Wales Bill

Lord Thomas of Gresford Excerpts

Tuesday 22nd July 2014 Lords Chamber

[Lord Thomas of Gresford (LD)]

My Lords, this Bill is introduced into the House at a very interesting time, with the Scottish referendum only weeks away. It provides centrally for the introduction of tax powers specifically to permit the Welsh Government to set a rate of income tax, subject to their first obtaining a favourable referendum vote. This is what the First Minister, Carwyn Jones, said about that last November:

“As a Government, we are not pursuing the devolution of income tax, certainly not at this time. The reason for that is we believe that income tax devolution cannot come unless there is reform of the Barnett formula. The funding basis for Wales must be solid first, before we can consider whether income tax devolution will be appropriate and right for the people of Wales”.

I noted that the noble Baroness, Lady Morgan, a moment ago said that she would not lead the campaign for income tax devolution. That continues to be the Welsh Government’s position.

There is a bit of curious thinking in the Labour Party about this, because the Scottish Labour Party’s commission on devolution report explicitly and repeatedly rejects proposals for a needs-based alternative. In an interview on “Newsnight Scotland” on 18 March last, Labour’s Scottish Leader, Johann Lamont, claimed that:

“The Barnett formula works for the United Kingdom”,

which is very different from what was being said a moment ago. She said it works for the United Kingdom, not for Scotland. Well, Labour received its comeuppance in Scotland in the last Scottish Parliament election.

One of the problems—

[Lord Richard (Lab)]

The noble Lord provokes me slightly, since I chaired the commission on the Barnett formula in this House. Is the noble Lord in favour of the Barnett formula remaining in its present form for Wales? Is the Liberal Party in Wales seriously suggesting that the way in which the Barnett formula is calculated at present should remain in that state?

[Lord Thomas of Gresford]

The noble Lord knows perfectly well that the Liberal Democrats are for the reform of the Barnett formula and always have been. I can give that assurance. I am just puzzled to hear what is said by the Scottish Labour Party, which obviously prefers the current arrangements.

[Lord Anderson of Swansea (Lab)]

What about the Scottish Liberal Party?

[Lord Thomas of Gresford]

The Scottish Liberal Party has been merged with the Scottish Liberal Democrats. I am not going to go any further into that.

The problem with devolution in Wales is that a Labour Government continuously in power—either on their own or as the lead party—escape accountability for their failures for a number of reasons. First and fundamentally, the essential link that all democratic Governments should have between raising resources through taxation and spending those resources on policies is missing. This Bill goes some way to dealing with that particular problem.

Labour’s demand for more money from the central government from a reform of the Barnett formula before they dare put these taxing powers to a referendum, is like Oliver Twist’s, “Please sir, can I have some more?”. It is Labour’s excuse for condemning Wales to fall behind in education and health, as it does, not merely judged by UK comparisons but also against international comparisons. Any very proper criticism of those failures is said to be “a war on Wales”—an empty piece of rhetoric first used by Carwyn Jones himself at the Welsh Labour Party conference in Llandudno in March.

Just as Labour seeks to delay the introduction of a Welsh income tax, so in the House of Commons debates on the Bill Labour sought to delay the introduction of the borrowing powers by waiting for a report on the legislative steps necessary to move to a model of reserved powers for the Welsh Assembly. I heard with interest the noble Baroness say that an amendment will be proposed to bring in reserved powers as the model in the Bill, and look forward to seeing how that is expressed.

The second matter that concerns me is that the recommendation of the Richard commission 10 years ago that the number of AMs should be increased to 80 to improve scrutiny within the Assembly was not pursued. The recommendations of the Silk 2 report, as the noble Lord will no doubt have noted, are that:

“A range of options should be considered in the short term for increasing the capacity within the existing National Assembly, including greater flexibility on the number and size of committees, increased numbers of research staff and better use of Assembly Members’ time. … The size of the National Assembly should be increased so that it can perform its scrutiny role better. The practical implications, and those for the electoral system, will need further consideration”.

