Welsh Grand Committee

Mr Peter Hain MP (Neath): Can I begin by welcoming the news that the Prince of Wales is soon to become a father-in-law and that the happy couple intend to live in North Wales where I know they will receive a warm welcome, not least by their new MP, my Hon friend Member for Ynys Mon.

She will have noticed the letter to the Prime Minister by three former Secretaries of State for Wales – my Rt Hon Friends the Member for Cardiff South and Penarth and for Torfaen, and myself. In it we argue that the state that the current occupants of the Wales Office are presiding over a period when relations between our countries, and their now separate administrations, are at rock-bottom. We express our concern to the Prime Minister that your administration appears ignorant of, or indifferent to the needs of Wales.

Her speech today showed a curious combination of Welsh wizardry, Irish folk lore and Greek mythology. She has been telling tall stories about the British economy and Labour’s record in office. The government keeps pointing its finger at Ireland and Greece and muttering, there but for the grace of God – and of course the genius of George Osborne – goes the UK. When the truth is that Britain’s position is as different from Ireland and Greece as chalk is from cheese. The much lower yields on UK government bonds since the credit crunch bear eloquent testimony to that.

Ministers love repeating their mantra about pulling Britain back from the brink of bankruptcy. It’s a nice line, but not true. If it ever had been true, the yields on UK government bonds would have been sky high because of the risk of default. In fact they have been remarkably low ever since the global financial crisis erupted.

Ministers claim that the economic crisis was caused by the Labour government, through reckless spending and excessive borrowing. But that’s not a claim they can back up. Nor is the coalition’s claim that there is no alternative to the path they have embarked upon.

It’s time to tackle these myths head-on. Let’s start by looking at the picture before the global financial crisis hit.

First debt. In 2007 IMF figures show that British government debt as a proportion of GDP was below that of France, Germany, the USA, Japan and even Switzerland. In 2013 it is still forecast to be below that of France, the USA and Japan. (Source: IMF Fiscal Monitor November 2010). There was no “decade of debt”. That is a Tory myth. In fact Labour had been paying down debt. Public sector net debt fell from 42 per cent of GDP in 1996-97 to 36 per cent in 2006-07. That 6 per cent reduction is worth some £90 billion today. By bringing down government debt we effectively saved the taxpayer about £3 billion in annual interest payments. We did indeed fix the roof when the sun was shining.

Second, government spending. Coalition ministers like to pretend that Labour was the last of the big spenders. But in 2007 UK government spending as a proportion of GDP was lower than that in France, Germany, the Netherlands, Norway and Sweden. Our non age-related social spending as a proportion of GDP was lower than the European Union average. Our education spending was almost identical to the OECD average of 5.7 per cent. Our NHS spending the following year 2008 was 7.2 per cent of GDP compared to 8.7 per cent in Germany and 8.1 per cent in France. So much for ‘overspending’.

The previous government did not behave like a pools winner and go “spend and spend and spend”. If we had done, the Tories would never have accepted our spending plans. But they did. Until November 2008 they undertook to abide by Labour’s public spending plans up to 2010.(as Dennis Kavanagh and Philip Cowley confirm in their account of ‘The British General Election of 2010′ page 75). Sometimes they demanded we spend more while the Liberal Democrats demanded we spend more all the time.

Third, annual government borrowing. Britain was not a particularly big borrower before the global financial crisis. In relation to GDP government borrowing in 2007-08 was far lower than in the Tories’ last year in office 1996-97, when Ken Clarke was at the Treasury: 2.4 per cent compared to the 3.4 per cent we inherited from the Tories. And Labour’s borrowing helped to pay for a much higher level of public investment, four times as high in fact.

Before the global credit crunch Labour borrowed mainly to invest, whereas in their last year in office the Tories borrowed mainly to meet their weekly wages and benefits bills. In 1996-97 eighty per cent of what the Tory government borrowed went to pay the running costs of public services, not to finance new schools and hospitals or to develop Britain’s road and rail networks.

That was then. But what about now? Did we lose control of spending and borrowing in response to the credit crunch? The short answer is: certainly not. What we did do was boost public spending to offset the collapse in private spending as firms and households cut back on business investment and consumer spending.

