Wales Bill

Baroness Morgan of Ely Excerpts

Tuesday 22nd July 2014 Lords Chamber

[Baroness Morgan of Ely (Lab)]

My Lords, I thank the Minister for outlining the shape and clauses of the Bill. The timing of the Bill is extremely sensitive, as the noble Baroness hinted, with this Second Reading taking place before the Scottish referendum and the Committee stage coming after that referendum. The Bill will therefore be a moving feast. The constitutional implications and the political response in Scotland, and in the rest of the United Kingdom, will need to be carefully considered after the referendum vote, irrespective of the outcome in September. It was interesting to note that the Minister stated that further discussion following the referendum will be possible on certain aspects of the Bill.

We also have a new Secretary of State for Wales in Stephen Crabb, and it was lovely to see him at the opening of this debate. While the previous Secretary of State, David Jones, seemed to have a rather ambivalent attitude towards devolution and despite the fact that the new incumbent has proclaimed himself in the past to be a self-confessed devo-sceptic, pleasingly he appears to have seen the light in recent weeks and has promised to develop a better relationship between the Government and the Welsh Assembly. We shall give him the benefit of the doubt and look forward to this being the case.

We are also entering a pre-election period where manifestos are being drawn up and there is an increasing awareness of the overcentralisation of the state in London. In addition, we are dealing in the Bill with recommendations that have been largely taken up as a result of the Silk 1 commission. Since then, however, Silk 2 has been published and it would seem strange not to take the opportunity to discuss some of the suggestions of that report. On the whole, I shall desist from that temptation although there is one notable exception, to which I shall allude later.

Before I start, however, it is worth pointing out what my motivation is and always has been in relation to devolution in Wales. As a founder member of the cross-party Yes for Wales campaign in 1997 and having then been on the team, along with the noble Lord, Lord Bourne, to draw up the initial standing orders for the Assembly, I was and am a lifelong supporter of devolution. I even remember wearing a sticker to school as a 12 year-old in 1979 in support of that doomed campaign when it took place. However, my motivation has never been rooted in any romantic, nationalist or even patriotic ideals. Neither is it controlled by a fixation on limiting the role of the state. Some would argue that this has been attempted in the Bill through the promotion of competitive taxation, which will inevitably lead to lower taxation across the United Kingdom and therefore a reduction in the size of the state. My motivation has always been to do what is best for Wales: making decisions close to the people, taking local circumstances into account and, crucially, ensuring that the people of Wales, particularly the poorest, are not left worse off.

Wales remains one of the poorest parts of the UK, although the unemployment rates are falling fast thanks to some innovative measures by the Welsh Labour Government. It is absolutely right that Wales continues to benefit from the UK Treasury receipts. The nature of the politics I believe in means that there should be a sense of social solidarity across the whole of the United Kingdom. In Wales, we have more of a sick population due to our industrial heritage, which helped to create the historic wealth of the United Kingdom. We also have a proportionately higher ageing population, many of whom have moved from England—and we happily welcome them to our beautiful country. Nevertheless, there is and has been hitherto a sense that these conditions and historic legacies should be recognised and that there needs to be a redistributive mechanism from the richer centre to the poorer periphery.

However, Wales has seen significant cuts in recent months and years. The IFS has suggested that the total block grant allocated by the UK Government to Wales in 2013-14 is 9.4% lower in real terms than it was in 2010. Further cuts have been announced for 2015-16 which, if implemented, would take the cut to 12%. There has been a 31% cut in the amount earmarked for capital expenditure. That cut in capital expenditure has been a severe handicap to the Welsh Government’s ability to invest in projects and infrastructure that could increase economic activity and grow the economy. Central to the Bill and the key reason why we in the Labour Party are anxious to support it is that, for the first time, the Welsh Government will have the power to borrow.

Let me underline, however, that it is critical that the ability to borrow should not be used by the Government in Westminster as an excuse to cut funding that should otherwise come to Wales. The focus so far has been on the need to borrow in order to invest this money on improvements to the M4 motorway. That commitment was announced by the Welsh Government last week and has received support, in particular from the business community. I believe that that is crucial, but we need to be sure that a similar project in the north of England, for example, would not have been funded out of this Government’s central pot once the Barnett formula has been taken into account.

The ability to borrow is crucial, but we would like to question in Committee why the level of borrowing allowed for Wales is so low. It has been suggested that the mechanism that determines the borrowing levels in Scotland has been used as a template for Welsh borrowing. However, we on these Benches shall argue that there has been an inconsistent approach, and that both Northern Ireland and Scotland have been allowed to borrow irrespective of the ability to raise the commensurate amount through their revenue-raising at a devolved level. Neither has the amount Wales is allowed to borrow taken into account the fact that Wales, in relative terms, has very little to make in terms of PFI payments compared to Scotland. Ideally we need a mechanism in this Bill to allow the Welsh Government to borrow more in future. We need to be assured that a degree of flexibility is allowed in relation to the conditions of borrowing. The ability to borrow, at least initially, is predicated on the fact that two specific taxes will be devolved to Wales: stamp duty and landfill tax. We can consider the benefits and disbenefits of these taxes in Committee, but it is worth noting that the nature of both these taxes is that they can vary considerably from year to year. There has been an agreement that, due to the nature of the variability, an adjustment can be made, but I would like to probe a little further in Committee on the nature of the adjustment deal and how watertight this agreement is.

