method has been switched from annually managed expenditure to departmental expenditure limits. If we had not done that, departmental spending cuts would have to be deeper, which is what the last Government planned to do had they stayed in office. That would have had a direct effect on the Barnett consequentials and on the amount of money going through the block grant to the Welsh Assembly Government.
The third and final principle in the spending review was public service reform. As we all know, we have to ensure that the money we put in means that we receive the best public services out, and that we do not waste money on back-office spend that should get through to the front line. We have started that process by finding every last penny of possible savings, and we are eliminating the monumental waste that became endemic over the past decade. That is why we are tackling administration, improving procurement and scrapping the ineffective and expensive IT systems that became a feature of the last Government. When we started to consider all those areas, we planned to save £3 billion, but there is so much waste that we can save £6 billion, which means that we will be able to save on back-office spending instead of having to take money out of front-line services.
Finally, our reform agenda will see a massive devolution of power from the centre, which I am sure will bring huge benefits to Wales. Apart from the schools and public health grants, we will end the ring-fencing of all Government grants to local authorities from April next year, so more than 90 separate core grants to councils will be reduced to fewer than 10.
We will change how services are delivered through increased payment by results and personal budgets, and by introducing new rights for communities to run services and to own assets. I have no doubt that those local authorities in Wales that can make their own choices will look with interest at the public service reforms in other parts of the country, to see how such reforms might apply to their communities. We are cutting bureaucracy and red tape, and we are ensuring that we can put money through to the front line.
The spending review settlement for the Welsh Assembly Government was determined by the Barnett formula in the usual way. The details of the updated Barnett formula were published in the statement of funding policy on 20 October, and the Welsh Assembly Government were fully consulted in a spirit of mutual respect.
The Welsh Assembly’s budget benefitted from the fact that two of its largest programmes—the resource health budget and schools budget—were protected. We have been handed a huge fiscal deficit and a huge black hole in our public finances, which is not something that an incoming Government want to pick up. It has been passed over to us and there is no money, to use the phrase that one Labour party member used in the note that we were left when we entered the Treasury. In spite of all that, the Welsh Assembly Government resource budget is higher in cash terms in 2014-15 than it was in 2010-11. The overall cut in that budget is smaller than the average for non-protected UK Departments.
It is usual for the Welsh Assembly Government to determine their own priorities within the block budget in the spending review, and I understand that their draft budget was published two weeks ago. In addition, in the spending review, it was announced that, depending on the outcome of the forthcoming referendum in Wales on devolving primary legislative powers, the Government, with the Welsh Assembly Government, will consider the proposals in the final Holtham report and how we can set up a process for considering those. We hope that that approach will be consistent with the one taken in Scotland following the Calman commission. We look forward to continuing to work with the Welsh Assembly Government to promote economic growth in Wales and to deliver high-quality and efficient public services.
To conclude, the decisions that we have had to take have restored credibility to our public finances and stability to our economy. When we came into power, we faced the worst economic inheritance in modern history. The previous Government had spent our money like there was no tomorrow; but tomorrow has arrived. The debts that we were left undermined the funding of our public services and threatened every job in the country. We have had to make tough choices, which we cannot shirk, but they are the right choices. We are determined to create an economic environment in which companies once again feel they can grow; in which we can reform our public services; and in which we can ensure that our economy and our public finances are put back on a sustainable path, which is in everyone’s interests, including, of course, those of the Welsh people.
Mr Peter Hain (Neath) (Lab): I congratulate the Economic Secretary on making her first appearance at the Welsh Grand Committee, as a shield of comfort for the Secretary of State for Wales. I do not recall any Labour Secretary of State requiring such a shield—on discussions on budgets, comprehensive spending reviews, or pre-Budget reports. I am disappointed that she has simply rehearsed the same tired old vacuous slogan of the Chancellor. I have a question for her: why have the yields on UK Government bonds been so low since the financial crisis erupted in 2008? If Britain was on the brink of bankruptcy, why have the markets been so keen to lend to us at low rates? What kind of City investor lends to a bankrupt borrower?
Justine Greening: Question. It is deeply concerning and shows that the Labour party does not accept that our country has a problem that needs to be addressed. [ Interruption. ] No doubt it is of concern to people that the alternative to responsible government is a party that created the problem, handed it over to us—
Justine Greening: It is a shame that the Labour party does not acknowledge the problem. I accept that it may not want to take responsibility for it, but it is something we have to tackle. We should listen to the OECD, the Governor of the Bank of England and the IMF, who all say that the steps taken by the new Government have put our country back on the path to prosperity. That can be demonstrated by asking any business whether it would rather see corporation tax going up rather than
Mr Hain: On a point of order, Mr Caton. I asked the Minister a specific question: why are the yields on UK bonds so low? She did not answer the question. Surely the Economic Secretary should do the Welsh Grand Committee the courtesy of answering the questions that she is asked.
Justine Greening: I should be delighted. Perhaps the right hon. Gentleman needs to go to the City to ask why it requires less of a return compared with countries such as Ireland, Portugal and some of our other European neighbours. I recommend that he spends time in the City asking what it thinks constitutes a good economic policy. I suggest he takes the blank piece of paper that is currently his party’s policy and asks whether that inspires confidence.
In answer to the right hon. Gentleman’s question, I have no doubt that one of the reasons that we now have low bond rates is that the markets have confidence in our plans. I would have hoped he would welcome that. I suspect that one reason why rates came down prior to the election is that the markets judged that the Conservative party was more likely to be in power than the Labour party. They faced a Labour party that said it had a plan to tackle the deficit, but had not set out—even remotely—any details. It would not have been surprising if they breathed a sigh of relief when the polls suggested that the Labour party would no longer be running the country.
Roger Williams (Brecon and Radnorshire) (LD): May I welcome the Economic Secretary to the Treasury? She knows how important science is to the Welsh economy and how good Welsh institutions are when carrying out scientific research. The whole scientific community was very pleased when science did quite well in the comprehensive spending review. I was with the Natural Environment Research Council yesterday when it said that, because the seven research councils are going to bring together all their backroom activities, they will be able to make savings and invest even more in science, which is so important for our economy.
Justine Greening: The hon. Gentleman is absolutely right. In spite of the very difficult economic situation that we picked up, we had to keep an eye on the future, which is why we are going to invest more than the previous Government had planned. We felt it was important to protect science funding. As the hon. Gentleman said, it has a real benefit not only to our economy; it enables people to develop skills in our universities. The benefits can already be seen in the investment decisions announced this week by companies such as GlaxoSmithKline, and there is a real benefit from our proactive policies towards companies that want to invest, particularly in high-skill, high-technology industries that involve science. Whether
Mr David Hanson (Delyn) (Lab): The Minister has obviously considered a range of ring-fencing issues; she has mentioned the ring-fencing of local authorities in England, which has nothing to do with Wales. May I return her to the ring-fencing of police community support officers? That is not mentioned in the Green Book, nor yet by the Home Office, but it is crucial in ensuring that we continue to fund police community support officers throughout Wales.
Justine Greening: The right hon. Gentleman makes a good point. It comes down to who is best placed to take decisions about where and how money makes a difference. The Government’s approach is about having the courage to allow the people who know best about those things, such as local chief superintendents, to make the decisions around how they spend their resources and what they think is the best mix for their local communities. It is not just front-line community policing versus inspection and investigation. It is up to police forces on the ground to take the decisions, and it is not right for politicians in Whitehall to be too prescriptive.
