(10 years, 11 months ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Lord Bourne of Aberystwyth
To ask Her Majesty’s Government what assessment they have made of the opportunities for Wales resulting from the recommendations of Part One of the Silk Report.
The Deputy Chairman of Committees (Lord Geddes) (Con)
The Grand Committee is again adjourned for 10 minutes.
Lord Bourne of Aberystwyth (Con)
My Lords, in opening this debate, I declare my interest as a member of the Silk commission, an unremunerated commissioner, as all the commissioners are. The work on Part 2 is soon to end. It is hard to conceive of life without the Silk commission; like taxes and motorway cones, it seems that it has always been there.
I am sure that your Lordships will agree that it is fitting that I say a few words about the late, much-loved and much-lamented Lord Roberts of Conwy. This is the first Welsh debate in your Lordships’ House since his very sad death. For more than 30 years, Wyn gave massive public service to our country—to the United Kingdom and to Wales. He fought hard and successfully for Welsh interests, and he is missed here as he is, of course, massively, in Wales. That is a considerable epitaph. On a personal note, I shall miss his wise advice, encouragement and assistance as well as his impish humour and happy demeanour. His life was a fulfilled one. Our thoughts are very much with Enid and his family.
As we debate the opportunities afforded to Wales by Part 1 of the Silk report and the Government’s response to it in the draft Wales Bill, which encompasses key aspects of the Government’s response as well as other matters, it is being debated in another place. I am pleased at that because I believe that it is important that the current momentum is not lost. It was rightly said in Shakespeare’s “Julius Caesar”:
“There is a tide in the affairs of men
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat;
And we must take the current when it serves,
Or lose our ventures”.
I believe that that sums up the position that we are in at the moment.
I mentioned at the outside that the Silk commission, which has been on the Silk road, so to speak, for more than two years, under the able chairmanship of Paul Silk, is considering Part 2. I do not propose to say anything about that because it would be premature, but it is now 14 months since we presented the report on Part 1. Each of the four main political parties in Wales—that is, the Welsh Conservatives, Welsh Labour, the Welsh Liberal Democrats and Plaid Cymru—has had representatives on the commission throughout its work and it also has independent members. Agreement on the Part 1 report was unanimous, and I am sure that in all honesty there was no real difficulty in achieving that unanimity. It is important that we keep that very much in mind as we go forward.
I turn to our recommendations. Consistent with the recommendations of Part 1, the Government have come down in favour of devolving landfill tax and stamp duty land tax to Wales. Admittedly, they are not massive taxes in terms of revenue, but it was very much consistent with what we recommended. Those taxes, particular the latter, could be used to make it more attractive to business to be formed in Wales. The Wales-England border, unlike the Scotland-England border, is very porous, and the opportunity to attract business and jobs into Wales should be a priority. Stamp duty land tax could be used to attract business as well as business men and women into Wales, which would provide a much-needed boost for the Welsh economy, which has been slipping in relative terms against England. It is key to raising economic standards in Wales as well as Welsh public services because the revenue that is generated could help with those services as well. I do not believe that there is a serious politician in Wales across all the parties who does not believe that expanding the private sector should be a priority; most would probably agree that it should be the number one priority because it generates the wealth that is needed to improve public services.
We also recommended the transfer of power over the aggregates levy and some limited power over long-haul flights in relation to air passenger duty. In that case, the Government have not taken heed of our recommendations, although we recognised in our report that there were issues of competition law and state aid and that the position in Europe might cause difficulty. Are these matters now under constant review so that if the position in Europe demonstrates that they could be devolved to Wales without any legal difficulty, they would accordingly be devolved?
In addition, the Government have recognised the case for devolution of 25% of the income tax system so that, even if there is no change in the rate from Westminster, the tax rate would have to be set in Wales, consistent with the tax rate from Westminster. Once again, that tax system could and should be used to encourage business and create wealth and jobs in Wales, and funding flowing from that would once again help our public services.
The commission recommended that income tax rates should be capable of variation independently, just as Gerry Holtham recommended in a report to the Welsh Government. We thought that that was the right way forward and would mean that it would be possible to create better economic conditions in Wales because of the possibility of varying the rates independently. That has not happened, and so far I have had no satisfactory explanation of why it has been rejected. There is, of course, a lock-step in Scotland and it may be that the other side of the Scottish referendum—where I hope for a no vote, which I am sure most, but perhaps not quite all, of us fervently hope for and passionately want—that will be revised. Perhaps the Minister will respond on this.
In their response to Silk Part 1, the Government acknowledged borrowing powers for Wales. That is extremely important but, apart from the limited power that has already been conceded in advance of any progress on income tax and other taxation powers, some power has now been given for the much-needed M4 relief road to improve the M4. I am sure that most people here recognise that as a priority. I tuned into Radio Wales this morning to find, as one does nearly every morning, that there was a hold-up in the Brynglas tunnel, which is a priority. However, there are other things that need doing, and they can be done only with the extended borrowing powers consequent upon having income tax as well as the other smaller taxes so that money can be invested in improvements in infrastructure, whether rail or road, in north, mid and south Wales and in things such as dualling the A40, which is certainly much needed.
