Wales Bill

Debate between Lord Newby and Lord Rowlands

Wednesday 15th October 2014 Lords Chamber

[Lord Newby]

My Lords, I am grateful to the noble Lord, Lord Rowlands, for raising these questions, which are central to how these two devolved taxes are administered. As he said, stamp duty land tax is a somewhat volatile tax and is not as steady as some others. However, there is a borrowing power to deal with any volatility. As with any other body, it will be available to the Assembly to build up cash balances which could be used should it find that in a particular year stamp duty brings in less than it expected. However, the volatility is not all one way. As with the UK Government more generally, in some years the Welsh Assembly will do very well out of stamp duty land tax and may choose in such a year to set aside a certain amount against any potential property downturn.

The noble Lord’s most fundamental question concerned how one decided what the block grant off-set should be for both these taxes. As he pointed out, the Command Paper says that there is a two-part process. First, you make an initial reduction to the block grant which is based on current takings from those two taxes. That is straightforward; it is just a mathematical calculation. Secondly, you have to decide how you amend the block grant in every subsequent year. As we say in the Command Paper, a logical way to do it is by having smaller Barnett consequentials every year. However, that may be an unacceptable way of doing it from a Welsh perspective. There are other ways of doing it. For example, it could in theory be linked to overall changes in public expenditure. However, this is one of the key issues to be discussed by the Joint Exchequer Committee, which will have its first meeting next week. Therefore, I hope that by the time we reach Report there will be something further to report on all this. However, that is the mechanism for deciding exactly how the subsequent year adjustment is calculated. The key point is that it is something that will be agreed with the Welsh Assembly, rather than being imposed by the UK Government.

The noble Lord, Lord Rowlands, asked about the eligibility for UK tax credits, or rather how tax credits will be treated. It will be for the Welsh Assembly to determine what sort of tax credits it wants. If it wants to set up the same operation as we have had with the Landfill Communities Fund, it has the power to do so.

[Lord Rowlands]

Where is the power? Is it in the Bill?

[Lord Newby]

It is in the Bill. I will correct myself if I am wrong but I am sure that this flows from the point I made earlier about the ability for tax credits to be assigned to these taxes in the same way in Wales as they are in the UK.

The noble Lord, Lord Rowlands, asked what would happen in respect of the existing Landfill Communities Fund and possible contributions to Wales. The fund is financed by contributions from landfill site operators. Obviously, once the Welsh landfill tax is in operation, the eligibility under the UK fund will eventually dissipate. However, I understand that this will not happen immediately. I believe that the Joint Exchequer Committee will determine the exact mechanism for dealing with that, bearing in mind that the Welsh tax is not envisaged to be operational until 2018, so there will be a transitional period and projects that are already in the planning process, or where allocations have already been made, will go ahead.

Questions were asked about how you determine whether somebody is an eligible landfill operator. My understanding is that 13 landfill operators have all their landfill sites in Wales and would need to register for the new Welsh tax and deregister from the UK landfill tax, and that another 11 have landfill sites in both Wales and elsewhere in the UK and would need to register for the new Welsh landfill tax in respect of their sites in Wales but would remain registered for the current UK landfill tax.

The noble Lord, Lord Rowlands, asked what would happen if, as a result of Welsh decision-making, the UK failed to meet its landfill reduction targets under the landfill directive. He also asked about the meaning of the statement,

“the Government will seek to recover this cost from the Welsh Government”—

that is, if the UK were fined. Obviously, if the Welsh Government were to say that they were setting the landfill tax rate at or near zero, and as a result all English landfill operators were rushing to landfill in Wales, and we therefore missed our target, it would be reasonable for the UK Government to say, “We are being fined only because of that decision and therefore it is reasonable that the Welsh pay any fine”. We are talking about a very remote possibility, not least because we are making reasonably good progress in reducing landfill across the UK. We do not believe that we are in danger of being fined under that directive in the foreseeable future.

The noble Lord, Lord Anderson, raised a word of caution and talked about borrowing powers and their limits. All I will say is that the sooner the Welsh Assembly agrees to have a referendum, that referendum is won and an element of income tax is devolved to Wales, the greater the borrowing powers for the Welsh Assembly will be.

The noble Baroness, Lady Morgan, raised a couple of problems. I am new to this debate, but I am slightly surprised at the tone of the noble Baroness. She speaks of problems, of everything being difficult and of unforeseen circumstances. It is quite depressing. She asked about what would happen if London asked for control of its own stamp duty land tax. The English regions—not just London but the Core Cities Group, which represents all the northern cities as well as London—have argued that all property taxes should be devolved to them in the same way that stamp duty land tax will be devolved to Wales. I cannot see it being a problem for Wales as, in cash terms, stamp duty land tax is a very small proportion of the total tax take. It will not have a significant impact on the overall level of public expenditure by the UK. Therefore any Barnett consequentials, for example, of London having control of its own stamp duty land tax, would be minimal. I would have thought—and I know that this applies to my colleagues—that Wales would welcome the thought that England would benefit from a degree of devolution in the same way that Wales expects to benefit.

