Wales: Commission on Devolution in Wales
(Limited Text - Ministerial Extracts only)
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The Parliamentary Under-Secretary of State, Wales Office (Baroness Randerson) (LD)
My Lords, with the permission of the House I will repeat a Statement made by the Secretary of State for Wales in the other place:
“This Government have already committed over £2.25 billion to new infrastructure that will benefit Wales, directly or indirectly. We are spending almost £2 billion to modernise the rail network, including electrifying the Great Western mainline to Swansea and the railways serving the south Wales valleys. We are investing £250 million to build a new prison in north Wales that will create up to 1,000 new jobs and require a supply chain that will bring an estimated £28 million a year more into the local economy. We have also committed £57 million to bring superfast broadband to Wales, a key element of a modern infrastructure network. Alongside this, Hitachi’s investment in new nuclear at Wylfa Newydd is a great opportunity to create jobs and drive economic growth across north Wales.
Earlier this month, I confirmed in a Written Statement to this House that we will enable the Welsh Government to use their existing borrowing powers to start work as soon as possible on the sorely needed upgrade to the M4 around Newport, tackling the congestion that my right honourable friend the Prime Minister described as,
‘a foot on the windpipe of the Welsh economy’.
Today, in making our full response to the Silk commission’s recommendations, the Government are unveiling a new and extensive package of financial powers that will be devolved to the National Assembly for Wales and the Welsh Government.
I would like to commend my right honourable friends the Chancellor and the Chief Secretary to the Treasury, and Jane Hutt, the Welsh Minister for Finance, for the positive and collaborative approach taken in agreeing this package of powers. It demonstrates the strength of the United Kingdom and the flexibility and adaptability of devolution within our union.
The Silk commission made 33 recommendations, 31 of which were for the Government to consider. Today we are accepting, in full or in part, all but one. We are devolving many new financial powers to the National Assembly and the Welsh Government, potentially giving the Welsh Government control over more than £3 billion of tax revenue, with commensurate levels of borrowing.
We are providing the Welsh Government with additional tools to invest in the areas they are responsible for, to enable them to upgrade Wales’s infrastructure and help quicken the pace of economic growth. It will facilitate the improvement of Wales’s deteriorating road network—not only the M4, which I mentioned earlier, but also the other key Welsh trans-European route, the North Wales Expressway.
The devolution of tax and borrowing powers will also make the Assembly and the Welsh Government more accountable to the people of Wales who elect them. Since devolution the Assembly and the Welsh Government have been accountable only for how they spend taxpayers’ money. They will now become more accountable for how they raise it.
The Government’s response to the Silk commission’s first report builds on the announcement made by the Prime Minister and the Deputy Prime Minister earlier this month and sets out in detail the devolved financial powers we are giving to the National Assembly for Wales.
We will give Welsh Ministers borrowing powers so that they can invest in the capital infrastructure I described earlier. We will devolve landfill tax and stamp duty land tax in Wales, ensuring that the Welsh Government have an independent funding stream to pay back the money they borrow. We will provide for a referendum to take place so that people in Wales can decide whether some of their income tax should be devolved to the Welsh Government. Subject to the approval of the people of Wales in a referendum, we will deduct 10p from each of the main UK income tax rates in Wales, with the Welsh Government able to set an unrestricted Welsh rate of income tax for all Welsh taxpayers. This is consistent with the system being introduced in Scotland, and will increase the accountability of the Welsh Government while avoiding significant risks to UK revenues that would result from different Welsh rates for each band.
We will also fully devolve non-domestic business rates raised in Wales, so that the Welsh Government budget benefits more directly from growth in Wales. We will enable the National Assembly for Wales to create new taxes with the UK Government’s consent and devolve the tools to manage these new powers. A cash reserve will be created that the Welsh Government can add to when revenues are high and utilise when revenues are below forecast, and we will provide the Welsh Government with limited current borrowing powers to deal with shortfalls if their cash reserve is insufficient.
I was pleased that Carwyn Jones, the First Minister of Wales, welcomed the Prime Minister and Deputy Prime Minister’s announcement earlier this month. This package of powers gives the Welsh Government additional tools to invest in Wales to rejuvenate the Welsh economy, which has languished behind the rest of the United Kingdom for far too long. It will make the Assembly and the Welsh Government more accountable to the people they serve, and place important taxation levers in the hands of the Welsh Government which, if used wisely, can help make Wales a more prosperous place. This is a once-in-a-generation opportunity for Wales. I hope that the Welsh Government will rise to the challenge, and look beyond the M4 to invest wisely, and strategically, across the whole of Wales. I will place a copy of the Government’s response in the Library of both Houses and I commend this Statement to the House”.