Some of that borrowing can be consequent on the smaller taxes—landfill tax, stamp duty land tax and air passenger duty, if that does come, and so on—but the great bulk will be dependent on income tax being devolved. We recognise that in the report. It is what we called for, so it is no different from the plea we made to the Government and is consistent with what happens in Scotland. Borrowing is dependent on taxation powers, but it would be a much-needed boost to the Welsh economy and Welsh infrastructure.
I shall take up one issue that we saw as important for Wales: the Barnett formula. We recognised that change in the Barnett formula should go hand-in-hand with progress on taxation and borrowing and that there should be no hold-up on taxation and borrowing. It would be a big mistake for Wales if we parked this until there was a done deal on Barnett. There has clearly been some progress on Barnett. This problem has been with us for a long while and, in all honestly, we have made more progress in the past three years than we did in the previous 20 years on getting the Barnett formula looked at. Is the Minister in a position to tell us where we are on that and what progress is being made on the Barnett formula?
Under this Government and this Prime Minister and with Danny Alexander, Cheryl Gillan and David Jones we have delivered important opportunities for Wales that complete, or go some way to completing, the jigsaw for what is in reality a Parliament. However, a Parliament without taxpayers looks rather a strange sort of Parliament, and I do not think there is anywhere else in the world where that is the case. This is a necessary move, and I hope that we can all move forward together on it. We did not get everything we wanted in Silk Part 1, but we largely did, and now we must move forward.
Lord Anderson of Swansea (Lab)
My Lords, I congratulate the noble Lord, Lord Bourne, on his initiative and on spelling out the details of the settlement on the basis of Northern Ireland, where there is an air passenger duty. I am not sure why in Wales we are likely to have problems with Europe in a way that Northern Ireland does not, but perhaps the Minister can ultimately spell that out.
As we welcome the noble Lord, Lord Bourne, to this House, we mourn the loss of Wyn Roberts, our very distinguished and beloved colleague Lord Roberts of Conwy. I am personally grateful to the noble Lord, Lord Bourne, for having given me a lot of help as vice-principal of what is now one of my local universities when I was a mere constituency MP. I was musing that I have known Members of the Committee—the noble Lords, Lord Wigley and Lord Elystan-Morgan—for almost 50 years. Certainly I have known the noble Baroness, Lady Randerson, for 30 years, and I knew the father of my noble friend Lady Morgan. One could go on detailing the incestuous nature of Welsh politics.
If we are an overgrown village, that perhaps brings with it difficulties and temptations. If we have this capital-raising power around expenditure, there is a danger within the village of not looking strategically but of looking at penny packets in which everyone has a share. I am pleased that at least we all agree that the big priority now should be Brynglas in Newport and the M4, even though it is still some distance from Swansea.
Samuel Gompers, the great trade union leader in the United States, was once asked, “What does American labour want?”. He answered, “More”. I suppose that if we were to ask the Welsh people what they want, they would say, “More”. Of course, if there is also greater responsibility and accountability, that is a bonus, but what we in Wales really want is more as we are at the bottom of most of the indices of poverty and deprivation, and there are wide regional differences even within Wales. Scotland benefits most from the Barnett formula—and it is unrealistic to expect any change before the referendum—and we in Wales appear to benefit least. I guess that we could lose out on capital expenditure depending on how the block grant is adjusted.
It is worth recalling that Wales has suffered losses in terms of major capital expenditure projects. That would have happened even if the Silk commission recommendations had been put fully into effect. To give brief examples of that, there was expenditure of £9 billion on the Olympic legacy, including a diversion of the National Lottery fund, part of which would have come to Wales. However, in spite of the claims of the noble Lord, Lord Coe, and the delivery committee that the benefits would be spread throughout the UK, 83% of the value of the contracts went to London, the south-east and the east of England, while Wales was at the bottom of the table with 0.01% of the value of the contracts. Has the Wales Office asked for compensation for what we did not receive when it had been promised to us? There will be massive expenditure on HS2. Of course, we welcome the electrification of the rail line to Swansea by 2017, but can we plausibly claim that Wales is benefiting from this vast public expenditure? Finally, I mention the Severn Bridge toll, which now costs £6.40 for cars. As I was driving over on Friday, it occurred to me that this is really a major tax on Wales and a disincentive to investment, and it is far more relevant to us than many of these proposals. Obviously the toll cannot be abolished overnight but, in my judgment, it should be reduced in a staged process.
That said, Silk makes a serious effort to tackle the major deficiency in the devolution settlement—that is, the lack of responsibility and accountability at Cardiff Bay. That will of course have major repercussions for the Welsh Government, and there should be a serious effort to ensure that we have the expertise in finance at Cardiff which is presumably now lacking.