The third matter that concerns me is that the press and media in Wales allow a dominant Labour Government to get away with it. Take the desire and the ability of the press in Westminster to tear Ministers limb from limb on a daily basis—for example the spat between Theresa May and Michael Gove over extremism in schools—and compare it with the deferential approach of the Welsh media over the very recent abject dismissal of Alun Davies, the former Welsh Government Natural Resources and Food Minister, for gross misconduct. One wonders whether the politicians and the Welsh media are too closely aligned and too ready to exchange roles.

I return to the Bill. I welcome the proposal to remove the current restrictions on individuals standing as a candidate for both a constituency seat and a regional seat. Studies by the Electoral Commission have shown that the current prohibition has a disproportionate impact on smaller parties, because they have a smaller pool of potential candidates from which to draw. The proposal to prohibit MPs from sitting as Assembly Members, and vice versa, is also welcome. It has an interesting history. Back in 1998, as the then Welsh spokesman for the Liberal Democrats I was lobbied from the very steps of the Throne by Mr Ron Davies Member of Parliament, the then Secretary of State for Wales, to give our party’s support to an amendment to the Government of Wales Bill which would permit him and others to have a dual mandate. At the time, it seemed reasonable to have some experienced politicians in the new body we were setting up, and so we agreed. However, I think that with the experience of the years that have passed it is time to end that practice.

I will raise another issue during the passage of the Bill. Much was made of the fact that two of the Lib Dem candidates in the last Assembly election were disqualified from being Members because they belonged to various public bodies, one of which was the Care Council for Wales. On the complaint of a Labour Party Member, they were interviewed by the police on an allegation that they had knowingly made a false statement in a document in which they gave their consent to being a regional party list candidate at those elections. That was translated into being disqualified from nomination.

The confusion arises because, under the Local Government Act 1972, a person is disqualified from being elected as a member of a local authority, whereas Sections 16 to 18 of the Government of Wales Act specifically say that:

“A person is disqualified from being an Assembly member”.

Of course, elections to local government are on the first past the post system; elections to the Welsh Assembly are done on both a constituency and regional basis. The regional election is in accordance with a party list. It is ludicrous to require a person on a list, who might not be first with a chance of election but second, third or fourth, to give up public service on a public body, very often unpaid, just to be a candidate. Although Liberal Democrat candidates were highlighted last time, I am aware that members of other parties stood as candidates, but were not elected, who might have been subjected to the same treatment. A successful candidate in an election ought to have a period in which to resign from any body that would disqualify him from being an Assembly Member—maybe eight days. I shall accordingly seek to amend Section 16 of the Government of Wales Act 2006 to make that position absolutely clear.

The aftermath of the Scottish referendum will, in all likelihood, see changes in Scotland. I was delighted to hear from the Minister that the situation in Wales will be revised; in particular, the lock-step will be looked at again. The structure of Welsh devolution is not yet satisfactorily settled. Once the Bill is passed as a further step, the focus in Wales will turn to the recommendations of Silk 2. The Liberal Democrats, who accept all its recommendations, will be here to return to the fray in the next Parliament. For the moment, I look forward to the fray in the Committee stage of the Bill.

--- Later in debate ---

[Lord Elystan-Morgan (CB)]

My Lords, this Bill well deserves the support that is obvious for it in all parts of the House, in the main because it is a Bill that takes Wales further along the road to home rule.

Many Members have meandered down memory lane in connection with the events of past decades. They reminded me of the feelings that I have, and always have had since I was a young boy, about the attainment of a Welsh Parliament. It has been something of an obsession for me, and I make no apology for that. For many years—years of disappointment and frustration—it seemed like a distant dream, which would probably never be achieved.

All that changed in 1964, with the establishment of the office of Secretary of State for Wales. Before then it seemed that nothing in the way of substantial constitutional development was possible: after that, everything has been possible—that is, in so far as it is the will and the determination of the Welsh people to achieve it.

