Baroness Morgan of Ely
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(9 years, 7 months ago)
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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.
“Review
In the event that the power to add new devolved taxes under section 116C of GOWA 2006 is exercised, the Chancellor of the Exchequer shall undertake a review of the benefits of parity in the devolution of taxes between Wales and Scotland, and shall review the existing principles of tax devolution.”
Baroness Morgan of Ely
In this amendment we are looking at future-proofing the legislation. We are very aware that there is a fast-moving feast going on in terms of constitutional changes in Scotland so we need to look at how we future-proof it. That is why we have suggested that if any new taxes are devolved to Scotland—and I must say that we probably need to tighten up the amendment’s wording—we would like an opportunity to assess whether they could be offered to Wales as well. That is the idea behind the amendment.
We are conscious that things are changing very quickly and we do not want to lock ourselves in because of the timing of this Bill. Labour is very keen to ensure through our suggestion, which we will come to later, that Wales can vary income tax rates, for example, to 15p in the pound rather than 10p, which is consistent with our position in Scotland. That is not the position of the Tory party which has suggested that it wants to see 100% of income tax being devolved to Scotland. The amendment looks at this consistency in approach and would at least give us the opportunity to think about whether we might like to pick up other opportunities that may be offered to Scotland later; we have to understand that there will be an impact on other parts of the UK if income tax rates are varied. It is correct to ensure that we take the temperature of how devolution has changed between now and the time when the powers to vary taxation at a Welsh level are taken up.
It is interesting to look at the joint agreement that has been made by the parties and the Assembly. On the proposal that if, for example, air passenger duty for long-haul flights were to be devolved to Scotland and Northern Ireland, we would want to look at that. That is the spirit of the amendment: we need to understand that if they are getting extra powers it will have an impact on us. We need to think about how we would want to respond to that.
Lord Newby
My Lords, Amendment 23A seeks to place two statutory duties on the Chancellor of the Exchequer when a new devolved tax is created in Wales. The first would be to review the benefits of symmetry in the devolution of taxes between Scotland and Wales. This would effectively require the Government to assess whether a tax being devolved to Wales should also be devolved to Scotland, although the way in which the noble Baroness moved the amendment inverted Scotland and Wales.
The second duty would be to review the principles of tax devolution. These are three: it should have cross-party support; it should be evidence-based; and any devolution of taxation should not be detrimental to the rest of the UK. These are good principles, and I am not sure that we want to have a root-and-branch discussion of them. What the noble Baroness was talking about, however, were the circumstances in which Scotland gets more powers, and the formalisation of a structure under which the Welsh Assembly not only thinks about them but has a process for discussing those matters with the UK Government.
On the symmetry of devolution settlement, until now the Government have been clear that we consider devolution decisions for each country on their own merits. The existing arrangements provide flexibility for the Government to consider Wales and Scotland either separately or at the same time. However, the Scottish referendum result puts us in a new position in discussing devolution. Nobody seriously believes that we are at the end point in terms of devolution anywhere in the United Kingdom. Over the next year or two, we are clearly going to see a debate of an intensity that we have not seen in England at all, and have not seen in Wales since the Assembly was first established. We are talking about considerable potential changes. In these circumstances, it seems that the Welsh Assembly will be involved in those discussions, not least through the Joint Exchequer Committee if it has any specific proposals. There will be also be almost ceaseless debate in any constitutional convention, if one is established, or more generally in Parliament about what the future structure should look like.
I therefore think that the kind of formal review the noble Baroness proposes will be unnecessary. There will be no lack of opportunity for these issues to be debated. The challenge to the English regions and counties and to Wales is to produce a compelling argument for the kind of change that is required, and then to seek and obtain a political consensus for it. Whoever is in government after the next election will be faced with a situation in which there is a clear appetite for devolution in various respects. That will only crystallise into action when there is real pressure and a consensus in the nations and regions of the UK as to what that future of greater devolution might involve. With that in mind, I hope that the noble Baroness will feel able to withdraw her amendment.
