PARLIAMENTARY DEBATE
Support for the Welsh Economy and Funding for the Devolved Institutions - 5 July 2022 (Commons/Commons Chamber)
Debate Detail
Motion made, and Question proposed,
One of the things I have become more convinced about, the longer I am a Member of this place, is that we need to spend more time debating Welsh matters and not less. We have our annual St David’s day debate and we sporadically have the opportunity upstairs to have a Welsh Grand Committee, although that is perhaps a bit too knockabout for the taste of some Members, so using the estimates day route to secure a debate is useful and I am grateful to see other Welsh Members participating today. I am particularly grateful to those colleagues who supported the bid application.
Our report into benefits in Wales is one of three of the Committee’s reports that has been flagged on today’s Order Paper as being relevant to this debate. We could have flagged other reports, as the Committee has done a lot of work that is relevant to the broad discussion that we want to have this afternoon. We continue to be a very busy Committee, and we cover a lot of ground. I am grateful to colleagues for their regular attendance at the Committee and for their spirit and enthusiasm. I think we do some good work as the Welsh Affairs Committee.
I should also say how grateful we are to the Wales Office Ministers, who give us a lot of their time providing oral evidence. We are also grateful to Welsh Government Ministers—not just the First Minister but other Members of the Welsh Government—who have no obligation to appear before our Committee but who nevertheless choose to do so. That all helps to make the inquiries that the Committee undertakes particularly useful.
Turning to the specific estimate in front of us, I would encourage Members to look at the very helpful House of Commons Library note that has been produced, which explains in much more detail, and far more effectively than I could, how the estimate has been compiled. It also outlines the factors underlying some of the changes, compared with last year’s spending plans. Clearly, we are continuing to go through an extraordinary period, economically, in the life of our nation, and that is very much the backdrop to today’s debate. If this debate had happened 18 months or two years ago, we would have been debating the impact of the pandemic. We are now in a new phase, and the cost of living is the No. 1 issue facing many of our constituents, as the previous debate highlighted. Personally, I am extremely supportive of the measures taken by the UK Government to support families through the cost of living crisis. The measures that the Chancellor of the Exchequer brought forward were broadly in line with what many of us had been calling for. They represented a major intervention that has been broadly welcomed by many poverty-fighting charities and campaign groups.
There are points that we could debate. I think the preceding debate covered those adequately, but I add my voice to that of the Chair of the Work and Pensions Committee, the right hon. Member for East Ham (Sir Stephen Timms), who has just left his place, on the need to do something to address the five-week wait for universal credit claimants. I attended the breakfast in Westminster Hall that was referenced earlier this afternoon as a guest of the Trussell Trust. I sat next to someone who had found themselves in financial crisis and having to make a claim for universal credit. The thing that she struggled with, alongside her mental health battles, was the five-week wait and falling immediately into debt. I encourage members of the UK Government to look at that to see how we can improve the system.
Beyond addressing the immediate cost of living crisis, I am particularly motivated by a desire to look at longer-term ambitions for improving the economy in Wales. That is why I support the UK Government’s levelling-up ambitions and their desire to see all parts of the country rise on a tide to be more in line with one another in the contribution that they make to the UK economy and the share of wealth and prosperity that people in different parts of the country enjoy.
We want projects that move the dial, but I say gently to the hon. Member that I remember my time as Welsh Secretary, and never a week went by without an Opposition Member knocking on the door of the Wales Office and asking whether there was not a pot of money somewhere in the UK Government to support a project in a constituency in the valleys or elsewhere in Wales. For the first time, the UK Government are making available pots of money that allow us to be involved in partnership with our local authorities on the ground, working to identify solutions to needs. That is tremendously exciting, and I encourage him to be an enthusiastic participant in that. However, he makes an important point about the broader economic context and things that genuinely move the dial.
If there is one part of the United Kingdom that is crying out for meaningful levelling up, it is Wales. I dislike very much the “older, sicker, poorer” narrative, which gets deployed time and again when we discuss the economy in Wales. Too often, it is used as an excuse for mediocrity, complacency and tolerance of poor performance, rather than as something that drives us in Wales to say that we are not going to carry on repeating the same old mistakes of the past. But there is truth behind the narrative. Look at economic output in Wales: in 2020, it was around 3.5% of all the economic output in the UK. That is lower than Wales’s share of the UK population, which is 4.7%. Wales is not punching its weight economically. Economic output per head in Wales is around £24,000, and the UK-wide average is more than £32,000. That is quite some gap.
During the decade from 2010 to 2020, annual economic growth in Wales averaged around 0.8%, similar to the UK average. We could be complacent and say, “Well, we’re in line with the UK average,” but that is not good enough. If we are going to close the economic gap in Wales, we need to grow significantly faster than the rest of the UK. For me, that is really what the objective of levelling up should be. What are the interventions that can move the dial and help the Welsh economy get to another level where we see more, better jobs created that pay more money and are more sustainable for our communities?
I draw Members’ attention to the Office for National Statistics population statistics that came out—
That takes me to the point that I was going to make about the population data. There is a real problem when we see a significant drop in the population in places such as Ceredigion—those Welsh-speaking communities in western Wales. That does not bode well for the future. We have parts of Wales with declining populations; overlay the ageing demographic, and that points to some deep-seated underlying challenges. It should be the ambition of us all, whatever our political colours, to address that.
I will make one more point and then let other Members get in on the debate. I come back to the issue of floating offshore wind in the Celtic sea, so let me speak parochially for a moment. In my constituency, that represents one of the most important and valuable economic opportunities that is emerging, as was confirmed today in the statement by the Crown Estate. If we are to make the most of this opportunity in Wales and not look back on it as another missed chance to do something significant—if we are to capture its full economic value—some big things need to start happening. We need the port infrastructure in Wales, particularly in south Wales, that can handle these mammoth turbines that are going to be built. We need work on the design of the contract for difference scheme, because some of the developers have real concerns when they look at the Celtic sea opportunities and what is already being leased out in Scotland, and questions are being raised. Will the Scottish economic opportunity outmuscle what is available in Wales? There is a real issue associated with the design of the CfD scheme.
As for the supply chain, we need to ensure that we have jobs and training opportunities in Wales for Welsh people, and that all the manufacturing, servicing and maintenance of the gargantuan new turbines that will be floated off the coast is not done elsewhere. Let me leave that thought with the Secretary of State. He and I have talked about these issues a lot, and I know that we are very much on the same page, but I still think there is work to be done within the UK Government and the Department for Business, Energy and Industrial Strategy to make that happen.
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.
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.
This is a timely debate, given the concerns about rising prices and the strength of the economy. We must recover and adjust to a post-pandemic era. We must also deal with the distortion of global markets by the invasion of one of the world’s largest grain producers by one of the world’s largest exporters of hydrocarbons. These are rough seas for anyone to navigate, and I am unequivocal that Wales is better for doing so as part of, and within, the UK. To use the example of tourism, in Wales we have just 2% of all visitors to the UK. Wales can clearly benefit from attaching itself firmly to the UK’s global offer, and from attracting more visitors to come and see what is unique, special and distinctive about Wales.