Baroness Morgan of Ely (Lab)
I thank the Minister for her Statement today and for outlining the UK Government’s response to the recommendations of Silk part 1. On this side of the House we welcome the Statement and the UK Government’s acceptance of the majority of the Silk commission’s recommendations. I thank Paul Silk and his fellow commissioners for their excellent work, which is continuing into next year as they prepare for the next phase of their report.
These additional powers give the Welsh Government the tools they need to stimulate the Welsh economy and to support the creation of jobs. Amid all the talk of constitutional settlement, we must remember that it is how these powers are used that matters. On our side, no one is seeking more powers simply for the sake of it—they are important because of how they can be used to support the living standards of the people of Wales. The people of Wales have been hard hit by this Government’s policies, with real incomes down by £1,700 a year, energy bills rocketing, public services under pressure and welfare cuts hurting the most vulnerable. It is therefore critically important that Wales has borrowing powers which are afforded to other devolved Administrations in Scotland and Northern Ireland, as well as to local authorities, to enable it to invest in infrastructure. This is particularly important given the huge cuts to the Welsh Government’s budget. The capital budget will shrink by a third over this Parliament as part of a £1.7 billion cut to the overall budget.
The M4 relief road is the most immediate concern—not to politicians but particularly to businesses, which depend on fast, reliable roads to get their goods to market. But we also need to invest in other transport projects across Wales and in our schools and hospitals. Will the Minister first clarify exactly when she expects that a package will be in place to support the development of the M4 relief road? Will she also tell us the process by which the level of borrowing will be agreed?
The Government have previously indicated that devolution of minor taxes such as stamp duty and landfill tax is a sufficient independent income stream against which the Welsh Government can borrow. But today’s response suggests that it will also be contingent on income tax revenues. Will she confirm whether that is the case and how much borrowing will be released once minor taxes are devolved prior to any ability to vary income tax?
We welcome the devolution of a number of smaller taxes. These will give the Welsh Government a number of additional levers to support the Welsh economy and the revenue stream needed to trigger borrowing powers. Both the original consultation carried out by the Silk commission and the additional consultation over the summer clearly showed widespread support for the devolution of stamp duty. Prior to the introduction of these new tax powers, the method for calculating the offsets to the block grant will need to be agreed. Will the Minister give us some detail on the process for agreeing these offsets?
Our position has always been that we support the proposal on income tax laid out by Silk, which my honourable friend in the other place the shadow Secretary of State for Wales has called the triple lock. It allows for the ability to vary income tax rates subject to: first, the referendum; secondly, a period of assignment to ensure that Wales is not worse off; and thirdly, a fair funding settlement. That remains our position. We are pleased to see that the idea of a sunset clause, which was previously suggested on the timetable for a referendum, has been quietly dropped.
Of major significance today is that the Government have rejected the recommendation by Silk that the Welsh Government should be able to vary the bands independently. Will the Minister give us more detail on why the Government rejected this recommendation? Are the Government concerned about the potential introduction of a progressive tax? That would be particularly ironic given that the only tax rate that the UK Government have sought to lower is the additional rate of income tax for those earning more than £150,000 a year. As we all know, there are not many of those in Wales.
On fair funding, the Government clearly believe that last year’s joint statement with the Welsh Government meets the recommendation laid down by Silk. The statement said that both Governments would review relative levels of funding for Wales and England in advance of each spending review and, if convergence is forecast to resume, to discuss options to address the issue in a fair and affordable manner. Will the Minister tell us what these possible options are and what would trigger action as a result of these discussions? Will she also give us more information about the nature and timing of these discussions?
The Welsh Secretary of State, David Jones, this morning urged the Welsh Government to hold a referendum soon. He said that his party would campaign for a yes vote in order to cut taxes by 1p or more. Will the Minister clarify if this is the position of the Liberal Democrats as well? If so, will she clarify what services in Wales would be cut in order to make up the shortfall in tax receipts?
I repeat my thanks to the Minister for the Statement. I welcome the UK Government’s acceptance of the majority of Silk’s recommendations. These measures are a real step forward for Wales and for the Welsh Assembly and I would be grateful if the Minister could address my queries on the detail of when and how the recommendations will be implemented.
