Wales Bill

Debate between Lord Wigley and Baroness Morgan of Ely

Tuesday 11th November 2014 Lords Chamber

[Baroness Morgan of Ely]

My Lords, it is getting late, but I want to move this amendment, in which we seek to future-proof the legislation before us. It is clear that constitutional reform north of the border will move forward apace now that commitments have been made in the referendum—and, of course, these commitments must be respected. However, we need to understand that reforms of Scotland are likely to have an impact on Wales. In this amendment, we are asking the Government to undertake a commitment promising that if new taxes are introduced in Scotland we will need a review of the impacts on Wales and to probe whether there will be any benefits from introducing such measures in Wales.

I will give noble Lords the example of corporation tax, to which I am sure the noble Lord, Lord Wigley, will refer. If corporation tax were to be introduced in Scotland, there would undoubtedly be an impact on Wales. Let me be clear—the Labour Party does not want to see devolution of corporation tax to Scotland. It is hard enough to get large corporations to pay the tax that is owed already and the last thing that we want to see is a race to the bottom in terms of taxation across the UK with the consequent knock-on effect on the limited pot available for public expenditure. But the reality is that Labour is not currently in the driving seat in Scotland, and we are not sure what is going to come out of the Smith commission, so if corporation tax is introduced in Scotland and if it were to undercut corporation tax in Wales, or if we were to see a similar kind of thing being introduced on air passenger duty in Scotland, and being introduced and then reduced in Wales, it would be more difficult to attract inward investment into Wales.

We are asking for a degree of flexibility to be able to respond to whatever is introduced in Scotland. If we do not write that into the Bill, we could be waiting for a wholesale constitutional reform debate to be settled but, in the intervening period, Scotland may have started off that process of undercutting us on corporation tax, for example. Scotland may have whipped in and claimed advantage over other parts of the UK, and I do not think that we should allow that to happen.

We do not know where we are heading in terms of direction of travel on devolution. We do not know what the timetable is for constitutional reform, and we need this amendment as a belt and braces approach to protect Wales from the possible introduction of taxes that could be damaging. If the Minister is not going to accept this amendment, I would like to know how she proposes to protect Wales if the situation were to arise.

[Lord Wigley]

My Lords, I have listened to the noble Baroness, Lady Morgan of Ely, with interest. There are certainly arguments in support of symmetry in constitutional terms; they usually lead to various forms of federalism. If the Labour Party is indeed moving towards a federal approach, that is certainly an important development.

I wish to address Amendment 20 in my name, which would provide that, if corporation tax were devolved to Scotland it should certainly be devolved to Wales or be available. Noble Lords may recall that I tabled an amendment in Committee proposing that if corporation tax were devolved to either Scotland or Northern Ireland, it should also be devolved to Wales. I based that on the fact that all four parties in the Assembly had agreed that this was needed, and that the Silk commission said that corporation tax should be devolved to Wales if it was devolved to Northern Ireland. The response that I elicited from the Minister, Lord Newby, on that occasion, was entirely centred on the comparison with Northern Ireland, not with Scotland. He based his argument on two factors: first, that Northern Ireland has to compete with the lower corporation tax in the Irish Republic. Wales also has to compete with Ireland for footloose inward investment projects, tourism businesses that cross the sea, and in the agricultural food sector, for example, in cheese manufacture. We share a maritime border with Ireland so I refute his argument on that count.

Secondly, the Minister argued on the basis that the tax devolution to Northern Ireland is in order to help it to rebalance its economy, with the implication that Wales does not need to rebalance its economy. That is absolute poppycock. Wales has the lowest GVA per head of any nation or region in the UK, following the rundown of coal, steel and slate. We desperately need to rebalance our economy. I am seriously concerned that a Treasury Minister, for whom I have very great respect, should have been advised by Treasury officials that Wales does not need economic rebalancing.

The Government do not recognise Wales’s needs vis-à-vis Northern Ireland. Be that as it may, the Minister did not try to defend not devolving corporation tax to Wales if it was, indeed, devolved to Scotland. I understand that this has been raised in the context of the Smith commission that corporation tax should be devolved to Scotland. Certainly, in the pre-referendum pledge the impression was given that the devo-max model being touted would include fiscal autonomy, and that certainly includes corporation tax.

