Budget Resolutions

Jonathan Edwards Excerpts

Tuesday 30th October 2018 Commons Chamber

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

Writing earlier this week in the Welsh edition of The Sunday Times, I labelled yesterday’s fiscal event a “fantasy Budget”. That is because, of course, it did not mention the big elephant in the room, which is Brexit. If the withdrawal agreement does not make it through the House of Commons—that is working on the assumption that there will be a withdrawal agreement between the British state and the European Union—the Chancellor will be back here in a matter of months with an emergency Budget. I hope that, in such a scenario, more sensible minds might prevail with a policy put forward based on extending article 50 coupled with a people’s vote at the end of it with remain as an option.

As always, the most interesting part of the Budget came with the accompanying OBR report. Its projections are based on the most optimistic Brexit scenario envisaged by the British Government, and, basically, it envisages no change in its growth forecasts. Indeed, page 9 of the OBR report shows the UK’s projected economic growth at the bottom of the advanced economies of the world. The Institute for Fiscal Studies, in its green budget, emphasised the decoupling that we have seen between the British economy and the other advanced economies of the world since the 2016 referendum. Growth is now at around half of pre-recession levels, and that is as a result of eight years of austerity, which has permanently sucked out demand from the economy, and now the Chancellor faces Brexit, all of which lead to anaemic levels of business investment.

The British Government are trying desperately to pivot away from their austerity narrative. They know now, in the new climate, that that is a political vote loser. However, yesterday’s spending commitments fell far short. The IFS puts the price of ending austerity at £19 billion per annum by 2022-23, and the Resolution Foundation puts it at about £30 billion. Yesterday’s spending commitments did not match those sorts of sums. Once extra spending on the national health service in England is stripped out, most other Departments faced a flatlining budget, if lucky, or real-terms cuts. We will have to wait for next year’s comprehensive spending review to have a full picture. I look forward to that fiscal event next year. Public expenditure as a percentage of GDP is now basically at the levels seen at the end of the Thatcher years—about 38%. Austerity has enabled the British Government to achieve their objective of remodelling the state but at a huge cost to public services and support for the most vulnerable in society. Far from ending austerity, austerity is now entrenched in the UK taxation and spending model.

Turning to Wales, the vast majority of spending decisions were England-only, highlighting the fact that the major fiscal event for my country is the Welsh Government’s budget. A huge amount of work needs to be done by politicians in Wales and by the Welsh media to promote that event to its rightful status. The BBC proclaimed a half a billion pound bonanza for my country, neglecting the fact that these were Barnett consequentials resulting from spending in England. A magic-money cash giveaway, as portrayed, it most certainly was not. The key point of interest is the remaining inherent unfairness in the Barnett formula as it applies to Wales. The Welsh Government responded by saying that the vast majority of the £500 million was old money previously published following the enhanced funding announcement for the NHS in England over the summer. Funding per head in London, the richest part of the European Union by a country mile, is higher than it is in Wales. The geographical wealth inequalities within the British state should shame Westminster, and there was little in the Budget that is going to lead to a meaningful rebalancing.

I was very disappointed that there was no announcement on the shared prosperity fund. The communities I represent form part of the West Wales and the Valleys European region. We receive £2 billion in convergence funding within the current EU multi-annual financial framework, which runs between 2014 and 2020. During the referendum, we were promised not a penny less. However, it looks increasingly likely that the communities I represent will be significant financial losers and that the British Government will take away powers from Wales over the use of shared prosperity fund money. I put the Treasury on notice that unless it honours the promises of the Brexiteers, it is walking into a political firestorm, and that political control of the powers over that money must reside in Wales.

The Budget highlighted the north Wales growth deal, with £120 million of funding, but neglected to mention that that accounts for only about 10% of the total funding. We saw a similar scenario with the Swansea Bay city deal, with only 10% of the funding coming from the Treasury. Therefore, 90% of the money associated with these growth deals comes from the Welsh public sector and the Welsh private sector.

It was interesting to see that there was no mention in the Budget of the Secretary of State for Wales’s pet project, the western powerhouse. I can only presume that it has gone down in the Treasury as it has in Wales—not particularly well—and I was glad to see its omission yesterday.

We saw the announcement of the £900 million business rates cut. The Secretary of State for Wales immediately called on the Welsh Government to match that promise. I have to be honest—I was completely unaware that tax cuts by the British Government for England led to Barnett consequentials for Wales, but perhaps that shows my lack of understanding of how the Barnett formula works. I would be very grateful if the British Government outlined whether there is indeed some compensation money for English local authorities for the loss of revenues they face as a result of those business rate cuts, because that would then lead to Barnett consequentials that could be applied to Wales.

A major brewing political storm today is the enhanced borrowing powers that were included in the Budget—some £300 million. The British Government are trying to tie that to the M4 relief road. It would completely undermine devolution if those borrowing powers were constrained by being limited to what the British Government want the Welsh Government to spend the money on.