David T. C. Davies (Monmouth) (Con): In the run-up to the general election, the rating agencies made it absolutely clear that Britain was on the brink of losing its triple A rating, and that it only did not because they presumed that, whichever party won, something would be done about the deficit. Does the Minister agree that as no other country in Europe has tackled the deficit in the way that she and her fellow Ministers have so bravely chosen, Britain remains a far safer haven than many other parts of western Europe?
Justine Greening: My hon. Friend is right. Clearly, rating agencies expressed their concern about the path that the UK was on. I think that PIMCO expressed the view that there was something like an 80% chance that we would be downgraded. But we should look at the response of the rating agencies to the spending review and to the most recent announcement worked on by the Office for Budget Responsibility, which states that we are on course to reach our fiscal mandate, which is all about tackling our deficit and ensuring that the next generation does not have to pay the bills that we should be sorting out right now.
Jonathan Evans (Cardiff North) (Con): My hon. Friend might find it helpful to produce a graph for Labour Members that outlines the proportionate share of Government expenditure of GDP over the past 13 years. It would show that in the first two years of Labour government the share fell from 38% to 36%, at a time when European spending was 10% more than that, at 48%. It would also show the rise, year on year on year, to more than 50%—an unsustainable position. That would illustrate the fact that we are not dealing with the consequences of the recession.
Justine Greening: My hon. Friend makes an important point, to which there are two responses. First, like any economy, we have to have sustainable debt and spending, and secondly, the deficit that we seek to tackle is structural. It does not matter how well our economy was doing during the boom years because we were still spending beyond our means. The problem that we had as a country was that, even in the good years, when we were getting the highest tax revenues from our booming economy, we were still spending more. The financial markets were growing increasingly concerned, because they could not see when we were going to pay the money back. That is why this question is so important.
As a direct impact of borrowing and borrowing and borrowing, we are spending £43 billion this year—that is several-fold what we have been able to put into the Welsh block grant. We are spending £120 million a day just on interest, not on paying off the debt. That is wasted money, which the British people want to see cut and, in the future, put into their schools, their hospitals, their police and their community support officers, instead of going over the water to some other person who has been lending us the money. The practicality is that if we do not have a grip on our finances, that £120 million will spiral out of control. That will be the worst thing for all of us.
Mr Llwyd: May I welcome the Economic Secretary to our deliberations and may I help her by answering the question put by the hon. Member for Blaenau Gwent? The answer is that no money was spent on superfast broadband pilots in Wales, despite there being three in England and one in Scotland.
I want to press the hon. Lady on what she said on Barnett, which is important. Last week, the Chief Secretary ruled out any changes to Barnett. The Economic Secretary has said that she is looking at it urgently and referred to an update on the Holtham report. As it represents some £1.4 billion lost to Wales every year, on top of the cuts that we have had, will she concentrate on that, because it is terribly urgent? If she does, we will all be grateful.
Justine Greening: The priority for us is to sort out the deficit, because that is the context for all the affordability questions, whether they are on the issues raised on Barnett in the Holtham report, or whether they are on
We have been clear—we have worked with the Scottish Government around the Calman commission. The hon. Member for Dwyfor Meirionnydd will know that we published the Scotland Bill this week. We want to stabilise the public finances. We are, of course, looking at aspects of the Holtham report and we will no doubt want to set up a process to see how we can take forward discussions on it. I am aware that there will be a referendum in Wales in the spring. There is another aspect from Holtham on legislative powers for primary legislation. We will be looking at what happens in Wales, and on that basis we will get some direction on what the Holtham report might mean for policy going forward.
Simon Hart (Carmarthen West and South Pembrokeshire) (Con): We have heard a lot from the Office for Budget Responsibility in the past few days. Has the Minister assessed the value of the OBR as it applies to Wales?
Justine Greening: My hon. Friend is right to point out that we have looked at the OBR recently. On Monday the OBR released its latest update, which I think shows a broadly positive picture. It estimates that as a result of some of the difficult decisions that we have taken on welfare, the reduction in the number of public sector workers will be smaller than was originally estimated. For parts of the country, such as Wales, that are more dependent on public sector workers and are therefore particularly keen to rebalance the economy, corporation tax movements and national insurance reductions are important to assist in rebalancing. The OBR showed that we are moving in the right direction and that we are better placed in the longer term to protect funding to the devolved authorities with the measures that we are taking now, however challenging they may be.
Jessica Morden (Newport East) (Lab): Women make up two thirds of public sector workers in Wales. For instance, in Newport passport office, which is threatened with closure, 74% of the work force are women. As Wales is being disproportionately hit by both the Budget and the comprehensive spending review, will the Minister acknowledge that Welsh women especially will bear the brunt of the cuts to the public sector and the changes to welfare?
In terms of how the decisions will affect women in particular, we have looked at all those issues, which were raised at the time of the Budget. That is something we are particularly concerned to look it. Many of the changes that we have made to support small companies will help women because women may be more likely to be working part-time. Some of the changes that we brought forward last week on national insurance will see some employers come out of national insurance altogether. The changes will particularly support the sort of jobs that are often—I am not saying exclusively, but often—open to women, helping them get back into the workplace, perhaps after they have had a family.
The best thing we can do to protect public service jobs in the long run is to sort out our public finances and make sure that they are on a sustainable footing. Then we will not be in a situation in the future where we have grown and grown the costs and cannot afford them in the long term. Any household knows that it must only spend money when it can afford to do so, and it would be doing itself a disservice if it got its spending up to a level that it knew was not sustainable. The consequence of that mismanagement, as the hon. Lady pointed out, will fall on the people who end up bearing the brunt of some of the reduction in the public service head count that we will see over the coming years.
Alun Cairns (Vale of Glamorgan) (Con): I would like to ask the Economic Secretary about the distribution of funding to Wales, and especially about the Barnett formula. Can she confirm that that formula has been applied in exactly the same way this year as it has been for the past 13 years? A simplistic comparison with other devolved nations is simply inaccurate because of the nature of the devolved settlement that the previous Administration bestowed on Wales. A comparison of overall changes needs to be reflected in responsibilities.
Justine Greening: My hon. Friend is right. People cannot on the one hand point out that there are differences between the devolved assemblies and ask for a consistent Barnett formula, and on the other say that they want to move towards a more needs-based assessment, as that could lead to even more differences if needs across different devolved authorities were different.
Owen Smith (Pontypridd) (Lab): Lovely though it has been to see the Economic Secretary here this morning, it has been a bit disappointing that she simply regurgitated the Chancellor’s speech on the CSR. I wrote to her and her colleague the Chief Secretary to the Treasury a while back to ask whether any specific analysis had been done on how the CSR would hit Wales in particular. Has that been done? Can she point to any specifics that have been looked at, on welfare cuts or public sector jobs, about how Wales will be differentially impacted?
Justine Greening: We looked across the piece at how our changes not only on welfare, but on growth and public service reform, will affect different parts of the country, so we knew that we needed to analyse the
I assure the hon. Gentleman that the Government have published more analysis on the spending review and the emergency Budget than his party ever did. I remind him that the reason why we had no analysis of the comprehensive spending review—on its distributional effects and its effects in different parts of the country—from his Government before the election was, of course, that they chose not to have a comprehensive spending review in the first place. We got on with it and have put in the distributional analysis. I am sure the hon. Gentleman can use that to inform his understanding of how Wales will be affected by the CSR, much of which, in relation to Wales, is on how the block grant is funded.
