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Spending Review and Autumn Statement: Wales

Volume 603: debated on Tuesday 15 December 2015

I beg to move,

That this House has considered the effect of the Spending Review and Autumn Statement 2015 on Wales.

It is a pleasure to serve under your chairmanship, Mr Hollobone. Last month’s autumn statement was an opportunity for the Government to deliver a fair deal for Wales; to support Welsh families, to invest in skills and infrastructure and to give the Welsh Government the tools that they need to fund the vital public services that we all depend on. Unfortunately, however, the Chancellor of the Exchequer did none of that. Instead, he delivered yet more cuts to the Welsh budget and to the budgets of thousands of families across Wales.

Thanks to Labour’s campaign, the Chancellor was forced to abandon his plans to cut tax credits that would have hit 135,000 working families in Wales. However, we now know that those cuts have been delayed, not dropped altogether, and thousands of Welsh families will be hit just as hard through the Government’s cuts to universal credit. Families across the UK are expected to lose £1 billion this year and over £3 billion by the end of the Parliament because of the cuts to universal credit. The Institute for Fiscal Studies has predicted losses of £1,600 a year for 2.6 million working families and cuts of £2,500 a year for 1.2 million families who are out of work.

Although fewer than 6,000 Welsh people are currently on universal credit, the number will rise significantly over the next few years, as other benefits such as tax credits and jobseeker’s allowance are phased out. In my constituency, 656 people are currently on universal credit, but 14,250 people are claiming one of the main out-of-work benefits.

Working people in Wales will be worse off on universal credit, leaving those who are currently on tax credits with a perverse incentive not to take on a new job or extra hours for fear that it will change their circumstances and cause them to be moved on to universal credit. In Wales, 167,400 working families will feel the impact, 134,600 of whom are families with children.

In Neath, 6,200 families were on tax credits as of April this year; 5,300 of those were families with children, all of whom will be negatively affected by the changes and cuts to universal credit, should they take place. That neither meets the Government’s aim of making work pay, nor ensures that those on middle and low incomes are protected. Wales already has the highest level of child poverty of any of the nations of the UK. One in three children lives below the poverty line. Half of the people deemed to be living in poverty are actually working—an unfortunate truth that is often ignored when painting a picture of worklessness and a benefit-claiming culture of poverty and deprivation.

On the autumn statement, the Joseph Rowntree Foundation made it clear:

“There was little in this Statement to tackle the causes of poverty and it was a missed opportunity to support low income families. Without action”—

the foundation warns, our economic recovery will be

“built on rising poverty and insecurity.”

In Wales, we are particularly at risk, and the Chancellor’s plans are bad news for low and middle-income earners across the country. However, just as we successfully opposed his pernicious cuts to tax credits, we will continue to highlight the fact that the Chancellor’s plans will leave Welsh families worse off.

The autumn statement also saw yet another cut to the Welsh budget. Over the next five years, Wales will see a real-terms revenue cut of 4.5% and a cut to its overall budget of 3.6%. When Labour was in government in Westminster, we increased the Welsh budget from £7 billion in 1999 to £16 billion in 2010.

I congratulate the hon. Lady on securing this important debate. In my recollection, going into the last UK election, the Labour party said that it would broadly copy the fiscal policy put forward by the Conservative party. Will she tell us what the cut would have been to the Welsh budget under Labour?

No, we did not actually say that—if the hon. Gentleman checks his facts, he will see that we did not.

As I was saying, by the time this Conservative Government leave office in 2020, we will have seen an 11% cut in the Welsh budget. For all the Government’s talk of economic recovery, they have delivered a mountain of cuts since 2010, and their decisions will do further harm to the Welsh economy over the next five years.

The hon. Lady talks about 11% cuts to the Welsh budget, but how does that compare to the regions and Departments of England? She has not once mentioned the commitments on the national living wage. Will she welcome that as well as banging on with the diatribe we have heard on universal credit?

