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The Budget

Diolch, Mr Havard. Last year, we had the so-called austerity Budget, and last week’s Budget was labelled the growth Budget. I cannot help but feel that the Government have got them the wrong way round because of the state of the UK’s economy. The state of the public finances, and dealing with the deficit in particular, was the key dividing line of the last general election. In an attempt to undermine Labour’s hard-won and, as it happens, misplaced reputation for economic competence, the Conservative party focused all its guns on the finances of the state. To answer some of the points raised by the hon. Member for Monmouth, in order to sell the perception aim, the Tories ludicrously equated the finances of the state to those of a household. For example, during an interview last week on the Budget, someone said that the UK economy had maxed out on its credit card. As a political strategy that has worked beyond all expectations. However, in the case of a nation state, reducing expenditure may directly lead to a reduction in income. Nor can such an analogy take into account the effect that income generation and expenditure have on overall economic growth and the fine balances that need to be achieved. In reducing public expenditure to the proposed level, the UK Government have been undermining economic growth, as shown by the revised OBR and OECD projections, while increasing their liabilities in welfare payments for the newly unemployed. No wonder the ONS has calculated that the Treasury is going to have to borrow far more in the medium term than planned. All that has happened before the worst of the cuts outlined in the autumn’s comprehensive spending review start to feed into the system this April. Robert Chote of the OBR said on ““Newsnight”” last week that his forecasts could be downgraded further. The UK economy is facing grievous headwinds. Increasing inflation will hinder the UK Government’s ability to use monetary policy to ease the consequences of their fiscal policy. Only last autumn, the UK Government used a series of quantitative easing and other monetary policies to ease any troughs that resulted from the reduction in public expenditure. Increasing global oil prices resulting from increased demand as the world economy recovers, further fuelled by unrest in the middle east, will be a serious problem over the next few years. The full effects of the tragedy in Japan, the world’s third largest economy, have yet to be felt. Subdued economic activity among our major trading partners, especially in the eurozone, will hinder an export-led recovery. The £1.4 trillion consumer debt bubble will dampen domestic consumption, and the £81 billion reduction in public expenditure over the next four years will undermine direct investment in the economy. With so many growth pillars crumbling, it is difficult to share the Treasury’s optimism. There were some measures to welcome in the Budget, not least the movements on fuel duty. We particularly welcome the development of a stabilising mechanism. Members will be aware that my party and our Scottish National party colleagues have campaigned for a regulator for the best part of a decade, and we tried to amend the Finance Bills of 2005 and 2008 accordingly. Only last month I closed a debate on the Floor of the House by calling for such a mechanism, which was confusingly voted down by both coalition parties. However, my much better informed colleague, the hon. Member for Dundee East (Stewart Hosie), informs me that the Chancellor seems to suggest that a stabilising mechanism would only cancel the escalator in response to increasing global oil prices, rather than reducing fuel duty. If that is true we will not have a stabiliser at all and will continue to see spikes in the price of fuel. We welcome the simplified state pension of £140 a person. That was a key Plaid policy going into the general election, but it was much ridiculed by the other three parties. And we welcome the consultation on simplifying the taxation system by combining national insurance and income tax. Although extremely complicated, such a structure, if it were implemented, would be more progressive. We also welcome the increase in the personal allowance, which was also a key Plaid policy going into the general election, but we would like to supplement it by moving the 50% rate to incomes of more than £100,000. The major trajectory of the UK Government’s economic policy was announced in the comprehensive spending review last October. One thing we can be certain of from the public spending limits imposed by the CSR is that over the coming spending round, unless subsequent Budgets intervene, poverty levels among individuals will increase and individual and regional wealth polarisation will increase at an even faster rate than under the previous Labour Government. I welcome the emphasis on the requirement to rebalance the UK on both sectoral and especially geographical terms. We need far more than fine words, however. Action was sorely missing from the Budget, especially as far as Wales is concerned. We particularly need countervailing measures to help stimulate economic growth in those areas of the UK that suffered under the previous Government and will now face a double hit as a result of the reductions in public investment, because they are more reliant on public sector employment. For Wales in particular I would have liked the Budget to include measures to devolve corporation tax, as my right hon. Friend the Member for Dwyfor Meirionnydd mentioned in his earlier question to the Chief Secretary.