[Lord Newby]

We like to do it in a positive spirit. The truth is that stamp duty land tax is a very small proportion of the overall UK tax take compared to income tax, national insurance and VAT. It is only a couple of per cent of that. It is a small tax. It is important for local areas, and it will be interesting to see what Scotland proposes to do, now that it has powers over its stamp duty land tax, to shift the balance of where that tax is borne. One of the advantages of devolving the tax to Wales is that the Welsh Assembly can choose to do something similar if it wishes.

[Lord Rowlands]

I apologise for interrupting the Minister, but he has mentioned Scotland. Presumably the discussions between the Government and Scotland on how the reductions will take place in the block grant to Scotland are much further down the road. May we assume that our arrangements will be very similar to, if not the same as, what will be agreed in Scotland?

[Lord Newby]

There is a Joint Exchequer Committee in Scotland, as there is in Wales. It will be for the Welsh Assembly representatives to decide whether the approach that is eventually adopted in Scotland makes sense for Wales. I think that there is a presumption that it probably will. The less complexity that there is in how we do these things, the better. Although there may be a presumption in that respect, there is no rule that requires it. It will be for that committee to look at Scotland and other examples in making up their minds.

I hope that I have answered the principal questions that were raised and, on that basis, that the noble Lord will remove his objections to the clauses.

EU: Fraud (EUC Report)

Debate between Lord Newby and Lord Rowlands

Wednesday 11th December 2013 Grand Committee

[Lord Newby (LD)]

My Lords, I am extremely grateful to my noble friend Lord Stoneham for his introduction to this report, to all noble Lords who have spoken and to the committee itself for the detailed report into the fight against fraud on the EU’s finances.

It may be blindingly obvious, but I start by saying that the Government also take fraud and the management of taxpayers’ funds very seriously. We have adopted an increasingly robust stance on financial management, and we remain committed to securing and enforcing the most effective means of fighting fraud at both a national and EU level. Fraud against the EU budget remains a matter of great concern, and this Government have adopted a leading role in calling for improvements to the way EU finances are managed.

I remind noble Lords that we are the first Government to take a firm stance on fraud against the EU budget by voting against the Council’s decision to recommend discharging the Commission of its responsibility to manage the EU budget. We took a stand by abstaining on the Council position on discharge of the 2009 EU budget and increased the pressure by voting against the Council’s recommendation to discharge in 2010 and 2011. We have also continued to encourage like-minded, budget disciplinarian member states to join us in sending the strongest possible message that financial management needs to be improved. In 2010 and 2011, Sweden and the Netherlands joined the UK in voting against the Council’s discharge recommendations and issued a joint statement calling for improvements to the way EU funds are managed.

We have also been at the forefront of the drive for real changes to improve errors within EU budget expenditure. For example, in the light of the European Court of Auditors’ reports confirming that much of the expenditure error is due to excessively complex rules, the Government successfully worked with allies to push for the significant simplification of the complex rules for beneficiaries of EU funds. I note what the noble Lord, Lord Bowness, said about it being disappointing that the Court of Auditors has been unable to provide a positive statement of assurance for the most recent budget, as has been the case for a number of years. The noble Baroness, Lady Morgan of Ely, explained why it is quite difficult to get to the necessary level of assurance. As the noble Lord reminded us, and as I have, over the years, reminded Eurosceptics within your Lordships’ House, it is a very long time since the DWP budget received a similar assurance statement.

When the Government replied to the report in July, the Financial Secretary gave a detailed response to all the findings. While that response still reflects the Government’s overall position, I will seek to respond to some of the additional requests for clarification made by noble Lords.

A number of noble Lords raised concern over the estimated level of fraud against the EU budget. The Government appreciate that the Commission’s assessment of the amount of fraud against the EU budget is an estimate and cannot give a full picture, by which I mean that the real level of fraud is necessarily going to be higher than the figure that it has produced. In order to get more nearly to a figure, it is therefore important to ensure that the quality and consistency of reporting by all member states is of a standard that allows the Commission to receive accurate information upon which to base its estimate.

It is also important that other contributing factors, such as the constant updating of the database, are resolved to improve the data that the Commission receives and holds. The noble Baroness, Lady Morgan of Ely, explained some of the complexity of the process, and although it is very easy to damn it on the basis that it should be possible to sort this out, in practice it is extremely difficult in a 27-member Union to get the kind of consistency and quality of reporting that gives us absolute confidence that the final correct figure has been reached. As the recipient of reporting information from member states, the Government believe that the Commission is best placed to provide such a clear estimate, but more work needs to be done.

I am sorry that the committee finds the Government’s decision not to recognise its estimate of actual fraud disappointing, but we maintain the view expressed by the Financial Secretary in his substantive response. I have a lot of sympathy with the noble Viscount, Lord Eccles, who said that we should not get excited about the absolute estimate of fraud but should worry much more substantively about bearing down on it.

With that that in mind, I turn to our reporting of fraud against the budget. The Government remain committed to this work and do not accept the view that we are lacking in enthusiasm or drive in our approach to tackling such fraud. In line with existing reporting obligations, the Government rigorously collate comprehensive data on fraud and consistently report them to the Commission.