Baroness Morgan of Ely
I thank the noble Lord. It is important to understand that, at the moment, we do not know what that process is. My concern is that if we do not get this down somewhere, it is possible that Wales will be left out of that debate, until a mechanism is devised. Ministers have talked eloquently about the mechanism that may be put in place but, at the moment, there is no formal structure. At this point, we are trying to make sure that there is a proper mechanism in place so that there is an opportunity for us to work out whether anything that is offered in Scotland is something we would want to take up in Wales.
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
Lord Elystan-Morgan (CB)
I endorse with very great enthusiasm everything that has been said by my noble friends Lords Wigley and Lord Elis-Thomas, particularly on the question of unity. We as a nation have been blighted by disunity for so long. That refrain was taken up over the years by my old and very dear friend Lord Elwyn-Jones: our predilection to fissiparous division. He had a marvellous story, and I hope the House will indulge me for a moment. A shipwrecked sailor was cast on a desert island, the only survivor of the tragedy. He was there for years, but ultimately a ship drew into the bay. A boat came ashore, and there was great jollification all round. Before leaving the island, the sailor showed the boat’s crew where he had been living: his living quarters, where he had kept the animals and a cave with a cross over it. He said, “That is the church in which I worshipped on Sundays”. Somebody among the boat’s crew said, “But there’s another cave with a cross on it”, and he said, “I wouldn’t be seen dead in that place”. That is the sort of people that we have all too often been in Wales, and unity is very greatly to be welcomed. I have already paid tribute to the noble Lord, Lord Bourne. The Silk commission tried to find a reasonable, meaningful, least common multiple. The chairman, the assessors and the four representatives of the various parties succeeded in doing that, and long may that continue.
I turn to the question now of the amendment itself. I accept the principle that it is healthy, proper and courageous for the Welsh people to take on themselves these heavy fiscal responsibilities and that the decision should essentially be theirs alone. On the other hand, I would not wish the situation to develop other than through a referendum because I think that a referendum would clarify the mind—as Dr Johnson might have said—and would allow these issues to be examined in very great detail. I was disappointed in 1997 when the Labour Government, having been elected, made it clear that they would proceed with the issue of some form of Parliament for Wales and then said at the same time that there would be a referendum. I was disappointed but I was enthralled that we managed to carry that referendum, albeit by a slim majority. It gave us a sovereignty and a moral certainty in relation to the matter and I think the same would be true in this connection.
I am sorry that I missed the beginning of this debate—I was upstairs in a sub-committee dealing with European matters and I apologise for that—but I believe I heard the Minister say, with regard to a referendum, that she wished that the matter would be dealt with fairly quickly by the Welsh Assembly. I see that she nods. This is my plea. This is a crucial matter that deals with the very essence of whether a Welsh Parliament can succeed in a credible way. Everything turns in the first place on the validity of that referendum in so far as it reflects the wishes and understanding of the Welsh people. There can be no question of meandering into the dark in this matter, marching possibly to the beat of a distant drum while looking at some faint point of light in the distance. It is the same as a jury contemplating a serious case. There has to be certitude over exactly what the issues are and what the main relevant facts are in relation to them.
Let me come to the point immediately. There are many issues but the most important one is Barnett. The Government have said in relation to Scotland, understandably and perhaps in a mode of panic, that they will not touch Barnett at all. Barnett shall be utterly inviolate. Having said that, it means that it is virtually impossible to contemplate a situation where they will be willing to discuss Barnett in the context of Wales. It is one and indivisible—the bubble is either pricked or it is not. As far as the losses under Barnett are concerned, I know that various figures are mooted. The probability is that the annual loss at this stage is of the order of £200 million to £300 million and will increase as prosperity increases. Be that as it may, I ask the Minister to give these undertakings. First, the Government should appreciate that it is the legal right of the Welsh Assembly, and no other body, to decide whether there should be a referendum and when there should be one. Secondly, they should not contemplate bringing any pressure to bear on the Welsh Assembly in that regard—it should have a free, unfettered choice. Thirdly, there should be no question of asking the Welsh people to determine this momentous matter of a referendum without the Barnett matter having being settled fully, comprehensively and once and for all.
