Wales Bill

Baroness Finlay of Llandaff Excerpts

Report: 2nd sitting (Hansard): House of Lords
Tuesday 10th January 2017 Lords Chamber

[Lord Hain (Lab)]

My Lords, I will address Amendment 143A standing in my name and that of my noble friends Lord Kinnock and Lord Murphy of Torfaen. The amendment expresses concern about, and seeks an impact assessment on, the problem of differential tax receipts. Over the past few years, as the Minister will know, tax receipts in the UK have increased at a rate three times that of those in Wales. A gulf is opening up and Wales needs to be protected.

After the concerns on these and other matters that I and fellow Labour Peers have repeatedly expressed about the dangers to Wales of being short-changed by the devolution of income tax, I nevertheless congratulate the Secretary of State and the First Minister of Wales on reaching agreement on a new fiscal framework. It seems that they may have found a pragmatic path forward, one which both rejects the status quo and assures Wales of fairer funding for the future—though perhaps not quite as far over the horizon as the noble Lord, Lord Bourne, claimed when he announced the agreement. The new framework prolongs the life of the 115% funding floor for Wales, guaranteed in 2015 for the current Parliament. It accepts the assessment of Welsh needs relative to England made by the Holtham commission, while deftly sidestepping Holtham’s recommendation to adopt an entirely new formula for linking funding to relative needs across all parts of the UK. Instead, it embraces our old friend the Barnett formula, and thereby delivers the latest instalment in a long success story. By injecting a new needs-based factor into the Barnett formula and setting a welcome floor under the Welsh budget, the new fiscal framework goes a long way to protecting Welsh needs. I welcome that and I welcome the Minister’s role in it.

The Holtham Commission on Funding and Finance for Wales found the unvarnished Barnett formula distinctly unfit as a means for matching the funding allocated to Wales with Welsh relative needs. It judged it to be unsustainable over the medium term, but it also acknowledged that Barnett, with its modifications, gets the job done, as it is done again in this new fiscal framework. In his covering letter announcing the agreed fiscal framework on 19 December 2016—and we were grateful for notification of that—the noble Lord, Lord Bourne, claimed that the agreement,

“provides Wales with a fair level of devolved funding for the long term”.

Only time will tell whether that ambitious claim proves true. If by “the long term” the Minister means the 40-plus years that the Barnett formula in its various manifestations will have lasted by the time this new fiscal framework comes up for its first review, that will mean that the annual block grant to Wales in the 2020s will be derived from what it was at the end of the 1970s. I wonder how many Members of this House feel comfortable at such a prospect—basing budgets on spending patterns set 40 years ago, albeit with some adjustments along the way.

Let us hope that the Barnett formula, with this new 115% Welsh floor, does not set in stone the definition of Welsh needs regardless of how things change in the years that lie ahead. For example, we welcome the many new residents settling in Wales from parts of England, but they tend to be of a certain age and will create increased burdens for Welsh social care and the health service in the future. Let us hope that the Barnett formula, therefore, does not set this situation in stone.

For all its positive features, the new framework has its limitations. I will mention four. First, I acknowledge that it does respond to the call that I made seven weeks ago, when this House last debated these issues, for clarification about how any funding floor would interact with income tax devolution and block grant adjustments. While it lasts, the 115% funding floor limits the damage that the differential growth in tax receipts that we have seen between Wales and England can do to the Welsh budget. That is a bit like having third-party fire and theft insurance; it is valuable but falls short of comprehensive cover and is subject to change on renewal in the 2020s. The claim in paragraph 32 that the framework applies the same population figures to both tax and spending in calculating changes to the Welsh block grant does not persuade me that the ongoing threat from differential tax growth after the transitional period has been met.

I was also troubled and not a little bemused by the Written Answer given on 5 January by the noble Baroness, Lady Neville-Rolfe, to my Question:

“To ask Her Majesty’s Government what assessment they have made of the extent to which the agreement on the government of Wales’ Fiscal Framework published on 19 December compensates for the lower percentage increase in income tax receipts in Wales compared to the UK since 2010–11”.