To some extent, the devolution in the 1997 referendum, and in statute thereafter, was not classic devolution at all, because it did not, in the main, entail the transfer of any substantial new powers to Wales. The powers had already been transferred, but they had been transferred to Welsh Ministers. What it did bring about, of course, was a significant transfer of power from Ministers to the people of Wales. It meant that, for the first time, one had a body elected by the people of Wales, meeting on the soil of Wales, and with a moral and legal authority to speak for Wales. Obviously, with the greatest respect, that authority had to be on a broader basis than that which could be enjoyed by any Minister of the Crown as such.

In the referendum of 2011 we had a very considerable devolution. That created, essentially, a Welsh Parliament —a lawmaking Parliament with wide legislative powers, falling into 20 separate broad categories. That presents a massive challenge. This Parliament of Westminster has had many centuries to evolve slowly, deliberately and securely, and to mould its traditions to meet the needs of various ages. We in Wales will be expected to achieve a great deal of that process within a very short compass of time.

That must always be remembered in the context of what is now a new body. It is the Assembly, but it is essentially a Welsh Parliament. I not only recognise, but am charmed by the fact, that it should be called the Senedd. I believe that it was the noble and learned Lord, Lord Morris, who set the precedent with his Bill in the 1970s, in which the name of the body was the Senedd.

[Lord Thomas of Gresford]

My Lords, I know that the Bill presented by Lord Hooson in 1967 contained the name Senedd; I drafted it.

[Lord Elystan-Morgan]

It did indeed. A few weeks ago I had the great honour of contributing a chapter on the political life of the late Emlyn Hooson, in which I made that very point.

There is therefore a respectable precedent for the concept of a Senedd. The word may, of course, have embarrassing connotations. As noble Lords will know, it comes from the Latin word “senex”, meaning an old man. The same stem is in the word “senile”—and also in the word “senior”. But—and I speak with some fervour and commitment in this matter—there is a great deal to be said for old men in politics.

The generality of the Bill is very much in the track of everything that has happened in the past 40 years, and especially in the past 17 years, since the referendum of 1997. I have little doubt that it shows that the curve of expectations and the curve of confidence that the Welsh people have in their own destiny has nobly sharpened during that time. I think that it will continue to do so.

It is in that context, therefore, that we look not only at what the Bill contains, but at what it does not mention. The main part of it, as we all appreciate, deals with the varied rate of tax that will be within the jurisdiction of the Welsh Assembly. I have a canny approach to such a situation, perhaps because I am a Cardiganshire man, and in Cardiganshire we have the tradition of being extremely careful in relation to money—a very laudable trait, if I may say so.

Of course the proposal has its attractions. Of course we will never be a complete and full home rule parliament unless we take up such responsibilities. But after all, we are being asked to invest in a future that is very uncertain. We are being asked to buy stock, as it were, in a new enterprise—but the prospectus is very nebulous. What do I mean by that? I refer, first, to the lock-step. That could dominate the whole situation. With a lock-step imposed on the three bands of taxation, it might be difficult to impose a progressive tax. The Silk commission—I too applaud the efforts of people like the noble Lord, Lord Bourne, in this context—was strongly for that. It argued the case to the point where there was no answer to it. Nevertheless—due, no doubt, to influences from beyond the Tweed, and for reasons connected with Scotland—there is dubiety at this moment. Until that dubiety is resolved, we cannot really begin to think about the question of whether Wales should take up these powers.

There is also the question of Barnett. In passing, may I say that we hope that the noble Lord, Lord Barnett, will soon be restored to full health in this place; he is a gentleman of remarkable qualities, and I have enjoyed his friendship for more than 40 years. However, the losses under the Barnett formula have been enormous, as the noble Lord, Lord Wigley, has already proved. The commission chaired by Gerry Holtham made it abundantly clear that every year, Wales loses—or did lose when the report was published, three years ago—some £300 million. As the economy improves, that loss becomes greater. It is a disgraceful situation, for which Governments of both colours over the past 30 years are responsible, because they have been unwilling to look into the inequity of the arrangement. A small country like Wales simply cannot afford this massive haemorrhaging of assets, which will continue unless something drastic and radical is done about it.

