Support for the Welsh Economy and Funding for the Devolved Institutions

Ben Lake Excerpts

Tuesday 5th July 2022 Commons Chamber

[Robin Millar]

I thank my right hon. Friend for making that point. I could not agree more. Contrast that deficit view, which seeks to fill, with an asset-based view, which seeks to grow, encourage and stimulate that kind of economic activity.

[Ben Lake (Ceredigion) (PC)]

rose—

[Robin Millar]

How could I possibly refuse the hon. Member?

[Ben Lake]

In the interests of consistency, does the hon. Gentleman agree with cutting VAT for hospitality businesses, rather than increasing it, as happened recently after the pandemic?

[Robin Millar]

I would settle for not adding a tourism tax on top of VAT.

Contrast the Welsh Labour Government’s view that we should not implement UK Government programmes in Wales with the more enlightened view of the Welsh Local Government Association, which, in its manifesto for localism, said that

“greater fiscal autonomy and flexibility”

should be at the centre of its plan for recovery from the pandemic. That is what the levelling-up fund and the shared prosperity fund seek to do.

I said that I had three points. My third is to do with misunderstanding business. As my right hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb) mentioned, we in the Welsh Affairs Committee are very grateful to have Welsh Government Ministers in attendance at our Committee. Without a doubt, it enriches the evidence presented to us and our discussions. When the former Minister of the Economy, Mr Skates, attended, he was asked a question about the Welsh economic plan. This flagship project of the Welsh Government sought to sign up Welsh businesses to it. After some discussion, we established that the aim was for 3% of Welsh businesses—some 6,000—to sign up. I put it to him in our meeting that the reason for the low take-up was the unrealistic expectations placed on businesses in Wales. The time and financial commitment that it takes to sign up to making quite honourable and desirable—idealistic, I suppose, is too strong a word—steps towards decarbonising business and making it more sustainable are simply crushing for small businesses. After all, 95% of businesses in Wales have fewer than 10 employees.

In that context, I will make a comment on the question asked earlier about the amount of funding coming into Wales. Despite concerns about performance, and despite the frustration, and confusion or misunderstanding, about what businesses need, the reality is simple and irrefutable: there has never been more funding coming into Wales, if we perhaps except the blip that came through the consequentials around the covid pandemic.

Let us start—and start we must, because this is a long list—with the spending review. In 2021, we set the largest annual block grants for the Welsh Government: £18.4 billion per year. That will increase to £20 billion between 2022 and 2023. If comparison is helpful, over the spending review period the UK Government are providing the Welsh Government with roughly £1,000 more per person than is spent in England. That block grant increase is in addition to £900 million for farmers and land managers over the next three years, and the £6 million for Welsh fisheries.

That is not all: there is also the first round of the levelling up fund—yes, there are more rounds to come—which is £121 million, and there is £46 million through the community renewal fund. Perhaps hon. Members can see a pattern here. That is in addition to the £460,000 in just the first round of the community ownership fund and, lest it feel left out, the £130 million of investment by the British Business Bank.

All that funding speaks to the points so helpfully made by the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts), and highlights the difference between a deficit-based and an asset-based approach, because all that is also in addition to Wales’s 22% share per annum of the UK-wide £2.6 billion UK shared prosperity fund—a fund that ensures that EU funding is matched. Those are not my words; on 11 June, during an evidence session of the Senedd’s Finance Committee, Guto Ifan, a research associate at the Wales Governance Centre—an organisation that has never been slow to criticise this Government—stated:

“by 2024-25, the annual funding from the shared prosperity fund will match the average annual funding that Wales would have received”

from the European regional development fund and European structural fund, after inflation readjustments. All that long list comes on top of substantial legacy EU funding, which Wales will continue to receive as it tapers off.

I could speak at length—[Interruption.] I assure you that I will not, Madam Deputy Speaker; I would not deprive hon. Members of their time—but the money coming into Wales offers a huge opportunity to my Aberconwy constituency and north Wales. It is incredibly positive and forward-looking of the UK Government to act in this way. Local businesses are excited by it, and I see tremendous potential in the projects and bids we will submit to the levelling up fund bidding process.