Mrs Siân C. James (Swansea East) (Lab): The Economic Secretary will be aware that I have a disproportionate number of civil servants in my constituency, as I have the honour to have the Driver and Vehicle Licensing Agency, the Land Registry Wales office, the Swansea Pension centre and other small agency offices based there, making a total of 9,000 people. They are very worried at the moment. They have undertaken every review, made every cut and introduced every new working practice, but they are seriously concerned about the lack of information, the absence of a plan and the possibility of outsourcing.
Justine Greening: We picked up from the hon. Lady’s party an incredibly challenging set of public finances, which some people would say are a complete disaster. A big black hole has been passed to us, and we have to redress that. On public sector workers, one reason why we introduced the pay freeze was precisely to protect jobs. We wanted to make sure that we could improve the effectiveness and efficiency of the welfare budget to take away some of the huge pressure on departmental spending. Although we thought that we might need to go beyond 20%, the average departmental spending cut is under 20%, while the hon. Lady’s party had pencilled in cuts of 20%. The impact of that can be seen in the
We are working hard to find a balance between protecting our front-line services and ensuring that they are reformed and work better for people—frankly, by giving people who work in front-line services more freedom to get on with the job that they want to do and to provide the service that they want to provide—and sorting out the financial deficit, because if we do not do so, future funding for such public services will be put more at risk, which is not what we want to see.
Chris Ruane (Vale of Clwyd) (Lab): Some 48% of the workers in Cardiff North, 45% in Clwyd West and 46% in the Vale of Clwyd work in the public sector. What additional and specific help can the Treasury give constituencies with large numbers of public sector workers, to ensure that those workers are not just thrown on the scrap heap but are given employment?
Justine Greening: What we need, if the hon. Gentleman will let me answer his question, is to encourage the private sector and companies to go into such areas. That is one of the reasons why we brought forward a regional reduction in national insurance, which this time last time week I was about to debate with a lot of Labour MPs who were saying, “It shouldn’t be regional” or “We shouldn’t target it”, and “It should be across the board”, which would have meant that places such as Wales would have had less of a reduction.
We also have a regional growth fund, which will help to stimulate local growth. We are introducing reductions in corporation tax and, of course, we are keen to help people. The hon. Gentleman talked about those working in the public sector, but high levels of unemployment in Wales were handed over to us. We need to get in place a work programme that helps the people his party allowed to be out of work instead of providing them with help to get back into the workplace. We want to provide them with the support they need finally to get back into work. His Government might have been happy to write them off over the past decade, but we are not.
Before I make my remarks, on behalf of the Committee I thank the Economic Secretary, who has dealt charmingly with some rather churlish behaviour. It is a sad day for Wales when the official Opposition say that they would prefer not to have Ministers from other Departments to inform their conversations and debates better. I feel particularly sad for Wales.
When the Economic Secretary was answering questions, she specifically tied the future of the Barnett formula to the result of the referendum next March. If that is the Government’s position, can the Secretary of State confirm it? If it is not, can she explain the Government’s thinking on any link between the Barnett formula and its review and the result of any referendum in March?
Mrs Gillan: I thank the hon. Gentleman, who appears to be the only honourable gentleman on the Opposition Benches. I hope that he will check Hansard carefully; I believe that no such direct linkage was made. However, he is well aware of the wording of the coalition agreement, which says that we will look at a Calman-like process for Wales following the outcome of the referendum that will be held on 3 March.
I hope that the shadow Secretary of State will apologise to the right hon. Member for Torfaen (Paul Murphy), because the implication that I was in some way hiding behind a Treasury Minister also insulted the right hon. Gentleman, who invited the right hon. Member for East Ham (Stephen Timms), then a Treasury Minister, to attend the Grand Committee, which he did on 17 December 2008, and the right hon. Member for Croydon North (Malcolm Wicks), then the Energy Minister, who attended the Committee on 18 June 2008. The right hon. Member for Torfaen did so precisely because we agreed, when I was dealing with him, that the Committee could benefit a great deal from having Ministers from other Departments assist us with questions.
Paul Murphy: It is a good idea to have Ministers from other Departments. When my right hon. Friends the Treasury and Energy Ministers came before the Committee they did not engage in the kind of appalling party political propaganda that we have had to listen to for about 40 minutes.
Mrs Gillan: The right hon. Gentleman does himself a disservice; I was paying him a compliment. The Chief Secretary to the Treasury attended the Welsh Assembly Government Finance Committee on the CSR because this Government are trying to engage constructively with politicians of all denominations, in the interests of Wales.
Paul Murphy: The Minister has insistently and persistently refused to call this Committee on the question of constitutional change, so how on earth can she say that she is engaging with us on the issues?
I will not take any lectures from the right hon. Gentleman. The Bill was on the Floor of the House for more than six days, and a large amount of that time was taken up by Welsh Members on the Labour Benches quite rightly discussing the matters. The Under-Secretary of State for Wales, my hon. Friend the Member for Clwyd West, was put on the Bill specifically to address and discuss Welsh matters on the Floor of the House. Also, as the right hon. Gentleman knows, I arranged a special and unique meeting with the Minister taking the Bill through and with my hon. Friend the Under-Secretary, for every single Welsh MP. An offer was made at that meeting for any Member of Parliament on the right hon. Gentleman’s side of the House to discuss the issues with the Minister directly.
Alun Michael: On a point of order, Mr Caton. In view of the comments that the right hon. Lady has made, can it be noted that in the past, Secretaries of State for Wales, of both parties, have organised meetings of this Committee with courtesy and with discussion on both sides, and that that approach has been breached by the right hon. Lady? It is a disgrace.
Mrs Gillan: By holding this second Welsh Grand Committee meeting, I have already doubled the record of previous Governments, which held only one meeting in 2005 and only one in 2007. I will not take lectures from the right hon. Gentleman about courtesy, after the way in which the Committee has behaved, both last time and today.
Having had the advantage of directly questioning a Treasury Minister, I intend to keep my remarks brief to allow maximum time for Members to participate in the debate. At the last count, there were some 23 Members,
As we have just heard, the spending review sets out how the coalition Government intend to carry out Britain’s unavoidable deficit reduction plan. The spending review settlement for the Welsh Assembly Government was determined by the Barnett formula in the usual way, in exactly the same way as under the previous Government, using the formula that the right hon. Member for Neath said had “served Wales well”—just to remind him. However, because of the decisions that we took to protect spending on health and schools in England, Wales’s overall spending will be reduced by much less than the average for non-protected Departments.
That represents a 7.5% reduction in the Welsh Assembly Government resource budget, which is an average annual cut of less then 2%, and less than the 3% year-on-year revenue reductions that the Welsh Assembly Government had previously said they were planning for.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC): Does the Secretary of State acknowledge that the Welsh settlement is far worse than the ones for the other devolved Administrations due to the way in which non-domestic rates are calculated?
Mrs Gillan: No, not at all. That is a myth. It is a fair settlement by any definition and we do not dictate from here how those moneys are spent. It is for the Welsh Assembly Government to decide how to manage their finances, reflecting their own policies and priorities, which they did last month when they published their draft budget.
Guto Bebb (Aberconwy) (Con): On the settlement for Wales, is the Secretary of State aware that the Plaid Cymru economic spokesman who beasted Jeremy Paxman on “Newsnight” stated that the settlement awarded to Wales was better than what the Assembly had planned for in early 2010?
