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The Budget as it relates to Wales

I believe that the statement has been provided to Opposition Front Benchers, and it will be made available to the Committee when I sit down—at least that is what should happen. I look forward to seeing the final report of the Holtham commission, which was established by the Welsh Assembly Government to look at Welsh funding, and I am keen to discuss Gerry Holtham’s ideas with him once his findings are published. In ““The Coalition: our programme for government””, we stated: ““Depending on the outcome of the forthcoming referendum”” in Wales ““we will establish a process similar to the Calman Commission for the Welsh Assembly.”” In making the £6.2 billion programme of savings announced by the Chancellor, the coalition Government have been sensitive to the needs of the devolved countries by taking the unprecedented decision to allow the devolved Administrations to defer their shares of the cuts to next year, if they wish. We respect their freedom to determine the timing of the reductions, within the constraints imposed by the budget deficit left by the previous Government. When I met Jane Hutt, she raised some concerns about the application of the Barnett formula to the in-year savings made on the Olympics. I was glad, once it was confirmed that those savings would come from the budget for the Olympics, to be able to make the appropriate adjustment to the savings required from Wales. The decisive emergency Budget set out a credible plan to deal with the record budget deficit that we inherited from the previous Government. It is a tough Budget, and it needed to be so to reverse the critical state of our public finances. However, it is a fair Budget, which recognises that everyone has to make a contribution to getting us out of the mess that the previous Government left us in. The previous Government left behind the second largest budget deficit in Europe. We are borrowing £1 for every £4 that we spend as a country. There is a £150 billion gap between what we raise in tax and what we spend. If we failed to deal with the deficit, the consequences would be severe and the poorest would suffer the most. We have only to look at the example of Greece to see what happens to countries that do not live within their means—more businesses going bust and higher unemployment. In the Budget, we have taken the tough decisions called for by the Governor of the Bank of England and the G20. For example, on Sunday the G20 communiqué made it clear that those countries with the most ““serious fiscal challenges need to accelerate the pace of consolidation.”” No country has more serious fiscal challenges than those that were left Britain by the previous Government. The Budget stands for three things: responsibility, by taking action to eliminate our structural deficit; freedom, by supporting the businesses that we rely on to rebuild our broken economy; and fairness, by protecting the most vulnerable, even in these difficult economic times. First, on responsibility, failure to deal with the deficit is the greatest threat to growth in any and every part of the UK. Failure to act now would mean higher interest rates hitting businesses, families and the cost of repaying the Government’s debt. That would mean more business failures and sharper rises in unemployment, and it would risk a catastrophic loss of confidence and the end of the recovery. The Budget takes action now to restore confidence in our economy, which is needed to underpin the recovery. Higher borrowing would result in higher taxes in the future, which our children and grandchildren would have to pay off. The Budget’s forward-looking fiscal mandate will eliminate the deficit in five years and will put us on track to get debt falling by 2015-16. We have set up the independent Office for Budget Responsibility to assess our numbers and to ensure that the policy fits the facts, not vice versa. On the fiscal mandate, the OBR has forecast that the measures in the Budget will lead us to meet the challenge a year early. The bulk of the reduction in the deficit will come from lower spending rather than higher taxes. By 2015-16, 77% of the total consolidation—including the large chunk that was proposed, with no detail given, by the previous Government—will come from spending restraint rather than tax rises, because international evidence shows that spending cuts are more effective than tax rises in reducing deficits. We will be responsible in tackling the deficit, but we will also be responsible in supporting the infrastructure that our economy needs as a platform for growth. We are committed to making no further cuts in capital spending beyond those proposed by the previous Government and the measures taken in the £6.2 billion exercise that we announced a few weeks ago. The previous Government’s spending plans implied a 20% reduction in departmental budgets. We are committed to real increases in NHS spending and to protecting international aid, and this Budget implies that other Departments will face an average real cut of 25%. We will set out the details of those cuts in the spending review, and we will consult widely to inform those plans. That process has already started: it was launched last Friday to a huge response from public sector workers. The budget for the Welsh Assembly Government will be determined in the spending review in the normal way. During the spending review consultation process, we will fully consult the Welsh Assembly, the Welsh Assembly Government, public sector workers and the wider population of Wales. Wales will of course benefit from the fact that we