6. Statement by the Minister for Finance and Trefnydd: Implications for Wales of the UK Government's 2019 Spending Round

Part of the debate – in the Senedd at 4:38 pm on 17 September 2019.

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Photo of Mark Reckless Mark Reckless Conservative 4:38, 17 September 2019

I've previously characterised some of the Minister for finance's contributions as a long whinge about austerity and sometimes about Brexit, and when I listened to the Chancellor's statement and heard not just the statement that austerity is over, but the significant increases in spending, and starting calculating what that would mean for what extra money will come to Wales, I thought, 'What on earth is Rebecca Evans going to say now?' I hoped we might hear more about your own responsibilities rather than the whinge about austerity, yet today we've just had more of the same. It's as if there hadn't been any change. Nowhere in your statement did you welcome these increases in spending. If you're so concerned about austerity, when the UK Government starts increasing spending, and increasing it significantly, why don't you welcome it? Everywhere in your statement we see the most pessimistic interpretation. Let me give you a couple of examples. Perhaps some of your backbenchers may be able to assist. You say:

'Since March official data has shown that the UK economy contracted in the second quarter and the latest survey data indicates that it remains weak.'

Why do you go on to the latest survey data? Why don’t you take account of the latest official data? We’ve had gross domestic product data for July that showed that just in one month, from June to July, GDP went up by 0.3 per cent. Unless it falls significantly in both August and September, we’ll see growth in the third quarter. Why didn’t you mention that?

You then go on to say:

'A smaller economy means lower tax revenues'.

Yet, it’s more complex than that. We a have a system that is progressive and not fully indexed, so even if the real economy doesn’t grow, inflation, with other things being equal, leads to some tax revenues over time. Much more significantly, you had to look not just at the overall growth rate, but at the mix of growth, because that makes a huge difference to how much we get in terms of tax revenue. I was concerned at the budget that we were six months on, yet there was no change in forecasts and apparently no consideration as to what the mix of growth was and the implications for tax. Does the Minister for Finance not understand that when we see growth, as we have recently, that is very focused on the consumer, we see a strong labour market in terms of employment and more recently wage growth—that leads through with a significant multiplier into increased tax take? Yet, where we’ve seen weakness in the economy—particularly in investments, to a degree in exports—those areas often subtract from tax take. If you export, you get a value added tax refund. If you invest, you get a capital allowance and spend less in corporation tax. Can the Minister think about the mix in tax and engage with the OBR on these issues, because she’s responsible herself for quite a lot of tax now?

Could I also draw her up on this remark:

'we know that the economy in Wales is likely to be around 10 per cent smaller'?

We don’t know. There was a forecast from civil servants in the Treasury—the same civil servants who gave us those forecasts that there would be an immediate recession if we voted to leave and there'd be an increase in unemployment within a year of over 0.5 million. It didn’t happen, did it? That Treasury forecast has been superseded by several forecasts from the Bank of England. When the Treasury came out with that forecast—10 per cent lower output—the Bank of England had a similar forecast. Yet they’ve since revised it twice. The first time down to 8 per cent, and then down to 5 per cent. Even their projections of a 5 per cent smaller economy relies on an assumption that the Bank of England respond to a ‘no deal’ Brexit by raising interest rates from 0.75 to 4.5 per cent. I don’t think anyone in the private sector considers that to be a realistic assumption, yet the Minister says ‘we know’.

Finally, you refer to eight priority areas and they include decarbonisation and biodiversity. You then say:

'We recognise these eight areas…reflect the times in people’s lives when they may be most in need of support'.

Can you explain how that applies to the priority areas of decarbonisation and biodiversity? Also, if, as you say, decarbonisation is such a priority, why did this Government halve its spending on climate change projects in its first supplementary budget?