This extra public spending, coupled with the loss of tax revenue – as output, profits and employment fell – led to much higher government borrowing. It is that extra borrowing – that much maligned deficit – which has kept the economy afloat in the face of the worst downturn since the 1930s. Without it the financial crisis could have led to a financial collapse and recession could have turned into depression. The IMF has acknowledged that the worldwide increase in government borrowing since the 2008 credit crunch staved off an economic catastrophe. It certainly did in Britain.

The crisis did not originate in the public sector. It stemmed from irresponsible lending by financial institutions right across the globe. When their loans began to go bad they realised that, by slicing and dicing mortgage backed securities and playing a massive game of financial jiggery pokery, they had made it impossible to say with confidence who was solvent, who was insolvent and who was simply short of liquidity. Their reaction was to conserve cash, refuse to lend even overnight, and thereby threaten a seizure in the world financial system. When banks stop lending, firms and consumers stop spending, throwing jobs into jeopardy everywhere.

It’s a fair question to ask where were the regulatory bodies while all this was going on. But it’s not fair to claim that the crisis was due to reckless spending by governments and excessive public borrowing, certainly not in the UK under Labour.

Since the financial crisis UK government spending as a share of GDP has risen by over 5 per cent. Much of that extra spending was automatic as firms cut back and unemployment rose. Some of it, under 2 per cent of GDP, was discretionary and temporary, in the form of the 2009 fiscal stimulus when the economy was at its weakest. Some of it was public sector capital investment programmes brought forward from future years. We raised net public investment from £27 billion in 2006-07 to £49 billion in 2009-10, higher than in any year over the past four decades. And some of it was the direct cost of government support for the UK financial sector, about £90 billion up to June of this year on recapitalising Britain’s banks (Source: IMF Fiscal Monitor November 2010). (That £90 billion bailing out the banks dwarfs the UK’s annual contribution towards the European Union budget of under £5 billion, by the way). This is how Labour stopped a slide into slump and how we promoted recovery from recession.

Borrowing was certainly not ‘out of control’. The Office for Budget Responsibility reckoned that borrowing last year 2009-10 would come out over £10 billion lower than we had forecast and £8 billion lower in the present year. Unemployment has stayed lower than many forecasters expected and the economy had started to grow again by the end of last year. Recovery was fragile but real, in the run-up to the general election.

There is no doubt that government borrowing must be brought down and public sector debt reduced as a proportion of GDP. Unless we do so future governments may be unable to fight any future economic shocks of the kind we are still recovering from. Labour had planned to halve the public sector annual deficit by 2013-14 which is in accord with the June 2010 G20 Toronto Declaration. The Office for Budget Responsibility has confirmed that under Labour’s plans, borrowing would have been more than halved by 2013.

But the coalition has adopted a far riskier strategy. It plans to cut the UK fiscal deficit by much more than required by the Toronto accord. The UK fiscal tightening planned for next year 2011 is twice as fast as that planned by the USA and four times as fast as Germany and Japan. Why the rush? IMF figures show that the UK’s gross financing needs as a proportion of GDP this year and next are below those of Japan, the USA, France, Canada and many others. The alarm bells are not ringing, so why risk derailing recovery by squeezing the economy at the very moment it is beginning to grow again?

IMF figures also show that the UK plans to make in the next three years about two thirds of the fiscal adjustment required in the coming ten years for the UK to be on target to reduce public sector debt to 60 per cent of GDP by 2030. Again, why the rush?

The coalition’s plans could seriously undercut growth. The IMF estimates that the cost of frontloading the squeeze on the UK fiscal deficit is a 0.3 per cent reduction in our growth rate next year. (Source: Transcript of a Conference Call on the 2010 Article IV Consultations with the UK, 9 November 2010). That cut in the growth rate may be seen by the coalition as valuable insurance against the risk of a costly loss of confidence in Britain’s public finances. But in the absence of any sign of such weakening confidence, this all smacks of giving in to your worst imaginings.

What is real is that the OECD has slashed its forecast for UK growth next year from 2.5 per cent to only 1.7 per cent. The latest CBI industrial trends survey suggests that manufacturing expectations have collapsed. Office for National Statistics retail sales figures show that households are reining back on spending. October saw a welcome fall in the unemployment rate in Wales, but the Institute of Directors has warned that such figures may give a false sense of security. They expect the economy and the UK labour market to weaken in 2011.