Baroness Morgan of Ely
My Lords, the Labour Party in 1997 made a promise in that first referendum which established the Assembly. In that promise we made it clear that we would not introduce income tax variations to Wales unless and until the people of Wales gave us permission to do so. Let us not forget that we won that referendum by a hair’s breadth. It would be a massive political mistake to go against that. I honestly believe that had there been a question about tax in that referendum we would not have an Assembly today. We have to honour that promise we made to the Welsh electorate. The referendum promise to the people of Wales is one of three locks we want to be sure are in place before tax raising or cutting powers can be used in Wales. If we have learnt anything from the Scottish experience it is that the public will get involved if it is something that impacts on them directly. There is nothing that impacts more directly than income tax so they are sure to get involved in this debate. We must do them the honour of respecting their views and we will not know what those views are unless and until we hold that referendum.
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.
Baroness Morgan of Ely
My Lords, Labour supports the move to devolve stamp duty land tax to Wales as it would be an obvious candidate due to the highly immobile nature of the tax base. The other issue to consider is the fact that housing is already a devolved issue. Devolving this tax would allow the Welsh Government to have a more comprehensive approach to housing needs in Wales. I echo the concerns of my noble friend Lord Rowlands about the impact on the block grant. Obviously, there would be an impact. The Command Paper states that the Government continue to discuss this proposal. However, the problem is that we are back to a negotiated agreement based on subjective decisions, so it is not as clear as we would like it to be.
As my noble friend Lord Anderson said, we have to be very careful about this issue. If Scotland and Wales opt for this measure, what will happen when London, with its £1.3 billion of stamp duty, starts to ask for it? If we go down this route, we must be very careful and do so with our eyes open. I am not saying that we should not go down this route but we should be aware of the floodgates that we might open in doing so. However, we support this tax.
The most obvious problem with the landfill tax is that the more successful the policy of using the tax as a means of getting people not to use landfill is, the less income will be derived for the Welsh Government. The other problem is that the current system of landfill does not identify the geographical location of the taxable activity, so we would have to bring in a whole new administrative mechanism as it does not exist in the UK at the moment. A danger could arise of the cross-border disposal of waste if there were a change in the rate of tax between one country and another. We need to be aware that these things could cause problems. However, as I said, the benefit is that this is a relatively immobile tax and waste management is a devolved responsibility so there would be opportunities to co-ordinate policy, particularly in respect of the environmental aims of the Welsh Government. We are in favour of devolving these taxes given their importance in providing an independent source of income to borrow against but we should be aware of the floodgates that might open in the rest of the UK.
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.
Baroness Morgan of Ely
If you just look at stamp duty in London, the estimate is that £1.3 billion is collected there. That is quite significant. It is worth pointing out that that is a concern. We want to see this devolved, but I thought that the whole point of the House of Lords was that we look at something and say that there may be a problem here—let us check it out. I thought that was the point of this place.
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 Thomas of Gresford
Surely the distance between Bristol and Cardiff and the services provided from Bristol are such that Bristol sucks people out of south Wales to use the additional services that fly there. That is why it seems to be in competition. What we are after is the development, the building-up, of Cardiff. If it comes within the European definition, that must be good enough.
On the issue of fuel duty, I understand that provisions have been made in Scotland to reduce fuel duty—I stand to be corrected—if you are more than 100 miles away from an oil refinery. In Wales, we have rural areas and people who are very much dependent on the use of motor vehicles—almost exclusively so in parts of Wales. However, Milford Haven, which is not built to supply Wales, happens to be within that 100-mile area in the south; and, of course, we have Ellesmere Port in the north. Consequently, the reduction of fuel duty, as happens in Scotland, does not happen in Wales. However, that ignores reality. It ignores the fact that the needs of the rural population of Wales are just as great as those in the highlands of Scotland. They suffer the same impoverishment as they do in the highlands of Scotland, perhaps even more, and accordingly there is a case for taking fuel duty under the wing of the Welsh Assembly. That does not necessarily mean applying it to the whole of Wales, so that we have queues of English people in Gresford from across the border, which is not something that I would wish to see. That is not the idea at all. It would enable the Welsh Assembly to vary fuel duty with regard to the needs of the people of Wales, which I think is very sensible.