Devolution has meant that we pass the money to the Welsh Assembly Government and they make their own choices. In England, the coalition Government have decided that total spending on the NHS will increase in real terms in each year of this Parliament. The Welsh Assembly Government, however, have chosen to freeze NHS spending in cash terms, which means a real-terms decline of 7.6%. Because of those decisions taken by the Labour and Plaid Cymru Assembly Government, Wales is now the only part of the United Kingdom where health spending will not be protected. The Government have undertaken to increase the schools budget every year of the spending review in real terms, but that is not the decision of the Welsh Assembly Government. In Wales, education will be cut by 7% in real terms over the next three years. Those are, of course, devolved matters for the Welsh Assembly Government to decide. I hope, however, that the Welsh Assembly Government’s decisions
Geraint Davies (Swansea West) (Lab/Co-op): Given what the right hon. Lady has said, and given that 50,000 students have demonstrated outside Parliament, does she support the Welsh Assembly’s decision to cut the teaching grant by 35%, instead of by 80%, and its decision to ensure that future Welsh students will be able to go to university in Wales and England for the same amount as it costs now? That will increase the productivity and economic outlook for Wales in future.
Mrs Gillan: I am grateful to the hon. Gentleman for that intervention, and I am sure that he supports what the Welsh Assembly Government is doing. It is a devolved matter, for them to decide. They will have to explain how they made those choices and ended up with reductions in spending on health and on students’ fees. I am sure that they will have good explanations and that the people of Wales will understand that those are the priorities of the Welsh Assembly Government. I am not some sort of viceroy—quite the reverse. I will not dictate to them how they spend their money or how they make those choices.
Alun Cairns (Vale of Glamorgan) (Con): Does my right hon. Friend share my concern that, as a result of yesterday’s announcement, there is a risk that Welsh universities will become the lowest funded universities in the whole of the United Kingdom? That could lead to a second-class university system in Wales, compared with the rest of the UK and Europe.Mrs Gillan: I very much hope that what my hon. Friend says is not true, because I have seen the magnificent work that is done in our universities, whether at UWIST, Cardiff university or Swansea university and the fantastic work that is being done there in the Institute of Life Science. He knows that I am second to none in my admiration—[ Interruption. ] No, I am second to none in my admiration and there is no such thing as Labour investment, which the hon. Member for Wrexham chunters about from the Back Benches. It is taxpayers’ money that is invested or allocated by a Government of whatever complexion. It is the Welsh Assembly Government who have made those choices and it is up to them. I believe that it was a Labour-Plaid coalition that made those decisions.
Ian Lucas (Wrexham) (Lab): The Labour Government made choices to invest in higher education and to develop the university sector, both in Wales and in England. In contrast, the right hon. Lady’s Government are cutting funding to universities and the teaching grant by 80%. That is the level of commitment that the Tory-Lib Dem rag-bag coalition gives to higher education.
Mrs Gillan: I am not going to rehearse the debates in the Chamber last night, and all the crude party political points that were made. Needless to say, what we are doing is stabilising the finances of this country because of the legacy of the previous Labour Government and the—
I note that the budget on the economy and transport by the Welsh Assembly Government will be cut by 21% over the next three years. I hope that despite that, the Welsh Assembly Government will remain committed to implementing their economic renewal programme and encouraging investment, promoting Wales as a place to do business, developing the skills base and encouraging innovation. They will have my support if they continue to do so.
Mr Elfyn Llwyd (Dwyfor Meirionnydd) (PC): When the Minister speaks of cuts in the transport expenditure, does she realise that the failure to allocate money for the electrification of the Bristol-to-Swansea line is extremely disappointing? It has been rumoured that she is against it. What is her true position?
Mrs Gillan: If I can ask the hon. Gentleman to wait a bit, I will get to that later in my speech, which I would like to get through on a timely basis. I reassure him that I strongly support the electrification of the railway line down to Swansea. My position has never been in doubt. However, he will have to wait a bit longer for any announcement from the Department for Transport.
Mr David Hanson (Delyn) (Lab): The right hon. Lady talks about the manufacturing industry, but can she tell the Committee what representations she made when a Labour Government commitment of £60 million for the manufacturing of wind farms on a UK-wide basis was changed in the Budget to £60 million for England only? Did she make any representations to the Departments on behalf of Wales when that grant, which is the same amount of money, was changed?
Mrs Gillan: I speak to my colleagues in Cabinet and other Ministers on a regular basis. I had a meeting specifically looking at renewable sources of energy and funding. I was so interested in ensuring that hon. Members
Mr Llwyd: On a point of order, Mr Caton. The Secretary of State obviously does not understand the process involved. The timings on a Welsh Grand Committee are decided through the usual channels. Every Whip of every party takes part and decides the dates and subjects. It is not in the Secretary of State’s gift. She says she is not a viceroy, but she is acting like it.
I urge the hon. Member for Dwyfor Meirionnydd to keep his blood pressure under control. I have not announced a date. I said potentially in early February, and of course it would be subject to the usual channels. I have no intention of imposing a date on the Committee, and I am just announcing that I have secured an opportunity for the Minister of State to come here so that we can have a debate on energy. The matter has been raised by the right hon. Member for Delyn, and it is of great importance. Many people have raised the matter with me, so I am responding to requests. As there seem to have been issues over timing or allowing the Committee to sit in any way, shape or form, I announced, out of courtesy, that the Minister is willing to attend in February. I hope that the usual channels will perform the usual polite discussions on when the sitting can be held.
The tough circumstances we face meant that we have had to take a hard look at some of the spending decisions that were planned. It is a Government Minister’s responsibility to ensure that all Government commitments are both affordable and achievable. While any decisions of this nature, and on spending, are difficult, the Government has had the courage to make sure that money is spent where it offers the best value for the public purse.
Mrs Gillan: I will not. I want to deal specifically with some projects that were raised in the context of the CSR. We examined closely the plans for the St Athan defence training centre. It will not be going ahead in the form proposed by the previous Government, as it became clear that the contractor could not deliver the project in an affordable and commercially robust way within the time given. However, let me assure the Committee, particularly my hon. Friend the Member for Vale of Glamorgan, that it is not the end for St Athan. It remains an attractive location for potential future training provision, and I am working closely with the Secretary of State for Defence on the case for a training base to be located there.
On the Severn barrage, I know that the right hon. Member for Neath has had a thing about it for a long time. In the current economic climate, we took the view that the Severn barrage—proposed by the previous Government, but unfunded, Members should note—could not go ahead. It would have been irresponsible to do so given the economic and environmental implications. My colleague, the Secretary of State for Energy and Climate Change, believes that Wales has other viable, more cost-effective low-carbon options, including a significant expansion in wind power, which represent a better deal for industry and consumers.
Mr Peter Hain (Neath) (Lab): As the Secretary of State knows, the £20 billion to £30 billion cost of the Severn barrage is privately funded. Consortiums have told me that they are more than happy to fund it. Some 5% of Britain’s electricity could be generated by the tidal power. It is a fantastic opportunity, which is wasted.
Mrs Gillan: That is a myth. We do not intend to review Severn tidal power before 2015. However, we have agreed that it would be irresponsible to rule out such an important source of renewable energy for ever. We are keeping an open mind in case circumstances change in years to come.
I turn now to Wylfa, about which I have good news. I am delighted that Mr Owen is chairing this afternoon’s Committee—I give him an advance welcome to the Chair—because I know that he will be delighted with the announcement that the Government made about Wylfa. Not only has its operational life been extended for another two years, but it has been included on a short list of eight sites across the UK where new nuclear power stations could be constructed. After the loss of Anglesey Aluminium under the previous Government, this is finally some welcome news for the economies of Anglesey and north Wales—and good news for workers at Wylfa.
We have more good news for Wales, although one might not think so from the way in which the Labour party sometimes behaves. We are proceeding with other contracts that will deliver real, affordable benefits for Wales, for example, the A400M.