I have already mentioned the linkage between the borrowing and tax powers. The latter depends on the referendum and, if the referendum is unsuccessful, we are left with only the minimal changes—the small beer—which has been mentioned by the noble Lord. Perhaps we need a cross-party consensus and agreement to avoid the referendum, otherwise there could be a major obstacle.
On taxation, clearly we have noted the evidence of Gerald Holtham to the Welsh Affairs Committee last week. In his view, devolving part of income tax, subject to the referendum trigger, is likely to remain a dead letter. The only people likely to vote for higher taxes are those who pay no taxes at all. That was in the ICM poll for Silk. Perhaps the most important finding of the poll was that:
“The Welsh public would prefer fiscal transfers from the rest of the UK than higher taxes in Wales”.
The First Minister has stressed also the point about fairness in Wales.
Nevertheless, perhaps like Gerald Holtham I have been too pessimistic. If the tax-raising and borrowing powers are agreed, that will raise opportunities for a new approach and go some way towards resolving the dilemma of accountability. This is an important new phase—a stage in the devolution process.
Lord Thomas of Gresford (LD)
My Lords, I echo what has been said about Wyn Roberts. I spoke for the Liberal Democrats and he for the Conservatives when the devolution Bill went through in 1998 to 1999. He was not a party man, he was a Welshman, and he did much to deal with the choleric contributions of some of his colleagues on that Bill. We travelled down together occasionally from north Wales and shared a taxi. I was pupil to his brother, Eifion Roberts. I have had a close connection with him and I shall miss him. I send our respects to Enid, his wife.
This week, the coroner for north-east Wales, John Gittins, held an inquest into the death of Mr Fred Pring of Mynydd Isa, near Mold. Last March, he was suffering from severe chest pains and feeling ill when his wife telephoned 999 and requested help at one o’clock in the morning. There was no response. She made four phone calls, the last at ten to two to tell them that he had died. The reason, it appears, was that the five ambulances on call were outside the Maelor general hospital in Wrexham waiting to unload patients who were already on board. One had been there for more than five hours and another for an hour and a half. At the weekend, Mr Carwyn Jones, the First Minister, told the BBC that Wales was far behind England in accident and emergency response times because we were more honest about our statistics and that he wanted to change the targets.
Today we hear that all routine planned surgery across north Wales this week has been postponed due to “increased pressure”. Emergency operations are to be carried out at Abergele. This affects Wrexham, Ysbyty Gwynedd and Glan Clwyd. The NHS, said the First Minister on Sunday on the BBC, is open to improvement. We also hear today that the Welsh Health Minister has announced the closure of neonatal services at Withybush hospital.
Six of the 22 local authorities in Wales are under special measures with regard to education. When the PISA results were published last month, they showed Wales the worst country in the United Kingdom. I need not repeat the statistics because your Lordships will be well aware of them.
The Labour Government in Wales are a total disaster, and you wonder how they get away with it. On the economy, we learned last month from the latest figures on GVA, the measure of value of goods and services produced in the nations and regions in the UK, that Wales is the bottom of the pile. This month in my home area of Wrexham, Kellogg’s have announced 140 job losses; last month, Sharp announced that 250 permanent jobs and 365 agency staff were to go; and 230 workers have lost their jobs at the First Milk cheese-packing plant in Marchwiel.
When Wyn Roberts, other noble Lords who are in this Room and I campaigned for devolution in 1979 under the leadership of the noble Lord, Lord Elystan-Morgan, and again in 1998, we expected that a Welsh Government would successfully lead the way. In the major fields which were devolved to the Welsh Assembly, Labour-led Governments for the past 14 years have failed. I will never forget one Labour parliamentary candidate who once said to me that I was too concerned as a Liberal about the voters: “Don’t worry about them”, he said. “We don’t worry about them. They’ll vote for us whatever we do”.
It is not surprising therefore that the Labour Government are seeking to avoid accountability. At the moment, they are refusing to hold a referendum which would implement the proposed income tax changes under Silk. “We must reform the Barnett formula first,” says Mr Carwyn Jones. I have looked up a speech I made in this House in 2001, in which I said that it is essential that a needs-based formula be devised, taking into account factors such as deprivation, population sparsity and the local environment. We campaigned as Liberals, and I know that Plaid Cymru campaigned for changes to the Barnett formula over the same period. While the Labour Government were in the heyday of their power, the noble Lord, Lord Barnett, expressed his embarrassment at having his name linked to the formula. The Labour Government did absolutely nothing. In putting it forward as a precondition, Mr Carwyn Jones can wait for ever before there will be changes.
