Support for the Welsh Economy and Funding for the Devolved Institutions

Stephen Kinnock Excerpts

Tuesday 5th July 2022 Commons Chamber

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

It is a pleasure to speak in this debate on the Welsh estimates. Let me start by congratulating the right hon. Member for Preseli Pembrokeshire (Stephen Crabb) on securing this debate and on making a fine speech, which seemed to be a damning indictment of the failures of Westminster economic policy as it applies to Wales—I hope he will be sending a copy of his speech to YesCymru.

When we have discussed regional economic policy over the years, I have often equated the scale of the challenge facing the British state to that which faced the German state following reunification. That is itself a damming indictment of the state of matters in this disunited kingdom. Germany, of course, had literally been split in two, and not only in terms of political entities and economic systems; there was a physical barrier between east and west. The Prime Minister mentioned the German example when launching his levelling-up mission.

What lessons can be learned from Germany? Although it has not fully managed to close the gap between east and west, the east of Germany now outperforms most of the geographical parts of the British state outside the south-east of England. The first lesson that all political parties need to learn is that levelling up will not be a one-term or one-Government policy agenda; such is the scale of the challenge that it will take decades, and Governments of different colours will have to be committed to the agenda. Secondly, it will not come cheap and will require considerably more funds than have been allocated to date. The flagship fund, the levelling-up fund, has an allocation of £4.8 billion. The Centre for Cities estimates that the federal German Government have invested €2 trillion between 1990 and 2014, equating to £71 billion per annum. Of course, a large part of that sum represented fiscal transfers in the shape of pensions and benefits, but 21% was deliberate financial equalisation, 13% was infrastructure investment and 9% was business support. Redistribution in the context of the British state is mostly based on welfare payments, which are largely required as a result of a failed macroeconomic policy. Without serious investment, there will not be serious levelling up. Infrastructure investment should be redirected to low-productivity areas.

[Stephen Kinnock (Aberavon) (Lab)]

I am interested in the hon. Gentleman’s comparison with Germany. Does he agree that one secret of the German success is a radical devolution model, held together in a federal state—but very much together? It is interesting that he is making the case for the German model, which is based, by definition, on a federal state, not on separating. If the German Länder had separated from each other, it probably would have ended in disaster.

[Jonathan Edwards]

I will get to the point about government structures later, but there is a definitely a debate to be had about the constitutional question. In my view, the constitutional question in Wales is very much an economic one, which is why I ultimately support independence for my country.

Finally, the post-reunification German constitution is underpinned by a coherent political structure based on powerful Länder and local governments, as the hon. Gentleman said in his intervention. Levelling up cannot be delivered from Westminster alone. What English politicians want to do with regional governance in England is a matter for them, but the Welsh, Scottish and Northern Ireland Governments must be empowered with a full portfolio of fiscal powers. I was no Brexiteer, but I will say that if the British Government were genuinely interested in maximizing their new freedoms to boost levelling up, Wales should have full powers over income, corporation tax and VAT. Of course, not only are this British Government anti-European, but they are anti-devolving powers from Westminster, and that is leading to complete economic and political stasis.

Talking about ironing out Brexit teething problems will not solve the crisis either. I often consider political discourse in this place to be outside the paradigm of reality, but the truth is that Wales and the UK are in a state of limbo. The UK is facing an inflationary spiral not witnessed in my lifetime, and it is running the worst current account deficit since records began, at a staggering 8.3% of GDP. As Will Hutton wrote in The Observer over the weekend, this is the sort of deficit

“recorded by banana republics before they collapse”.

As a direct result of post-Brexit trade policy, real export volumes are down 4.4% and import volumes are up a staggering 10.4%. Within the EU single market and customs union, the UK was the leading destination for foreign direct investment, but that is no longer the case.

All that is leading to reduced investor confidence and a slump in the value of sterling, adding fuel to the inflationary fire, which hurts every one of our constituents. The Bank of America warns that sterling is facing an existential crisis. This place should be in complete panic mode, yet Westminster plods along sticking its fingers in its ears and whistling to itself in a happy bliss of ignorance. If the British Government are unwilling to provide economic levers for Wales to solve its own problem, the only sensible solution is to rejoin the safe harbour of the European Union economic frameworks. That would boost exports, help investment and, critically, return some much-needed economic confidence and strengthen sterling.

In the time left to me, I turn to capital projects associated with the city deals. Jonathan Burnes, the director of the Swansea Bay city region deal, has warned that construction costs were high as a result of inflationary pressures, which might endanger some of its proposed projects. Furthermore, there are worries that the promised private sector investment that makes up the vast majority of the Swansea deal could fall if economic conditions worsen as expected. The key plank of the British Government’s economic policy for the communities I represent is therefore at “red” risk level. It would be helpful if Ministers could outline, in winding up, what they will do to make up the expected shortfalls.