Owen Smith (Pontypridd) (Lab): We are pleased that Wylfa is on the shortlist of eight sites. However, will the Secretary of State explain why Wales—in particular, the port of Ynys Môn—was not considered for some of the money that is going to English ports to develop deep-water ports for wind energy?
Mrs Gillan: First, economic development is devolved. [Hon. Members: “Energy is not devolved.”] Economic development money is devolved. There are always discussions on the ports and I shall continue such discussions on the future of ports right across Wales, including that of Anglesey. The good news for Wales—
Owen Smith: It is absolutely accurate, of course, to say that economic development is devolved. However, the money to develop deep sea ports for wind turbine construction comes from the Department of Energy and Climate Change, which is not devolved. The Welsh ports are best placed to benefit, given the Lundy and the Irish sea developments, so they should have received a proportion of that money—we do not understand why they did not. Will the Secretary of State enlighten us?
Mrs Gillan: On funding reports, I am reliably informed that the Welsh Assembly Government received a Barnett consequential and money will be disbursed under English regional funding. [ Interruption. ] The hon. Member for Pontypridd asked me a question and I have supplied him with an answer.
The good news for Wales concerned the announcement of the order for the A400M—the strategic tanker aircraft—and the £500 million that has gone into the Scout combat vehicles that will form a vital part of the British armed forces’ future capabilities. Their development is a further vote of confidence in the work of Airbus in Flintshire and General Dynamics in Gwent.
We are also improving the rail infrastructure in the Cardiff to Barry corridor, and improving the M4-M5 interchange between London and Cardiff. Improved rail infrastructure and shorter journey times are vital components for delivering a successful economic recovery in Wales. As I have said to the hon. Member for Dwyfor Meirionnydd, I remain fully supportive of rail electrification. Electric trains offer lower carbon emissions than their diesel equivalents; they are cheaper to buy, operate and maintain; they allow journey-time reductions; and they certainly offer passengers a more comfortable ride.
As a first step, we will electrify the Great Western main line from London to Didcot by 2016. For services beyond that, and into Wales, we must work with the Welsh Assembly Government to produce a joined-up business case. My Department is holding meetings on the matter on almost a daily basis, with the Department for Transport, the Welsh Assembly Government and key stakeholders.
It is not enough to electrify the main line to Wales—for Wales fully to benefit from electrification, we need to work with the Welsh Assembly Government to ensure that there are joined-up improvements to commuter lines beyond Cardiff. I remind Committee that, under the previous Government, not a single inch of line was electrified in Wales.
Roger Williams (Brecon and Radnorshire) (LD): The right hon. Lady will be aware that over the years—including the 13 years in which the Labour party was in government—the journey time between Cardiff and London Paddington increased. She may like to reflect on that.
Mrs Gillan: The improvements concerning Didcot are already reducing the time by 15 minutes. Instead of welcoming that announcement, all we have heard is, “I want it—and I want it now.” Unfortunately, government is not that easy; we have to put concerted thought into every single spending decision and we have undertake analysis to get the best possible value for money.
On a UK level, the latest growth figures fly in the face of most predictions and are a vindication of the decisions that we took to cut £6.2 billion-worth of spending this year and of the measures that we announced in the June Budget.
The economy grew in the most recent quarter at its fastest third-quarter rate for a decade, which underpinned confidence in our economy and in the Government’s economic policies, so that we can look positively to the future. The Office for Budget Responsibility forecast shows that Britain’s economic recovery is on track and the Government are on course to balance the books.
Jessica Morden (Newport East) (Lab): The Secretary of State has not yet mentioned the Newport passport office. Will she update the Committee on how she is getting on in fighting for the 270 threatened jobs?
Mrs Gillan: That is not strictly on CSR, but I know the hon. Lady is fighting hard for her constituents in Newport, along with her colleagues. I can reassure her that I am continuing my discussions with the Home Office and the Minister responsible, and I will be doing everything I can to ensure that there is a positive outcome. As she knows, we have already secured the front-of-house operation, so up to 45 jobs will remain in Newport. I was very pleased about that, and I know that the hon. Lady welcomed the decision as well. I assure her that I will continue to press the case.
The economy is growing. More jobs are being created. The deficit is falling. The tough decisions taken by this Government have taken Britain out of the financial danger zone. The Office for Budget Responsibility’s forecasts show that we are dealing decisively with the nation’s debts, and show the world that Britain, and Wales, can live within its means. If we listened to Labour, our debt would be almost £100 billion higher by the end of the Parliament and we would be paying £4 billion more in debt interest alone by the next election. Faced with the worst economic inheritance in modern history, we have made tough choices and brought our country back from the brink of bankruptcy. We have secured a fair settlement for Wales, and now we in government want to work with the Welsh Assembly Government to build a stronger, more prosperous Wales.
Mr Peter Hain (Neath) (Lab): I welcome you to the Chair, Mr Caton. May I deal immediately with the point that Secretary of State made in answer to an extraordinary question from the hon. Member for Brecon and Radnorshire about rail? Any of us who used the rail system when the Labour Government came to power know that it is now much more punctual and carries many more passengers as a result of the Labour Government’s multi-billion investment—investment that will not happen in future. [ Interruption. ] No, I will not give way—
Mr Hain: I welcome the news that the Prince of Wales is soon to become a father-in-law and that the happy couple intend to live in north Wales, where I know they will receive a warm welcome, not least from their new MP, my hon. Friend the Member for Ynys Môn, who is chairing the Committee this afternoon.
May I thank the Secretary of State for allowing a meeting of the Welsh Grand Committee? How wrong we all were to think she is frightened of Welsh Grand meetings—she clearly loves them. She will have noticed in her inbox the letter to the Prime Minister by three former Secretaries of State for Wales—my right hon. Friends the Members for Cardiff South and Penarth and for Torfaen, and myself. In it we argue that the current occupants of the Wales Office are presiding over a period when relations between our countries, and their now separate Administrations, are at rock-bottom. We express our concern to the Prime Minister that his Administration appear ignorant of, or indifferent to, the needs of Wales.
The Secretary of State and the Economic Secretary today have shown a curious combination of Welsh wizardry, Irish folklore and Greek mythology on the economy. The Secretary of State has been telling tall stories about the British economy and Labour’s record in office—particularly in terms of the impact on Wales. The Government keep pointing their finger at Ireland and Greece and muttering, “There but for the grace of God, and the genius of George Osborne, goes the United Kingdom”. The truth is that Britain’s position is as different from Ireland’s and Greece’s as chalk is from cheese. The much lower yields on UK Government bonds since the credit crunch bear eloquent testimony to that—a point that the Economic Secretary was clearly ignorant of. Right the way through this crisis, UK Government bonds have been much, much lower than those of other countries and have been on a downward trend.
Mr Hain: One credit rating agency gave a signal to that effect, but the others did not. When one looks at the health of the British economy when we left office, which I will come on to in a moment, one sees that the Secretary of State and the Economic Secretary are clearly peddling myths. They love repeating the mantra
Guto Bebb: Is the right hon. Gentleman aware that long-term interest rates in the UK have fallen by almost 1% since the election, which is in complete contrast with the rest of the eurozone and reflects the confidence of the markets in the policies of this Government?
Mr Hain: That is simply not the case. As I will explain in due course, if we look at the picture since 2008 and the picture leading up to the global financial crisis, we see that the Labour Government rescued the country from the prospect of dramatic economic collapse.
