Budget Resolutions and Economic Situation

Jonathan Edwards Excerpts

Wednesday 16th March 2016 Commons Chamber

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

Diolch yn fawr iawn, Madam Deputy Speaker. It is a pleasure to speak in the debate, and to respond to the Budget on behalf of Plaid Cymru. Of all the commentary I have read in the weeks leading up to the Budget, the piece that by far most struck a chord with me was the article by Paul Mason in The Guardian. As we are all aware, the economic skies are darkening, and the Chancellor admitted as much in his statement. In my view, we are in the third stage of the great recession that hit the global economy in 2008. First came the banking crash in 2008, followed by a crisis in the eurozone, and now we face a major slowdown in the emerging economies, which will prove to be a massive headwind for the global economy.

It is no wonder, therefore, that the Chancellor’s prognosis is far darker than that in his autumn statement of only a few months ago. If a week is a long time in politics, three months is clearly a very long time in economic forecasting. In the OBR’s report, the very first point in the executive summary, point 1.1, states:

“In the short time since our November forecast, economic developments have disappointed and the outlook for the economy and the public finances looks materially weaker.”

That sums up this Budget in one small point. The Chancellor’s economic strategy since 2010 has been built around monetary expansion by the central bank to counteract his fiscal contraction. The major consequence of that has been a failure to rebalance the economy on a sectoral basis. We are even more reliant on consumer spending than we were before 2008; it accounts for two thirds of UK GDP. We are also facing another obvious bubble in house prices.

What we needed in the Budget was an emphasis on exports and business investment. Exports, according to the BBC in the lead-up to the Budget, are 6% down on 2014. Chart 3.35 of the OBR report forecasts that exports will be 36% lower than the UK Government’s aspiration in the 2012 Budget of an increase in their cash value to £1 trillion by 2020. Thirty-six percent below projections is an incredible figure. Business investment, according to the OBR, fell by 2.15% in the last quarter of 2015, and EEF, the manufacturers’ organisation, notes that investment confidence is plummeting. Productivity is chronically low compared with that of G7 competitors, and it is a staggering 18% below pre-recession levels. The trends have again been reversed downwards by the OBR today.

According to Credit Suisse, wealth inequality continues to grow, despite growing evidence that tackling inequality is an economic growth driver.

[Margaret Ferrier]

The Chancellor stated that the richest 1% are paying 28% of all income tax revenue. What he did not mention is that 26 pence in every £1 of wealth created went to the richest 1%, while only 7 pence went to the poorest 50%, or that the richest 1% increased their collective wealth by 79% over the last 15 years. With that in mind, does the hon. Gentleman agree that the Chancellor was talking nonsense when he said “inequality is down”?

[Jonathan Edwards]

I am extremely grateful to the hon. Lady for her intervention. We saw today tax measures that will exacerbate those growth inequalities, as highlighted by the former shadow Chancellor, the hon. Member for Nottingham East (Chris Leslie), in his contribution, which was fantastic, if I may say so. The tycoon tax cut in capital gains tax will exacerbate those differences.

That brings me back to Mr Mason. The Chancellor’s biggest crime is that not only has he failed to fix the roof, but he has failed to change the foundations on which the UK economy is built. So much for the rebalancing we were promised. So much for the march of the makers. So much for tackling geographical and individual wealth inequality. The Budget included the much-heralded extra cuts of £3.5 billion in response to the slowdown in projected growth. Those cuts are deemed to be necessary only because of the fiscal mandate and charter, which the Treasury imposed on itself. As we warned at the time, the mandate is a Trojan horse to enforce austerity, and it was very disappointing that Labour party colleagues, even under the current leadership, supported the Tories in the Lobby on that measure. At this point, I should note that even the Institute for Fiscal Studies, in its green budget, was very critical of the mandate and its impact on fiscal policy.

The public continue to be at risk from another catastrophic failure of the banking sector. In my party, we have always maintained that we need to split retail and investment banking. It is interesting that Sir Mervyn King, the former Governor of the Bank of England, and Sir John Vickers, the chair of the Independent Commission on Banking, which was set up following the crash in 2008, have called for greater safeguards and criticised the Treasury for watering down plans to rein in the banks and reduce the risk of a future banking collapse. Given the darkening global economic skies and the possible exposure of London banks to the slowdown in emerging markets, we were very disappointed that there were no measures in the Budget to protect the public from another banking failure.

We are also very disappointed that there was no guarantee in the Budget that Welsh public sector pension assets would be pooled into a Welsh-specific fund for investment in Welsh infrastructure. We have no opposition in principle to the Treasury plans to have five sovereign wealth funds, as it calls them, out of pension assets, but our assets in Wales will clearly be less than the figure that it has set of £25 billion. Our assets are worth about £16 billion. There are huge dangers for us in Wales if our assets are pooled with an English region, because it would mean a lot of that investment would once again flow out of my country.

The Budget completely failed to secure parity for Wales with Northern Ireland and Scotland on fiscal responsibility. There are full corporation tax powers for Northern Ireland and full income tax powers, as well as powers on airport duty tax, for Scotland. Even Labour in Wales is now calling for the devolution of air passenger duty to my country. On two occasions, I have tried to amend the Finance Bill to devolve the tax, and I will return to that when the Finance Bill is introduced in the House. As we say in Wales, tri cynnig i Gymro—three attempts for a Welshman. I hope my Labour colleagues will join me in the Lobby in the next month or so.

The big question is: why does the Treasury continue to treat Wales as a fiscally second-class nation? We need an arm’s length body to deal with such major fiscal and funding issues across the UK. I was very glad to see the recommendations, only yesterday, of the Finance Committee of the National Assembly, under the chairmanship of my colleague Jocelyn Davies, calling for such a body to be set up so that the Treasury loses its ability to manage such vital funding decisions.

We are very happy to see the sugar tax policy in the Budget. I might add that it is a long-held Plaid Cymru policy. It was rubbished at the time by the Labour party and the Conservative party in the National Assembly. We are delighted that our project has become a mainstream one. As always, where Plaid Cymru leads, the other parties will follow.

The announcement on the Severn bridges will gain many headlines in Wales. What the Chancellor neglected to tell the House is that the bridges will of course return to public ownership in 2018. He has in effect announced today the political equivalent of taking a fiver out of somebody’s back pocket, giving them back some change and expecting them to be grateful.

Our other big demand in the Budget was to increase infrastructure spending sharply to at least pre-recession levels—the equivalent of 1% of GDP—which is about £19 billion extra per annum for the UK and £1 billion extra per annum for Wales. The lead-up to the Budget was heavily trailed with announcements about projects for the north of England—primarily HS3 and the proposed Manchester to Sheffield road tunnel, but also Crossrail 2. These multi-billion projects only go to show the Treasury’s failure to ensure fairness for Wales in relation to HS2. The statement of funding policy that came with the comprehensive spending review gave us a 0% rating, whereas Scotland and Northern Ireland both had 100%, which has set a very worrying precedent. I was extremely disappointed that rather than standing up and fighting for our country, the Labour Government in Wales decided to throw in their lot with the Tories on that specific issue, which will come back to haunt us for years to come.