have protected health spending, which is the largest single devolved spending programme. Having said that, it will be a tough settlement, and it will be for the Welsh Assembly to decide how to allocate its block budget. Secondly, the Budget frees up businesses to go for growth. A genuine and long-lasting economic recovery must have its foundations in the private sector. That is where jobs will come from, and we will do everything we can to support their creation. We want to encourage private sector growth across the UK, particularly in areas such as Wales which are currently highly dependent on the public sector. The Budget sets a strong foundation for growth and for encouraging the investment that Wales needs. That is why the Budget sets out a plan to make Britain open for business once more. We will take measures on corporation tax, for example, reducing the rate by 1% each year from April 2011 to April 2014, which will take the rate down from 28% today to just 24% over four years. The Budget supports small businesses by cutting the small companies tax rate and reversing the previous Government’s plans to increase it, benefiting some 850,000 companies across the UK. It also extends support for lending to small businesses until March 2011. We are cutting regulation for business by reviewing rules that are due to be implemented and introducing sunset clauses while also reviewing employment law. All of that will reduce the burden of regulation imposed on Welsh businesses, particularly benefiting small and medium-sized enterprises. The Budget also takes action to stop the previous Government’s jobs tax by increasing the threshold for employer’s national insurance contributions, lifting 650,000 employees out of that tax altogether and leading to a saving of around £140 million for businesses in Wales alone. As well as supporting businesses with lower rates, we need to give them certainty about the future. We have set out a five-year plan to fundamentally reform the corporation tax system with lower rates and greater certainty. We will shortly announce a new tax scheme to help to create new businesses in those regions where the private sector is not strong enough. For the next three years, anyone who sets up a new business in Wales and other regions—not including London, the south east or the eastern region—will be exempt from up to £5,000 of employer’s NICs for each of the first 10 employees hired. That will benefit more than 27,000 businesses in Wales, and we hope it will also encourage many others to start up their own companies, which will help to ensure that Wales benefits from greater prosperity as part of a more balanced and sustainable British economy. We have pledged to be the greenest Government ever. We confirmed in the Budget that, following the spending review, we will put forward detailed proposals to establish a green investment bank to support a low-carbon economy across the whole of the UK. This represents a balanced package, which will send a clear signal that all of Britain, including Wales, is open for business. Underpinned by our firm action to reduce the deficit, it will help companies invest, attract foreign investment, create jobs and boost growth. Lastly, this is a Budget for fairness. Fairness runs through it. It is the first Budget to include an analysis of the distributional impact of its measures, on page 67 of the Red Book. It shows that the burden of deficit reduction is shared across all income deciles, but overall the richest will contribute by far the most. The Budget will have no measurable impact on child poverty by 2012-13. It is a progressive Budget. The Budget refocuses the tax and benefit framework and takes action to reward those who work hard and save responsibly. It includes a radical programme of welfare reform to focus support on those most in need. Over the past 10 years, the welfare bill has ballooned from £130 billion to £192 billion today. If we ignore the economic and social pressures caused by that system, we will only put the whole country under even greater financial pressure in the future. This Government will tackle the system head-on through reforms in the Budget to the disability living allowance, housing benefit, the system of uprating benefits and tax credits. All those reforms will ensure that support will be targeted at those most in need. We will also raise the income tax personal allowance by £1,000 to £7,475 in 2011-12, making almost 1.1 million basic rate taxpayers better off. That equates to about 83% of the Welsh work force. Many people will be taken out of paying tax altogether. With our welfare reforms, that change will help to create the right incentives for work, which is especially important in many parts of Wales. The Budget also locks in an annual increase in the state pension in line with earnings, prices or 2.5%— the so-called triple lock—whichever is the highest. The measure will benefit 11 million pensioners, including an estimated 600,000 in Wales. The Budget increases the capital gains tax rate by 10% for higher rate taxpayers, but keeps the rate the same for basic rate taxpayers. It will also raise more than £2 billion from a levy on the banks to ensure that the financial sector pays its fair share. The Budget takes the necessary action to restore confidence in the British economy. We cannot go on living beyond our means. The Budget paves the way to a sustainable future. It is a tough Budget, and I do not wish to disguise in any way the fact that pain will be involved over the next few years. As a result, however, every business and every household in Wales will face a stronger, fairer and more prosperous future.