We Liberal Democrats would have preferred to have had the flexibility of income tax powers without the Scottish lock-step model. Wales is not Scotland. The Silk report pointed out in appendix F that the latest transborder travel-to-work figures are at their highest in north-east Wales, with 34,500 people travelling from Flintshire and Wrexham into England to work and 16,000 travelling in the opposite direction each day. I can appreciate the Government’s view that the temptation to live in the country with the lowest tax rate might cause some upheavals in Wales that it would not cause in Scotland. Nevertheless, I regret that that flexibility has not occurred.
However, sharing the income tax base between Westminster and Cardiff Bay will significantly enhance the accountability of the National Assembly and the Welsh Government. Income tax contributes the greatest proportion of tax revenue in Wales and will provide a relatively stable revenue stream. Stamp duty, if properly used, could help to lower the cost of developing and buying houses, and we would hope that control over business rates would encourage business investment. In our submission to the Silk commission we asked for borrowing powers equivalent to those of the Scottish Parliament, specifically 10% of the capital budget, and we hope that that is what we will ultimately obtain.
These additional funds of capital and revenue must be wisely spent, and the record of Labour Government in Wales is so poor that a further priority must be to make sure—to adopt the analogy used by the noble Lord, Lord Anderson—that the village has a new head man and a governing council as soon as possible. I am sure we can get cross-party consensus on that.
Lord Elystan-Morgan (CB)
My Lords, I join the tributes so genuinely and deservedly paid to our late friend Wyn Roberts. I, too, congratulate the noble Lord, Lord Bourne of Aberystwyth. How sweet the name of Aberystwyth sounds when it is not in the context of disaster from the sea. I am very grateful to him for having raised this matter.
The Silk commission was asked to report on two matters, as we remember. The first was the fiscal elements and how they could be reviewed and improved upon. The second was on non-fiscal matters and how greater powers could be deployed to the Welsh Assembly. It puzzled me, and still puzzles me, why they were in that order. Surely the first thing to do is to decide what functions a Government have and the second is how they pay for those functions. Be that as it may.
Perhaps I may digress for a few moments and speak not of Silk 1 but of Silk 2. In so doing, I project my remarks to the noble Lord, Lord Bourne, who, I know, will assiduously and religiously report on these matters to his colleagues in Silk. First, what is in a name? The answer is: a great deal when you are dealing with constitutional status. It may very well be that the term “Assembly” was in no way inappropriate when that body was set up in 1998, but nowadays I think that it is a misnomer. Following the referendum of 2011, we are three-quarters of the way to being a full home-rule Parliament. I accept the point made by the noble Lord, Lord Thomas of Gresford, that the residium may very well keep us back from that full status in the field of fiscal responsibility, but that is another matter. Certainly, by now it would be right and proper for Wales, as a legislating body, to have a parliament in exactly the same way as Scotland has.
Secondly, the challenges facing that body are immense. I believe and am confident that in Cardiff Bay there are people of spirit, ability, vision and determination, but it will be a very difficult task for that body within a few short years—that is all that it has—to build up the expertise that this House has had in the review and survey of legislation over many centuries. It will not be done overnight. It also means building up a cadre of civil servants with the expertise and, indeed, the distinguished qualifications for such a massive task.
However, above all there is the question of Members. We have 60 Members. The Richard report, which after all did not envisage a body as authoritative as this, talked of something much more modest and recommended 80. It seems that the minimum that we can do with is something of the order of 100. Let us call it 120 as that makes it very simple—it exactly doubles the representation in each constituency. One can argue as to which should be first past the post and how others should be elected, but that is not the issue for the moment. Without that, there is no possibility at all of development for the Welsh body in Cardiff Bay. If you want it to fail, all you have to do is nothing.
The third matter is one that I and many of us here have raised at various times—that is, the bulk transfer of authority to Wales, subject to specific exceptions, in the same way as is the case with Northern Ireland and Scotland. A Welsh lawyer, be he a solicitor or a barrister, has to chase through a labyrinth of hundreds of small matters to find out exactly what has or has not been transferred. In order to save Welsh lawyers from constitutional neurosis, there is an overwhelming case for such a transfer.
Lastly is the question of income tax variation. I respectfully disagree, not for the first time and no doubt in life, with the noble Lord, Lord Thomas of Gresford. If the Welsh people opt for these powers, with Barnett in its unreconstructed form we will be doing our nation a very great disservice. Why is that? At the moment, we lose something of the order of £350 million to £400 million each year on the Barnett formula. That is accepted. Nobody will stand up and say that it must be justified and kept. Mrs Gillan, our Secretary of State, said its time was up and everybody agrees, yet Her Majesty’s Government, twin-headed as they are, said, “We know that you are being cheated out of these monies year in and year out, but we are perfectly content to maintain that system”. That is entirely wrong. Therefore, Barnett has to be put right before we can contemplate a referendum.