I share the pride felt by so many of my constituents in this thriving sector, but I also share the concern of many that we are so dependent on tourism, and the concern that, for so many young people, the only chance of pursuing a high-skilled, well-paid career lies in moving away from their community. This pattern has been detrimental for many and to the future of many, and not least also to the viability of our precious Welsh culture and language—a language that I, like so many in all parts of the Chamber, wish to see flourish.
I had to move away from north Wales to develop my interests and career, initially as an engineer. In many ways, it is a typical north Wales story, but it cannot be right that our young people have to think in those terms—that to see themselves working, living and settling in north Wales, they must first move away; but then I notice, when I look at Wales’s economic figures, that weekly income over the last 20 years has essentially just about kept up with inflation. There has been no net increase. Why is that? It is a frustration, because Aberconwy is home not just to many of the UK’s finest visitor attractions, but to talent and ingenuity.
Just last winter, an analysis of Companies House returns identified Llandudno, the queen of resorts, as the entrepreneurial capital of the UK. More new companies were filed there than anywhere else. That has to count for something, and it certainly reflects the conversations I have with many young and ambitious people in Aberconwy. Each and every week when I am home in my constituency, I visit businesses and community groups, and I am always impressed by the entrepreneurialism, and the commitment to growing, creating and strengthening things. Whether we are talking about business, people, groups or even our communities, there is huge ability and interest in improving what we have.
As we have heard, talent is distributed throughout the United Kingdom, but opportunity is not. Creating opportunities in communities in every corner of Wales, and indeed the whole UK, is at the heart of this Government’s levelling-up agenda. That is why I welcome the record amounts of funding and investment coming to Wales from the UK Government. However, there are three frustrations that I would like to set out, and they speak to why levelling up could not be more urgent for communities throughout north Wales. It is a tragic fact that, after 24 years of devolution and a consistently Labour Welsh Administration in Cardiff, despite all the promises, all the opportunities for devolution and our vast economic potential, Wales has the lowest economic output of anywhere in the UK apart from north-east England, a region with its own unique challenges.
I have spoken against the tourism tax. I feel very strongly that a tax placed on visitors who stay in hotels does nothing to address problems, or the behaviours of those who come to the area and wild camp, or do not even stay overnight, and who do not spend money in the local economy. I understand the sentiment behind the tax, but its motive is to make the money to fill or fix the deficit. We should instead ask: how do we work with communities and businesses to change the behaviour of visitors, address their experience, and address inappropriate behaviours in our area?
Our frustration comes from seeing that we have talent, but limited opportunities. That is compounded by our having one of the lowest income outputs of anywhere in the UK. On top of that comes frustration with some of the responses of the Welsh Labour Government. I say that in all sincerity. In a recent letter to leaders of local authorities in Wales, the Welsh Government Minister for the Economy wrote that
“the Welsh Government is unable to endorse the approach that the UK Government is taking on the Shared Prosperity Fund. This means, as we have consistently stated to the UK Government, that the Welsh Government will not deploy our own resources to implement UK Government programmes in Wales which we consider to be flawed.”
I, like many others, am frustrated by this approach. Surely it is counterproductive to second-guess how a UK Government funding stream for parts of the UK will be handled.
Contrast the Welsh Labour Government’s view that we should not implement UK Government programmes in Wales with the more enlightened view of the Welsh Local Government Association, which, in its manifesto for localism, said that
“greater fiscal autonomy and flexibility”
should be at the centre of its plan for recovery from the pandemic. That is what the levelling-up fund and the shared prosperity fund seek to do.
I said that I had three points. My third is to do with misunderstanding business. As my right hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb) mentioned, we in the Welsh Affairs Committee are very grateful to have Welsh Government Ministers in attendance at our Committee. Without a doubt, it enriches the evidence presented to us and our discussions. When the former Minister of the Economy, Mr Skates, attended, he was asked a question about the Welsh economic plan. This flagship project of the Welsh Government sought to sign up Welsh businesses to it. After some discussion, we established that the aim was for 3% of Welsh businesses—some 6,000—to sign up. I put it to him in our meeting that the reason for the low take-up was the unrealistic expectations placed on businesses in Wales. The time and financial commitment that it takes to sign up to making quite honourable and desirable—idealistic, I suppose, is too strong a word—steps towards decarbonising business and making it more sustainable are simply crushing for small businesses. After all, 95% of businesses in Wales have fewer than 10 employees.
In that context, I will make a comment on the question asked earlier about the amount of funding coming into Wales. Despite concerns about performance, and despite the frustration, and confusion or misunderstanding, about what businesses need, the reality is simple and irrefutable: there has never been more funding coming into Wales, if we perhaps except the blip that came through the consequentials around the covid pandemic.
Let us start—and start we must, because this is a long list—with the spending review. In 2021, we set the largest annual block grants for the Welsh Government: £18.4 billion per year. That will increase to £20 billion between 2022 and 2023. If comparison is helpful, over the spending review period the UK Government are providing the Welsh Government with roughly £1,000 more per person than is spent in England. That block grant increase is in addition to £900 million for farmers and land managers over the next three years, and the £6 million for Welsh fisheries.
That is not all: there is also the first round of the levelling up fund—yes, there are more rounds to come—which is £121 million, and there is £46 million through the community renewal fund. Perhaps hon. Members can see a pattern here. That is in addition to the £460,000 in just the first round of the community ownership fund and, lest it feel left out, the £130 million of investment by the British Business Bank.
All that funding speaks to the points so helpfully made by the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts), and highlights the difference between a deficit-based and an asset-based approach, because all that is also in addition to Wales’s 22% share per annum of the UK-wide £2.6 billion UK shared prosperity fund—a fund that ensures that EU funding is matched. Those are not my words; on 11 June, during an evidence session of the Senedd’s Finance Committee, Guto Ifan, a research associate at the Wales Governance Centre—an organisation that has never been slow to criticise this Government—stated:
“by 2024-25, the annual funding from the shared prosperity fund will match the average annual funding that Wales would have received”
from the European regional development fund and European structural fund, after inflation readjustments. All that long list comes on top of substantial legacy EU funding, which Wales will continue to receive as it tapers off.
I could speak at length—[Interruption.] I assure you that I will not, Madam Deputy Speaker; I would not deprive hon. Members of their time—but the money coming into Wales offers a huge opportunity to my Aberconwy constituency and north Wales. It is incredibly positive and forward-looking of the UK Government to act in this way. Local businesses are excited by it, and I see tremendous potential in the projects and bids we will submit to the levelling up fund bidding process.
In conclusion, we must ask what has happened in Wales in economic terms. It is not in a good place; it has not been in a good place, and there is no suggestion that that will improve as long as the Welsh Labour Government continue with their economic plans, which have, after all, been under their devolved capacity for the entirety of the Welsh Government’s existence.