The hon. Gentleman may think it is a diatribe but I do not—these are the facts, and the so-called national living wage is yet more rhetoric from the Conservative party.

In Neath Port Talbot, the county borough in which my constituency sits, the local authority has seen a cumulative cut of £65 million to its budget since 2010, not including this coming financial year, with further planned cuts potentially of £37 million over the next three years—a total of £102 million being taken out of its budget in eight years. That has meant its workforce has shrunk by 20%, and it is important to point out that those cuts have come as a direct consequence of UK Government cuts to the Welsh budget. That has hit local services hard, leading to the unwanted but necessary reduction in support for community facilities, such as libraries and leisure centres.

The IFS has estimated that the tax and social security changes introduced in the last Parliament cost the average Welsh family £560 a year and took £700 million out of the Welsh economy each year. According to the IFS, the Chancellor’s plans mean that Welsh households will lose a further £500 each year between 2015 and 2019, meaning an annual loss of £660 million to our economy.

The Chancellor made much of implementing a Barnett floor to ensure that the funding gap between Wales and England does not widen further. I welcome that announcement. Six years on from the Holtham report, which recommended such a floor, I am pleased that the Government have finally pledged to deliver that mechanism, but the simple fact is that the floor makes hardly any difference when spending on Wales is falling. What is unacceptable, and completely at odds with the recommendations of the Holtham report, is that the Barnett floor is only being set at its present level of 115% of spending in England for the duration of this Parliament, with the amount being “reset” at the next spending review

“to take full account of the Welsh Government’s new powers and responsibilities.”

Will the hon. Lady clarify something? If the 115% level is deemed to be too low, what level would the Labour party want to apply to Wales, in terms of the Barnett formula?

We have to look at this issue. When spending in Wales is falling, that level is too low, so surely the best thing is to generate an economically viable situation in Wales so that spending increases.

Not at the moment—I have to make progress.

We are all well aware of the Chancellor’s habit of slashing funding from central Government then expecting local government and the devolved Administrations to make up the shortfall. That policy ensures that the poorest areas are hardest hit. If the Chancellor plans to use the devolution of income tax to Wales as a cover to cut Welsh funding further and to lower the Barnett floor, that will understandably be seen by the people of Wales as an unacceptable outcome.

The autumn statement was also largely silent on the vital infrastructure projects that Wales needs. Despite its strategic importance to the Swansea bay city region, of which my constituency is a part, there was not a single mention of the Swansea bay tidal lagoon in the Chancellor’s statement. Along with the 22% cuts that the Chancellor announced to the Department of Energy and Climate Change, perhaps that silence signals the Government’s lack of commitment to green energy.

In light of the landmark agreement reached in Paris last weekend, we know that projects such as the tidal lagoon are essential if this country is to meet its international obligations to combat climate change. Unfortunately, although important progress was made in Paris, I understand that the pledges will not achieve the aim of limiting global average temperature rise to below 2 °C, so further action is urgently needed.

I thank the hon. Member for giving way again. Will she take the point that there is also the Cardiff lagoon to consider, and that investors around the world are being shaken by what she and other Labour Members are saying about tidal lagoons at a very critical point, when we are negotiating the strike price? They are endangering lagoons, and not just the Swansea lagoon.

I do not quite understand what that intervention means. We are not causing the uncertainty; the Government are.

The Swansea bay tidal project is also of critical importance because of the potential jobs and investment that it will bring across south Wales, as well as the apprenticeships promised to institutions such as the Neath Port Talbot College group. It is estimated that up to 1,900 jobs could be created during the lagoon’s construction phase, with many more jobs being created in the supply chains. Local businesses are eagerly anticipating the investment that the project will bring, so it would be a travesty if the UK Government failed to deliver this opportunity. Will the Minister confirm that the Government remain committed to the project and to agreeing a strike price for the tidal lagoon?