I remind the House that the UK has seen a 6% rise in tax receipts since 2011. Wales has seen a 2% rise, which is a significant difference. The noble Baroness’s Answer was opaque, to say the least:

“As set out in the Welsh Government’s fiscal framework, the UK and Welsh governments have agreed to apply a block grant adjustment for each band of income tax separately. Doing so will fully account for the different proportions of basic, higher and additional rate income tax payers in Wales and the rest of the UK. This means that the Welsh Government will hold an appropriate set of risks and opportunities regarding their new income tax powers, as part of a wider funding agreement that the UK and Welsh governments agree is fair for Wales and fair for the rest of the UK”.

To be frank, that is Treasury-speak for not answering the Question. Does that mean that the lower percentage increase in income tax receipts in Wales compared with the UK will be specifically compensated for or not? Perhaps the Minister can enlighten us on this crucial matter, which could otherwise see Wales short-changed in this Bill.

Secondly, the framework does not deliver on the grand claims that have been made about tax devolution increasing financial empowerment and enhancing accountability—which is supposed to be what it is all about. The initial baseline adjustment to the block grant in 2019-20 will be set at the receipts that would have been generated by Welsh rates at 10%, whatever rates the Welsh Government actually choose to set. That is what Annex B of the agreement states. If the Welsh Government choose in that year or subsequent years to raise income tax rates by more than 10% and to spend the extra revenue, the effect would be to boost Welsh GDP via the standard Keynesian balanced budget multiplier. But it would distort rather than enhance political accountability, just as central government manipulated council tax for years to deter local authorities from raising council tax to fund extra spending on local priorities.

Thirdly, the new framework shows no sign of having given any consideration to indexing block grant adjustments in Wales to changes in comparable regions in England rather than to England as a whole. Holtham found that the two English regions Wales came closest to in 2010 were the north of England and, perhaps surprisingly, London. Wales’s needs were around 15% above the England average while the south-east of England excluding London had needs that were nearly 15% below the England average. Comparing Wales to England as a whole, including its better-off regions rather than to the closest equivalent English regions, does a disservice to Wales.

Fourthly, the only provision the new fiscal framework makes for updating estimates of relative needs at some future point is to say that things will be looked at again by both the UK and Welsh Governments when Welsh funding begins to reach 115% of equivalent spending in England, expected to be at some point in the 2020s. This will be towards the end of a transition period during which Welsh funding will be deliberately driven down towards 115% from its current 120% level. By the way, it has reached 120% only because Westminster-driven cuts in public spending have converged in line with the Barnett formula imperatives after years of Labour Government public spending rises, and should a future UK Government increase spending, that convergence would resume; hence the need, I believe, for an impact assessment. The Minister helpfully mentioned in his opening remarks that this could be provided in the annual report to which he referred. If he can reassure us on that point, that would give me some encouragement in terms of whether to press this amendment or not.

[Baroness Finlay of Llandaff (CB)]

My Lords, I want to speak briefly to Amendment 80 in the group, to which I have added my name. There are two specific categories, the first being the structure of Cardiff Airport itself for taking long-haul flights and secondly its relationship to other airports and the benefits for the region of south Wales.

The Cardiff Airport runway is particularly long, so it is often used as a diversion runway for flights that cannot land at other airports for a variety of reasons. For many years it has received the largest aircraft when they need to come in for servicing. Another advantage is that Cardiff does not have a major crosswind problem because the airflow around the Sully cliffs is not severe enough to cause any difficulties when landing large aircraft. The airport is therefore particularly suited to long-haul aircraft. This narrow amendment poses a question that is different, in that it would allow Wales to determine its future in this area.

