Empowerment and Responsibility: Financial Powers to Strengthen Wales

Baroness Gale Excerpts

Tuesday 11th December 2012 Grand Committee

[Baroness Gale]

My Lords, I thank the noble Lord, Lord Wigley, for giving us the opportunity to debate this important matter, and all noble Lords who have taken part in this short debate. I wish we could have had longer, but the contributions show the wisdom and the knowledge that we have in Wales, particularly with our Welsh Peers. Before giving our response to the report, I will ask the Minister two procedural questions.

First, why is the Wales Office limiting debate on such a vital constitutional matter to meetings of the Grand Committee in your Lordships’ House and the Welsh Grand Committee in the other place? The Minister will know that my honourable friend, the shadow Secretary of State for Wales, has written to the Wales Office asking that a debate be held on the Floor in the House of Commons. In his letter, my honourable friend urged the Secretary of State to hold a full debate so that Members from all parts of the United Kingdom would have the opportunity to participate. No reply has been received, but at Welsh Questions on 28 November in another place, the Secretary of State appeared to suggest that such a debate would not be held until legislation was introduced, which could possibly be two years away. Does the Minister agree that this debate should not be confined or restricted in this way and does she agree that the recommendations of the report are constitutionally significant enough to warrant a full debate in both Houses? I look forward to her comments on those points.

The second procedural point I will raise is the speed of the Government’s response. In a previous answer to me, the Minister said that the Wales Office was,

“committed to dealing with this with all due speed”.—[Official Report, 27/11/12; col. 88.]

However, since then, we have heard that the Government may not respond formally until spring next year. Can the Minister explain why it seems to be taking the Government longer than anticipated to respond to the report?

The Silk report is an important publication, which has wide-ranging recommendations for Wales and the rest of the United Kingdom. We welcome the report and congratulate the commission on its work. We agree with the list of taxes that Silk suggests should remain under the full remit of the United Kingdom Government and should not be devolved. We welcome the recommendation that certain taxes, such as stamp duty land tax and the aggregates levy, should be devolved to Wales and the recommendation that the devolution of these taxes should pave the way for borrowing powers for the Welsh Government, which would enable Ministers in Cardiff Bay to offset the impact of the 45% cut to their capital budget and allow them to further invest in jobs and growth. Can the Minister confirm that the devolution of these taxes would constitute an income stream against which the Welsh Government could borrow? What discussions has she had to this effect?

Furthermore, does the Minister accept that enabling the Welsh Government to borrow against this income stream—in addition to the devolution of the taxes in their own right—would be to the benefit of people in Wales? When it comes to the devolution of income tax-varying powers, the commission has recommended what my honourable friend the shadow Secretary of State described as a triple-lock test. Such devolution should be to Wales’s financial benefit and, to test as much, a nominal amount of Welsh income tax receipts—Silk suggests £2 billion—should be assigned to the Welsh Government without the ability to vary rates.

Proceeding with a test case is a sensible approach because Silk’s evidence suggests that it is far from clear that such devolution would be in Wales’s financial interest. Whether or not it would prove to be so would depend on the change in Wales’s income tax receipts and on the change in income tax receipts from the rest of the United Kingdom. If the Welsh change is higher, Wales will stand to benefit. However, Silk alludes to the fact that Wales was hit particularly hard by the recession and so, if this approach had been in place from the time the global financial crisis hit in 2008, Wales would now be worse off.

Since the Government took the United Kingdom into a double-dip recession, it could well be the case that Welsh income tax receipts have decreased by more than income tax receipts in the rest of the United Kingdom. In other words, Wales is being hit disproportionately hard by the Government’s failing economic policies. That is why the first test is crucial; there is no guarantee that the multiplier will be positive over the next few years. Is the Minister aware of any analysis or modelling that has been forecast regarding this first test? Does she acknowledge that Wales may be disproportionately hit by the Government’s failing policies?

The second test set by Silk concerns reform of the UK’s wider funding formula. Before devolving income tax, a funding agreement needs to be reached that is fair to all of the UK. Silk’s view is that that the Barnett formula would need to be revisited before income tax-varying powers were devolved. I would welcome the Minister’s comments on whether this view is shared by the Government.

The third of the triple-lock tests is that before income tax-varying powers are devolved to the Welsh Government, there should be—I believe that there must be—a referendum. Silk accepts this principle and we share the view expressed in the report that there,

“is a special nature to income tax”,

which necessitates approval from the Welsh people. These three tests would allow for the devolution of income tax-varying powers on the provisos that it would be in Wales’s short and long-term financial interests and that it would speak to the will of the Welsh people.

This debate has given an opportunity for the Minister to shed some light on the Government’s thinking and to inform your Lordships of the progress that the Wales Office has made on this report. I would be grateful for the Minister’s comments on the triple-lock test, as well as on the other questions that I raised. I look forward to her response.