Lastly, I highlight the challenges facing the Welsh Government’s budget, as day-to-day funding for Wales remains slightly below the 2010 level. Furthermore, the rate of real-terms reduction is currently greater than the British Government’s departmental average. When Unionists speak of the dividend that Wales gets from being part of the British state, it clearly does not apply to the funding we receive as a nation.

--- Later in debate ---

[Stephen Kinnock (Aberavon) (Lab)]

It is a real pleasure to follow the hon. Member for Ceredigion (Ben Lake), and I congratulate the right hon. Member for Preseli Pembrokeshire (Stephen Crabb) on securing this important debate.

The people of Wales need answers from this Westminster Government about the cost of living crisis that they are facing right now, because the Conservative Government’s response to the crisis has been deeply disappointing. They are out of touch, out of ideas and out of excuses. They delayed bringing in the windfall tax on the energy giants; we in the Opposition had to drag that policy out of them. Meanwhile, they also refused to deliver an emergency Budget and they are the only Government in the G7 who are raising taxes during a cost of living crisis.

Hard-pressed households and businesses need support in these profoundly challenging times. Labour has a plan to tackle the cost of living crisis. We would cancel the national insurance contributions rise, which comes at the worst possible time and will do nothing to fix the Tory’s social care crisis. We would cut VAT on home energy bills. We would cut the red tape that has been created by the Prime Minister’s botched Brexit and we would implement policies to buy, make and sell more in Britain, particularly through commitments such as the £3 billion green steel fund to support our steel industry as it transitions to net zero.

For an object lesson in the difference that a Labour Government in Westminster would make, we need just to look at what the Welsh Government are delivering for Wales. Welsh Labour has delivered a £51 million household support fund, which was announced in December 2021. That package of support is targeted at people who need help the most. The Welsh Labour Government have doubled the winter fuel support payment to £200, which is already helping almost 150,000 people across Wales. Free prescriptions continue in Wales, helping households to keep more of their hard-earned money, whereas prescriptions in England currently cost £9.35 an item. The average band D council tax bill in England is £167 more than it is in Wales, totally undermining the argument made by the hon. Member for Clwyd South (Simon Baynes). Even with the UK Government’s council tax rebate, which was just announced, households in Wales still pay £17 less than in England. Wales already has the £244 million council tax reduction scheme, which helps more than 270,000 households with their council tax bills. Some 220,000 households in Wales pay no council tax at all, thanks to the Welsh Labour Government’s interventions. The Welsh Labour Government have committed to providing free school meals to all primary school pupils. An extra 196,000 primary schoolchildren will benefit from that offer.

All that has been underpinned by a Welsh labour market that is significantly stronger than the UK labour market. Welsh unemployment levels are lower than those in the UK at 3.5%.

[Stephen Crabb]

I will challenge the hon. Gentleman on his complacency about the labour market figures in Wales. Yes, in Wales, unemployment—in its narrow definition—is lower than the UK average, with 53,000 jobseekers in Wales, but more than 440,000 working-age people are economically inactive in Wales. That is the major employment and welfare challenge of our time, and the figure is worse than the UK average in a Welsh context.

[Stephen Kinnock]

Perhaps if the UK Government had a proper industrial strategy that would grow our manufacturing base, rather than having allowed it to go to the wall since 2010, we would be creating high-paid jobs and adding value to our economy and productivity. We face a productivity crisis in this country, created by successive Conservative Governments since 2010.

There has been a strong performance by the Welsh Government, who have made a commitment that

“no one would be held back or left behind…in a recovery that is built by all of us.”

We have seen the creation of the young person’s guarantee—the offer of work, education, training or business start-up help for all under-25s—and ReAct Plus, which will provide practical and bespoke employment support as unique as the person looking for work. The ReAct Plus programme will offer up to £1,500 for training, £4,500 to help with childcare costs and £300 for travel costs. Welsh Labour is also investing £8 million to continue employment services, helping people recovering from physical and mental ill-health and substance misuse to get back into work and, crucially, remain in work. Through the young person’s start-up grant, Welsh Labour will invest £5 million to support 1,200 young people to start their own business.

That is what Labour in power looks like: a Welsh Labour Government backing Welsh workers, Welsh families and Welsh businesses to thrive, protecting our people from the worst excesses and failures of this Tory Government, who are letting people down with their incompetence and indifference.

[Simon Baynes]

Notable by its absence from the hon. Gentleman’s list is the performance of the NHS in Wales. Without wanting to score cheap political points, I have to say that there is a major issue there. Waiting lists are massively higher in Wales, particularly north Wales, than in England. Perhaps the hon. Gentleman would like to comment.

