Wales Bill

Debate between Lord Rowlands and Lord Anderson of Swansea

Wednesday 15th October 2014 Lords Chamber

[Lord Rowlands]

My Lords, there is a consensus that both stamp duty and landfill tax should be devolved. I have no intention of questioning that consensus. The purpose of my seeking a debate on these clauses is to ensure that we know the implications of devolving these taxes, particularly on the block grant. To date, I do not think we have concentrated on that issue.

I have some questions, first, about stamp duty. Stamp duty revenues were £115 million in 2010-11, according to the Silk commission. This represents only 2% of the total. The Silk commission makes the obvious point that stamp duty is a very volatile tax. It can vary from year to year depending on the state of the housing market. No form of indexation such as has been developed to deal with income tax devolution was recommended; in fact the recommendation was for a fixed reduction. How is the fixed deduction from the block grant going to be determined? What will be the arrangements and process, and how will it be assessed? What impact will the devolution of stamp duty have on the block grant?

The second tax that we are devolving—the landfill tax—is very different. It is a tax that is not really aimed at raising revenue. It is intended to encourage waste saving and recycling. In fact, the success of this tax would be if the revenue declined. Indeed, the Silk commission points out that that is exactly what is happening: the taxable base—that is, the volume of waste sent to landfill—is declining. Across the UK, the taxable base for landfill has fallen by 33% in the last five years, and so the value of the block grant offset would need to reflect a declining tax base. Again, there is a serious issue about what impact the devolution of this tax would have on the block grant: how it will be assessed and how it will be decided what the deduction will be.

There are a couple of other complications with the landfill tax, as listed in paragraph 24 of the March 2014 White Paper. There is a UK Landfill Communities Fund attached to the landfill tax. This fund is financed by contributions from the landfill site operators, who receive an LfT credit worth 90% of any contribution they make. This is a UK fund and a UK landfill tax credit arrangement. However, once devolved, the operators in Wales will no longer be eligible for UK tax credits. As I understand it—and it is clearly stated in paragraph 24 of the White Paper—once we devolve the landfill tax, the eligibility for the UK-based landfill tax credits will disappear. I am not quite sure but I thought that the Minister implied in an earlier remark that in fact it would not, but according to paragraph 24, that is the case. It says:

“Once LfT is devolved to Wales, operators of landfill sites in Wales will no longer be eligible for a UK LfT credit”.

So that credit would fall. Are there powers in the Bill to allow a Welsh Government to create an equivalent landfill tax credit scheme of this kind?

In Wales, there are 24 registered landfill site operators, of which 15 were in receipt of tax credits during the financial year 2013-14. HMRC will not disclose information relating to how much the individual operators receive but the landfill communities contributed £4.19 million in 2010-11, £4.3 million in 2011-12 and £4.3 million in 2012-13 towards environmental projects in Wales.

Paragraph 24 on page 11 of the White Paper explains that there is going to be a transitional period. Will the Welsh Government, if they wish to, be able to establish an equivalent landfill tax scheme, of the kind that has been operating and which has successfully ensured that in some areas—where these landfill sites are often very controversial and have impacts upon local communities—they are able to make contributions and maintain some kind of local community fund?

The second problem identified in paragraph 24 is that:

“LfT is a key lever for the UK Government to achieve its 2020 landfill reduction target under the Landfill Directive (relating to the biodegradable municipal waste). Member states may be fined if they fail to achieve their target. In the unlikely event that the UK fails to meet its landfill reduction target solely because of changes to landfill tax policy in Wales, the Government will seek to recover this cost from the Welsh Government”.

There is an uncertainty hanging over this issue and the impact that it will have.

We are advised in paragraphs 31 and 32 of the Government’s White Paper on the question of how we are going to determine the reduction in the block grant. I would be grateful if the Minister could elaborate and explain paragraph 31 in more detail, as I have not fully understood it. It indicates some kind of proposition for the way they will handle the assessment of the reduction in the block grant once these taxes are devolved.

Paragraph 32 says:

“The Government continues to discuss this proposal, and other options, with the Scottish Government and has now opened similar discussions with the Welsh Government”.

Could the Minister update us on these discussions? How close are they to coming to some real understanding and agreement on the basis for reductions in the block grant as a result of devolving these taxes? I hope that the Minister will give an assurance that when we come to Report, these two important implications of how the block grant will be reduced will be much clearer and we will be able to approve these clauses in the full knowledge of the impact they will have on the block grant. I hope that the Minister will be able to reply.

[Lord Anderson of Swansea]

My noble friend as usual asks some very probing and cogent questions. On the face of it, these transfers of tax responsibility are relatively symbolic because, on the “bucket and the well” principle, what is gained on the one hand is lost on the other in terms of the block grant. It would be helpful if that could be elaborated on. Perhaps the best answer is that these transfers give a basis for the borrowing powers, which are very welcome, and which are contained in the Bill. Just a word of caution, however: the idea of a transfer of stamp duty has already been seized upon by other groups, notably by the Mayor of London, Boris Johnson. London, of course, has far greater resources and far more wealthy houses and land than Wales. If this were to move along the spectrum in the UK, it could have substantial implications, not least for Wales. Therefore, I utter a word of caution. However, on the other side of the coin, the borrowing powers, and the use to which they will be put—pace the noble Lord, Lord Thomas of Gresford, who feels that north Wales is likely to lose out in terms of the borrowing powers—are indeed welcome in principle.