The other aspect is Cardiff Airport’s relationship with other airports in the region. It is extremely convenient for people in west and south Wales who face problems in conducting commercial relationships in other parts of the world, so the development of the airport would certainly be invigorating. It would also help areas around Bristol and Hereford. Moreover, the skies over London are very crowded. Anyone who has been on an aircraft going round in circles as it stacks to land, and seeing other aircraft both above and below, knows that that can feel scary. One is aware of just how crowded the skies can be. Aircraft coming in to land at Cardiff Airport do not pass over populated areas because the approach is over the Bristol Channel, thus there are no problems with noise affecting residential areas. Because of Cardiff Airport’s position, passengers can travel away easily along roads that are not prone to congestion or major traffic jams. People can move on to other destinations or approach the airport with relative ease.

I hope that the Minister will think again and I wonder if we could come back to this issue at Third Reading, even if the amendment has to be made narrower still, so that we do not miss a really important opportunity to do what is right for the region and right for air travel, and would meet what was a core recommendation of the Silk commission.

--- Later in debate ---

[Lord Bourne of Aberystwyth]

My Lords, I hear what the noble Lord says. I think he would accept that it is a case of defining where there is a competitive market. The point I was making is that I think it would be much more difficult to suggest that there is a single market between Edinburgh and Newcastle in relation to air travel than there is between Bristol and Cardiff. I think that, factually, that must be the case. If you live in a suburb of Edinburgh, I do not think you would lightly consider going to Newcastle to catch a flight whereas, if you live in a suburb of Bristol, you might consider going to Cardiff and vice versa.

However, as I say, that is not the only argument that I am deploying. The point about giving a special tax status to Cardiff is the issue here. The Government cannot subscribe to that. However, we acknowledge that we will revisit air passenger duty at some stage. It may be appropriate to do so and decide how we approach it across the whole country as Brexit approaches, and in the light of decisions made on Heathrow and Gatwick. However, in relation to the specific issue, I am afraid that I cannot give any comfort to noble Lords who want me to move further than I have indicated.

[Baroness Finlay of Llandaff]

It sounds as if the Minister, in winding up on the airport aspect, is dismissing the arguments we have made that the type of flight going into Cardiff would be quite different from the type of flight going into Bristol. They are not competitive but compatible. Given that, and the arguments we have made, will the Minister undertake to meet a few of us before Third Reading? Listening to the arguments, I do not quite understand why the Government are saying anything other than that they do not want to do it and that that is it—that is what I am hearing—rather than that there is true competition between the two.

[Lord Bourne of Aberystwyth]

My Lords, if I may say so, that is a somewhat unfair caricature of what I am saying. I am saying that we want to look at this in the round. We do not want to look at it just in terms of Wales, because there is a broad issue about what we do with air travel throughout England and Wales, and that is part of a much broader consideration. So I am not dismissing it out of hand and saying that this is something that the Government do not want to look at. We want to look at it in the round and not, in this legislation, in isolation, which we cannot undertake to do.

I believe that that has dealt with the mass of the issues here. I thank my noble friend Lord Crickhowell for his contribution, and particularly for what he said about the fiscal framework and the hard work that has been put in by officials from the Welsh and UK Governments, and indeed the work of the Welsh Treasury as well as of the Treasury here. It is a signal achievement that has been welcomed in the United Kingdom and in Wales—and, noting that we have Governments of different complexions, that is no small achievement in itself. So while it may not be perfect, it is a way forward. Of course, it is subject to review. Some noble Lords perhaps hinted at what happens now. The noble Lord, Lord Hain, indicated that there would be a review once there is convergence to 115%, which is the case, but thereafter there would be one no more than once in every Parliament; we anticipate that that would be looked at within every Parliament. That is important as well, and is something that has not happened previously.

With that, I ask noble Lords and noble Baronesses not to press their amendments.

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[Lord Morris of Aberavon (Lab)]

My Lords, I will confine myself to Amendment 78 in the name of the noble Lord, Lord Elystan-Morgan. I am not going to repeat my Second Reading speech, in which I complained vehemently of the inclusion of such a huge number of reservations. I welcome the words of my noble friend Lady Morgan on the announced changes by the Government so far in, as I understand it, limiting them. The Wales Office has only limited experience in legislating, in drafting and in fighting its own corner to get its own way with other departments in Whitehall.