I do not really know where to begin; as I listened to the hon. Member for Aberconwy (Robin Millar), I felt as though I was living in an alternate universe. I could not disagree with him more, unsurprisingly, and I will outline why. I start by saying how proud I am, as I know other hon. Members in this Chamber are, of Wales, the Welsh Government and what we have achieved. We are the only country in the UK to have had a Labour Administration since the inception of devolution, and currently they are pursuing in Wales progressive, bold, socialist policies, including the extension of free school meals to all primary school children, the universal basic income pilot, the living wage for key workers, and a major cost of living crisis support package. Contrary to what Conservative Members have said, the UK Government have actually cut funding for Wales. Looking at this year’s main estimate for funding in the memorandum to the Welsh Affairs Committee, I see that the cuts are significant, indicating over £2 billion in comparison with the previous year. I have that document if anybody wants to see it. The budget is going to be worth £600 million less over the spending review period because of mismanaged inflation, and, contrary to what Conservative Members have suggested, EU funding will be £1 billion less by 2024-25.
That reduction in funding is a clear example of the UK Government holding back Wales on its ambitious policy agenda. They are not providing the funding and investment we require, particularly during this historic cost of living crisis—the worst in living memory. The UK Government are continuing to pursue their agenda of ideological austerity and recentralisation of power in Westminster, bypassing the democratically elected Government of Wales, as we are seeing with the levelling-up fund, the community funds associated with the post-Brexit agenda, the United Kingdom Internal Market Act 2020 and the Elections Act 2022. In all sorts of areas, the UK Government are riding roughshod over the democratically elected Government of Wales. This goes against Welsh Government priorities and, as I have said many a time, it is an affront to democracy. The people of Wales backed a Labour Government who champion devolution and progressive policies and look to protect public services and, indeed, public ownership.
The Welsh Government’s Finance Minister has condemned “clear gaps in funding” in the spending review and called the spring statement a “threadbare” one that exposed
“an out-of-touch Chancellor”.
I could not agree more. It is vital that the block grant allows the Welsh Government to lift incomes and investment, even if the UK Government will not. Earnings in Wales and the proportion of people on low incomes in Wales are worse than in the rest of the UK. In my constituency, I commissioned some research on the post-covid economy that was conducted by the Bevan Foundation, looking at community wealth-building approaches. The evidence was shocking. The median earnings of working residents are well below both the Welsh and the UK averages. Another piece of research that was recently conducted on the cost of living crisis exposed harrowing experiences. Over 30% of respondents had skipped meals over the past year to keep costs down—over 60% in the case of benefit claimants.
The central issue facing both the UK Government and the Welsh Government is how to deal with the impact of inflation by lifting incomes in real terms. There are key immediate actions that can and need to be taken. On trade unions, as the Welsh Government pursue their new Social Partnership Council, the UK Government must not undermine Welsh Government legislation on industrial relations. On pay, the UK Government must listen to Wales TUC and consult the Welsh Government in responding to trade union public sector pay demands. On social security, the UK Government must adopt the Welsh Affairs Committee’s recommendation to reintroduce the £20 universal credit uplift and extend it to legacy benefits, and, in addition, use near-term inflation forecasts to increase benefits.
On levelling up, the UK Government must allocate adequate funding from the shared prosperity fund to Wales, and it should go through the Welsh Government, which is the Government of Wales. On other revenue sources, the UK Government must begin a process of equalising the role of the Welsh Government over the Crown Estate with that of Scotland, as has already been mentioned.
We also have to look at the powers in the long term and at how funding is allocated to Wales. The Barnett formula is inadequate and does not work. The introduction of a floor to prevent underfunding of public services in Wales and a discussion about devolving corporation tax and capital gains tax merit UK-wide debate, as recommended by the Holtham commission.
To conclude, there is a lack of trust in the UK Government delivering the funding necessary to alleviate the cost of living crisis from the people of Wales and my constituency of Cynon Valley. Because of that lack of funding, the Welsh Government are severely constrained in how they can deal with that crisis and, as I said at the outset, how they can push forward their innovative ideas, which they are doing in co-operation with other parties, and I again put on record that I fully support the co-operation agreement. It is because of those constraints that I support the First Minister pursuing an agenda to strengthen the Senedd and to give Welsh politics greater clout to fight its corner and to fight for the funding it deserves. I am sure that in time we will secure it.
My own upbringing was in the tourism industry—we have had much talk about it already in this debate—at the Lake Vyrnwy Hotel, which my father ran as a business. It is only a few miles south of my constituency of Clwyd South, which in itself has a wonderful tourism industry with the wonderful heritage, the canal, the steam railway, the beautiful countryside and so on. I will return to that theme later.
With all due respect to the hon. Member for Cynon Valley, I do not recognise her point about the spending review cutting money to Wales. Given the figures that my hon. Friend the Member for Aberconwy (Robin Millar) gave—I will not go back over all those—it seems self-evident that the block grant to the Welsh Government is rising year by year by a generous amount. I do not see how we can dispute that fact. At £18.4 billion rising to £20 billion in the coming year or two, it is the most generous spending review settlement since devolution.
There has also been mention of the fact that the amount of money coming from Europe to Wales will be cut. With all due respect, that simply is not the case. The shared prosperity fund will equalise, if not increase the amount of money that would otherwise have come from the European Union. The hon. Member for Rhondda (Chris Bryant) made the point about the levelling-up fund not being fair. As an MP for north-east Wales, I would argue that the European funding was not fair, because it was concentrated on west Wales and south Wales. North Wales, mid Wales and north-east Wales had little representation in that. My argument is that all parts of Wales need support. My constituency and my neighbouring constituencies have deprivation as well—deprivation is not exclusive to south Wales or west Wales. Therefore, the new shared prosperity fund, and the other funding that is coming through in the levelling-up fund and the community renewal fund, are spreading the money and investment across Wales, which strikes me as being much fairer.
Another point that I feel strongly about is devolution, about which we have heard from several Opposition Members. To my mind, if the granting of money is devolved from the UK Government to local authorities, that is devolution. Why should it go to the Welsh Government, who already get a huge block grant and have plenty of scope within their remit of government to spend that money? It seems that they like devolution if it comes into their coffers, but they do not like it when it goes into the coffers of the local authorities.
The hon. Member for City of Chester (Christian Matheson) said that the process pitted councils against each other, but that is not how I see it. Let us look at the process, in which I have been involved. Every council can apply, although some Labour councils do not because of a political point of view, which seems a very strange approach when the money and availability are there. It is not really pitting people against each other; it is an application. The Welsh Government are themselves an opaque mechanism for distributing money to regions such as north Wales. Those of us who represent north Wales constituencies are fed up with north Wales being starved of investment and south Wales in particular getting the lion’s share. For us, it is a much fairer system.
The hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) referred to the financial problems that are besetting the country. I accept that we have high inflation and so on, but if Wales were independent, how would he get round the fact that its national net fiscal deficit—the gap between total public spending for Wales and public sector revenues from Wales—amounted to £25.91 billion at the financial year end in March 2021? This is about £8,200 per person compared with the UK average of about £4,700 per person. It seems to me that, if we went down the route suggested by Plaid Cymru Members, we would have a huge financial problem in Wales, and we never ever hear any cogent arguments to oppose that point of view. If they are going to vote for independence and to go for independence, they have to prove to the country how they would make the books balance.