There is a difference between a squeeze and a straightjacket. Plenty of experts, not just the Institute for Fiscal Studies, are warning that the Chancellor may have gone too far, that his constraints on expansion are too tight, and that he may need to ease the fiscal squeeze. In short that he may need a Plan B. The latest figures for GDP growth show a fall back from the second quarter’s result. The danger is that economic recovery may lose momentum. The Chancellor’s measures are damaging what might be called the economy’s ‘bounce back ability’.

All this means that growth could stall in the new year, and slower growth means fewer jobs. Bank of England projections already point to a substantial amount of slack remaining in the economy in three years time. This week’s Office for Budget Responsibility report still expects hundreds of thousands of public sector jobs to be lost as a consequence of the spending cuts. They will be more than matched by private sector job losses, as Pricewaterhouse Cooper has already forecast. Some 60,000 of those job losses will be in Wales. The Chartered Institute of Personnel and Development reckon that Britain could lose over 1.6 million jobs across the economy by 2015-16. Over one million women are now unemployed and the number of people working part-time because they could not find full-time work reached a record 1.15 million in October, up by 67,000.

For hundreds of thousands of public sector workers the front line has become the firing line. While City bankers pocket huge bonuses, all public sector workers can look forward to is a P45 instead of a pay packet.

This Government’s actions have hit Wales harder than anywhere else. The CSR was a reckless gamble. Families in Wales, workers in Wales and businesses in Wales are worried stiff about their future.

Nothing can disguise the savage cuts inflicted on the Welsh budget, on top of closing the Passport Office, cutting the St Athan Defence Training College, abandoning the Severn Barrage and kicking rail electrification to Swansea into the long grass.

And while the Chancellor was still on his feet delivering the CSR, part of it was already being judicially reviewed. There are all sorts of issues with the S4C Authority, but we support S4C in seeking a judicial review of the Government’s decision on its future.

The Government have handled the whole issue very badly – showing arrogance and contempt for Wales: no prior consultation at all with the Welsh Assembly Government or with S4C themselves. Where was the Secretary of State in all this?

Small business in Wales, particularly those in the creative industries, are understandably very anxious about what this decision means for them.

Cuts on benefit levels and eligibility will be introduced under the radar – a vindictive and pernicious attack on Wales’s most vulnerable communities.

Because Wales is more reliant on public sector jobs, these savage cuts will damage Wales more than any other part of Britain.

There are already far fewer vacancies than there are unemployed people looking for work. For every job vacancy, five are unemployed. The situation will get worse as the cuts hit home. With ministers once again telling the unemployed to get on their bikes and search for a job, Britain should do well in the 2012 Olympic cycling events. The unemployed know that, like the Tour de France, the pursuit pack may be crowded but at the end of the race there is still only one yellow jersey. Unless the economy recovers from recession and growth picks up speed, their search for a job will remain a pointless quest.

Ministers say “we’re all in this together”. They conjure up an image of the British economy as if it were the Titanic, holed below the waterline by an iceberg of government borrowing that Labour had carelessly parked dead ahead of the ship of state.

What we are witnessing today, both in Whitehall and in the City, is the Ismay response. While the Titanic’s captain and crew tried to put women and children first, Bruce Ismay, the boss of the White Star Line, was quick to pinch a place in a lifeboat. Women and children appear to be expendable items in this government’s peculiar priorities for public spending, with child tax credit, child benefit, maternity grant and baby bonds amongst the first to be sacrificed.

The Government also has students in its sights. We already know that the £30 per week educational maintenance allowances for 16-19 year olds at school, in sixth form colleges or FE colleges are going – except in Wales where to their great credit Labour Ministers are keeping it. Average student debt in Wales is already over £6400 per year. Across Britain students starting at university this year are forecast to finish their studies with an average debt hanging round their necks of £25,000, before any increase in fees arising from the Browne Review. This is nearly three times today’s average household debt excluding mortgages in the UK. In October (9 October 2010) the Telegraph reported fears that under the Tory Lib Dem policies the cost of a three year degree and its associated living expenses could reach £80,000

Thankfully, in Wales the Labour led Assembly Government yesterday announced that Welsh domiciled students will not have to pay extra fees. The cost will be met by the Assembly Government. There will be variable progressive rates of interest charged depending on income; that is a fair way to fund higher education. This Government could learn a thing or two from Labour Welsh Assembly Ministers.

The Prime Minister made a pre-election promise there would be ‘no cuts’ to the NHS. And when the coalition was formed they pledged to ring-fence health spending.

