Spring Budget: Wales

Jonathan Edwards Excerpts

Wednesday 29th March 2023 Westminster Hall

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

Diolch, Mr Hollobone; it is a pleasure to serve under your chairmanship. I congratulate the hon. Member for Newport West (Ruth Jones) on securing this debate and on her opening remarks.

During my time as a Member of Parliament, I have often found that the key document to read following any Budget is the Office for Budget Responsibility report that accompanies it. This often provides a more sober analysis of the state of the economy, as opposed to the offerings from Ministers at the Dispatch Box. The OBR analysis indicates a future of a stagnating economy, which should worry us all. Economic growth by the end of the forecast period in 2028 is projected to be a pathetic 1.75%.

Let us remember that the projections are for UK economic growth. Over many decades, the Welsh economy —as a result of the sectoral and geographical priorities of UK economic policy—has lagged the UK average, meaning that economic performance in Wales will in all likelihood be even more anaemic. The old problems of low business investment and low productivity haunt economic policy. The hard Brexit policy of the British Government makes the situation worse. The OBR is clear that nothing that the British Government have done has changed its forecasts that productivity will be 4% lower in the long run than if the UK had remained in the EU’s economic frameworks.

Weak economic growth has inevitable consequences for living standards. The OBR analysis estimates that real household disposable income is expected to fall by 2.6% in 2023, following a fall of 2.5% last year. That is the largest two-year fall in real living standards since records began in the 1950s, as we have heard. Economic stagnation and falling living standards—that is where the UK economy is heading following the Budget. Those are the hallmarks of a failing economy, and they should set off alarm bells among not only Ministers, but the official Opposition, who I suspect will inherit that legacy shortly.

Of the UK Government’s five priorities announced at the beginning of the year, three were economic: reducing inflation, reducing Government debt and getting the economy back into growth. The pledge on inflation was particularly cynical for two reasons: first, inflation was always likely to normalise due to global factors, so the pledge could be achieved without any sort of Government intervention; and secondly and more importantly, the reduction of inflation over the remainder of the year—notwithstanding the worrying acceleration last month to a rate of 10.4%—is being spun as if the cost of living crisis were over, as if somehow prices were falling. Of course, that is not the case.

The increases in prices over recent years are now baked in. Without people’s incomes increasing to compensate, it will mean that the squeeze on living standards will become embedded, with its effects felt more acutely in those areas of the UK—like Wales—where incomes are lower than the UK average. The Institute for Fiscal Studies estimates that the real inflation rate for the poorest-income 10th of households was an eye-watering 14%, proving that the disproportionate impact of inflation depends on a household’s income situation.

As I have more time than I was expecting, I will caveat what I said about inflation falling during the next year. We are acutely aware of events in the financial sector at the moment, with the turmoil in the banking sector. I had never heard of Silicon Valley Bank before two weeks ago, but it appears that issues with that bank in the US are affecting other banks across the world. We know what happens when the financial sector is under duress. What do central banks do? They ease monetary policy and, if we ease monetary policy at this time, what would that mean for inflation? I have never wanted to be a central banker, and I fear that unless the situation in the financial sector stabilises, they may find themselves with a very difficult choice: do they preserve the financial sector, or do they squeeze the living standards of ordinary people?

Given that I have more time than I thought, I should perhaps mention the Edinburgh reforms, which were really pushed by the British Government before Christmas. They should set off massive alarm bells for us all, considering what is happening at the moment. The British Government’s approach is to minimise the regulation of the banking sector at a time of banking turmoil. In 2008, it was not the bankers that paid for the financial sector’s business model going wrong; it was ordinary people who have faced over a decade of squeezed incomes and reduced public services. History often repeats itself as farce; I hope that I am wrong.

On all the UK Government’s priorities—the three that I mentioned on the economy, and the other two on NHS pressures and small-boat crossings of the English channel—they would benefit from closer collaboration with the European Union and its economic frameworks. Although I understand the politics of the situation for Labour as we approach the general election next year, I sincerely hope that, when it is in power, it will take a far more rational approach to European relations for all our sakes.

Most of the post Budget commentary has focused on the announcement about abolishing the cap on the lifetime allowance on pension contributions. In several debates over the years, I have called for flexibility for NHS consultants to help ease NHS pressures, but what I had in mind was a specific carve-out, as is already available to judges. I am uncomfortable with the universal nature of this policy, as it is clearly a tax cut for the wealthiest in society. At the same time, the Chancellor has introduced tougher sanctions for those on universal credit. Why is it always carrots for the rich and sticks for the poorest?

I turn to the investment zones announced in the Budget. The OBR analysis indicates that their impact would be negligible. However, it would be useful if the Minister, in winding up, outlined how the policy will work in Wales, and specifically whether an equitable amount of funding will be made for any investment zones in our country.

Meanwhile, as the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) mentioned, we know that 60 Welsh university projects, which support 1,000 research jobs, face immediate threat next month when the European structural funds come to an end. The Budget would have been an ideal opportunity to announce the bridge funding needed to preserve those jobs and projects. It is disappointing that the warnings of several Welsh representatives have gone unheeded.

The Welsh Government’s overall budget in 2023-24 will be £900 million less in real terms than it was expected to be in 2021. The Welsh Government have also rightly criticised the Budget for awarding only £1 million extra in capital funding for 2024-25. We all know that capital funding is vital if we are to tackle low productivity and business investment.

If the UK Government are to address the sluggishness of the economy, which will last for the remainder of this decade as projected, I propose three main priorities. First, forget the Brexit fantasies and rejoin the European economic frameworks. Secondly, channel investment into geographic areas with low productivity, as that would have a far greater impact on overall UK productivity levels, as opposed to prioritising investment in London and the south-east. Lastly, follow the United States, where President Biden has thrown a trillion-dollar kitchen sink at improving US transport links and public utilities, such as broadband and telecommunications, and investing in renewables, electric vehicles and research into the technologies of the future. Diolch yn fawr iawn.