Baroness Morgan of Ely
It is worth putting on record the Labour position on some of these points. First, in relation to fuel duty, we think it will be impossible to organise separate fuel duties within the United Kingdom and probably very difficult to comply with European Union rules within countries. Those cross-border issues we have just heard about could be quite complex and difficult to police. That would be a problem for us. Of course we have genuine sympathy for the problems relating to the cost of fuel in rural areas, but we do not think that this is the mechanism by which we should be addressing it.
On natural resources tax-sharing arrangements, we do not agree that this is a good idea. Wales is not sitting on vast quantities of oil like Scotland’s and a key point to remember is that we do not tax energy production from wind, wave and water in the same way as we do barrels of oil, so there would probably not be much in terms of tax return anyway—we would probably have to invent new taxes. On the issue of corporation tax, one of the most disappointing aspects of the Scottish referendum campaign was to see Plaid Cymru members actively supporting independence for Scotland. It was not surprising but was a little disappointing, because we know that one key thing Alex Salmond wanted to do was to reduce corporation tax 3% below that of the rest of the UK. That would have done untold damage to Welsh companies. It would have adversely affected Welsh companies, so we did not understand why Plaid Cymru was quite so enthusiastically supporting independence.
Lord Elis-Thomas
I spoke on this matter in this House during a debate in June. Let me make it clear that my support was for the right of the Scottish people to express their own self-determination. They have done so, with marvellous consequences for the rest of us. We would not be debating in the way we are tonight if they had not done that.
Baroness Morgan of Ely
That is great to hear, but there are some aspects of Salmond’s policy commitments that I think would have been problematic for Wales and it is worth noting those.
Lord Thomas of Gresford
Does the noble Baroness agree that all the things we have been discussing tonight are levers—things such as airport taxes—that we can use to increase prosperity in Wales to an equality with the rest of the United Kingdom? These are levers that would achieve a balance between the various nations in the United Kingdom. That is what it is all about. If you have a power to vary corporation tax, for example, it may be something that you exercise for a certain period in order to pull in industry, and then you may feel that you face competition from elsewhere and you should drop it. These things are all economic levers to achieve equality of prosperity in the United Kingdom.
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?
Baroness Morgan of Ely
Not at all. Let me be clear: we in the Labour Party are not encouraging this; we do not want it to happen. At the moment we are not in charge of the government of this country. If it is introduced by the Government, then, of course, we want to make sure that we have a fair crack of the whip, so that Wales can compete as well. We are not encouraging this, though.
Lord Newby
I shall take the amendments in turn. Amendments 49 and 51A seek to include explicit provision in the Bill for fuel duty and air passenger duty to be devolved to the Welsh Assembly. First, I remind noble Lords that Clause 6 of the Bill already contains the power for further taxes to be devolved to the Assembly by Order in Council and therefore the Bill does not rule out in perpetuity any tax being devolved at a future point if there is agreement to do so. I shall explain why we are not devolving these powers in the Bill, starting with air passenger duty. As has been pointed out, the Silk commission recommended that long-haul rates should initially be devolved with devolution of all rates considered subsequently. In the Government’s response to the Silk commission we highlighted HMRC research which suggested that differential rates of APD could end up redistributing passengers rather than creating additional growth. This potential distortion, despite what the noble Lord has said, is particularly acute in relation to Wales, given the short distance between Cardiff and Bristol airports. As the noble Lord, Lord Anderson, pointed out, for many people who fly from south Wales and just across the Severn there is a real and immediate choice between those airports, which they see as close competitors.