As identified in the committee’s report, the UK does not have a central department or agency responsible for the fight against fraud. Individual departments and agencies are responsible for monitoring and acting on fraud against the EU funds they receive and spend. This does not demonstrate a lack of commitment or dedicated resource but reflects the UK’s national arrangements for handling EU funds. When one is talking about funds being spent by Administrations in Northern Ireland and Scotland, it is natural for them to be contacting the EU directly with information. Furthermore, the Government have a new approach to fraud because the creation of the National Crime Agency has given us the opportunity to pull expertise in anti-fraud work into a dedicated Economic Crime Command. The ECC will work closely with national police forces and partners, as well as with the EU and international equivalents. However, the Government remain of the view that the Commission, as the recipient and collator of fraud statistics, is best placed to provide a breakdown of fraud at an EU level and within individual member states. I shall come back to the question of the single point of contact.

A number of noble Lords raised the issue of VAT fraud, which has been and remains a significant problem. It is, however, worth pointing out that since 2005-06 NTIC fraud estimates have decreased from between £3 billion and £4 billion to around £1 billion in 2011-12, which demonstrates that effort has been put in to tackle this very serious, arguably the single biggest, area of EU fraud that affects the UK. We have had a significant positive impact.

We take seriously all forms of fraud, which is why in the 2010 spending review HMRC was allocated an additional £917 million to help it recover unpaid tax and excise duties in the next four years, of which some £90 million is being spent on tackling organised criminal attacks, and we have had some significant successes. Further, the number of criminal prosecutions across a range of taxes, including VAT, is to be increased fivefold. I am not sure that that is quite the target that the noble Baroness was looking for, but it is an indication of the Government’s ambition in this area. However, it is clear that VAT fraud is not solely a concern for the UK and, noting the committee’s concern and points raised by noble Lords, I can confirm that we encourage other member states to maintain the pressure to reduce VAT fraud within their jurisdictions with the same enthusiasm and vigour that we employ.

I turn to our engagement with the European anti-fraud office, OLAF. It is clear that its success relies on effective co-operation with partners in member states, third countries, international organisations and EU institutions. The Government fully cooperate with OLAF’s work in the UK. Its efforts to detect and tackle fraud, including through seeking financial redress for the EU budget where possible, is highly important to us. The UK, through the National Crime Agency, provides a number of UK-wide liaison services and is taking steps to improve our engagement with Europol, Eurojust and OLAF. This includes, through the NCA, providing bureau services to Europol and Interpol and being home to the UK Financial Intelligence Unit. It does this through the Europol national unit, which is based in the UK International Crime Bureau of the NCA and is supported by the UK national unit based in The Hague. The ENU provides a channel for all UK law enforcement engagement with Europol. The Government believe that the NCA’s work with these agencies and services, including Eurojust, Europol and OLAF, will strengthen co-operation with our European and international partners to fight cross-border fraud.

I return to the question that many noble Lords raised about our response to the requirement to provide a single point of contact. This is, as noble Lords mentioned, something that has been under discussion for some time. City of London Police has indeed offered to be such a contact point and continues to be in discussion with the Home Office. As noble Lords will be aware, the Home Office works in an extremely deliberative way and I hope that we will have a decision on this as soon as possible.

[Lord Rowlands]

I apologise for interrupting the Minister. What is “as soon as possible”, given that we have already had a 12-month pause?

[Lord Newby]

My Lords, it is a slightly flexible definition. The best I can do is draw to the Home Office’s attention the strength of feeling that clearly exists in your Lordships’ House that this decision should now be taken quickly.

Moving on to the European Public Prosecutor’s Office, the Government accept that multijurisdictional crime against the EU budget is European in nature but believe, as noble Lords pointed out, that an EPPO is not the only or the right solution to the problem. The noble Lord, Lord Rowlands, gave some of the arguments for that, but I repeat our view: a centralised European prosecutor with harmonised powers to initiate investigations and order investigative measures is incompatible with the division of responsibilities in many EU countries where law enforcement and prosecutors have different roles from that of the independent judiciary. As such, it would require fundamental changes to those member states’ legal systems and existing operational structures to implement the Commission’s vision of a supranational body with powers of investigation or prosecution within UK jurisdiction.

The Committee asked how the UK would address the shortcomings in existing processes for tackling fraud in the absence of being a participating member of the EPPO. The Government will continue to focus on preventing and tackling fraud against the budget and draw on their new approach to policing fraud. On the response to identified crimes, the Serious Fraud Office uses a similar model to the EPPO by bringing prosecutors and police together to fight serious fraud but there are differences. There are limits to the SFO’s statutory investigative powers but the existence of the SFO at national level is evidence of a domestic model that is similar to the EPPO proposal. Further, the creation of the National Crime Agency’s Economic Crime Command means that we have an opportunity to pull expertise in anti-fraud work into a dedicated policing unit. The ECC will work closely with national police forces and partners as well as the EU and international equivalents.