I have huge respect for the hon. Member for Cynon Valley and have seen how seriously she takes the cost of living issue, and learned a lot from listening to her in the Welsh Affairs Committee. I suggest that two things may be worth thinking about from the Labour party’s point of view. First, under Labour council tax bills in Wales have soared, while the UK Government have ensured that council tax has fallen in England in real terms by 1.1% since 2010. Over the same period, bills in Wales under Labour soared by 54%, or 17% in real terms. That really hits people in Wales in their pocket.
Secondly—my right hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb) made this point—the Welsh Government now have the capability to use income tax to raise more money, or indeed to reduce income tax, yet we never hear any word of that. I often wonder whether the Welsh Government are scared of using those powers. We see all the time that an easier way to handle things is to complain about the UK Government but take the money, rather than actually thinking about ways to ameliorate the situation through levers that have been put in the hands of the Welsh Government. I also wish to comment on infrastructure, because it seems crazy to me that the Labour-Plaid coalition has suspended all new road building projects, holding back vital infrastructure improvements. If we want to improve the economic performance of Wales, we must improve the infrastructure—everybody knows that—and I hope that the Labour Welsh Government will reconsider that position.
Finally—you will be relieved to hear that, Madam Deputy Speaker—the Labour-Plaid coalition must also think hard about adding 36 more politicians to the Senedd at a cost of over £100 million per Parliament. That is enough money to pay for 780 doctors, 800 nurses, or 740 teachers. Let us consider the Welsh health service performance—I think Opposition Members have also commented on this. For example, the number of people waiting more than two years in Wales is now 68,032—an increase of 887% in a year—and that is more than five times the English figure of 12,735, which is shrinking fast. All I would say is that the Labour-Plaid coalition should think about spending the money that they are going to spend on extra members of the Senedd on improving the health service, which would be to the benefit of everybody in Wales.
I congratulate and thank the right hon. Member for Preseli Pembrokeshire (Stephen Crabb) for securing this debate and for leading the Welsh Affairs Committee in the way that he does. His contribution, and those of my hon. Friend the Member for Carmarthen East and Dinefwr (Jonathan Edwards) and the hon. Member for Aberconwy (Robin Millar), have already caused us to discuss the structural long-term problems that Wales and its economy are facing, and the demographic consequences of those structural problems. Mention has already been made about recent census results in which Ceredigion reported a 5.8% fall in its population. I do not intend to pursue that line of inquiry in my remarks this afternoon, but it is an important area for us to consider and debate in future, because it is intertwined with the debate about levelling up and building a more prosperous economy, and indeed society. In many rural areas, and particularly areas such as Ceredigion, we are seeing a demographic trap in which some of our biggest and most valuable exports are our young people and skills. Yes, that has been happening for many years, but sadly the trend has been accelerating in recent decades. We need to get a handle on that.
I want to focus my remarks on the impact of the recent cost of living crisis on both households and businesses. Set against that backdrop, the debate is timely. As right hon. and hon. Members will be well aware, our constituents, whether households, businesses or community groups, are struggling under the weight of increased fuel and energy costs in particular. In anticipating some of the Secretary of State’s arguments and comments in summing up, I acknowledge that there has been a package of measures and support from the UK Government. As the Library’s briefing informs us, it amounts to some £37 billion and includes: £400 to help all households with energy bills; £650 for households receiving means-tested benefits, with an additional £300 for pensioners and £150 for people receiving disability payments; and a further £150 council tax rebate for households in council tax bands A to D.
One thing that the useful House of Commons Library briefing tells us is that, despite that rather impressive package of measures, once we take into account changes to income tax and national insurance contributions, some of that support is offset, at least in net cost to the Treasury. If we were to take tax increases into account, net Government support stands at about £14 billion in the fiscal year 2022-23.
We need to consider whether the package of support is sufficient, given that we know that domestic gas prices increased by 95% between May 2021 and May 2022 and that domestic electricity prices rose by 54%. In nominal monetary terms, the April price cap saw an increase in the maximum for average bills from £1,277 a year to £1,971 and, in May, the chief executive of Ofgem mentioned that he expected the price cap to rise by potentially 40% in the autumn to a maximum of £2,800. That would be a doubling in less than 18 months, and that is why it is important that we consider the sufficiency of the measures already announced. Just after April’s price cap came in, the Welsh Government estimated that 45% of households in Wales could fall into real fuel poverty—and, of course, that does not take into account further increases that may come in the autumn.
As MPs representing rural areas know, the energy price cap offers solace only to households on the mains gas grid. Many off-grid properties have not been offered the same level of price protection and have been exposed to significant price increases in terms of heating oil and liquefied petroleum gas. It is particularly true in Ceredigion, I am sad to say. According to the Mid Wales Energy Strategy, as many as 72% of properties in Ceredigion are off the mains gas grid. I am sad to say that we have the accolade of being the constituency most dependent on heating oil of any in the UK Parliament. On average, the price of heating oil has risen by 150% in the last year. In some circumstances, the increases have been significantly higher.
There is a debate we need to have, perhaps not for today, on whether we need to change approach in how we tackle the price hikes. Are we certain that they are just one-off temporary increases? Some suggest that we have underestimated and under-costed the risks, and that some increases are here to stay. Indeed, we could see further price increases. I note just today turbulence in Norway that might cause a further increase in the price of wholesale gas. There are a lot of uncertainties at a time when wholesale prices are already at an elevated level.
Before drawing to a close, I should mention that we need to do more to support small businesses and community groups facing energy and fuel price increases. I have been speaking to many hospitality businesses in Ceredigion. One told me that its energy bills have increased by 450% and to such an extent that it had to really consider whether it could continue to operate. The situation is not unique to that business. I know a great number of many other businesses that are struggling in a similar manner. We cannot allow otherwise valuable and successful businesses to fall foul of the price hikes. I sincerely believe that the situation warrants further Government intervention.
To add to that, because I do not want to portray this as solely an economic problem, there is also a community or social impact of the current crisis. We will all have heard from community groups, halls and swimming pools—you name it—that are struggling at the moment with higher than average energy bills. We are currently in the summer months, so usage is a lot lower than it will be in the winter. If they are struggling now, I dread to think where they will be in autumn. For example, in my own constituency, Calon Tysul, a community-run swimming pool in Llandysul in the Teifi valley, is already spending about £1,500 a week just to heat the swimming pool. That does not include the dry side of its facilities. That is already forcing it to make very difficult decisions about the provision of swimming lessons for our young people.
To conclude, something plaguing a lot of families in rural areas is the cost of filling up the car. Sadly, Wales is a very car-dependent nation, with some 83% of commutes dependent on private car use. In the long term, we obviously want public transport infrastructure to allow us to wean ourselves from the car. At the moment, however, we are not in that situation. There is both a social and economic factor for rural areas like Ceredigion. The social factor is in terms of the provision of key essential services. District nurses and carers are telling me that they just cannot afford to travel the 400, 500 or 600 miles a week that they need to travel to care for our elderly and in-need residents.