However, a House of Commons Library research report on 1st November confirmed:

“Including the (social care) funding is critical to the description of the settlement as a ‘real terms increase’; without it, funding for the NHS falls by £500 million -0.54% in real terms.”

And despite massive cuts to the Welsh budget, the Tories in the Welsh Assembly have the audacity to suggest that ring-fencing the health budget in Wales is affordable! On Tuesday, 2nd November during First Ministers Questions, Nick Bourne the Welsh Tory leader, talked about how the UK Government would “safeguard the NHS budget” in England and demanded that we do the same here in Wales.

To pay for this, the Tories in Wales have said “of course” they would be happy to cut the schools budget by over 20%. This would create chaos in the education system. Schools would shut overnight.

This is an unrealistic, irresponsible and unaffordable spending commitment by the Tories in Wales. The Secretary of State should condemn it. The government says we are all in this together. But some are being gripped tighter than others by the Chancellor’s python policy. Families in Wales are feeling the pinch more than most since Welsh household incomes are over ten per cent below the UK average. Tens of thousands of working Welsh families on low to middle incomes face a triple whammy. What they gain from a higher income tax allowance they more than lose through cuts in tax credits, cuts in childcare support and cuts in benefit entitlements. Their pay is being overtaken by rises in the cost of living. They are the squeezed middle and they are hurting. Many of them are struggling to make ends meet. Small wonder that the latest figures show a sharp slowdown in household spending.

I noticed that the Prime Minister wants to build a Happiness Index to keep our spirits up during the tough times that lie ahead. Devotees of the songs of Ken Dodd may remember that his string of hits began with “Happiness” but it was followed by “Tears” and ended with “Brokenhearted”. A fitting epitaph, I fear, for this Government’s disastrous, savage public spending cuts.

Welsh Grand Committee

For the last 13 years the people of Wales have had to put up with the ignominy of four Secretaries of State who were MPs from Wales – yes MPs from Wales – in the Wales Office – can you credit it? What a relief that Gwydyr House has now been restored to its former Tory glory, continuing the long line of Conservative MPs representing English constituencies which goes back to 1987.

Some might say not so much a new Secretary of State for Wales as new Secretary of State for Chesham and Amersham.

And this despite her Conservative Welsh back benchers who are bristling with talent. Never has the Welsh Grand Committee witnessed a more brilliant bunch of Tory boyos.

And why, in contrast to Scotland is there no Liberal Democrat Minister in the Wales Office? Despite such a talented a threesome: Cardiff Central’s young Mum to be, Ceredigion’s scourge of Plaid Cymru and Hon member for Brecon & Radnorshire who looks absolutely ecstatic at being coalition with Tories.

Even more so since on BBC Wales last Tuesday he proclaimed the VAT rise the best thing since sliced bread having denounced it on BBC Wales two days previously as “a very regressive tax that falls most heavily on the poorest in society” which he could not possibly support. A new Liberal Democrat dictum: two days is a very, very long time in politics. In fact after Brecon & Radnorshire has now done a double volte face because he popped up on Monday alongside Ceredigion with a motion condemning VAT again.

And then there was the excruciating sight of Welsh Liberal leader Kirsty Williams meeting her new coalition partner Rt Hon Lady on the steps of the Senedd. She was like a bride who suddenly discovers to her horror the wrong person waiting for her with the ring. But all guests there, photographers snapping away, presents stacked up, the Vicar expectant. So what does she do? Goes through with the wedding ceremony smiling rigidly like the bride of Frankenstein. Her performance is a vintage hit on You Tube – I recommend it as a cure for coalition insomnia.

As for the Queens Speech, it’s clear that they want to pack the Lords and fix the Commons. She has the dubious distinction of being the first Secretary of State ever – the first Secretary of State ever – to advocate a reduced voice for Wales in Parliament, so increasing the voice of her Buckinghamshire constituents relative to our Welsh constituents.

Drawing up new boundaries which take no account of Wales’ population sparsity, or the geographic remoteness of communities in rural and Valley communities. Slashing the number of elected Welsh MPs from 40 to 30 and riding roughshod over criteria by which Parliament first ensured in 1949 that Wales never had fewer than 35 MPs.

Subsequent independent Boundary Commissions gradually increased this to 40 seats. She is spearheading a deliberate, calculated attack on Wales’ influence in Parliament. Outrageous behaviour for a Secretary of State whose main job should be to stand up for Wales not to attack our citizens’ democratic rights.