In tabling the amendment I am seeking an assurance that if Scotland gets control over corporation tax the question should be firmly on the agenda of similar provision for Wales. I hope that on this occasion I get a more conciliatory response from the Minister, not just for me but for all four parties of the National Assembly that seek such powers.

Wales Bill

Debate between Lord Wigley and Baroness Morgan of Ely

Wednesday 15th October 2014 Lords Chamber

[Lord Wigley (PC)]

My Lords, as well as Amendment 21, I will also speak to Amendments 22 and 23, all standing in the name of my noble friend Lord Elis-Thomas and myself. Amendments 21 and 22 are aimed at allowing the Welsh Government to introduce new tax credits as well as devolved taxes. That would mean that Wales was able to help target areas that require economic stimulation in one form or another.

Paragraph 4.6.8 of the Silk commission’s first report stated:

“In addition to the use of taxes to achieve policy outcomes in devolved areas, credits can also be applied so that activities are effectively subsidised. While existing tax credits such as the working tax credits (and in future the Universal Tax Credit) should remain UK wide, the Welsh Government should be able to introduce its own credits in relation to devolved taxes and through use of devolved grants and subsidies to promote investment and getting people into work”.

I hope that the Government will therefore either accept these amendments or bring forward their own amendments on Report to achieve that end—unless of course the Minister can persuade me that some other power exists or is in the pipeline that will achieve that.

I turn to Amendment 23. At present, any devolved tax to be implemented in Wales must be agreed by each House of Parliament as well as the National Assembly. We feel that it is wrong that a party in the Welsh Government implementing a manifesto pledge should be prevented from doing so by Governments in London. If the objective of this Government is to get the devolved Government to accept full responsibility for their actions then surely they should be given full and undivided authority in such matters. Manifestos and devolved taxes are matters for Wales, and the UK Government should not interfere in them. This amendment therefore removes the requirement for each House of Parliament to agree to the devolved tax so that it is in the hands of the National Assembly. It would mean that the people of Wales were absolutely clear as to where responsibility lies. I beg to move.

[Baroness Morgan of Ely (Lab)]

My Lords, the tax credits that currently exist are closely associated with welfare payments. The whole issue is integrated into the wider debate about welfare support which provides a basic living standard for people who are working and yet need state help. Introducing any amendment that would erode the provision of welfare in Wales would be a mistake—in particular, without that very comprehensive and structured debate about the implications in Wales. The Minister suggested that the noble Lord is talking about a new kind of tax credit. Could the noble Lord elaborate on what kind of thing he had in mind, beyond what currently exists?

[Lord Wigley]

If the noble Baroness refers to the Silk report, she will see the arguments made there. The whole point and ethos of the Silk report is to open out as much freedom as possible for the devolved authorities to develop ideas and even experiment with this area to reach the objectives that both she and I would wish they did. It is giving them more tools. I hope that those tools help them do the job.

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[Lord Wigley]

My Lords, I am very glad to have the opportunity to speak in this debate and to welcome the step taken by the Government in moving their ground with regard to lock-step. The noble Baroness, Lady Randerson, will well remember that I expressed some fairly strong feelings at an earlier stage with regard to lock-step. We felt that it was an inappropriate restriction and I am delighted that the Government have seen fit to move on it.

Amendment 37, standing in my name and that of my noble friend Lord Elis-Thomas, is included in this bank of amendments. We had a very useful debate on Monday in relation to constitutional principles on which there was a lot of consensus. Although the Government could not necessarily immediately accept the points that we made, they undertook to look at some of them. I hope that the same spirit will be adopted in their approach to other financial matters as has been shown with regard to the lock-step.