In drafting the original Welsh devolution proposals in the 1960s, I faced the same dilemma of how to deal with the self-interest of many departments in Whitehall, for which, “Devolution is all right provided it does not encroach on my back yard”. What we did then was to set up a Cabinet committee, meeting twice a week under the chairmanship of deputy Prime Ministers, and to have seconded to it rising stars from the Cabinet Office to guide it through and ensure that the Minister got his own way. In the fullness of time each of these two gentlemen became Permanent Secretaries in major departments in Whitehall—that indicates the weight of the input. The combination of such people as Ted Short and Michael Foot in turn knocked heads together. We knew what we wanted and got our Bills into shape. My advice on this occasion is for the Wales Office to enlist someone from the Cabinet Office to knock heads together. Regrettably, this Bill has the finger marks of every department in Whitehall trying to preserve its own corner.

It takes a combination of the resolve of a Secretary of State and his advisers to get the right Bill and not succumb to the blandishments of other departments in Whitehall, enumerated by the great number of reservations in the Bill. I fear that the first result will be a field day for litigants, particularly if we have again a trigger-happy Attorney-General. It will not be the end of the matter. The noble Lord, Lord Wigley, illuminated at least one of the instances where we can face litigation. The second result, as sure as God made little apples, is that we will return to this issue time and again in order to seek a permanent settlement, which we all wish for, for Welsh devolution. Hence, the best line of defence for the Government is a committee, as proposed in Amendment 78 in the name of the noble Lord, Lord Elystan-Morgan, to report on the functions and powers and see how we are getting on; whether I and others are right or whether the Government are right. At least, within a period of three years, we shall know and report to the House, possibly for a debate on the developments that have taken place. Then perhaps, after that cooling-off period, as it were, we might have a more mature and resilient approach to Welsh devolution, which will then be a permanent one. That is my hope.

[Baroness Finlay of Llandaff]

My Lords, I have Amendment 82 in this group. It is a question, as my noble friend Lord Elystan-Morgan said, of flow. The problem for Wales is the flow of alcohol: Wales does not have the ability to control how that flow starts and how that supply chain moves. We in Wales are lumbered with the costs of alcohol abuse, both direct and indirect. There are direct costs in health and social care and indirect ones in damage to other people, either directly to another person or secondarily, through bereavement and so on. There is a real problem of culture around alcohol consumption in Wales. We should remember that while Scotland has the same culture of drinking, it has been given a degree of control. I fear that it is not always a pretty sight. Things have improved greatly but the Welsh Government does have to have the powers to do something about it.

There is another aspect of this that needs to be considered. We understand very little, really, about the way that alcohol interacts on the brain and on the reward centre, on people developing cravings. It is quite possible that the epigenetics mean that when you have a background culture of a family where there has been drinking, an individual’s reward centre responds differently. It may just be that people in Wales, having been born into a culture of drinking are more predisposed, more likely to develop an addictive tendency towards alcohol. It seems bizarre, when this is such a social problem and when the costs are really all borne at a local level, that the ability to control it is not given to the very Government that have responsibility for dealing with those problems.

[Lord Balfe (Con)]

My Lords, I would like to say a few words about Amendment 90. I will not stray into the internal affairs of Wales but this matter came up in debating the Trade Union Bill last year. The noble Baroness, Lady Morgan, mentioned the need for sound constitutional principles. I think that supporting sound constitutional principles should lead us to resist Amendment 90—which, to use a term of the noble Lord, Lord West, represents mission creep.

The amendment looks fairly innocuous and can be split into two parts. On “Terms and conditions of employment”, we keep hearing how Wales has managed to escape difficulties with doctors and has an excellent education system—although I am not sure whether the recent OECD figures bear that out—thanks to its ability to deal with terms and conditions. But, when you move on to the next bit of the amendment, “and industrial relations”, you open up a Pandora’s box. Given the Explanatory Notes accompanying the Bill, once you admit that industrial relations in Welsh public authorities are a devolved matter, you open up a huge area of debate as to what constitutes a public authority or industrial relations. For instance, could you have a different minimum wage for public servants in Wales or would you then get disputes between the private and public sectors?