In fact, yet again, the Tories are turning Wales into the great ignored nation because, as the First Minister Carwyn Jones has said, there is no longer a strong voice for Wales around the Cabinet table. Scotland has got a generous reform of the Barnett Formula through legislation on the Calman Commission reforms and on top of this the Fossil Fuel Levy. But nothing whatsoever from her Government for Wales: not a mention of the Holtham Commission reforms. She could not even persuade her new Tory Liberal Cabinet colleagues to honour the agreement I negotiated with the Treasury to protect Wales. Instead of taking forward the Holtham proposals, she has broken that pre-election promise and dumped them in the long grass. A weak Secretary of State doing what Tories always do best of all: weakening Wales.

And only yesterday she had to make a humiliating climb down on the Housing LCO. She and her Minister blocked it in the pre-election wash-up negotiations but Carwyn Jones has now forced her to take it through. And a good thing too for the homeless and thousands in Wales in desperate need of affordable housing.

On the budget, the government says the richest will bear the brunt. That is simply not true. Many on low and modest incomes will feel the pain much more.

The real scandal of the budget is that the poorest will be hit the worst. I expect nothing less from Tories. But Liberal Democrats should hang their heads in shame. The Party of Lloyd George, who first established the state pension in 1909, and William Beveridge who in 1942 paved the way for the welfare state, has abandoned all it stood for.

The Observer reported a study by leading economists that finds poorest families in Wales will lose 21.7 per cent of household income. That’s over a fifth of their income. Even worse, they are being hit fully six times harder than richest. This was the first such study to take account of impact, not just of tax and benefit changes, but of savage cuts in public spending.

Not only will pensioners pay more in VAT, they were shamefully excluded from the much vaunted £1000 rise in the basic tax threshold. A double tax attack on Welsh pensioners.

Increasing VAT to 20% will affect everyone, most of all pensioners and those in poverty. As the Financial Times has said, areas like Wales that rely most on the public sector will be hit hardest by the deep cuts announced to public spending.

Worse still, these big cuts are based upon a big lie: that the public finances are so terrible, the cuts must be faster and deeper than Labour’s very tough deficit reduction plan which would have halved borrowing within four years. The prime Minister and Chancellor have been deliberately scaring the public, with the Liberal Deputy PM and Business secretary joining in.

But, as their own Office for Budget Responsibility said two weeks ago, the situation they inherited is actually better than was forecast as recently as Labour’s Budget in March!

Borrowing is £9 billion lower this year and £22 billion lower over the coming four years. Growth is higher and unemployment is lower. Business bankruptcies and home repossessions are half the rate of the 1980s and 1990s Tory recessions. All because of Labour’s government action and investment to support jobs, businesses and struggling home owners which has left Britain much better placed than America or the rest of Europe to recover from the worst global recession for eighty years.

These brutal cuts are ideological, not economic. The new ConDem Government is not cutting savagely because it needs to, it is cutting savagely because it wants to.

One thing has certainly changed since Labour left office: the Eurozone countries – especially Greece, and now Spain and Portugal – are today in real difficulty. Without Labour’s progressive influence, fiscal conservatism is now dominant in Europe, with huge cuts in public investment and jobs on the way. As President Obama has warned, this endangers the world recovery. It also means a downturn in the very European market where the vast majority of our trade takes place.

So this is precisely the moment not to cut public spending savagely, because it will put at risk the still fragile British recovery. Cutting deeper and faster repeats the mistakes of the 1930s, 1980s and 1990s Tory Governments.

We are coming out of the recession but our economy and the economies of many countries around the world have not fully recovered. The recovery is fragile and could easily be derailed.

Only governments can step into the breach during such difficult times.

Cut off that support and the risk is palpable.

The private sector isn’t yet robust enough to replace government investment. Nor is it getting anything like the support delivered by Labour.

John Maynard Keynes – a signed up Liberal – will be turning in his grave, not just at this damaging folly, but at the manner in which the Liberal Democrats have breathtakingly somersaulted, trading tens of thousands of jobs that will be lost in Wales (hundreds of thousands across Britain) for their own jobs in Government.

The Deputy Prime Minister, Welsh Liberal Democrat leader Kirsty Williams, and even the once-saintly Business Secretary, are now arguing the precise opposite of what they did in the election campaign just a few weeks ago. Big cuts based upon a big lie – a real tragedy for Wales.