Amendment 37 seeks to ensure that the Assembly will be able to levy the three Welsh rates of income tax as it sees fit. The amendment is drafted to ensure that the Assembly will get full responsibility for raising and spending one of the three largest sources of government income alongside national insurance and VAT. If we give the Assembly the power to control these rates, it will enable Welsh Ministers to create additional jobs, which we hope will lead to an increase in the Welsh tax base. That would be an incentive for investment in the Welsh economy—which it certainly needs. As I say, we welcome the fact that the lock-step has been removed, which will give the Welsh Government greater freedom.

Amendment 38 stands in the name of the noble Baroness, Lady Morgan, who will no doubt speak on it in a moment. I will listen carefully to the arguments that she will put forward but I have some sympathy with what appears to be the intention of that amendment. However, I will listen carefully to what she has to say, and will listen to the Minister’s response to Amendment 37 to hear how the Government intend to build on their intention to give maximum flexibility to the Welsh Government.

[Baroness Morgan of Ely]

My Lords, the Labour Party understands the principle of the need for accountability and the need for the Welsh Assembly politicians to have responsibility not just for spending money but also for raising it. Devolving an element of income tax will undoubtedly increase the financial accountability of the Assembly. It will enable the Assembly to fund more of the spending for which it is responsible and will allow the Welsh Government to vary the levels of tax and spending in Wales and, crucially, it will allow Wales to borrow against tax.

We focus in these amendments on issues of income tax. However, it is worth pointing out that this is just one tax. In context, in 2013 income tax was 26% of the total tax take in the United Kingdom. It is significant, visible and understandable, but it is worth remembering that it is only one tax.

Devolving income tax powers to Wales has never been a priority for the Labour Party and the Welsh Government. However, it is important in terms of positioning the Assembly in the right place in the long term. We should remember that it was the Labour Party which devolved income tax powers to Scotland, but only after asking the Scottish people in a referendum whether they wanted that power. We would have to undertake a similar referendum if Wales were to follow suit. I will elaborate on this further when we discuss that group of amendments.

We will not always be in this situation. We are future-proofing here. I am confident that one day the Welsh economy will grow. There are clear signs that the Welsh Government’s efforts in this area are already bearing fruit. However, we must be aware that the whole principle behind the concept of the UK as a political entity is that we are supported by a social system that is available to all. We must be careful not to erode that basic philosophy and so provide fuel to the nationalist fire. There is a £16 billion annual gap between what Wales raises and what it spends. We must not lose focus on this issue. This is the economic foundation stone of the UK.

What drives us in the Labour Party is not some ideological zeal to create an independent utopia in Wales, but a practical, hard-headed approach to what is best, in particular for those who are struggling on low incomes, are desperate to make ends meet and are often dependent on the state to keep them afloat. We must remember that Wales has a weaker tax base than the UK as a whole. We must be careful when devolving tax powers that we do not lose out. HMRC estimated that in 2010 there were 89,000 higher rate taxpayers in Wales. They represented 7% of all taxpayers and were responsible for 33% of all the income tax revenues raised in Wales. There were only 4,000 additional rate taxpayers paying 45p in Wales. I could practically name them—they were mostly Tories, I will let you know. On the whole, we must understand that our tax base is very weak and we must be careful when we go down this route.

It is also worth noting that a very small proportion of revenues are raised by local taxation and the consequent tendency of Whitehall to wish to dictate how funds from the centre are used has seriously eroded local democracy and accountability. We must be very cautious and note that local revenue-raising should not go too far, since that tends to reinforce the regional disparities of income and wealth.

Tax differentiation can also lead to tax competition. In principle, this is not something that we encourage. We must be clear that we do not want to embark on a race to the bottom in relation to taxation. We are fearful that there is a hidden agenda on the part of the Conservative Party, which is for ever anxious to reduce the role of the state. The Conservative Party is committed to cutting taxes for the wealthiest people. Let us be clear: tax competition will lead to less money in the state pot, which means less money for our schools and hospitals.