Lord Wigley (PC)
My Lords, I join noble Lords in mourning the loss of the late Wyn, Lord Roberts, of whom I had an earlier opportunity to speak in the Chamber. I very much thank the noble Lord, Lord Bourne, for facilitating this short debate and also pay tribute to his work on the Silk commission and that of other commissioners, including Plaid Cymru’s Dr Eurfyl ap Gwilym and, particularly, Paul Silk himself.
I am sure that the noble Lord, Lord Bourne, would agree that among the most remarkable aspects of the Silk commission was that, first, unlike Scotland, it was drawn up with terms of reference to which all four parties in Wales signed up and, secondly, its first report secured the support of all commission members. I am sure that the noble Lord would confirm that such agreement was achieved by some give and take and that the report was presented as a balanced package, not one to be cherry-picked. I regret very much that the Government, driven as they are by the Scottish agenda, could not accept the package in its entirety.
I regret that for two substantive reasons. First, by insisting on a lock-step on income tax, the Government denied the Assembly the significant degree of policy flexibility it might have otherwise enjoyed, and with it the possibility of creating a far-reaching investment programme that could stimulate the Welsh economy. Goodness knows that we need that. Business rate flexibility and stamp duty land tax are certainly worth having but are not in themselves enough. Secondly, by acting in this way, the UK Government have let the Welsh Prime Minister off the hook. Carwyn Jones has waxed eloquent this week on how the Tories and their Lib Dem backers squandered the opportunity provided by Silk. It has been enough of an excuse for Mr Jones to step away from a referendum, for what is the point of having a referendum on income tax powers that are unusable?
Had the Silk report been adopted in its entirety, with all the parties represented on the commission on board, it would have been impossible for Labour or any other party to wriggle out of having a referendum. A yes vote could have been secured again, as happened in the 2011 referendum when all four parties were united. I pay tribute to the noble Lord, Lord Bourne, in that context. That yes vote would have started making Wales’s Government truly answerable to the people of Wales in having to justify their expenditure and stewardship of Welsh taxpayers’ money. I cannot understand the Government taking this course of action which at one stroke negates everything they purport to advocate in terms of democratic answerability in Wales. Has Alex Salmond’s shadow really got them on the run to that extent?
I also respectfully disagree with the noble Lord, Lord Thomas of Gresford, and do not join him in talking Wales down in terms of the National Health Service. Goodness knows that there are people working hard enough and with great commitment in the health service in Wales, and they deserve our thanks. Of course, some bad decisions have been made by the Welsh Government, as by the Westminster Government. The noble Lord quoted a highly unfortunate situation in the NHS in Wales this week. One of the worst blind alleys that the Assembly pursued with regard to the health service was the creation of 22 local health boards, but I suspect that the noble Lord’s party supported it in doing that. The truth is that Barnett underfunding deprived the Assembly of some £5 billion since its establishment, and health and education in Wales have been underfunded as a result.
Lord Thomas of Gresford
I am sorry to take up the noble Lord’s time, but is that not the point? As soon as the NHS and education are under attack, what do they blame? It is the Barnett formula for failing to provide funds. We need accountability in this.
Lord Wigley
Of course we need accountability. That is why we do not need the lock-step, so that we get the tax linked in. I agree with the noble Lord on that. The fact is that if there was adequate funding, we would not have had some of the cutbacks that have been necessary in the health service in Wales.
The questions I wish to put to the Minister are these. First, could an income tax-sharing model be adopted before reform of the Barnett formula? Secondly, will the borrowing powers set out in the draft Bill include the old WDA borrowing powers, or is that a separate amount? Thirdly, is the M4 relief road dependent on getting these borrowing powers? Fourthly, how much of the £500 million borrowing limit will be available before a referendum? Fifthly, does the revenue stream from the minor taxes—the land tax and the aggregate levy—constitute enough to support the £500 million borrowing capacity? Lastly, the draft measure says that a yes vote in a referendum would allow the Secretary of State to raise the borrowing limit, but raise it by how much?
If I may put one key question to the Labour Front Bench, as Carwyn Jones has said that he will not hold a referendum until the Barnett formula has been replaced or radically amended, will the Labour Party give a copper-bottomed commitment that if it forms the next Government at Westminster after the 2015 election, it will reform or scrap Barnett as a matter of urgency?
Baroness Humphreys (LD)
My Lords, I, too, join in the tributes to Lord Roberts of Conwy and add my thanks to the noble Lord, Lord Bourne, for initiating this debate.
At the outset, I pay tribute to my colleagues in the National Assembly for Wales who called for, and supported, the establishment of a commission to examine the need for a different financial structure for Wales, one which would bring more accountability and responsibility to the Welsh Government. My Westminster colleagues also fought for the inclusion of the commission as part of the coalition agreement. I am grateful for their readiness to listen to Welsh concerns and their desire to move the devolution process forward. We all, I am sure, await the opportunity to debate further the devolution settlement in general when we receive the second part of the Silk commission’s report.