[Stephen Kinnock]

Madam Deputy Speaker, I am sure that you would love to give me another 10 minutes to talk about the achievements of the Welsh NHS, but unfortunately I am not sure that I would get away with it. The fact is that there is a list of achievements. It has invested more in the recruitment of nurses, which is at record levels. The Welsh NHS vaccine roll-out programme was a tremendous success; I recognise that the roll-out has been a success across the United Kingdom, and I am absolutely delighted about that, but the Welsh NHS really stepped up and delivered. There are so many achievements that we do not have time to discuss today, so perhaps the right hon. Member for Preseli Pembrokeshire would like to secure another debate on the topic.

I feel for the people of England and Scotland, who have not had the support that we have had in Wales. The answer is clearly for them and their fellow British citizens across the UK to vote to replace this pitiful, debased and degraded UK Conservative Government with a Labour Government driven by purpose, patriotism and the national interest, rather than the self-interest and saving of their own skin that we are seeing from the current Government.

[Liz Saville Roberts]

Does the hon. Gentleman join me in welcoming the decision taken by Labour in Wales over the weekend to increase the size of the Senedd? Surely the point is that we need better scrutiny of the services carried out in Wales. Does he also join me in welcoming the major initiative, also agreed to in the vote over the weekend, to change the voting system, moving away from first past the post and towards a list system? It shows that in Wales we can bring about a different sort of politics by working together.

[Stephen Kinnock]

The reality is that the Senedd simply did not have enough Members to hold the Government to account. There were not enough Back Benchers on Committees. Scrutiny is a vital part of our democracy—the right hon. Lady is right about that point.

Wales faces a UK Government who have broken their promises to the people of Wales. It has become clear that when providing a replacement for EU farm funding, the UK Government are deducting EU receipts due to Wales for work that was part of the 2014 to 2020 rural development programme, meaning that Wales’s rural communities are £243 million worse off than they should be. That is a devastating blow to those communities.

[The Parliamentary Under-Secretary of State for Wales (David T. C. Davies)]

Does the hon. Gentleman agree that in the last year for which agricultural funding was calculated, £337 million was spent on agriculture—in 2019 before Brexit— and that in each year afterwards £337 million is being spent? If my figures are correct, Wales has not lost out by one penny as a result of leaving the European Union.

[Stephen Kinnock]

I thank the Minister for intervening, but these figures are from the House of Commons Library briefing, they have been checked and triple-checked, and the reality is that Wales’s rural communities are £243 million worse off than they should be. If the Minister wishes to contest that claim he is welcome to do so, but those are the facts of the matter.

The Government are also undertaking a game of smoke and mirrors around the pot of money being offered to Wales through the UK shared prosperity fund, which, of course, is replacing EU funding. What is absolutely clear is that over the coming decade and beyond—not just the next three years, which is the commitment that the Government have made, but the next three decades—the funding that Wales receives must match the amount that the EU would have given to Wales. Ahead of us now is a cliff edge. We need guarantees that when the £1.5 billion-a-year UK-wide commitment falls away, the £1.5 billion will continue, and I hope that the Secretary of State will confirm that from the Dispatch Box today. This is an issue of long-term planning that supersedes party politics and manifestos. It is about the key stakeholders who are on the coalface of delivering these shared prosperity fund projects. They need much more long-term planning capability than this three-year cliff edge is allowing them.

It is also essential that the Welsh Government are given a real and meaningful say in how these funds are administered. Devolution must be respected, and it is deeply disappointing that the UK Government are seeking to ride roughshod over fundamental constitutional principles, as manifested in the UK shared prosperity fund and the way in which it works.

It is time that the Conservative Government started to take levelling up seriously. Tory inflation and under-investment risk levelling down communities like mine in Aberavon. The decision not to support the Swansea Bay tidal lagoon, as well as the failure to implement the green steel deal that Labour is proposing, has shown a disregard for parts of our country that are desperately in need of investment and development. This must start with a fairer package of funding for Wales, less smoke and mirrors around budgets, and an emergency budget to meet the Tory cost of living crisis.

Let me end by saying that I agreed wholeheartedly with the right hon. Member for Preseli Pembrokeshire when he said he objected to the “older, sicker, poorer” narrative. We are a proud people: a proud, dynamic, entrepreneurial, innovative people. We are not victims and we are not looking for charity, but we need a level playing field, and that level playing field can only be delivered by a UK Government in Westminster—a Labour UK Government, delivering in partnership with the Welsh Labour Government for the people of Wales.

[Several hon. Members rose—]