Another project that is of vital importance to the whole of south Wales is the electrification of the Great Western line from London to Swansea. Again, the Chancellor paid lip service to the scheme during the autumn statement, but he did not give any further details and now we know why. Since the autumn statement, it has emerged that electrification of the line between Cardiff and Swansea, which was due by 2018, will not be completed until between 2019 and 2024. That is an unacceptable delay and one that has the potential to damage the economies of south-west Wales, which will still be waiting for electrification years after electrification to Cardiff is complete.

I am extremely grateful to the hon. Member; she is being extremely generous in giving way again. I agree with everything she has said about the electrification to Swansea; we have been seriously let down on that particular issue by the UK Government since the election.

The comprehensive spending review came with the statement of funding policy document, which refers to High Speed 2. In that document, Wales gets a 0% rating, which has a drastic effect on the overall comparability percentage when the Barnett formula is applied. Can the hon. Member explain why the Labour Government in Cardiff are accepting the line of the Tory Government here in London that Wales will not lose out on many millions of pounds in the future because of that decision?

That was such a long intervention that I cannot remember now what the beginning was. We also have north Wales to consider and surely—

The news about HS2 comes just weeks after the Public Accounts Committee concluded that the £1.5 billion rise in the cost of electrification to Cardiff was “staggering and unacceptable”. It is now down to the Government to get a grip of the project, to ensure that the upgraded line is delivered quickly and with the maximum value for money for the taxpayer. With that in mind, can the Minister please tell us when he expects the electrification to Swansea to be complete?

The Chancellor was also noticeably lukewarm about proposals to develop city regions in Swansea and Cardiff, which are landmark developments with the capacity to transform transport and economic opportunity across 10 local authorities. The Welsh Government have committed £580 million to the project and the local councils have pledged £120 million, but the autumn statement just confirmed that the Government were committed “in principle” to the proposals. Can the Minister please confirm whether the UK Government will match the funding pledged by the Welsh Government?

Finally, the Chancellor confirmed that highly skilled Welsh workers in Wrexham, Swansea and Porthmadog will lose their jobs with the closure of more tax offices across Wales. We have already suffered through the closure of offices in Carmarthen, Merthyr, Pembroke Dock and Colwyn Bay in 2013, which, for example, forced workers from Colwyn Bay to travel to Wrexham to work. Are those employees now expected to travel to Cardiff to work?

The effects of the autumn statement will soon be felt by families across Wales, many of whom have suffered because of the last five years of cuts. The spending review should have been about delivering a sustainable settlement to boost the Welsh economy. Instead, the Chancellor avoided the big infrastructure challenges facing Wales and delivered another cut to the budget of the Welsh Government, and his cuts to universal credit mean that thousands of Welsh families will begin losing out from next year. What is more, we learned that the Government are removing the requirement of a referendum on devolving tax powers to Wales. I regret that the autumn statement did not have the interests of Wales at its heart, and people in Wales will suffer as a consequence.

It is a pleasure, Mr Hollobone, to serve under your chairmanship once again. I thank the hon. Member for Neath (Christina Rees) for securing this debate on the Government’s spending review and autumn statement. It is an opportunity to try to answer many of the questions that have been put, and to clarify the great opportunities that the autumn statement brings for our nation.

The Chancellor set out in the spending review and the autumn statement how the Government will deliver economic security, national security and opportunity for Welsh families. In Wales, the Government’s economic plan will build on the improvements made during the last Parliament. Since 2010, only London has grown more per head than Wales; unemployment in Wales has fallen by 26% since 2010; and in the last year alone, employment in Wales grew by more than 43,000. This investment continues to be made in this Parliament. Hopefully Labour Members will agree that the increase in capital funding for the Welsh Government—an increase of more than £900 million, or 16% in real terms, over five years—will support investment projects that matter to Wales and the Welsh economy.