The Silk commission’s report provides us with an historic opportunity to increase the accountability of the Welsh Government, making them accountable for their policies and making them responsible for raising some of the money they spend. I was pleased to see the UK Government’s offer of devolving income tax on the same basis as that legislated for in the Scotland Act 2012. While not the preferred method of many for devolving income tax, I welcome this as a major step forward in the devolution settlement for Wales. However, I have some sympathy with the commission’s recommendation against the lock-step system. One cannot help but wonder how many more opportunities would have been open to Wales had it been given the freedom to vary the basic, higher and additional rates of tax independently.
The devolution of stamp duty, as other noble Lords have said, provides the National Assembly with the opportunity to address the acute housing crisis in Wales by helping to lower the cost of developing and buying houses in Wales. Greater control over business rates will allow the Welsh Government to deliver a more coherent reform of those rates and will, I hope, give the National Assembly an additional tool to encourage business. I certainly look forward to seeing, for instance, which measures the Ministers in Cardiff Bay will employ to help those smaller businesses on our high streets which sometimes struggle against crippling overheads.
I must admit that when I read the announcement of the granting of borrowing powers to the National Assembly, I uttered a silent “Thank goodness”. This now addresses an historic and, in some eyes, offensive inequality where other public institutions, including community councils in Wales, are able to borrow yet the Assembly is not. My own small town council, for example, with an annual budget of less than £40,000 a year, has the right to borrow, yet our national Government and the National Assembly have been unable to secure capital funding for projects, including the much needed major improvement of the M4 in south Wales. I am also pleased to see that the Chief Secretary to the Treasury has announced that the UK Government will provide early access to borrowing powers for the Welsh Government to enable schemes such as the M4 improvement to take place. I look forward to taking my place in the queue to make the case for further investment in the road building and improvement programme in north Wales and seeing the advantages to local economies and road safety which should follow.
These new borrowing powers do not apply just to roads. I certainly welcome them as a way to provide the Welsh Government with more scope to stimulate the economy with investment in other capital expenditure projects. The Silk commission report and the draft Wales Bill which emanates from it must not be seen as merely dealing with taxes, borrowing and financial matters. They are a unique opportunity to shape democracy in Wales. We must ensure that the Welsh and UK Governments take this opportunity and do not let progress pass them by.
Liberal Democrats have long supported a federal system as part of our vision for the UK’s constitutional future, and we believe that the United Kingdom is slowly moving towards a federal state. However, in the early stages of devolution, its constitutional and financial systems had not been developed sufficiently to compensate for these changes. The Silk commission and the draft Wales Bill present politicians across the UK with a unique opportunity to strengthen the framework as far as Wales is concerned. Our support for devolution and federalism has been coupled with a belief that additional responsibility must be accompanied by additional accountability and additional capacity to deliver. That is why we have regularly supported reforms to increase the responsibility that Welsh Ministers have over the money they spend, but also to ensure that they have the right legal and financial powers to deliver a wide range of solutions.
I realise that I have come to the end of my time. The challenge that the Welsh Government face in education and health services needs to be addressed.
Baroness Morgan of Ely (Lab)
My Lords, I thank the noble Lord, Lord Bourne, for introducing this discussion and congratulate him on his first debate in this place. I associate myself with his generous tribute to Lord Roberts. It is wholly appropriate for the noble Lord, Lord Bourne, to introduce a debate on a report in which his contribution and extensive experience as a former Assembly Member was instrumental. Regardless of how dramatic his damascene conversion was to the cause of the Assembly following his election to that place, no one in Wales would now question his absolute commitment to the cause of devolution. It is a shame that that cannot be said of everyone in his party, but we will watch with interest to see how he votes in some key passages of the Wales Bill.
While I am in a generous mood, I also pay tribute to the noble Baroness, Lady Randerson, and her commitment to devolution. It is good that there is at least one expert Minister in the Wales Office who has a thorough understanding of what is going on.
Part 1 of the Silk report represents real positive opportunities for Wales and the wider United Kingdom. First and fundamentally, it creates the opportunity to address Wales’s anomalous situation among its international comparators in that at the moment the Welsh Government have responsibility for spending but not for taxation. Control of the so-called minor taxes—stamp duty, landfill tax and so on—which Silk advocated can now, if legislation is passed, be used to lever associated borrowing powers to the Welsh Government, which are essential in our current circumstances.
Children across the country today are in the unenviable position of growing up during a time when the Tory Government are removing funding from public projects on a vast scale. Just over two weeks ago, the Conservative Chancellor announced a further £12 billion welfare cut, which will be delivered in 2014-15. This is on top of the array of cuts to public services which have already been implemented.
For the people of Wales, the situation is worse. According to the Holtham commission, Wales is already underfunded through the Barnett formula to the tune of more than £300 million per year. It was good to see the Government accept the Barnett floor, but what the Government give with one hand, they take with another and Wales’s budget will be £1.7 billion lower in real terms by 2015 than it was five years ago. That money would have gone a very long way towards addressing some of the problems in the NHS.