In conclusion, we must ask what has happened in Wales in economic terms. It is not in a good place; it has not been in a good place, and there is no suggestion that that will improve as long as the Welsh Labour Government continue with their economic plans, which have, after all, been under their devolved capacity for the entirety of the Welsh Government’s existence.

--- Later in debate ---

[Ben Lake (Ceredigion) (PC)]

It is a pleasure, as always, to follow the hon. Member for Clwyd South (Simon Baynes), and I join him and the hon. Member for Cynon Valley (Beth Winter) in thanking the staff of the Welsh Affairs Committee. A number of Committee members are present this afternoon, and we benefit from their hard work and diligence in preparing what I would argue is an impressive range of inquiries. We punch above our weight—very much like Wales, perhaps.

I congratulate and thank the right hon. Member for Preseli Pembrokeshire (Stephen Crabb) for securing this debate and for leading the Welsh Affairs Committee in the way that he does. His contribution, and those of my hon. Friend the Member for Carmarthen East and Dinefwr (Jonathan Edwards) and the hon. Member for Aberconwy (Robin Millar), have already caused us to discuss the structural long-term problems that Wales and its economy are facing, and the demographic consequences of those structural problems. Mention has already been made about recent census results in which Ceredigion reported a 5.8% fall in its population. I do not intend to pursue that line of inquiry in my remarks this afternoon, but it is an important area for us to consider and debate in future, because it is intertwined with the debate about levelling up and building a more prosperous economy, and indeed society. In many rural areas, and particularly areas such as Ceredigion, we are seeing a demographic trap in which some of our biggest and most valuable exports are our young people and skills. Yes, that has been happening for many years, but sadly the trend has been accelerating in recent decades. We need to get a handle on that.

I want to focus my remarks on the impact of the recent cost of living crisis on both households and businesses. Set against that backdrop, the debate is timely. As right hon. and hon. Members will be well aware, our constituents, whether households, businesses or community groups, are struggling under the weight of increased fuel and energy costs in particular. In anticipating some of the Secretary of State’s arguments and comments in summing up, I acknowledge that there has been a package of measures and support from the UK Government. As the Library’s briefing informs us, it amounts to some £37 billion and includes: £400 to help all households with energy bills; £650 for households receiving means-tested benefits, with an additional £300 for pensioners and £150 for people receiving disability payments; and a further £150 council tax rebate for households in council tax bands A to D.

[Liz Saville Roberts]

My hon. Friend is making an excellent speech. On that £400 household grant, does he share my concern that the residences of farmers count as businesses and therefore do not qualify? That is significant for us in Wales and would make a difference to an awful lot of people in rural areas.

[Ben Lake]

I am grateful to my right hon. Friend for raising that important point. Indeed, a number of hon. Members are concerned about that. There is still a lack of clarity arising from the technical consultation on the energy bills support scheme about whether farms—I am told that most of them will have a commercial electricity contract that also includes their household premises—will be able to receive that £400. It is important for the Government to look at that now before introducing the scheme in the coming months. She is right that it would not be appropriate or fair if farmers—many hon. Members in their places represent a great number of them—lost out due to a technicality. I am certain that the Government intend to support those individuals and households; it is just that the technical eligibility criteria need to be put right.

One thing that the useful House of Commons Library briefing tells us is that, despite that rather impressive package of measures, once we take into account changes to income tax and national insurance contributions, some of that support is offset, at least in net cost to the Treasury. If we were to take tax increases into account, net Government support stands at about £14 billion in the fiscal year 2022-23.

We need to consider whether the package of support is sufficient, given that we know that domestic gas prices increased by 95% between May 2021 and May 2022 and that domestic electricity prices rose by 54%. In nominal monetary terms, the April price cap saw an increase in the maximum for average bills from £1,277 a year to £1,971 and, in May, the chief executive of Ofgem mentioned that he expected the price cap to rise by potentially 40% in the autumn to a maximum of £2,800. That would be a doubling in less than 18 months, and that is why it is important that we consider the sufficiency of the measures already announced. Just after April’s price cap came in, the Welsh Government estimated that 45% of households in Wales could fall into real fuel poverty—and, of course, that does not take into account further increases that may come in the autumn.