It is interesting that the hon. Member for Neath focused on revenue expenditure, and at the close of her speech she talked about the lack of infrastructure investment. A 16% increase in capital spending certainly allows any infrastructure deficiency to be fixed by the Welsh Government. I suggest that all Members focus their attention on delivery, including the delivery by the Welsh Government of many projects, such as the M4 relief road, the electrification of valleys lines and other capital projects around Wales. When the hon. Lady’s predecessor, Peter Hain, was the Member for Neath, he cancelled the M4 relief road back in 1997. It is hard to believe that despite there being a Labour Administration in Cardiff Bay since 1999, we are still debating the same project, which is vital for the prosperity of Wales, given the commercial opportunities that it would create.

I am very grateful to the Minister for giving way, and his reply will be very useful to me as somebody who represents the communities in the west of our country. When the borrowing powers were awarded to the Welsh Government, was there a caveat that enhanced borrowing powers would only become available if the money was invested in the M4 relief road, or has that decision been made by the Labour Members in the Welsh Government independently?

I will happily write to the hon. Gentleman with further details. I can confirm now that the Welsh Government’s power to borrow up to £500 million for capital spending was initially due to start wholesale in 2018. The UK Government recognise that those powers are integral to the delivery of the M4 relief road, so early access to the borrowing powers was facilitated. The hon. Gentleman will know that that happened some years ago, but we are yet to see those borrowing powers being exercised to deliver that vital road project.

The hon. Gentleman will also know that during the recent rugby world cup, many demands and calls were made for that relief road. That is why, as I have pointed out, it was sad that that project was cancelled in 1997, following the previous Government’s decision to deliver that road.

This is not just about the big projects. Our capital city is still without a ring road, and the eastern bay link has been on the cards for many a year. Even when it comes to smaller capital projects, the Welsh Government just do not get on and deliver.

My hon. Friend highlights another infrastructure project that has been called for. I can certainly remember that project from before the turn of the century. Businesses would welcome it. Bear in mind the resources available: the 16% increase in capital spend gives the Welsh Government the opportunity and the power. Instead of focusing on some of the issues raised today, this debate should focus on delivery by the Welsh Government, because all the resources have been put in their hands. The spending review saw more than just economic investment in skills and infrastructure.

On the implications of the autumn statement beyond economic development, one of the consequences that was not, I think, specifically announced in the Chamber on that day was a very big cut to the support for Sianel Pedwar Cymru, the Welsh language channel, from the Department for Culture, Media and Sport. Does the Minister share the disappointment that those of us who love the Welsh language—I know that that includes him—feel about that huge reduction in support? It may have an implication for the BBC’s support for S4C. It is particularly disappointing for the Minister and me because of our party’s record in stimulating the Welsh language and S4C over the past 30 years.

My hon. Friend raises an important point. S4C is crucial for the vitality of the language, and it creates social, cultural and economic opportunities. It would be wholly improper for me to provide a running commentary on the charter renewal negotiations. They are ongoing, but I am pleased to hear that Tony Hall said that broadcasting in the nations needs to be protected by the BBC, and I would hope that that would extend to S4C.

The Minister seems to have forgotten a line from his party’s general election manifesto, which said that if elected, his party would safeguard the funding and editorial independence of S4C. How does he square that commitment with what happened in the comprehensive spending review?

The hon. Lady needs to recognise that the amount of funding from DCMS is relatively small. The proposal to cut from £7.6 million to £5 million over an extended period of time provides an opportunity for S4C to make its contribution to the savings. The spending review proposed £400,000 of funding savings from S4C in the first year, but she needs to recognise that negotiations with the BBC are ongoing, and to recognise the statements coming from Tony Hall. We welcome those statements and hope that the BBC will be able to deliver on them.

The Welsh Government’s total funding is underpinned by our commitment to introducing a funding floor, as the hon. Member for Neath said. I would have hoped that she would have welcomed the funding floor, because it was only two weeks before the autumn statement that there was a debate in this Chamber about the need for a funding floor. There was doubt that it would be delivered, but a funding floor of 115% will be introduced. That is well within the Holtham commission’s fair funding range, and I would have hoped that that would be welcomed by the hon. Lady.