The Labour Party fought for the power and accountability of a Welsh Government which would allow us the opportunity to represent the needs of the people of Wales and to fight for a fairer and better deal for each of them. Let us not forget that the strong growth in Wales which was experienced prior to the banking crisis was based on Labour’s record of investment in Wales under devolution and while Labour was in power in Westminster. This growth came to a juddering halt in 2008 in the face of the worldwide economic crisis, and the economy is still struggling to reach that former position. It is only by looking at the economic concerns of the people of Wales, struggling with the cost-of-living crisis, energy prices, childcare, expensive homes and transport costs that we begin to understand that tinkering with the funding formula for Wales will do little to change the country’s economic outlook. Ultimately, we need significant growth in the economy and, as the noble Lord, Lord Bourne, suggested, a larger, responsible private sector. This would help alleviate many of those issues.
Silk recommends revisiting the current funding formula for Wales—Barnett—before transferring income tax-varying powers. To answer the question of the noble Lord, Lord Wigley, I would go further and suggest that a fair funding formula for every nation and region needs to be put on the political agenda.
Silk was clear on the income tax proposals for Wales and opposed the lock-step nature of what the coalition Government are now proposing. Economic experts and the First Minister suggest that the lock-step approach means that income tax power is rendered virtually unusable. Interestingly, even the Tory leader in the Assembly disagrees with the Secretary of State on the issue of lock step. The key thing to avoid is any race to the bottom across the UK on income tax rates; that would be damaging for every nation. It is interesting to the hear the Secretary of State suggest time and again that we could cut income tax rates in Wales, without any suggestion of how we would make up the shortfall in the public sector cuts which would be necessary to fund any such reduction.
I acknowledge that the Government have taken up the vast majority of the recommendations of Silk, which presents Wales with an opportunity to borrow against future income. This means that we can see increased investment in essential infrastructure projects in Wales. However, can the Minister inform the Committee of the process by which the £500 million level of capital borrowing was arrived at? Can she confirm on the record that this is comparable to Scotland’s borrowing powers? Does it take into account Wales’s relative lack of exposure to PFI debts?
I look forward to seeing the findings of Silk part 2. We certainly will not lose sight of the broader economic challenges which Wales and the rest of the UK are currently experiencing, and acknowledge that piecemeal concessions to the Welsh Government will do little to bring the economic prosperity that is so necessary for our poorest communities in Wales.
The Parliamentary Under-Secretary of State, Wales Office (Baroness Randerson) (LD)
I thank all noble Lords who have participated in this debate. I start by joining the noble Lord, Lord Bourne, and others, in the tributes to Lord Roberts of Conwy. I had known him over many years, and he provided me with an inspirational example in the way that he fulfilled his role in the Wales Office. In particular, his love of the Welsh language ensured that changes were made at the time that have strengthened the language and its position in society.
I thank the noble Lord, Lord Bourne, for securing the debate today on the very important opportunities for Wales presented by the recommendations made by the Silk commission in its Part 1 report. I also paid tribute to the hard work of the Silk commission that went into the report, and I note the important role that the noble Lord played in that process. I have listened carefully to noble Lords in the Chamber and I am pleased that the Government’s response to the Silk commission’s recommendations has been broadly welcomed by several noble Lords, as has the draft Wales Bill, which, we must remember, implements the vast majority of its key recommendations, and which is currently undergoing pre-legislative scrutiny in the other place.
The Government believe that the devolution of tax and borrowing powers should be used to help to generate jobs and growth in the Welsh economy; to give Wales a competitive edge; and to make Wales a more prosperous place. Our response to the Silk commission and the powers we will transfer to Cardiff Bay, take forward these principles. The Welsh economy has lagged behind other parts of the UK for far too long—a point made by the noble Lord, Lord Anderson—and we intend to give the Welsh Government and the National Assembly for Wales the tools to change that.
Just as importantly, implementing the Silk commission’s recommendations will also make the devolved institutions in Wales more accountable to the people who elect them. We fully agree with the commission’s key recommendation: that the funding model of a block grant and some devolved taxes best meets sound principles for funding the Welsh Government, and that part of their budget should be funded from devolved taxation under their control. Since devolution, the Assembly and the Welsh Government have been accountable only for how they spend taxpayers’ money—a point made by the noble Baroness, Lady Humphreys. They will now become more accountable for how they raise it.
The Government demonstrated our commitment to these reforms by publishing the draft Wales Bill before the Christmas recess, only one month after we announced our response to the Silk 1 recommendations. We wanted pre-legislative scrutiny of this important legislation to take place in this Session of Parliament, and I am pleased to say that the Welsh Affairs Select Committee already has that scrutiny well under way. Subject to successful parliamentary passage of the legislation, I hope the new tax and borrowing powers to be devolved well before the next Assembly elections in May 2016.