There is a real case for us to re-evaluate the rural fuel relief scheme to encompass more rural areas. That would make sense in the immediate crisis, as there is a need for it, and in the longer term, we might be able to incorporate that into levelling-up objectives, whereby fuel duty could be linked in some way—I admit this would be complicated—to the levels of accessibility to public transport infrastructure. That would be a very good way of moving forward in order to help rural areas proceed and endure the storm.
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%.
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.
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.
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 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.
In fact, the Welsh Government’s budget over the next three years is likely to be worth at least £600 million less in real terms because of higher than expected inflation. With the outlook for inflation, economic growth and additional funding looking bleak, the spending power of the Welsh Government is likely to deteriorate further, which is why they have called on the UK to update its settlement. As other Members have pointed out, we are also set to lose more than £1 billion of vital EU funding, with the UK Government failing to honour their 2019 election pledge to replace and
“at a minimum match the size of”
EU structural and investment funds.
Against that backdrop, the Welsh Government face even more pressures in seeking to address the cost of living crisis, which should be a priority for all Governments in the UK. However, even in these hard times, the Welsh Government are trying their hardest with what they have at their disposal to help households that are struggling to get by—unlike the UK Government, who are out of ideas and out of touch with what people are really going through; refusing, as others have said, to bring in an emergency budget; and raising taxes during a cost of living crisis.
After Ofgem announced increases to the domestic energy cap, Rebecca Evans, the Welsh Finance Minister, set out a £330 million cost of living package of support, which goes beyond that announced by the UK Government. The Welsh Government provided the £150 cost of living payments to all households in council tax bands A to D and expanded the support to those in higher bands in receipt of council tax reduction. As other hon. Members have said, this included free school meals throughout the Whitsun and summer holidays, and additional funding for the winter fuel support scheme for 2022-23 will ensure that the scheme can once again provide people on low incomes with a non-repayable £200 cash payment towards their energy bills later in the year. That is on top of the Government’s £200 rebates on bills from October.
The average band D council tax bill in England is £167 more than it is in Wales. Even with the stuff that the Government have brought in recently, we pay £17 less in Wales. As has been said, we have a Labour Administration in Wales who are really serious about supporting the public through this perfect storm of rising costs. They stand in stark contrast to this Government and a Chancellor who had to be dragged kicking and screaming into introducing a windfall tax on oil and gas profits to partly fund cost of living support for households.
As the right hon. Member for Preseli Pembrokeshire mentioned, the cost of living crisis in Wales has been made worse by the shortcomings of the benefit system. In its March report, the Welsh Affairs Committee rightly identified that current benefit levels are inadequate and called for an urgent review of the Government’s cruel decision to end the £20-a-week universal credit uplift, as well as a re-evaluation of policies including the five-week wait, the benefit cap, the two-child limit, the bedroom tax, the shared accommodation rate of universal credit for under-35s and the freeze of the local housing allowance rate at March 2020 levels. Everything on that list is relevant to today’s debate, and I would add to it the lower rate of universal credit for under-25s. That has caused hardship for many constituents, with housing associations in Newport East reporting under-25s spending all their universal credit on utility bills and having nothing left for food. It is worth pointing out that cuts to universal credit and working tax credit will take around £286 million out of the Welsh economy, with more Welsh families being hit proportionally harder.
I mentioned the loss of EU funding earlier. The loss of £243 million in rural funding and the £772 million shortfall in EU funding is likely to mean the loss of £1 billion of vital funds. The Minister will be aware of the considerable scepticism that exists around the shared prosperity fund. The Welsh Government have also voiced concerns that the fund will redirect economic development funds away from areas where poverty is most concentrated. My hon. Friend the Member for Rhondda (Chris Bryant) also made that point. This is a missed opportunity to ensure that funding reflects the distinct needs of Welsh communities. The fact that the Welsh Government have been totally ignored in the decision-making functions around the fund appears to be a deliberate attempt to undermine the principles of devolution, as referenced by the Public Accounts Committee in its report.
There has also been frustration with how the levelling-up fund has operated in practice. Only three of the 10 successful Welsh bids for the first round of the fund came from south Wales, and none from Gwent. I urge the UK Government to put this right in the second round and to look carefully at bids such as the one for the regeneration of the town centre in Caldicot, which has cross-party support. Sixteen local authorities in Wales did not benefit from the fund at all in the first round, and it would be interesting to hear what Ministers are doing to address that.
On rail, Wales has 11% of the UK rail network but receives only 2% of rail enhancement funding from the Government. We are now set to miss out on billions of pounds of consequential funding from HS2.
On police funding, no area of the UK has been safe from damaging Tory cuts, but Ministers in this place have shown no recognition of the specific challenges facing Welsh police forces. For example, no Welsh force receives national and international capital city grant funding. That is relevant to Gwent police in my area and that of the Under-Secretary of State for Wales, the hon. Member for Monmouth (David T. C. Davies), which needs to draw on additional resources to support events in Cardiff in the neighbouring South Wales police area, as well as at the international convention centre and Celtic Manor in the constituency of my hon. Friend the Member for Newport West (Ruth Jones).
Similarly, Welsh forces have not been able to utilise their apprenticeship levy contributions in recent years, and they currently pay around £6 million a year more than their English counterparts towards the training of officers. That issue has been raised before in this place, including by my hon. Friend the Member for Merthyr Tydfil and Rhymney (Gerald Jones), but Ministers have—
As I was saying, Ministers have incorrectly attempted to pass the buck on to the Welsh Government for that issue. It is not a devolved issue, and it is time Ministers took some responsibility.
There are additional strains on finances that Welsh police forces just do not need, especially when we consider that the headline £5.2 million of extra grant funding for Gwent in the police grant report published earlier this year is effectively written off to fund the long-term costs of the final tranche of the police uplift programme and the 1.25% increase in national insurance contributions. The UK Government continue to leave police forces in Wales to fend for themselves rather than funding them properly.
Finally, it is worth remembering that Government Members have voted to cut the £20 universal credit uplift, voted against free school meals for children during school holidays, voted for an increase in NI contributions and voted against a windfall tax. That is the record they stand on as we debate this estimate.
When I rise to speak in any debate on Welsh affairs, I suspect that Members can predict straightaway what I will talk about. Sure enough, there are no surprises from me today: I will speak about Chester’s place at the heart of the transport links for all of north Wales. We are debating Welsh economic growth, and the railway network around Chester is central to what Members across the House hope to achieve in north Wales. The hon. Member for Clwyd South (Simon Baynes) spoke about the dislocation that north Wales sometimes feels from the south. That is something that I hear, too. By improving connectivity in north Wales through Chester, we could certainly minimise that.
Chester is the gateway to north Wales, with lines heading down to Shrewsbury through Chirk and Gobowen, down to Wrexham and further on that way, and along the beautiful north Wales coastline. I see the hon. Member for Aberconwy (Robin Millar) in his place. He spoke earlier about Conwy castle, which is a fantastic day out on the train from Chester. I went crab fishing on the quayside there as a child, and I took my children there when they were younger. That railway line is also an economic artery, linking up with the ferries coming in from the Republic of Ireland, and it absolutely needs upgrading.