As MPs representing rural areas know, the energy price cap offers solace only to households on the mains gas grid. Many off-grid properties have not been offered the same level of price protection and have been exposed to significant price increases in terms of heating oil and liquefied petroleum gas. It is particularly true in Ceredigion, I am sad to say. According to the Mid Wales Energy Strategy, as many as 72% of properties in Ceredigion are off the mains gas grid. I am sad to say that we have the accolade of being the constituency most dependent on heating oil of any in the UK Parliament. On average, the price of heating oil has risen by 150% in the last year. In some circumstances, the increases have been significantly higher.

There is a debate we need to have, perhaps not for today, on whether we need to change approach in how we tackle the price hikes. Are we certain that they are just one-off temporary increases? Some suggest that we have underestimated and under-costed the risks, and that some increases are here to stay. Indeed, we could see further price increases. I note just today turbulence in Norway that might cause a further increase in the price of wholesale gas. There are a lot of uncertainties at a time when wholesale prices are already at an elevated level.

Before drawing to a close, I should mention that we need to do more to support small businesses and community groups facing energy and fuel price increases. I have been speaking to many hospitality businesses in Ceredigion. One told me that its energy bills have increased by 450% and to such an extent that it had to really consider whether it could continue to operate. The situation is not unique to that business. I know a great number of many other businesses that are struggling in a similar manner. We cannot allow otherwise valuable and successful businesses to fall foul of the price hikes. I sincerely believe that the situation warrants further Government intervention.

To add to that, because I do not want to portray this as solely an economic problem, there is also a community or social impact of the current crisis. We will all have heard from community groups, halls and swimming pools—you name it—that are struggling at the moment with higher than average energy bills. We are currently in the summer months, so usage is a lot lower than it will be in the winter. If they are struggling now, I dread to think where they will be in autumn. For example, in my own constituency, Calon Tysul, a community-run swimming pool in Llandysul in the Teifi valley, is already spending about £1,500 a week just to heat the swimming pool. That does not include the dry side of its facilities. That is already forcing it to make very difficult decisions about the provision of swimming lessons for our young people.

[Robin Millar]

The hon. Gentleman is giving a typically thoughtful speech, as we have become accustomed to in the Welsh Affairs Committee, and I thank him for that. I am grateful, too, that he mentions the levels of grants that have been given on an individual basis. Does he agree that they cannot ever be enough to, for example, make up for inflation in house prices in our area, which drives some of the demographic change he referred to at the start of his speech, and that the only way to see that remedied is with higher wages and more skilled jobs in Wales? Does he share my frustration at the flatlining of the Welsh economy over the last two decades?

[Ben Lake]

I agree and I disagree. I agree in the sense that I would also very much like to see our economy develop to offer more high wage career opportunities. What I would say, however, is that we need to disconnect the short and medium term from the longer term. I agree with him that there are longer term measures that would entail greater investment. In the short term, perhaps some of the measures we need to look at, as well as direct support, are initiatives such as a social tariff for utility bills. As chair of the all-party parliamentary group on fuel poverty, I am very keen to see that.

To conclude, something plaguing a lot of families in rural areas is the cost of filling up the car. Sadly, Wales is a very car-dependent nation, with some 83% of commutes dependent on private car use. In the long term, we obviously want public transport infrastructure to allow us to wean ourselves from the car. At the moment, however, we are not in that situation. There is both a social and economic factor for rural areas like Ceredigion. The social factor is in terms of the provision of key essential services. District nurses and carers are telling me that they just cannot afford to travel the 400, 500 or 600 miles a week that they need to travel to care for our elderly and in-need residents.

There is a real case for us to re-evaluate the rural fuel relief scheme to encompass more rural areas. That would make sense in the immediate crisis, as there is a need for it, and in the longer term, we might be able to incorporate that into levelling-up objectives, whereby fuel duty could be linked in some way—I admit this would be complicated—to the levels of accessibility to public transport infrastructure. That would be a very good way of moving forward in order to help rural areas proceed and endure the storm.