Mr Hain: I will give way in a few moments. As we have heard this morning, Ministers claim that the economic crisis was caused by the Labour Government through reckless spending and excessive borrowing, but they can back up neither that claim, nor the coalition’s claim that there is no alternative to the path they have embarked upon. It is time to tackle those myths head-on. Let us start by looking at the picture before the global financial crisis hit, starting with debt. International Monetary Fund figures show that in 2007 British Government debt as a proportion of GDP was below that of France, Germany, the USA, Japan and even Switzerland. In 2013 it is still forecast to be below that of France, the USA and Japan. There was no decade of debt. That is a Tory myth. In fact, the Labour Government had been paying down debt; public sector net debt fell from 42% of GDP in 1996-97, left by the Conservatives, to 36% in 2006-07, before the global financial crisis. That 6% reduction is worth around £90 billion.
Mr Hain: I will make my argument and then happily give way. By bringing down Government debt, we effectively saved the taxpayer around £3 billion in annual interest payments. We did fix the roof when the sun was shining. On Government spending, coalition Ministers like to pretend that Labour was the last of the big spenders, but in 2007 UK Government spending as a proportion of GDP was lower than that of France, Germany, the Netherlands, Norway and Sweden, and our non-age-related social spending as a proportion of GDP was lower than the European Union average. Our education spending was almost identical to the OECD average of 5.7%. Our NHS spending in 2008 was 7.2% of GDP, compared with 8.2% in Germany and 8.1% in France. So much for the overspending myth, for myth it is.
Simon Hart (Carmarthen West and South Pembrokeshire) (Con): The right hon. Gentleman will have to forgive me; I am a Welsh Grand Committee virgin, having not attended the previous sitting. If the picture is as rosy as he paints it, why was Labour’s main election result so catastrophically bad?
Mr Hain: There are all sorts of reasons for that, and they are nothing to do with the topic the Committee is debating. The previous Government did not behave like a pools winner and spend and spend. If we had, the Conservatives would never have accepted out spending plans—but they did. The point is that until November 2008, they undertook to abide by Labour’s public spending plans up to 2010. They sometimes demanded that we spend more—but the Liberal Democrats demanded that we spend more all the time. This was a Government who were supposed to be reckless; if we were so reckless, why did the Conservative party back our spending plans?
Alun Cairns: This comes back to the core of the argument about debt. Will the right hon. Gentleman confirm that as Labour went up in the polls leading to the last general election, spreads on bonds widened; and that as the Conservative party increased in the polls, spreads on bonds narrowed? That demonstrates the confidence of the markets in the incoming Conservative Government.
I turn to annual Government borrowing. Britain was not a particularly big borrower before the global financial crisis. In relation to GDP, Government borrowing in 2007-08, just before the crisis, was far lower than during 1996-97, the last year when the Conservatives were in office and the present Secretary of State for Justice was at the Treasury; it was 2.4%, compared with the 3.4% that we inherited from the Conservatives. Labour’s borrowing helped to pay for much higher level of public investment; in fact it was four times as high.
Before the global credit crunch, Labour borrowed mainly to invest, whereas in their last year in office the Tories borrowed mainly to meet the weekly wages and benefits bills. In 1996-97, 80% of the Conservative Government’s borrowing went to pay the running costs of public services, not to finance new schools and hospitals or to develop Britain’s road and rail networks. That is the background to the comprehensive spending review that we are debating today.
That was then, but what about now? Did we lose control of spending and borrowing in response to the credit crunch? The short answer is certainly not. We boosted public spending to offset the collapse in private spending, as firms and households cut back on business investment and consumer spending.
Mr David Jones: I thank the right hon. Gentleman for giving way, and I am grateful to him for the interesting alternative history lesson that he is giving us. Would he remind the Committee which was the first G8 country to go into recession and which was the last to come out of it?
Mr Hain: We were, as the hon. Gentleman know, hit by the large—[ Interruption. ] I shall answer the question. We had a particularly large financial sector, and as a result of the global banking crisis we were harder hit. Everybody understands that. Even GCSE economic students understand that that is why we were badly affected. The extra public spending that I was describing, coupled with the loss of tax revenue as output profits and employment fell, led to much higher Government borrowing. Of course it did. It is that extra borrowing—that much maligned deficit—that has kept the economy afloat in the face of the worst downturn since the 1930s.
Without the borrowing that is so strongly criticised by the Conservatives and the Liberal Democrats, the financial crisis could have become a financial collapse and the recession could have turned into a depression. The IMF has acknowledged that the worldwide increase in Government borrowing since the 2008 credit crunch staved off an economic catastrophe. It certainly did, as a result of our then Government’s actions.
Geraint Davies: Does my right hon. Friend agree that the deficit was the price paid to avoid a massive depression, a price that the present Government would not pay, and that the way to get that deficit down is through a combination of focusing on jobs and growth, progressive taxation and savings over a longer period, and not throwing nearly 500,000 people from the public sector onto the scrap heap, alongside another million from the private sector? It is throwing people into poverty. We do not require an unfair and unnecessary return to the failed policies of the past.
My hon. Friend is absolutely right. As I was saying, the Conservatives and the Liberal Democrats maintain that it was Government spending that created this crisis. The crisis did not originate in the British public sector. It stemmed from irresponsible lending by financial institutions right across the world. When their loans began to go bad, they realised that by slicing and dicing the mortgage-backed securities—
Mr Hain: I shall come on to that point. And by playing a massive game of financial jiggery-pokery, the financial institutions had made it impossible to say with confidence who was solvent, who was insolvent and who was simply short of liquidity. Their reaction was to conserve cash, refuse to lend—even overnight—and thereby threaten a seizure in the world financial system. When banks stop lending, firms and consumers stop spending, throwing jobs into jeopardy everywhere.
It is a fair question—the point that was muttered from a sedentary position is in that direction—to ask where the regulatory bodies were while all that was going on. Actually, the Conservatives are demanding less regulation, even given the historic judgment that there was inadequate regulation before. But it is not fair to claim that the crisis was due to reckless spending by Governments and excessive public borrowing, certainly not in the United Kingdom and certainly not by our Labour Government.
Jonathan Evans: As the right hon. Gentleman is presenting this image of a responsible Government, perhaps he will tell us what happened between that historic low that he mentioned of 36% public spending as a proportion of GDP and 2007? What happened to that proportion?
Mr Hain: I am coming to all of that, but I think it is important for this Welsh Grand Committee to have a serious discussion about the origins of the comprehensive spending review, because a series of big lies and myths have been peddled in relation to the background of this CSR.
Chris Evans (Islwyn) (Lab/Co-op): May I ask my right hon. Friend’s advice? If we had been so bad at managing the economy as the Conservatives and Liberal Democrats say we were, why did the then shadow Chancellor say that he would follow our spending plans for the first two years in Government?
Mr Hain: My hon. Friend makes a very telling point. If we were the reckless, irresponsible Government that the Conservatives and the Liberal Democrats are now maintaining that we were, why did they say that they would carry on with our spending plans before the financial crisis? He is absolutely right to make that point.
Hywel Williams (Arfon) (PC): On the point about regulation, is the right hon. Gentleman aware that the current Chancellor, in his article that praised the Irish economy, said that one of his complaints about the UK was that, in contrast to Ireland, the UK had not set the markets free? That shows the attitude of the Government when they were in Opposition. They wanted less regulation; not better regulation, but less regulation.