Because there are two big challenges facing Wales: first how to secure jobs and growth. Second how to get borrowing down in a way that is fair to everyone.

The first budget from the new government has failed the fairness test, going back to the same old right wing Tory agenda:

attacking pensioners;
hitting people on low incomes;
causing unemployment to rocket;
making our hardest working families pay the price.

The only difference is this time it’s defended to the hilt by the Liberal Democrats.

What we have from the Con Dem government is a strategy for cuts.

But where was the strategy for jobs and growth, the lifeblood of this country?

Growth is essential to secure a future for ourselves and for our children.

Without growth Wales will be condemned to years of decline.

After record levels of employment and prosperity, falling unemployment and falling numbers of incapacity benefit claimants under Labour, Wales will be returned to its traditional Tory place: bumping along the bottom, with higher unemployment, lower incomes, poorer prospects.

That is not where Wales needs to be. That’s no future for my three Welsh born grandchildren. Nor is it any future for the 240,000 Welsh men and women on Disability living allowance now facing brutal cuts.

And now the Tories with the help of the Liberals plan to punish hundreds of thousands on incapacity and other benefits. We had a benefits regime that was tough but fair. They are pledged to one that is punitive and unfair.

Wales has been through a difficult time as has every other country in the world.

But the Government is repeating the mistakes of the past when cuts were made without any regard to the consequences.

We have no argument with over the need to reduce our borrowing.

That is why Labour set out a plan to halve the deficit over four years, cutting borrowing by £70 billion – a huge reduction involving very difficult decisions and cuts.

What we were not prepared to do – and they obviously are – was top this up with a further £32 billion of spending cuts and a further £8 billion of tax rises over and above Labour’s plans.

The Tories, using the LibDems for cover, have made the wrong choice. They are gambling with the recovery and it won’t be bankers, or the many millionaires in this Cabinet, who suffer. It will be the people of Wales who pay the price.

The Tories, using the LibDems for cover, accept that unemployment is a price worth paying.

Listen to their new independent Office for Budget Responsibility. It predicts that as a result of the budget employment will be down by 100,000 with lower growth this year and next. The scandalous abolition of the Future Jobs Fund means the 11000 unemployed Welsh young people who have already benefited, and a further 6,000 who were due to benefit, will be back on the dole.

The former Monetary Policy Committee member David Blanchflower predicts 250k extra young on dole next year following FJF cuts and other Budget measures. That suggests up to 20,000 Welsh 18 to 24 year olds condemned as young people in Wales were in the Tory 1980s and 1990s to generational joblessness.

Many tens of thousands of Welsh jobs will be lost in both the public and private sectors, 50,000 being one estimate. That could well prove an underestimate according to a treasury assessment that 1.3 million jobs will be lost across Britain as a result of the Budget over next five years.

To reduce government borrowing, Labour chose to raise national insurance contributions rather than increase VAT. Now we have both.

Only weeks ago the Tories said the NI rise was a ‘jobs tax’. Last week we found that they are increasing the tax on employees.

And they have put up VAT to 20%.

Only weeks ago David Cameron said it was a tax rise we wouldn’t see.

And the Liberal Democrats condemned the prospect as a dire draconian tax bombshell.

Now they will try to force it onto the statute book, a fundamental breach of trust with voters.

This is the third time in a row that a new Tory administration has raised VAT despite denying any plans to do so – Thatcher in 1979, Major in 1991 and Prime Minister in 2010. What a hat trick.

And while pensioners were exempt from NI they are not exempt from VAT.

They say we are all in this together. But many people on low and middle incomes will see their earnings cut.

Child benefit frozen for the next three years for over 7 million families; tax credits reduced for families earning just over £15,000 and scrapped for families earning just over £30,000 in two years time. The Rt Hon Lady may remember specifically denying to me this would happen on our election TV debates. Yet another broken promise and one she also specifically denied on those same TV debates: hundreds of Welsh police and community police support officers are for the chop.

Yes there was a boost to child tax credit. But this was more than offset by housing benefit cuts, scrapping of maternity and pregnancy grants, along with other benefits targeted to support children.

And the Con Dem government has also launched a full-scale war on public sector pensions.

Now of course reform was needed – indeed Labour introduced radical reforms: postponing the retirement age and increasing public employee pension contributions, closing old schemes and starting new ones. All changes negotiated with the trade unions. But the orchestrated Tory Lib Dem assault on public pensions heralds a race to the bottom which will leave a huge burden on future taxpayers coping with pensioner poverty.