As for the main proposal in the Bill—yes, there are possibilities, but there are also dangers. There are matters that have to be spelt out. I cannot for a moment see the Welsh people accepting it until they have some sort of reasonable guarantee that we will be no worse off if we take up those options. Hazlitt said that there are only two certainties in life: death and taxes. As for death, this House may very well do something about its certainty, but as for taxes, they will remain exactly the same, and for ever.

Of course it will be difficult for a referendum to be carried if there is still a tinge of uncertainty. Gerry Holtham said to the Welsh Affairs Committee that the referendum is very losable unless those guarantees are in place.

I turn to two other matters that are not in the Bill. One is the membership of the Assembly. I do not think that I can overemphasise that feature. The noble Baroness, Lady Humphreys, has already spelt out the case, a case set out excellently in the publication by the Electoral Reform Society Wales. The facts, briefly, are these. In Scotland, there are 128 Members of the Scottish Parliament; in Northern Ireland, there are 108 Members of the Assembly; in Wales, there are 60. Once you take out the Ministers, Deputy Ministers and Officers of those various Houses, you have this result: in the House of Commons, 525 Back-Benchers; in Scotland, 113 Back-Benchers; in Northern Ireland, 92 Back-Benchers; in Wales, 42 Back-Benchers. That is well below the minimum number that can form a reasonable critical mass to carry out that function.

Edmund Burke said that, for evil to triumph, it is necessary only for men of good will to do nothing. If anyone wants to bring about the evil of destroying the very future of the Welsh Assembly, and everything that is possible within its grasp, all you have to do is to do nothing in relation to that membership. It is simply impossible for it to carry on with that small number. The Electoral Reform Society has argued strongly the case for 100 Members. It has carried out surveys in all parts of the world and found that that is about the average for what might be called a sub-parliament of this nature.

For myself, I would ask people to exercise a bit of faith and imagination, to consider how that rising curve of expectation that we have seen in Welsh constitutional development over the past 15 years might continue, and to say that 120 might not be impossible. The beauty of the figure of 120 is that it is very simple: you simply double the number of Members that you have at present.

I turn briefly to the question of reserved powers. It is simply ludicrous that if a person wants to find out whether or not a particular function has been devolved to Wales, he or she might have to look at 600, 700 or 800 little pieces of constitutional confetti just to find out whether that matter has been transferred. That is no way to run a parliament. Indeed, by placing the situation on the basis of reserved powers, we place Wales in exactly the same position as Northern Ireland and Scotland. That would also save a whole generation of Welsh lawyers from acute constitutional neurosis.

Wales stands at a point in time where there are many challenges, many dangers and many possibilities. This House must have heard the quote from the Bard of Avon very often:

“There is a tide in the affairs of men

Which, taken at the flood, leads on to fortune;

Omitted, all the voyage of their life

Is bound in shallows and in miseries”.

There is a tide in the life of a small nation, as well, and we must do all we can to see that we do not miss that fateful opportunity.

--- Later in debate ---

[Lord Howarth of Newport]

We are considering the political arrangements that are appropriate for Wales. For all the reasons that I have already indicated, it must be wrong in principle; but here we are focusing on the question of Wales.

The core of the Bill is fiscal devolution. It is anomalous that devolution should have created an Assembly and a Welsh Government that apply policies in Wales but do not raise taxes to pay for them in Wales and do not have the close accountability to the people of Wales that levying taxes creates. The fact that that was part of the initial structure of devolution reflects the early diffidence in Wales about devolution when the referendum was won by only a hair’s breadth in 1997.