The central element is the Growth Track 360 proposals that are being put together with the Mersey Dee Alliance, which covers the cross-border area, as well as the local authorities, the North Wales Economic Ambition Board and the local enterprise partnership on my side of the border. The proposals will increase signalling and platform capacity at Chester and allow for through services from north Wales to Manchester and Liverpool. The Government have a good story to tell on those Liverpool services, because they opened the Halton curve to allow through trains from Liverpool. However, because of the continuing restrictions on the north Wales coastline, the number of direct services from Liverpool through to north Wales is restricted. Can we please have some more oomph from Ministers in the Wales Office and the Department for Transport, working with Transport for Wales, so that we get confirmation that the work will go ahead in Chester and its station to increase capacity, and to increase train frequency along the north Wales coastline to five an hour, given the full benefits that that will bring to north Wales?
That would tie in neatly with something I have been pushing for since I was first elected: the electrification of the line from Crewe to Chester. There is something of a bottleneck at Chester, and there are restrictions. We keep being promised that that last 20 or so miles will be electrified, but the promises seem to be disappearing further into the distance. This work is essential, particularly if we are to get the full benefits of High Speed 2 in Chester and on into north Wales. The Minister has been very supportive of the electrification, and I believe that the Secretary of State has visited the area and is aware of the issue. If north Wales is to get the full benefit of HS2, we need to get further forward with electrification.
A lot more immediate than HS2 is the issue of through services from north Wales to Chester and on to London Euston. We used to have 12 such services a day, but it was reduced to one a day. We are now supposed to be grateful for an increase to two a day—a doubling of the service. The railway companies are telling us that there will be an increase to 14 direct services a day between London and Chester, with a majority of those going on, along the north Wales coastline, to Bangor, Llandudno and Holyhead. We absolutely need the Government’s support, through the Department for Transport and the Wales Office, and that of Transport for Wales, to nail this down. We need those direct services, and I would be grateful if the Minister gave the issue attention.
The hon. Member for Clwyd South and I had an exchange about levelling-up bids. My constituency is not bidding in round two, not because the local authority, Cheshire West and Chester, lacks ambition—it absolutely does not—but because the bids take up a lot of officer time and office resources. There is something of a beauty contest here, and hard-pressed local authorities do not necessarily want to gamble on getting bids approved. However, I am pleased to support Flintshire County Council’s bid for the Borderlands line. That will benefit his constituency, as well as the constituencies of my right hon. Friend the Member for Alyn and Deeside (Mark Tami), and my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders), as well as Chester.
Although it lies outside the boundaries of my constituency, a new station at Deeside will absolutely help the western side of my constituency. It will also help the Deeside industrial area, in which there are 26,000 jobs, to grow even further. It is immediately outside Chester, in north Wales. A station there would provide additional connectivity with Liverpool and Wrexham. If the bid is successful, it will also allow more trains on the Chester to Wrexham line, which will help Wrexham to grow, because it will allow for railway sidings at the Hanson cement works. The way trains are manoeuvred around at the moment requires space on that line, as there are limits on the number of trains that can pass. Again, the Government have a story to tell on this: I think I am right in suggesting that the track from Chester to Wrexham has been doubled since 2010, so the Government are not getting the full benefit of an investment for which they can claim credit. Let us allow this bid, which I support; let us get the developments on the Borderlands line sorted; and let us allow real regeneration in Chester and, of course, north Wales.
I have remarked before in debates about Wales on the ambitious policy programme of the Welsh Government, and the package of measures that they are taking forward to reinforce the foundations of society in Wales and create a modern, prosperous, socially just, confident and inclusive modern European nation. I noted the plea from the hon. Member for Aberavon (Stephen Kinnock) for everyone to plight their troth to the Labour party. We in Scotland are quite happy with where we are with our SNP-Green coalition in Holyrood, and with our contingent down here. In Cardiff, there is obviously a coalition of ideas, if not in Government. It seems to be only in Westminster, where there is a single-party Government with a thumping majority, that dysfunction reigns. If there is a coalition of chaos anywhere in these islands, it seems to be in the Conservative and Unionist party, as it tries to stagger forward coherently from one week to the next.
While I was preparing my speech, I saw the Welsh Government’s annual report for 2022; it came hot off the presses today, in fact. I hope to have a chance to browse it later. It is due to be debated in the Senedd later this month. It reports on the Government’s 10 objectives. Some of the themes that leapt out of it will not be surprising or indeed unfamiliar from the Scottish perspective, particularly the need to tackle post-pandemic issues in the health service, which are common; protecting, rebuilding and developing services, particularly for vulnerable people; the urgent need to build an economy based on the principles of fair work and sustainability; embedding a response to the climate emergency in all that we do; and leading the broader civic conversation about how we wish to be governed, what we want our institutions of government to look like and what our place in the world should be. None of those things, particularly the last, should be under-looked as key components of building back better, especially when it comes to ensuring that we take the right actions and, just as importantly, have the right tools to tackle the cost of living crisis.
At the beginning of 2022, Wales had the highest poverty rate of the four nations, with almost one in four people living in a measure of poverty and 14% of Welsh households—nearly 200,000—living in fuel poverty in October 2021, which was prior to the price cap increase. I pay tribute to the hon. Member for Ceredigion (Ben Lake) for all his work on this issue and on fuel oil. I tried my luck on the subject at Welsh questions, just minutes before the Chancellor made his spring statement; I asked the Secretary of State—very much in the hope of getting a sneak preview of what might be coming in a few minutes—what discussions he had had with the Chancellor about the Government’s plans in this area to tackle the cost of living crisis. I was told to wait and see. So I waited and I saw. The Secretary of State said that, as a heating oil customer himself, he also suffered from this problem. Indeed, I probably know more about the Secretary of State’s domestic heating arrangements than I do about how the Chancellor plans to tackle the issue for homeowners who are in that group.
However, it is not just homeowners who are under the cosh. Fuel poverty is a key driver of in-work poverty. Nearly 400,000 households in Wales are on universal credit or legacy benefits, and nearly 40% of those in receipt of those benefits are in employment. That problem is clearly not confined to Wales, but it is a depressing statistic, and one that is pretty damning of the UK Government’s policies over many years. In the St David’s day debate this year, I remarked that the UK was one of the most geographically divided countries in the OECD when it comes to economic performance. Beyond the political knockabout, there are some deep-rooted structural reasons for that. There is a history of de-industrialisation, and a real imbalance in research and development funding; London and the south-east hoover up 54% of the total R&D spend in the UK, whereas the equivalent figure in Wales is only 4%.
For a country where prosperity has traditionally been based on what it can manufacture and export, it has been a significant blow to Wales to be taken out of the single market. With Welsh exports to the EU accounting for some 60% of its total exports, compared with just over 49% for the UK, it is a particular blow that neither major UK party represented in this place now supports being in that market.
The Office for Budget Responsibility has calculated that under the trade and co-operation agreement, the trading arrangements between the UK and the EU are set to reduce UK productivity by 4% in the long run relative to where we would have been had Brexit not happened. With those headwinds, it is absolutely imperative that there is some kind of silver bullet—some dynamic initiatives—that might help us to overcome those disadvantages with which we have been saddled.
