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.