Since the financial crisis, UK Government spending as a share of GDP has risen by more than 5%. That deals in part with the point that the hon. Member for Cardiff North raised. Much of that extra spending was automatic, as firms cut back, unemployment rose and revenues decreased. Some of it—less than 2% of GDP—was discretionary and temporary in the form of the 2009 fiscal stimulus, which the Labour Government introduced when the economy was at its weakest. Some of it was public sector capital investment programmes that we
Ian Lucas: My right hon. Friend is making a powerful and important case. Is it not right that the consequence of the fiscal stimulus was that we maintained relatively high levels of employment, unlike the position in the ’80s and ’90s, when the Conservative party presided over unemployment rates that were more than 1 million higher than those that existed in the worst economic crisis since 1929? Tory Governments always mean more unemployment, which is what Wales will get.
Mr Hain: I want to finish my argument about why public spending rose. Some of the increase was deliberate, but by far the biggest factor was the direct cost of Government support for the UK financial sector. About £90 billion—way more than half the amount of the deficit—was spent up to June this year on recapitalising Britain’s banks, without which everyone’s savings would have disappeared and the entire banking system would have collapsed. That is how Labour stopped a slide into slump and how we promoted recovery from recession.
Borrowing was certainly not out of control. The Office for Budget Responsibility reckoned that borrowing last year, in 2009-10, would come out more than £10 billion lower than we had forecast when in government, and £8 billion lower in the current year. Unemployment has also stayed lower than was forecast, and the economy had started to grow again by the end of last year—recovery was fragile but real in the run-up to the general election, as a result of our Government’s spending and investment policies.
Government borrowing must, without doubt, be brought down and public sector debt reduced as a proportion of GDP; otherwise, future Governments might not be able to fight any future economic shocks of the kind that we are still recovering from. Labour had planned to halve the public sector annual deficit by 2013-14, which is in accord with the June 2010 G20 Toronto declaration. The Office for Budget Responsibility has confirmed that, under Labour’s plans, borrowing would have been more than halved by 2013.
The coalition, however, has adopted a far riskier strategy, as seen in the comprehensive spending review. It plans to cut the UK fiscal deficit by much more than was required by the Toronto accord—much more. The UK fiscal tightening plan for next year, 2011, is twice as fast as that planned by the USA and four times as fast as Germany and Japan. Why the rush?
IMF figures show that the UK’s gross financing needs as a proportion of GDP this year and next year are below those of Japan, the United States of America, France, Canada and many other comparable countries. The alarm bells are not ringing, so why risk derailing
The coalition’s plans could seriously undercut growth. The IMF estimates that the cost of front-loading the squeeze on the UK fiscal deficit is a 0.3% reduction in our growth rate next year. That cut in growth rate might be seen by the coalition as valuable insurance against the risk of a costly loss of confidence in Britain’s public finances, but in the absence of any sign of such weakening confidence, it all smacks of giving in to one’s worst imaginings.
Mr David Jones: The right hon. Gentleman mentioned the danger of a lack of growth, but this week the Office for Budget Responsibility estimated real GDP growth of 1.8% this year, 2.1% next year, 2.6% the year after, and then 2.9%, 2.8% and 2.7%. Does he doubt the OBR?
Mr Hain: The OBR also said, in paragraph 1.3, that the recovery from this recession will be slower and more sluggish than from those of the 1970s, 1980s and 1990s, because of the Government’s mistaken policies.
The hon. Gentleman must know that such growth as there is in the pipeline is as a result of the action that we took as a Government. He knows that economic indices on employment and growth take about a year to work through the system. As a result of the action that we took, growth has been stronger than forecast in this last year.
What is real is that the OECD has slashed its forecast for UK Government growth next year from 2.5% to 1.7%. The latest CBI industrial trends survey suggests that manufacturing expectations have collapsed. The Office for National Statistics’ retail sales figures show that households are reining back on spending. October saw a welcome fall in the unemployment rate in Wales, but the Institute of Directors has warned that such figures may give a false sense of security. It expects the UK labour market to weaken in 2011. There is a difference between a squeeze and a straitjacket. Plenty of experts—not just the Institute for Fiscal Studies—warn that the Chancellor may have gone too far, that his constraints on expansion are too tight and that he may need to ease the fiscal squeeze. In short, he may need a plan B.
The latest figures for GDP growth show a fallback from the second quarter’s results. The danger is that the economic recovery may lose momentum and that the Chancellor’s measures are damaging what might be called the economy’s bounceback ability.
Ian Lucas: Is it not the case that this Government have so little to say about growth that they have put back their White Paper on growth until next year? They have nothing to say in one of the most important areas of reducing our fiscal deficit.
Mr Hain: I agree with my hon. Friend. Growth could stall in the new year, and slower growth means few jobs. Bank of England projections already point to a substantial amount of slack remaining in the economy in three years’
Alun Cairns: I am grateful to the right hon. Gentleman for finally giving way. Specifically on this point about job creation, and in reaction to the comments that were made by the hon. Member for Wrexham, does he not recognise that every Labour Government have left office with unemployment higher than when they entered?
Mr Hain: Before this global financial crisis, there were 3 million more jobs in the British economy than when we took over from the Conservatives. Employment in Wales was at a record high; there were more than 140,000 extra jobs.
I was talking about public sector jobs being lost, but they will be more than matched by private sector job losses, as PricewaterhouseCoopers has forecast. Some 60,000 of those job losses are likely to be in Wales. The Chartered Institute of Personnel and Development reckons that Britain could lose more than 1.6 million jobs across the country by 2015-16, a large number of which will come from Wales.
Mrs Gillan: I am grateful to the right hon. Gentleman for giving way. First, let me correct something. We have already launched “The path to strong, sustainable and balanced growth”—it was launched by the Chancellor and the Business Secretary on 29 November—and it will involve a complex body of work. I am surprised that the right hon. Gentleman has not welcomed some of the statements by the OBR, not least that general Government employment is expected to fall by 330,000 over the next four years, which is 160,000 fewer than the 490,000 that was forecast in June, so we are moving in the right direction. The OBR central forecast was that the Government will meet its fiscal mandate to eliminate the structural current budget deficit one year early, which means that taxpayers’ money will be spent not on interest on debt to foreign lenders but on this country and the people in Wales.
Mr Hain: The Secretary of State did not mention in the statement that most of the projected fall in unemployment and job losses is a result of temporary stock building and construction investment, which the Labour Government introduced with the big investment that I mentioned and which is now flowing through.
For hundreds of thousands of public sector workers, the front line has become the firing line. While City bankers pocket huge bonuses, all that public sector workers can look forward to is a P45 instead of a pay packet.
Mr Hain: I do not think that any Member—certainly not any responsible Welsh constituency Member—should applaud anybody’s job loss. The fact that tens of thousands of workers in Wales will lose their jobs—not just in the public sector but, as PricewaterhouseCoopers says, in the private sector, because the private sector in Wales depends disproportionately on the large public sector—means that thousands of jobs will be lost in Wales as a result of this Government’s policies.
This Government’s actions have hit Wales harder than anywhere else. The comprehensive spending review was a reckless gamble. Families, workers and businesses in Wales are worried stiff about their future. Nothing can disguise the savage cuts inflicted on the Welsh budget, on top of closing the passport office, cutting the St. Athan defence training college—which, by the way, would have saved the Government money—abandoning the Severn barrage and kicking rail electrification to Swansea into the long grass.
While the Chancellor was still on his feet delivering the CSR, part of it was already being judicially reviewed. There are all sorts of issues with the S4C Authority, but we support S4C in seeking a judicial review of the Government’s decision about its future.
Mr Hain: I am going to make some progress. The Government have handled the whole issue badly, showing arrogance and contempt for Wales. No prior consultation was held with the Welsh Assembly Government or S4C. [ Interruption. ]
Mr David Jones: On a point of order, Mr Caton. I am sure that the right hon. Gentleman would not wish to mislead the Committee, but he said a moment ago that S4C is judicially reviewing a decision in the CSR. He knows that no judicial review is going on. Will he apologise and correct his error?