The hon. Member leads me neatly on to levelling up. The Welsh Economy Minister, Vaughan Gething, has stated that Wales is set to lose some £750 million over three years, compared with the situation that would have pertained had the UK remained in the EU. I heard the plea and the earnest hopes from the hon. Member for Aberconwy (Robin Millar) that, somehow, Wales might be able to do better with less when it comes to that funding shortfall. I certainly applaud the ambition, but surely there can now be no doubt that there is a deficit of funding, relative to what it would have been, and that will be problematic when it comes to delivering projects. I see that even in my area of Aberdeenshire in north-east Scotland.
We could look at freeports. There are opportunities there for sure, but Stena notes that in the ports of Holyhead, Fishguard and Pembroke, traffic is down 30% on the pre-pandemic period. It will take significant activity around our freeports to compensate for that loss of economic activity in the ports, and resulting from that reduced traffic.
I could go on to talk about fair funding and how HS2 has conveniently been placed outside the brackets for Barnettisation, but I come back to the points that the right hon. Member for Preseli Pembrokeshire was making about offshore wind. I welcome his comments about the benefit that ScotWind promises to bring to Scotland.
As the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) said, Crown Estate devolution can play a major role in making sure that all the pieces that the right hon. Member for Preseli Pembrokeshire talked about are brought together strategically, so that we get all the supply chain spin-offs. It is, I would say, a fairly conservative argument that the Government should bring policy and resources into alignment, so that we get the best possible outcome and transparency—not just transparency of Government, but transparency in how we spend public cash. I cleanse the palate by saying that, to me, true devolution is empowering Government to act in that way in Wales and Scotland. That is preferable to bypassing devolution, as the United Kingdom Internal Market Act 2020 did to get around the fact that the Conservative party does not seem able to win elections in Scotland or Wales. It instead seeks to allocate resources without going to the trouble of winning elections in those areas.
The reality is that the Welsh Government’s budget over the spending review period we are discussing is, as has been mentioned, likely to be worth at least £600 million less than it was when it was first announced last autumn, because of that rocketing inflation. As my hon. Friend the Member for Newport East (Jessica Morden) said, the outlook for inflation, economic growth and any additional funding looks very bleak indeed. The spending power of the Welsh Government’s budget is therefore likely to deteriorate further. That is why the Welsh Labour Government have called on the UK Government to update their settlement to reflect the significant impact that inflation is having on important budgets being spent in Wales.
If we look at the UK Government’s record, leaving aside for the moment the squalid nature of the lawbreaking, the sleaze and the U-turns happening day after day, what stands out on spending is that they make many promises and deliver on very few of them. They have made promises to Wales and they have broken them.
Let us start with the explicit manifesto promise in 2019 that Wales would not be a penny worse off when it came to post EU membership replacement funding. We have heard a lot about that today. The Secretary of State and his colleagues have repeated that promise over and over again, but the facts are that Wales is set to lose more than £1 billion of vital funding.
My hon. Friend the Member for Aberavon (Stephen Kinnock), in a tour de force of a speech, went into detail about where the shortfall is placed; it is through the shared prosperity fund, the community renewal fund and the cut to Welsh rural communities. All of that adds up to more than £1 billion less than the Government promised. That is a broken promise to the people of Wales.
As for the levelling-up fund, only six Welsh councils saw any benefit from the first round of the fund and just one of them was a Labour council. I will just leave that there, but I wonder why that was. The second round of applications to that fund has been delayed because the Government have not been able to get their application portal ready in time for the original deadline. They cannot even get the basics right on this.
The Government are using the UK Internal Market Act, as we have heard, to take decisions in devolved areas, excluding the Welsh Government from a transparent process of joint decision making for the shared prosperity fund. They are imposing a methodology on Wales for how those limited funds are decided on, which results in money being distributed away from the poorest areas in Wales. The Conservatives refused to countenance the Welsh Government’s alternative funding formula, which would have distributed money more fairly across Wales according to economic need. Let us be clear: this is a far cry from the rhetoric of levelling up and protecting the Union. It is this Prime Minister and this Government who are the greatest threat to the Union.
Turning now to infrastructure funding for Wales, I know the Secretary of State will not like this, but I am again going to raise the classification of HS2 as an England and Wales project by his Government. A £4.6 billion Barnett consequential is not going to Wales. I know he is tired of hearing about it, but it is not just me saying it, or even just Labour. The right hon. Member for Preseli Pembrokeshire, Chair of the Welsh Affairs Committee, agrees. His entire Select Committee agrees in its report. The leader of the Welsh Conservatives agrees—or is the Secretary of State the leader of the Welsh Conservatives? I do not think anybody is really sure.
The Treasury’s rules for evaluating infrastructure projects do not work in the interests of Wales, but have prioritised infrastructure projects in the south-east of England. Costs for HS2 and rail enhancement are allocated to Wales, but none of the benefits apply. In fact, HS2 explicitly disadvantages south Wales. The analysis of the Secretary of State’s own Treasury colleagues confirms that HS2 will result in an economic disadvantage to Wales of about £150 million every year. Because rail infrastructure is not devolved beyond the core valley lines, Wales, unlike Scotland and Northern Ireland, gets a double whammy: no £4.6 billion consequential and an annual economic hit. We have heard that there will be no mainline electrification in north Wales. Mainline electrification from Cardiff to Swansea was promised and then abandoned by the Conservatives. About 2 million tonnes of steel will be used across HS2, but Transport Ministers have confirmed that there is no target for the use of UK steel or Welsh steel in HS2 construction. This is such a missed opportunity for Wales, for Welsh steel jobs and for the people of our steel communities. The Government have got this all wrong and Wales is, literally, paying the price.
This does not just affect transport infrastructure. There are knock-on effects across climate change targets—the need for greater use of public transport and more active travel, with the consequential effects on health and wellbeing—and, critically, on narrowing the economic inequality that Wales suffers compared with other parts of the United Kingdom. As my hon. Friend the Member for Cynon Valley (Beth Winter) said, the truth is that this Government are holding Wales back. They are making decisions that take money from the people who can least afford it. The Conservatives voted to cut the £20 universal credit uplift, voted against free school meals, voted to increase tax during the cost of living crisis, and voted against a windfall tax, until they had to do a screeching U-turn forced by Labour. What is the Prime Minister’s response to the cost of living crisis? We hear today that he has invited the First Ministers of Wales and Scotland to a summit in the autumn—so more delay and more inaction while he focuses entirely on saving his own skin.
Contrast that with what the Welsh Labour Government have been doing, taking decisions that support households in greatest need to mitigate the worst impact of those Conservative Government decisions. The Welsh Government have invested more than double what they have received in consequential funding from the UK Government to support households with the cost of living crisis, and that support has been targeted at those who need it most. About 75% of households are expected to be supported in some way, and nearly twice as much will go to households in the bottom half of the income distribution compared with those in the top half. My hon. Friends the Members for Aberavon, for Newport East and for Cynon Valley spoke about all the measures that the Welsh Labour Government have been taking to help families and businesses in Wales. I would add these to the list: during the pandemic, businesses in Wales were able to access the most generous support package anywhere in the United Kingdom; and through Jobs Growth Wales Plus, over 19,000 young people have been helped into good-quality, meaningful employment across Wales. This is what a Labour Government in Wales deliver, solving the problems the Conservative Government have created.