Baroness Randerson
The noble Baroness has given me a large number of questions to answer and I will do my best to cover all the major points. I take issue with her opening comment that the Government have accepted the majority of the Silk recommendations. Although technically that is the case, I feel that it is a pretty large majority to accept 30 out of 31 recommendations. “The overwhelming majority” is the way I would put it.
The noble Baroness makes the point that the Welsh economy is lagging behind the rest of the UK. It has lagged behind the rest of the UK for many decades. It is a matter of great sadness to me as someone who lives in Wales that it has fallen further and further behind the rest of the UK. This is not a recent thing since the coalition Government came to power: it is something that has existed for far too long, and the coalition Government, in making this series of announcements today, are determined to give the Welsh Government and the National Assembly for Wales the tools with which to do the job—the tools with which to repair the Welsh economy and ensure that it becomes fully efficient and effective again.
On the timing for the M4 financial package, our intention, as with everything else in this series of announcements, is to ensure that it can be put into practice as soon as possible. Early borrowing powers will be put into practice very rapidly. The Welsh Government are currently undertaking a consultation on a possible route for the M4 relief road and it is clearly going to be some time before any kind of actual building on the ground will take place. But I promise the noble Baroness that the tools will be in the hands of the Welsh Government in plenty of time to undertake that. It is the Government’s intention to ensure that that legislation is passed in this Parliament if at all possible. We intend to set about that with all speed.
In relation to the question on the level of borrowing that the Welsh Government will be able to undertake, clearly, as with prudence in one’s household budget, the level of borrowing that one can undertake must be related to the potential for revenue raising—your potential income. There will be one level of borrowing possible for the Welsh Government with the minor taxes, but there will be a much higher level of borrowing if the Welsh Government and the Assembly go forward with a referendum and the people of Wales vote yes on that. The timing of the referendum is firmly in the hands of the Welsh Assembly and Welsh Government, and that is appropriate.
The noble Baroness asked about the model for income tax devolution. The Government have taken the view that the Scottish model is appropriate. It has been welcomed in many quarters and therefore it is a good model to follow in this case, particularly as Wales has a very porous border and people move all the time across the border—very much more than they do between Scotland and England. There was concern that the model of income tax put forward in the Silk commission report could lead to an imbalance in terms of tax receipts.
Finally, the noble Baroness referred to the October 2012 joint statement. She asked what would be the trigger for reviewing funding for Wales. The trigger would be agreement that convergence was occurring again. At the moment, there is divergence. It is estimated and, I believe, agreed by both the Treasury and the Welsh Government that it is likely to be at least 2017 before convergence occurs again. The Liberal Democrats have always been in favour of a very high level of devolution and I strongly welcome, as does my right honourable friend the Secretary of State for Wales, the fact that I am able to make this Statement here today.
Earl Attlee (Con)
My Lords, may I remind the House of the benefit of short questions to my noble friend the Minister so that she can answer as many as possible? I can help.
Lord Crickhowell (Con)
My Lords, I welcome the general thrust of this important Statement, based as it is on the Silk commission’s recommendations. To understand the import of the Statement it is necessary to read the accompanying paper that has been placed in the Public Bill Office. Paragraph 2.6 emphasises the enormous importance of,
“an integrated economic and fiscal union”,
and of the need to make sure that:
“Any changes to the funding of the Assembly and the Welsh Government must be consistent with maintaining the integrity of the system”.
There is nothing in the decisions announced by the Government that threatens that integrity. I refer to paragraph 2.12 of the document: the Government were particularly wise, in taking their decisions about income tax, to recognise that any distortion,
“of the redistributive structure (or progressivity) of the income tax system … could potentially be detrimental to the UK as a whole”.
The paragraph goes on:
“While the impacts are uncertain … this would be unprecedented in the United Kingdom”.
The Government are wise for the reasons that my noble friend has given. Perhaps I should declare an interest. I now live only 500 hundred yards or so from the border. The truth is that a great many people live close to the border and therefore the issues that she addressed are important. It is also very important that the issue of taxation should go to the Welsh people for a decision in a referendum. I welcome that.
I have a final question. There is emphasis again in the paper that has been laid before both Houses about the need to strengthen the institutional arrangements. The Welsh Government are going to have a major task in managing these new responsibilities. Has any estimate been made of the cost that will fall on the Welsh Government, and therefore on the Welsh people, of the institutional changes that will be needed?
Baroness Randerson
I thank my noble friend for his support on this issue and for underlining the importance of this Statement. I am proud of the record of the coalition Government: we have already, through our facilitating the referendum on increased full legislative powers for the Welsh Assembly, enabled one step forward on devolution to be taken. Today’s announcement heralds a second giant step forward for devolution. While expressing full confidence in the model of devolution throughout the United Kingdom, however, the Government have been concerned that we should not in any way undermine the union. It is important to bear that in mind.