The disbenefits are obvious. Being part of a larger group means that hitherto Wales has been pooling the risk with the rest of the UK. Probably the most controversial part of this Bill is the power to raise income tax, subject to a number of criteria. The previous Secretary of State for Wales argued, along with the Liberal Democrats, that he would be pushing for a 1p cut in income tax, suggesting that that would be a stimulant for investment and economic growth. He could well be right. However, reducing the Welsh rate of income tax by 1p, as suggested, would cost £200 million in terms of cuts to services. It will be interesting to see how the new Secretary of State feels about that, especially given that he has said that his,

“opposition to devolution … has been driven by a belief that … devolution would foster and feed an increasingly separatist and socialist discourse in which sensible Conservative policies that could promote national cohesion, economic liberalism and”—

note—

“smaller government would find little oxygen for survival”.

National cohesion is the last thing that we will see as a result of tax competition. Smaller government, however, would inevitably be delivered. Just imagine cutting 7,700 nurses, which is what £200 million represents, in the hope that the economy would grow. It could happen, but it would be a huge risk at the expense of central public services. It should be noted, however, that £200 million should also be set in the context of an overall budget for Wales of £15 billion. It must be said that that is pretty small change, and probably would have a negligible effect on the efforts to change the economic fortunes of the country.

Even if the economy did grow, much of that growth would return through income tax receipts to the central UK Treasury, and would go only some way to top up the payments to services cut in Wales. Let us not forget that only 4,000 individuals in Wales paid a top income tax rate of 50p in 2010-11, and that more than 90% of the people of Wales pay a basic rate of tax. The Government believe that devolution should be used to give a competitive edge to Wales, and that the powers devolved should be used to grow the economy. My fear with these figures, however, is that if we are to engage in any kind of tax competition with the rest of the UK, Wales will come out the loser. That is great if you are chasing some kind of nationalist dream of self-dependence; it is a disaster if you are poor and do not want your services cut. We want no race to the bottom. This would prove detrimental to all parts of the United Kingdom.

As the Minister has set out, there are cross-border implications of income tax competition. We would like to address the need for a comprehensive, cross-border Treasury impact assessment which takes into account the fact that 48% of Welsh people live within 25 miles of the English border, with 10% of the English population living within 25 miles on the other side; that is, 6.3 million people. It is worth contrasting this with Scotland, where just 4% of the population lives within 25 miles of the English border, with 0.5% of the English population living within 25 miles on the other side; that is just 450,000 people. The complexity associated with different tax rates, therefore, is much higher in Wales, both for employers and for employees.

We are also concerned that not enough has been done to calculate the cost of collecting tax in Wales. Again, we would like to probe further in Committee the indexation aspects of the impact of income tax changes to Wales. It is essential to underline the fact that Labour has a clear triple-lock system, upon which we would insist before embarking upon income tax devolution for Wales. First, there is of course a need to ensure a fair funding mechanism for Wales. Even with the Bill’s proposed devolved tax arrangements, 75% to 80% of the Welsh government budget will still be provided through the Barnett formula. We need to be sure that we are not locked into the current funding system, which would disadvantage the country for ever. Secondly, we would insist upon a period of assignment to ensure that Wales is not worse off as a result of any tax-varying powers. Thirdly, of course, none of this will happen unless the Welsh people vote for tax-raising powers for the Assembly. Having seen the lamentable turnouts for the European and police commissioner elections, and with the idea of a campaign on a question containing the word “tax”, I would not be volunteering to lead a referendum to promote this in Wales.

Other aspects of the Bill are also important. In the parts relating to electoral systems and frequency of elections, our principal position is that these should be matters for the Welsh Assembly to decide. The public are confused by a system which allows a candidate to stand on both the constituency ballot paper and the regional list ballot paper. Labour will be submitting an amendment to protect the status quo. The Explanatory Notes make clear that the measure will benefit small parties with a smaller pool of candidates, so there is undoubtedly a highly political angle to this, as there is to much of the Bill; my noble friend Lady Gale, who will be helping me out on the Bill, will elaborate on this point later.

We also believe that a shift to the “reserved powers” model of governance should be introduced at the earliest opportunity. We should not wait for Silk 2 to be implemented in a further Bill, but should address this issue now. Once again, the coalition Government have questioned the authority of the Welsh Government to make decisions in certain areas and, once again, recently, the Supreme Court has found in favour of the Welsh Government, ensuring that the Welsh Government have the right to protect vulnerable farm workers. These are costly, bureaucratic fights, which should be halted as soon as possible. We shall be proposing an amendment to include the reserved powers model for the Assembly.

Extra powers would mean extra responsibility for Assembly Members, particularly in the role of scrutinising expenditure. Although this would obviously be a matter for the Assembly, ideally we need an assurance that the personnel infrastructure and the expertise, both in terms of administration and scrutiny, are in place before handing over these powers. Assembly Members are already extremely stretched with 60 Members and I am sure that some noble Lords will want to pick up on this issue during the debate.

Overall, the Labour Party will be supporting this Bill. However, we will take the opportunity to probe and test various aspects of the proposals which we feel need further thought and consideration.