For every high earning public service pensioner who provokes headlines in the Tory media there are thousands and thousands on low pensions.

For example the average pension for female NHS worker is £5000; the median rate is even lower: half women NHS workers are on a pension of less than £3500.

For companies there is a reduction in headline tax. But allowances which make all the difference to investment and future jobs growth have been cut.

We shouldn’t be surprised. Just two weeks ago the new government scrapped our plans to extend a loan to Sheffield Forgemasters, and the promise of high quality jobs.

And Tories and LibDems should not insult our intelligence by trotting out the line that they can renege on their election promises because the books were worse than they thought. That is also simply not true.

The Tories and Liberals are constantly scaremongering, comparing us with other countries like Greece. That is ridiculous. We are a large developed economy. No-one believes our positions are anything like comparable.

The truth of the matter is that the Tories, with LibDem help, have done what Tories always do: cut, cut and cut again until public services for all give way to private profits for the few. This budget is a Lib Dem summer sell out. It turns the Lib Dem orange book into a Tory blueprint.

Where Britain needed a budget to give the green light to growth, instead it switched all the signals to stop.

Instead of driving the economy forward the budget has engaged reverse thrust.

Because there is no room left for interest rate cuts, this budget increases the danger of a double dip recession.

A double dip recession that could take Wales back to the dark misery of the 1980s and 1990s, when whole generations of young and old condemned to suffer.

It’s an outrage and I warn the Rt Hon lady: the people of Wales will not take this lying down. We will fight back.

Welsh Grand Committee

Peter Hain MP for Neath: I have a soft sport for the Honourable Lady (Cheryl Gillan) but I must say that her speech symbolises the abject failure of opposition parties to propose any serious policy at all, alternative to the Chancellor’s PBR.

The Conservatives with their plans for huge cuts would plunge Wales back into the misery of the Thatcher years.

And they have absolutely nothing consistent or coherent to say about solutions to the global financial turmoil and voters have rumbled them as this mornings Guardian poll shows.

The same is true of the Liberal Democrats with their £20bn cuts plan.

And frankly Plaid Cymru’s policies are quite frankly a joke – taking as their model Iceland – a sort of policy for an ‘ice-age’ Wales – combined with independence which would leave Wales a whopping £9 billion a year worse off, more than half the Welsh Annual budget and bankrupt.

Loan finance

Can I however suggest how we might build on the PBR in respect of the endemic unwillingness of the financial institutions to provide loans.

The Financial Times reported on December 8 2008 that the Chancellor is considering an extension of taxpayer guarantees to cover business lending, because the economy is still starved of credit in spite of the £50bn recapitalisation of the banks.

The most radical Treasury option under study is apparently for the taxpayer to reopen the wholesale markets to banks by offering guarantees to securities backed by new lending. The FT reported that such a guarantee should cover lending generally, and securities backed by small business loans, car loans or other lending might be included.

I have been talking to my constituent Peter Morgan who has had 35 years of experience as an estate agent in Neath, with other offices along the M4 corridor.

He tells me that the problem for the sector can be brought down to just one factor: the total lack of availability of higher percentage mortgages (90% to 95%). There is no need for the reckless 100% or higher mortgages of previous times, he maintains and I agree with him.

But he says that lenders, in an effort to increase their liquidity, are using the media’s reports that prices are still falling, and will continue to fall, as an excuse to decline to lend.

So my proposal is for the Government to offer a form of guarantee on the higher percentage mortgages, so that if the borrower defaulted and the property were to be repossessed, the Government would repay the difference. This would mean that the lenders would have no further reason or excuse not to lend. Which would have an immediate effect on the property market.

Peter Morgan tells me that he and other estate agents have more willing sellers at the moment than at any time in his experience. At any time. Despite the lack of security in employment they also have plenty of buyers wishing to purchase, but who are unable to do so due the lack of availability of mortgage funds. So it’s not a problem of housing supply or demand it’s a problem of finance.

If the market were to be ‘kick-started’ then he feels confident that prices would no longer fall. This would result in positive publicity and hopefully stop the downward spiral. We as we all know are a nation which relies on the value of our housing stock to provide security, confidence and in a lot of cases the facility to secure future borrowing and credit.