The surveyor and architect of fair funding for Wales, Gerry Holtham, analysed the position and came up with a range of solutions. After the autumn statement, he said that it was a fair settlement. That is the fundamental point. There will be political commentary from all around, but the person commissioned by the Welsh Government to provide the assessment and establish the financial relationship between the UK Government and the Welsh Government has said that it is a fair settlement, and that is testament to the strength of the Administration in Westminster, which has delivered on something that has been talked about, but never delivered, by the Opposition.

My apologies, Mr Hollobone, for arriving a minute into the debate. On the 115% Barnett floor, why is it only for the term of the Parliament? What is the Government’s thinking behind that? The Minister will be aware of the worry that there is no long-term commitment. I am sure he will say, “Governments can only bind one Parliament”, but what is his thinking, long term?

Having been a Minister, the hon. Gentleman will know that no Government can bind another Government, though I would largely welcome a Government that could bind a Labour Administration, hopefully in the long-term future, to prevent them from pursuing the sorts of policies that they would want to introduce. Clearly, that is not how democracy works. It is obvious that this Administration can only plan for this Administration, and it would be wholly wrong and inappropriate to come up with commitments that bind any future Administration. The hon. Gentleman tried hard to draw something from me, but I hope he will respect the argument that he would be making, were he standing in my position.

I hope that Opposition Members recognise the commitment. The surveyor and architect of fair funding said that this was a “very reasonable” and fair settlement. Any political rhetoric on the issue needs to recognise the comments of that independent commentator.

Another element of the autumn statement enabled the Welsh Government to alter Welsh rates of income tax without a referendum. That offers exciting opportunities to attract new investors, and tax powers to reform the Welsh economy. The Welsh Government can take on more responsibility for how they raise money, as well as how they spend it. The National Assembly will finally take its place alongside other mature legislatures by being accountable to the people it serves. The new tax-raising powers put important fiscal levers in the hands of the Welsh Government, which they can use to grow the Welsh economy, to deliver new opportunities and to attract new investment.

Silk estimated that a 1p cut in the higher rate of tax would equate to a drop in revenue of £12 million. That is only a little more than the Welsh Government reportedly lost selling land in Monmouthshire, for example. Think of the opportunities that the cut of one penny could create: tens of millions of pounds might be spent on business support, or other discrete areas of the Welsh Government. People can now make a comparison: should they pursue one policy, given its cost to the taxpayer, or another, such as reducing the rate of income tax to attract investors and entrepreneurs to Wales?

The leader of the Conservative party in Wales has opened up the front on this matter by proposing a 5p drop in the top rate of income tax. That would equate to £40 million or £50 million, which is not a drop in the ocean in terms of the Welsh budget. It is curious that the leader of the Conservative party in Wales thinks that that is the best way to incentivise entrepreneurship, rather than investment in infrastructure, the innovation funds and everything else. Why does it have to be a cut in the top rate of tax? How many people on the frontline of our public services, including nurses and the police, have already been cut? Have the Conservatives made those calculations when committing to a 5p cut in the top rate of income tax?

The hon. Gentleman is demonstrating his misunderstanding, because he compares capital projects with revenue projects. The rate of income tax would affect revenue projects only. These are the sorts of policies that could be presented in a manifesto. People can choose whether they want to see money spent on pet projects of the Welsh Government or a cut in income tax. People will make their choices according to their objectives, but it is up to each political party to make its case. The whole point about the autumn statement is that it empowers the Welsh Government to make the case on whether it should be spending more or less.

It is up to people to make judgments on what are pet projects. The point I am making is that we are in a serious debate. The opportunity to cut income tax rates is an opportunity to attract more investors and entrepreneurs to Wales.

In the 20 seconds that remain of the debate, I want to scotch any concern about the Barnett consequentials for HS2 funding in the autumn statement. The hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) has misunderstood the tables presented in the statement. We will happily go through it and write to him with the detail.

Motion lapsed (Standing Order No. 10(6)).

Sitting suspended.