My noble friend referred to the need to strengthen institutional arrangements. I cannot give him an estimate of the cost, because that strengthening is largely a matter for the Welsh Government. It is essential that they go ahead with this rapidly. I am aware that they are already in the process of strengthening their financial arrangements for establishing a Treasury function within the Welsh Government.
Lord Wigley (PC)
The Minister understands that I support the thrust of the Silk report and the response of the Government, but can I press her on the way in which she is blindly following Scotland in insisting on the introduction of a lock-step rule whereby all three rates of income tax can only be varied in tandem, without the right to vary one rate independently of the other? In other words, if the Welsh Government wanted to bring down the top rate from 45 pence to 40 pence—an 11% reduction—there would have to be a 25% reduction in the standard rate of income tax, making such a choice totally impossible. Does she understand that the Holtham and Silk reports rejected such a lock-step approach? This not only denies the voters the choice of policy, but also flexibility to the Welsh Government and binds them into a straitjacket of relativities imposed on them by Westminster. Why do a Government who claim to support greater tax-varying flexibility in theory refuse to deliver it in practice?
Baroness Randerson
I am disappointed that the noble Lord, who has given a great deal of thought to this matter, has not been able to welcome the vast majority of the Government’s response. I take issue with the idea that we are blindly following Scotland. There is no blindness about this. The Treasury has made its decision on this, based on the evidence that it took in relation to the specific situation in Wales. I have already referred to the significance of the very porous border between England and Wales, and to the fact that so many people live close to and cross it on a daily basis. That was borne in mind by the commissioners at the Silk commission when they produced their report, and the Government have had to take that into account as well.
Lord Morris of Aberavon (Lab)
My Lords, I thank the Minister for her Statement, and Mr Paul Silk and his fellow commissioners for the work that they have done.
In general, I welcome warmly the new powers for the Government of Wales, particularly borrowing powers, which are badly needed. But first, as the income tax proposals require a referendum, do I understand it correctly that the Welsh Ministers will campaign for a yes vote for all the tax powers proposed? Secondly, can the Minister clarify a problem that I have already raised with her at Question Time? Will the borrowing powers to be used for the upgrading of the M4 around Newport and other major road improvements in Wales be financed solely from the new powers of taxation, or will some funding still come from the Chancellor of the Exchequer, and if so how much?
Baroness Randerson
I thank the noble and learned Lord, Lord Morris of Aberavon, for referring to borrowing powers. As we discuss tax-raising powers, we should not overlook the significance and importance of borrowing powers, particularly as they will enable us to be fleet of foot and ensure that the Welsh Government get the money that they require.
The noble and learned Lord asks how Welsh Ministers will be campaigning in a referendum. I cannot speak for Welsh Ministers. They must make up their mind—they are members of a different party and Government from me. However, it seems fairly unlikely that a referendum would be called if they were going to campaign against it, but it is not impossible.
I am unable to give the noble and learned Lord a detailed answer on the precise funding model for the M4. That still has to be worked out. The devolved responsibility for infrastructure means that the burden of the repair and construction of roads in Wales falls on the Welsh Government to a very large extent.
Lord Thomas of Gresford
My Lords, it is all very well saying that you are going to vote yes for a referendum. Would my noble friend the Minister be good enough to say who is going to frame the question which is to be put to the Welsh people? It has been noticeable that the First Minister, Mr Carwyn Jones, has not been overanxious to commit himself to timing for a referendum. Can we take it that the legislation will ensure that a referendum will be held and will not be deferred until some replacement for the Barnett formula has been found? In the 13 years of the previous Labour Government, they were unable to do that, despite all the pleas that were put to them at that time. Will my noble friend confirm that this referendum will go ahead with a proper question, within a reasonable time and with the Welsh Assembly having the power to determine precisely when?
Baroness Randerson
I thank my noble friend for raising two new issues, the first relating to the question for the referendum. The Government’s response on this has laid great emphasis on how well we believe arrangements worked for the previous referendum on full legislative powers. In that case, the matter was very much in the hands of the Welsh Government and Welsh Assembly in consultation with the UK Government. However, there was a very important role for the Electoral Commission, whose advice was taken and was pivotal. I hope that the Welsh Government will lead the call for a referendum and that the situation in Wales will enable them to lead that call relatively soon. It is important that the Welsh Government feel that they are in a position strongly to call for a referendum, because the UK Government believe that the joint statement of October 2012 meant that there was agreement between the two Governments on the way in which future funding for Wales would be dealt with.