I want an early referendum called as soon as possible after the legislation is passed, and I will be campaigning for a yes vote. I hope that the First Minister will be joining me.
In response to the points made about the ability to vary income tax in each band by the noble Lords, Lord Bourne and Lord Wigley, and the noble Baroness, Lady Humphreys, among others, we believe that the so-called lock-step system of income tax devolution that we have set out in the draft Wales Bill is the right system for Wales. The system applies in Scotland and was agreed with the Scottish Government, with a single devolved rate for all bands. We believe that it would work equally well in Wales. It delivers on two key principles that underpin the Government’s approach to devolving income tax. It ensures that the UK maintains a progressive tax system. As the noble Baroness, Lady Morgan, said just now, it prevents a damaging race to the bottom on higher-rate taxes, one where the tax rate increases as the income of an individual increases.
The income tax structure is a key mechanism to redistribute wealth across the whole of the UK, which is why we believe it is properly set at a UK level. That point was made clearly and firmly by the Calman commission in respect of its recommendations on Scotland. That point transcends both Scotland and Wales and applies to both countries. The lock step ensures that the gap between income tax rate is consistent across the UK; that devolved government works comfortably within the parameters of the UK; and that fiscal devolution does not benefit one part of the UK at the expense of another. This could occur if the Welsh Government were to set substantially lower rates for higher and additional taxpayers without having to change the basic rate.
Devolving income tax would give the Welsh Government a crucial lever that they could use to reduce taxes across the board in Wales to put money back into the pockets of people in Wales who are working hard and deserve to hold on to more of the money that they have earned. It will create new incentives for growth and jobs and rekindle the spirit of entrepreneurialism. If the people of Wales decide in a referendum in favour of income tax devolution, the Welsh Government would become responsible for almost half of the income tax generated in Wales, making it more accountable while giving them flexibility over levels of tax and spending. An important issue is, crucially, that devolution of income tax would give the Welsh Government access to a significantly larger revenue stream to finance borrowing. So it is far from being a power that cannot be used.
Even if the Welsh Government decided not to vary income tax rates, it would still provide a base for borrowing as well as a base for accountability. However, as the noble Lord, Lord Anderson, pointed out, you have to win the referendum first. I am surprised that the noble Lord can envisage only a situation where the Welsh Government would wish to increase tax if income tax were to be devolved. Under the Government’s proposal it would be just as feasible for the Welsh Government to reduce rates of income tax—for example, by half a pence or one pence in the pound. The noble Lord and the noble Baroness, Lady Morgan, both reflect the view, which is all too prevalent in the Labour Party, that taxes could only be altered by increasing them and not by decreasing them.
Lord Wigley
My Lords, the Minister has mentioned three times now the wish, which she clearly reflects, to reduce income tax and reduce the revenue the Assembly would have. What services is she going to cut to facilitate that?
Baroness Randerson
The noble Lord does not take account of the well known economic mechanism that reduced taxes create more money in people’s pockets, which stimulates the economy, which in turn causes more taxation to be collected. That is a basic point of economics that the Government are pressing.
Much time has been devoted to income tax, but we should not forget stamp duty land tax, which was referred to by the noble Lord, Lord Thomas, which will give us a chance to reshape the housing market in Wales in a way which is much more appropriate for Wales.
Further, we must not overlook business rates. The full devolution of business rates can be implemented almost immediately and without legislation, a crucial point which will enable the Welsh Government to get on with stimulating, for example, the establishment of new SMEs.
The noble Lord, Lord Bourne, asked about the future of the aggregates levy proposal. We have promised that we will review that once the situation in Europe is clear. On air passenger duty, we are not convinced that this will do any more than shift passengers from one airport to another. The situation in Northern Ireland is different: it is the only part of the UK that has a land border with another European country. That is the key difference.
Several noble Lords referred to Barnett reform, including the noble Lords, Lord Elystan-Morgan, Lord Bourne and Lord Thomas. The issue of fair funding is set out in the following way. The arrangements that we agreed with the Welsh Government, set out in our joint statement in October 2012, established a process to review the relative levels of funding for Wales and England in advance of each spending review. That process worked well at the spending review last year. It provides a firm basis for the devolution of income tax, should that be the outcome of the referendum. Convergence is not occurring at this moment; indeed, divergence is occurring, and funding levels are well within the parameters recommended as fair in the Holtham commission’s report, contrary to what the noble Baroness, Lady Morgan, said. If convergence is forecast to resume, we have committed to discuss it with the Welsh Government and to address it in a fair and affordable manner.
I thank noble Lords for their contributions. This Government have delivered for Wales on devolution and will go on doing so. Devolved Governments will be fairer and more accountable and will be able to create a stronger Welsh economy as a result of these proposals. It will be a giant step forward in the development of devolution. This Government are ambitious for Wales and are planning to give the Welsh Government the tools to do the job to stimulate the economy. It is up to the Welsh Government to use those tools effectively.