It would be my suggestion that the Government could indemnify the lender against any loss on the mortgage advance for say a period of 2 years in the event that the property is re-possessed. This should be sufficient to guarantee that the lenders have no reason not to provide the 90-95% mortgages at a favourable rate which are desperately needed.

Due to the considerable drop in prices over the past 18 months around 20 – 25% and the reduction in interest rates, properties are now very affordable to first time purchasers in a way that they weren’t. The only reason that they are unable to buy is the lack of high percentage mortgage availablity. This also applies to the buy-to-let market.

This will boost opportunities for first time buyers, and galvanise the whole housing market because it is their inability to get home loans which has log-jammed everything.

Could the Secretary of State please raise this proposal with the Chancellor as soon as possible and let me know the outcome?

Then there is the vital issue of lack of finance for businesses.

If the Chancellor’s thinking around loan guarantees is pursued it is in line what many businesses have convinced me could make a real difference.

The banks currently look at the overall situation and see commercial risk in all directions.

When they look at, for example car manufacturing, they consider a car sales situation for a particular company, currently massively down on last year, and the precarious nature of some of dealer network.

The failure of a dealer would put extra stock into the market, undermining residual values and create a knock- on effect.

The banks then look at the supplier network and see the potential problems that a collapse of General Motors or Chrysler might have on this.

The failure of a supplier could potentially stop production lines and have a significant effect on output.

It is then possible to understand why the banks are reluctant to be flexible on their policies and bank covenants. They are just taking a normal prudent banking point of view albeit a frustratingly self interested one.

On the other hand the Government is the only party that can take a global view on the situation as it influences all aspects of the economy and to intervene as we have led the way in doing over the past month.

I think the only way we will therefore unlock funding from the banks is by way of Government guarantees for approved facilities to industries that are profitable but have short term financing issues. One would naturally expect this to be coupled with certain restrictions such that whilst the Government guarantee was in place there would be limitations on the distribution of funds from the company, and that sort of thing.

I am struck by the number of businesses I meet who have orders but are frustrated by the lack of finance to make the necessary investment to deliver those orders; this was the case talking recently to a South Wales engineering company as I did. It’s got a huge order much of it to be exported but it cannot get the production lines going because the finance is not available

Again I would be grateful if my Right Honourable Friend would raise this made-in-Wales proposal with the Chancellor and let me know the outcome?

Local Government Settlement – Revenue

Could he also discuss with First Minister the Local Government Settlement. Which seems to be in Wales unchanged by the Pre Budget Report.

In England it was over 4%, Wales just 2.9% Yet the Assembly budget has been increased in 2009/10 by 4.2%.
>Health & Social Services + 5.3%
> Economy & Transport + 5.1%
> Central Services & Central Administration + 6.9%

Despite the fact that services provided by Local Government touch every child, people of working age, the elderly and those with disabilities, it is not getting an equitable share of the budget.

I applaud the Finance Minister Andrew Davies’ tough decision and his confronting a lot of difficult choices that the Assembly Government has not made over the past years.

How on earth does the Assembly prioritise investment in these critical services much lower than increases in their centrally controlled budgets including central services and admin? The latter will have a £25m increase, more than double inflation and more than treble local government.

Neath Port Talbot’s increase at 2% means a significant real terms cut of over 2 per cent.

The County Council estimates inflationary pressures will be around £10m
Cash Uplift ( with a 3% Council Tax increase)£6 m
Leaving a serious shortfall £4m or 1.73%

So efficiency savings of 1.73% are required just to meet inflationary pressures.

And that is without taking account of rising costs estimated at a further £4 million within key services that will be left under funded including
Special Education Needs
Extra social services help from adult & elderly population growth indices
Children’s social services – The Baby ‘P’ case being a particular issue to be addressed.

All in all, with the County Council will be about £8m short – meaning either massive cuts or the very big council tax hike its Labour leadership has pledged not to do.

Yet Neath Port Talbot is universally acknowledged to be the most efficient County Council in Wales delivering the best quality services from education to planning, and has already made huge efficiency savings, much greater than many other County Councils with a relatively deprived population nevertheless.

Neath Port Talbot also has a £20 million liability from the Icelandic banks. Could he please press the Chancellor or relevant Minister of State to grant local government a much more sympathetic ear than they appear to have had on this problem?

Notwithstanding these issues that I have raised, can I support the Government’s policies which show that only Labour can lead Wales successfully out of the global crisis.