Wales: Commission on Devolution in Wales

Baroness Morgan of Ely Excerpts

Monday 18th November 2013 Lords Chamber

[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.