Mr Hain: What I said, Mr Caton, was that we supported S4C in launching its judicial review of the Government’s decision. We supported it in launching its judicial review because, as I am about to say—[ Interruption. ] At the time, S4C launched a judicial review. [Hon. Members: “No.”] The question that I have to ask is this: when the Secretary of State for Culture, Media and Sport made that decision from London in a high-handed, arrogant way, where was the Secretary of State for Wales?
Small businesses in Wales, particularly those in the creative industries, are understandably anxious about the future of S4C and what the decision means for them and the jobs involved. In addition, cuts to benefit levels and eligibility will be introduced under the radar, in a vindictive and pernicious attack on Wales’s most vulnerable communities.
Nick Smith: On that point, does my right hon. Friend agree that it is not justifiable that housing benefit for the long-term unemployed will be cut by 10% should they be unemployed for a year? Is that not disgraceful, absolutely wrong and not at all progressive?
Because Wales relies more on public sector jobs, the savage cuts will damage Wales more than any other part of Britain. There are already far fewer vacancies than there are unemployed people looking for work. For every job vacancy five people are unemployed. The situation will get worse as the cuts hit home, with Ministers once again telling the unemployed to get on their bikes and search for a job. How contemptuous.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC): Does the right hon. Gentleman think it was ironic that when the Secretary of State for Work and Pensions was in Abertillery calling on people to get on a bus to get a job, he turned up in a Jaguar?
In view of Ministers’ enthusiasm for everyone to cycle, we should do well in the 2012 Olympic cycling event. The unemployed know that as in the Tour de France the pursuit pack may be crowded but at the end of the race there is only one yellow jersey. Unless the economy recovers from recession and growth picks up speed, their search for a job will remain a pointless quest. Ministers say that we are all in this together. They conjure up an image of the British economy as if it were the Titanic holed below the waterline by an iceberg of Government borrowing that Labour carelessly parked dead ahead of the ship of state. As I have made clear, in demolishing all of that big lie and all those myths, none of that stands up at all.
The Government also, through the comprehensive spending review, have students in their sights. Already the £30 a week education maintenance allowance for 16 to 19-year-olds at school and sixth-form or further education colleges is to go; except in Wales, where, to their great credit, Labour Ministers are keeping it. Average student debt in Wales is already more than £6,400 a year. Throughout Britain students starting at
Thankfully, in Wales the Labour-led Assembly Government yesterday announced that Welsh-domiciled students will not have to pay those extra fees. The cost will be met by the Assembly Government. Variable progressive rates of interest will be charged, depending on income. That is a fair way to fund higher education. The Government could learn a thing or two from Labour Welsh Assembly Ministers.
Mr Hain: No, I am not going to give way. Despite massive cuts in the Welsh Budget—[ Interruption. ] The Secretary of State is muttering about cuts in the Welsh Assembly’s budget; she is responsible for cuts in its budget.
Mrs Gillan: I am not responsible for cuts in the Welsh Assembly budget. The Welsh Assembly Government have decided that their priority will be to put money into student fees in Wales, which will result in cuts in the health, education, economic and transport budgets. The right hon. Gentleman should read the Welsh Assembly Government’s budget; it is their choice.
Mr Hain: I cannot believe this nonsense. The right hon. Lady and the Government are cutting the Welsh Assembly’s budget by £1.8 billion; the Welsh Assembly Government are not doing it voluntarily. She and the Conservative-Liberal Democrat Government are cutting it. Despite those massive cuts to the Welsh budget the Tories in the Welsh Assembly have the audacity to suggest that ring-fencing the health budget in Wales is affordable.
On Tuesday 2 November during First Minister’s questions, Nick Bourne, the Welsh Conservative leader, talked about how the UK Government would safeguard the NHS budget in England, and demanded that we should do the same in Wales. The Tories in Wales have said that to pay for that—I wonder whether the Secretary of State agrees—of course they would be happy to cut the schools budget by more than 20%. That would create chaos in the education system in Wales. Schools would shut overnight. This is an unrealistic, irresponsible and unaffordable spending commitment by the Tories in Wales, and the Secretary of State should condemn, not support it.
The Government say that we are all in this together, but some are being gripped tighter than others by the Chancellor’s python policy. Families in Wales are feeling the pinch more than most, as Welsh household incomes are more than 10% below the UK average. Tens of thousands of working Welsh families on low-to-middle incomes face a triple whammy. What they gain from a higher income tax allowance they more than lose through cuts in tax credits, child care support and benefit
I notice that the Prime Minister wants to build a happiness index to keep our spirits up during the tough times that lie ahead. Devotees of the songs of Ken Dodd may remember that his string of hits began with “Happiness”, but was followed by “Tears” and ended with “Brokenhearted”—a fitting epitaph, I fear, for the Government’s disastrous and savage public spending cuts that will damage Wales so badly.
David T. C. Davies: The shadow Secretary of State began his little oration by asking about bond yields on UK gilts. It is worth reminding him of a headline that was in The Sunday Times business supplement just before the election, which said that Britain was not to lose its triple A rating yet. The article went on to explain that the reason why yields remained low was because all the rating agencies assumed that no matter who won the election, the new Government would take drastic steps to cut the budget deficit. That was the assumption, and the agencies openly said that they did not expect any political party to spell out exactly what it was going to do before the election. That is why confidence was maintained.
There was also the fact that it was quite clear that in the rest of western Europe, and across much of the western world, no Government were willing to take similar steps. Of course, much of western Europe was already locked into the euro. It is now obvious to all of us the problems that that caused—the idea of trying to lock so many different types of economies into one single interest rate when clearly, economies such as Ireland’s needed much higher rates. However, the rates were kept artificially low by the Germans. Of course, Opposition Members were huge enthusiasts. I believe that the shadow Secretary of State is a huge enthusiast for the euro. Had we made the calamitous mistake of joining the euro, we would be facing exactly the same situation as Ireland, possibly Portugal and even Spain may face shortly.
That is the answer to the question that the former Secretary of State for Wales asked. That is the reason why bond yields continue to remain low, and will continue to do so because Britain will maintain its triple A-rated status. It is important that we do so, because across the rest of the world, many sovereign investment and pension funds will only—and indeed can only—invest in countries and organisations with a triple A-rated status. If we lose that status, even if we are downgraded in a small way, there will immediately be pressure on all sorts of organisations to sell UK bonds. The result would be higher interest rates, which would immediately feed into the national economy, meaning higher interest rates for everyone.
Geraint Davies: Does the hon. Gentleman accept that if 1 million more people are on the dole, it would cost the country something in the order of £6 billion a year, increase debt and bring about the problems that we had in the previous Tory Government under John Major, when debt was rising because of incompetent policies and cuts?
Despite what we have just heard, Britain went into the election with a debt of £1 trillion. The previous Government started with a debt of £350 billion, which has gone up to £650 billion before 2008, before any collapse of the banks. The Government then spent another £300 billion trying to shore up their position for the next general election. The Opposition talk about the banks, but the banks had only £50 billion; they may get more, and we may get some back, but they physically had £50 billion. I accept that that was a lot of money, but it is not a great percentage of £950 billion, which is what the debt is today. What happened to the other £900 billion? The former Secretary of State for Wales says that it was invested, but I believe that much of it was wasted, as we certainly did not see an improvement in public services.
|©Parliamentary copyright||Prepared 2nd December 2010|