The taxes that it is now proposed to devolve will be no cornucopia for Wales. Public expenditure in Wales runs at perhaps twice the level of the net tax receipts that the Welsh Government are able to spend. It is quite right that business rates should be determined by local authorities in a system negotiated with the Assembly and the Welsh Government, but that is not going to be a bonanza for Welsh local government. Stamp duty land tax is highly erratic in its yield. Is it intended that the block grant should rise and fall with the fluctuations in the yield of stamp duty land tax? If it is not, we are going to see some fairly halting progress in the kind of capital programmes that the proceeds of that tax should be able to fund. From the last figures that I saw, the yield of stamp duty land tax in Wales was only some £200 million, in contrast to London, where it is in the order of £2 billion. The Mayor of London is asking that that tax be devolved to himself and the Greater London Assembly. That raises the question of how long we can expect London to be willing to subsidise Wales on the scale that it does at the moment. Londoners may want to see Wales raising some of its own money.

I understand that the landfill tax will be a diminishing source of revenue.

[Lord Thomas of Gresford]

The Barnett formula clearly applies to Scotland and Wales and the reform of it is linked. Does the noble Lord wish to postpone reform of income tax in Wales, or the collection of income tax in Wales, until that whole problem has been resolved?

[Lord Howarth of Newport]

These issues need to be addressed together. I am hoping to say something about the Barnett formula in a moment.

The devolution of tax, as we know, is to be linked to the question of borrowing powers. The ratio of borrowing permitted in Wales will be the same as the ratio of tax devolution. Borrowing is to be heavily circumscribed by the Treasury in the existing situation—up to £500 million to cover volatility in tax receipts and another £500 million for capital expenditure. That will be increased only if Wales assumes further responsibilities for taxation within Wales. Clearly, the Treasury does not believe that the purpose of power is to give it away.

The situation in Scotland is different. The Scottish Government can borrow up to 10% of their capital expenditure. It seems unfair that there should be lower limits on borrowing powers in Wales, created by this link to income tax. The scope to raise income tax is lower in Wales than it is in Scotland. I agree, therefore, with the Labour proposition that, if the people of Wales wish it, they should have the power to vary income tax to 15%. This question of borrowing powers is absolutely crucial.

The consequence of the arrangements proposed in the Bill is that Wales is placed in an unfair bind and faced with a very difficult dilemma. The noble Lord, Lord Thomas of Gresford, has just drawn our attention again to the Barnett formula. These issues need to be resolved together, particularly against the background that the Welsh budget has been heavily cut by £1.6 billion, and in terms of capital resources cut by 31%, as my noble friend Lady Morgan said. The people of Wales, with lower living standards and a lower taxable capacity, are being told to service borrowing in order to pay for projects that previously would have been funded from the Exchequer. The people of Wales are also being asked to pay for projects, such as the improvement of the M4, which are not just infrastructure for Wales; they are infrastructure for the whole of the UK. When it comes to the referendum, the people of Wales will want to think whether they are being asked to buy a pig in a poke.

The power that the Scots have to vary income tax has not been used over 15 years. The difficulty for a devolved assembly or parliament is that they are politically damned if they do and politically damned if they don’t. There are very difficult problems about introducing differentiated tax rates within a country as geographically compact and economically integrated as the United Kingdom. Wales will experience that more intensely than Scotland because of the permeability of the border and the much greater involvement between the people of Wales and those who live across the border in England.

What matters? Is it the specific powers that are devolved, or that there should be policies that on the part of the United Kingdom as a whole will enable Wales to be more prosperous, that will be fair as between Wales and the rest of the United Kingdom, and will enable Wales to play a strong part in the United Kingdom? There is a large gap between revenue and expenditure in Wales. Wales needs the continuing willingness of taxpayers in England to continue to support it. Some 40% of GDP in the UK is generated in London and the south-east. There are very significant risks for Wales if it embraces the opportunity of developing its own policies on income tax. Above all, Wales must not lose the willingness of the United Kingdom, and England in particular, to continue to redistribute. Wales therefore needs a Government with a vision for the United Kingdom as one nation, a nation consisting of proud regions and nations within it, and a Government who do not disparage the achievements of Wales in education, health and housing. Wales needs a Labour Government who will offer devolution that is not meagre and mean and that will enable Wales to thrive within a thriving union.