Lord Touhig
My Lords, the document accompanying the Statement states:
“The precise levels of capital borrowing will … depend on the outcome of the income tax referendum”.
Twenty years ago when I chaired Gwent finance committee, I borrowed £37 million from the European Investment Bank and paid it back on time. If a county council had such borrowing powers 20 years ago, why cannot the Welsh Government now be trusted to borrow to invest according to their own assessment of their ability to service that debt, rather than wait upon a referendum?
Baroness Randerson
The noble Lord makes an excellent point; I, too, was a councillor a long time ago. We should bear in the mind that councils raise a significant amount of funding via what we nowadays call council tax. Therefore, their level of borrowing depends on their level of tax receipts. The UK Treasury is proposing exactly the same model for the Welsh Government.
Lord Elystan-Morgan (CB)
My Lords, while applauding those impactive and genuine matters of devolutionary significance which are contained in the Statement, may I tempt the Minister to a wider consideration? Does she not agree that in so far as fundamental constitutional changes in the United Kingdom are concerned they should be planned and administered on a comprehensive, and not a piecemeal or haphazard, basis? In other words, once the Scottish people have given their verdict on the issue of independence, a powerful body of the wise, the good and the great should be set up to consider, first, the relationship of the House of Commons to the House of Lords and vice versa and, secondly, the relationship of Westminster government to devolved authorities, whether they be two or three in number. Does she agree that that is the only way in which we can avoid the humiliating debacle of what was called an attempt to reform this place two years ago?
Baroness Randerson
The noble Lord maintains a keen interest in constitutional issues and I have a similar interest in them—I do not always share the same prescription or viewpoint, but I have a similar interest. It is important that once the changes that we have proposed today have worked their way into legislation and the referendum on Scottish independence is dealt with, whatever the outcome, those people who look at constitutional issues start looking forward again. I have always espoused this rather neat and tidy approach to the British constitution, but that is not the way in which it has developed.
Lord Howarth of Newport (Lab)
In welcoming this enhancement of devolution, I particularly welcome the improved prospect that we now have for the construction of the M4 relief road, which when it is opened will be of great benefit to quality of life and economic development in Newport and south-east Wales.
Perhaps I may press the Minister further on the points rightly raised by my noble and learned friend Lord Morris of Aberavon and my noble friend Lord Touhig on the funding of infrastructure. The Statement seemed to suggest, entirely implausibly, that, as a result of these changes, the land of Wales would flow with milk and honey and that the Welsh economy would be rejuvenated. Surely she recognises that the substantial cost of investment in transport and other infrastructure needed in Wales can be met only in limited part—I would say in small part—by the revenues from the minor taxes that are to be devolved and the limited borrowing powers that are proposed for Wales. Surely devolution should not mean an opportunity for the Treasury to be off the hook and for the important infrastructure needs of Wales to continue to be neglected.
Baroness Randerson
I know that the noble Lord is very conversant with the problems of the M4, and in the Newport area in particular. I am glad that he has welcomed the contribution that these changes will make to alleviating them.
The early part of the Statement set out the contribution that the UK Government have made to infrastructure in Wales, in particular railway infrastructure. The noble Lord needs to bear in mind that when an issue has been devolved the funding is devolved as well. If there are flaws in the devolution settlement in Wales, we have to look back to the Government of Wales Act 2006 and the original devolution settlement at the end of the last century. It has possibly been difficult in the past for the Welsh Government to deal with major infrastructure projects, which is exactly why we say that, as well as devolution of minor taxes, there needs to be a referendum to offer the people of Wales the opportunities given by the devolution of a portion of income tax.
Baroness Finlay of Llandaff (CB)
Given that the current settlement has been recognised as inadequately taking into account the high number of older people in Wales who are not economically active and the demands that those with multiple comorbidities put on health and social care, and given the widely acknowledged poverty of infrastructure of roads and other forms of communication, particularly IT and telephones, will the Government undertake to review the funding settlement that followed the Act so that, during the transition phase, there can be some correction in the perceived deficit in core funding to Wales?
Baroness Randerson
I remind the noble Baroness of the October 2012 joint statement in which the Welsh and UK Governments acknowledged the procedure that would be followed in future if Welsh funding were again to become unfair in terms of further convergence. The settlement has been set out very clearly in that joint statement, so it is important that she bears that in mind for future reference.