A UK Labour Government will build a stronger, more secure economy, working hand-in-hand with the Welsh Labour Government for the benefit of everyone in Wales. We will get the cost of living crisis under control and make the whole of Britain more resilient, more secure and more prosperous, laying the foundations for a thriving, dynamic economy.
I was particularly struck by my right hon. Friend’s comments about the Crown Estate and devolution. Having had many meetings with the Crown Estate, a number of stakeholders and potential investors who were floating offshore wind, I am as excited as he is by the prospect of some 10,000 of the 29,000 jobs that might be associated with this scheme coming to Wales. Of all the potential investors, and many of the local supply chain businesses that we will rely on, not a single one has ever mentioned to me that their opportunities would be enhanced by devolving the Crown Estate. [Interruption.] If the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) does not like what I say, perhaps she might trust some of the people who have real expertise and who are really optimistic about bringing well-paid, skilled jobs to Wales. It is they whom we should be listening to, rather than necessarily a separatist movement.
My hon. Friend the Member for Aberconwy (Robin Millar) made a telling contribution about tourism and hospitality, particularly along the north Wales coast, and demonstrated his strong advocacy as far as a low-tax economy is concerned.
If the ambition of the hon. Member for Cynon Valley (Beth Winter) is to wind me up, she does it remarkably well, whether in the Welsh Affairs Committee or here. In her praise for the performance of the Welsh Government, it was telling that there was no reference to health outcomes or educational outcomes in Wales. It was also telling, as I challenged her last time about this, that she never mentioned the fact that I would love to join her in a letter to the First Minister suggesting that the £96 million-worth of extra Members of the Senedd that she advocates for so passionately instead be spent on job creation in the Cynon Valley. My offer is still open to her. That would be a better use of the funds we are talking about.
My hon. Friend the Member for Clwyd South (Simon Baynes) made an interesting contribution about the geographical spread of the shared prosperity fund, referencing joint bids between local authorities and the new opportunity for MPs across the House to endorse or contribute to the bids. I thought his point about the Union relevance of infrastructure—we could quote any number of examples, whether road or rail—was telling and important.
Turning to the hon. Member for Ceredigion (Ben Lake), all I can say is that he made, as he often does, a measured and sensible contribution around the rural fuel relief scheme, and my pledge from the Dispatch Box is to talk to him and his colleagues further about how we can tackle that problem.
The hon. Member for Aberavon (Stephen Kinnock) put in a strong case for sycophantic speech of the year. That was a great effort. He went all-in on tax rises, but did not mention that the two most recent contributions of Labour in Wales on tax were introducing a tourism tax, which is widely considered to cripple tourism in Wales—that was not mentioned; I cannot think why—and the latest ruse about a deposit return tax, which would damage, for example, a number of vineyards in Wales. His long list of, basically, free stuff to anybody would not have been that long if the Welsh Government were responsible for raising that money, either by private taxes or by business taxes. He never mentioned that. I wonder whether this obsession with free stuff would be so easy if there was some accountability about raising the cash in the first place.
Nearly finally, there was more in the speech of the hon. Member for City of Chester (Christian Matheson) about which we agree than disagree—I am not sure how pleased he will be about that. We have a closely shared ambition on Union connectivity, and I absolutely agree with the significance he attaches to that. We might have a different means of reaching that particular objective, but I agree with him, and I would like to have further conversations with him and colleagues in the north Wales area to see where we can take that.
Finally, with the speech of the hon. Member for Gordon (Richard Thomson) from the SNP, I almost reached a new record, as it contained nothing upon which we agreed. That is not to be in any way critical. He illustrated to me how separatism and nationalism—whichever description he would care to attach to his particular political party—would be one of the most significant threats to Wales that I can think of, were it ever to be deployed in our country.
I want to finish, with huge thanks to you, Mr Deputy Speaker, my right hon. Friend the Member for Preseli Pembrokeshire and other contributors to the debate. We are in danger of painting a gloomier picture than we need to—of course, we have to be realistic—if we listen to the expectations for Wales of the hon. Member for Cardiff Central (Jo Stevens). As Airbus recently demonstrated, Wales is a fantastic place to invest vast sums of money and create hundreds of new highly skilled jobs—there are many such examples, large and small, across the whole country. People are looking to us in Government, and the hon. Lady in Opposition, to create the circumstances to make that possible. We can do that. It is not without its challenges—nobody, from the Chancellor down, is suggesting for one minute that it will be an easy ride—but I urge the hon. Lady to join us in our endeavour to make sure that levelling up is the success that it deserves to be.
Devolution in its truest sense is about involving the widest number of people with expertise across the whole geographical area of Wales. The great thing about the levelling-up fund is that, for the first time ever, it does exactly that. It reaches into local authorities and local communities across the length and breadth of Wales. That has never been done before, and it is revealing that the Welsh Government were advocates of devolution, as we heard from the hon. Member for Aberavon, until such time as we said, “Yes, that’s a good idea. Let’s involve some more people. Let’s involve people who have hands-on daily experience of the pressures facing their communities where deprivation is at its most acute”—that is what we are attempting to do.
It seems odd that Labour in Wales is so paranoid and disrespectful of local authorities, some of which wear the same political colours. For some inexplicable reason, Labour Members seem nervous of allowing devolution to extend beyond the Cardiff postcode. We do not believe that; we trust local authorities, stakeholders and universities—all those people who make our economy and our society tick. That is why levelling up will be a success. If it was simply a means of transferring a postcode from SW1 to CF16 or whatever it might be, it would be a failure. The Welsh Government need to stop being so paranoid and join the endeavour to level up Wales in the way that they have failed so spectacularly to do for 23 years.
Again, I am grateful to the Backbench Business Committee—the Chair, the hon. Member for Gateshead (Ian Mearns), is in his place—for selecting this topic for debate this afternoon. I thank all the participants, who have made it a thoughtful, intelligent and engaging debate. We have covered a lot of ground and we have covered many different subjects well. We have disagreed well and we have exchanged some important ideas about the future of Wales. I hope that people watching the debate will have seen that one thing that unites Members on both sides of the House is that we are Members of Parliament for Welsh constituencies who share a love of Wales and a deep love and connection with our communities. We all want the best for our communities in Wales.
Finally, in the next Parliament, the number of MPs from Wales will be significantly reduced, so it will become even more important to have more opportunities on the Floor of the House to debate issues for Wales. Many other parts of the country are fighting hard for resources and we must do our bit in Wales to fight harder in future.
Very finally, I thank again the Clerks of the Welsh Affairs Committee and their team of staff who do a simply superb job to support the work of the Committee.
Question deferred until tomorrow at Seven o’clock (Standing Order No. 54).
Department for Business, Energy and Industrial Strategy
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