The Conservative Leader of the Assembly, Andrew RT Davies, has said that he would like to make Wales into a “low tax economy”. He has pronounced proudly that he wants to cut just the top rate of tax. We must be aware that every time there is a tax cut, it is accompanied by a cut in services. It seems odd to consider this, at this moment in particular, in isolation from the discussions in the rest of the United Kingdom, and we need to consider what is happening in relation to the Smith commission in Scotland. That is why Labour would like to see this discussion occurring in the context of a broader constitutional convention involving the public and representatives of civil society. We must acknowledge that there is a disconnect between politicians and the public, and it is critical that we do not have a conversation about how money is collected and distributed from the distance of an ivory tower. However, the genie is out of the bottle and we need to respond.

Let us be clear that devolving income tax powers will not be a panacea for the economy of Wales. The chances are that income tax variations will not be significant. The previous Secretary of State suggested that he would like to see a 1p cut in income tax rates across the board. Research has suggested that that would cost £200 million. That would mean £200 million in terms of cuts to services—the equivalent of 7,700 nurses losing their jobs—in the hope that the economy would grow. That could happen but in the context of a Welsh Government budget of £15 billion it is hardly going to make a massive impact.

Of course, differential taxation of income would involve the need for a separate Welsh revenue collection mechanism that must be neither inefficient nor costly. The Government do not seem to be clear about the costs involved in establishing this mechanism. In Scotland, it is estimated that differential taxation would cost between £40 million and £42 million to set up. Can the Minister give some indication of how much it would cost to set up in Wales?

In anticipation of the Bill receiving Royal Assent, the Welsh Government have already set out in a White Paper how that mechanism would work. The Welsh Government and the National Assembly will have the ability to develop certain taxes shaped to the needs, circumstances and priorities of Wales. This is the first Welsh tax legislation in modern times. It is both historic and significant for Wales but we need to consider border issues, and I therefore turn to our Amendment 36.

We need to be aware of the complexity of border issues in relation to Wales, compared to Scotland. The Scotland-England border is not nearly as densely populated as the Wales-England border. Only 3.7% of the population of Scotland and 0.5% of the population of England live within 25 miles of the English-Scottish border. In Wales, the situation is totally different, with 48% of the population of Wales and 10% of the population of England living within 25 miles of the Wales-England border. There are more than 130,000 daily commuters. The fact is that introducing a variation in income tax could give rise to the possibility of higher taxpayers moving across the border in one direction or another. My understanding is that no Treasury impact assessment has been undertaken on this matter, although I understand that the previous Secretary of State said that a consultation has happened. Can the Minister confirm whether that is the case and will she commit to a Treasury impact assessment on that border issue?

I turn now to the lock-step issue. The Government have put down an amendment to remove the lock-step, thereby allowing the Welsh Government to vary increases or decreases to individual tax bands independently of one another. Again we would argue that this discussion ideally needs to be set in the context of a UK debate over the organisation of tax across the whole UK. To deal with this in isolation is inviting trouble, and that is why we need urgently to establish the constitutional convention. The public should have a greater say on where power should lie across the UK, including on the nature of tax devolution. Further devolution should not be piecemeal. The Minister referred to that in her comments on Monday. The notion of breaking lock-step is something that needs to be discussed in that broader context

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[Baroness Morgan of Ely]

I understand that, but I also think that we should be aware of the dangers of a race to the bottom. That is my real concern. We have already seen that it is hard enough to get many of these corporations to pay their taxes at all, so for us to encourage corporation tax competition within the UK would be very problematic. The problem is that if you reduce the tax take, you start to have to cut services, and that becomes a problem. It means that our schools and hospitals have to be reduced.

On the issue of air passenger duty, it is worth noting that this is another issue where there has been cross-party agreement on devolution, on the basis that if this is provided to Scotland and Northern Ireland in the same way as corporation tax is, then we should be allowed to review it in Wales as well. The point is that if they are going to do it, of course we want to be part of that game. What we cannot have is them going off by themselves. That would be problematic. It is why Scottish independence was a problem for us.

[Lord Wigley]

I am grateful to the noble Baroness for giving way. She has warned about a race to the bottom as a reason to avoid this, but she then says that Scotland might do it, that that is the first step in a race to the bottom and that we should then do it. Is she not embarrassed by the fact that her party leader signed up to this in the Assembly and she has difficulty in selling it to her group here?