Wales Bill

Baroness Morgan of Ely Excerpts

Committee: 2nd sitting (Hansard): House of Lords
Monday 7th November 2016 Lords Chamber

We should come clean to the people of Wales. They should be offered a package. They need to know what the future fiscal framework will be. We need to see the reform of Barnett, and to see the structures of funding and transfer payments across the UK clarified and in place. We need to know what the scope for borrowing will be, taking into account the possibility that interest rates will be higher and that it may not be at all easy to service that borrowing. In that context, the people of Wales should be allowed to take the decision about whether or not they wish to be made subject to an income tax-varying power exercised by their own legislature within Wales.

[Baroness Morgan of Ely (Lab)]

My Lords, I was 12 in 1979 when we had the first referendum on whether we wanted devolution to come to Wales, and I have had a little taster this afternoon of what it must have been like during that campaign. But we have had a different result from that in 1979; the Assembly has been established for 19 years and it is maturing and developing.

I thank my noble friends Lord Murphy and Lord Hain for tabling this amendment because this issue is worthy of debate. I am afraid the people of Wales were told when we established the Assembly that we would put the issue of income tax-varying powers to them in a referendum. We have heard today what a risky business referendums are; I concur—I also have the scars from the recent referendum—and, let me tell you, I am no longer a fan of referendums.

It is worth repeating the question asked by my noble friend Lord Murphy: what has changed since the last Bill that the noble Baroness, Lady Randerson, brought through the House, and what is the difference between that Bill and this one? What has made the Government change their mind on this issue? It is worth drawing attention to the fact that Wales is not a rich country. My understanding is that only about 6,000 people in Wales pay the highest rate of income tax, those who earn over £150,000, while only one in 16 pay the 40p higher rate of income tax. We are not talking about people that it is easy to tax, so it is worth remembering and understanding that this is not going to be a power that is easily exercisable.

However, I beg to differ with my colleagues on this issue, because times have changed. As the noble Baroness, Lady Randerson, said, the Assembly has moved a long way during those 19 years. On top of that, we have the issue of austerity. The IFS said recently that, by 2020, there will have been an 11% cut since 2010 in funding coming to Wales. That is hitting some of the poorest members of our society. Austerity is hitting not only our revenue budgets but our capital budgets. It is all very well to talk about borrowing money from the European Investment Bank, but we do not even know whether we will be able to access that kind of funding in future.

Why do I support the amendment? I support the amendment because, at this difficult time, borrowing against this income stream will be essential if we want to invest in our infrastructure in Wales. There is demand for better infrastructure. People want improvements in Wales. That demand is there. However, it is important to understand—we will come to this in the next amendment—

[Lord Bourne of Aberystwyth]

I am grateful to the noble Baroness for giving way. I do not think that she is speaking in favour of the amendment; she might want to clarify that.

[Baroness Morgan of Ely]

I am not speaking in favour of the amendment because of the next amendment. We need an increase in the borrowing powers because of the funding stream and the devolution of taxation. That is critical to investment in Wales.

We know that the Welsh Government and the UK Government have an understanding and that there will be an agreement on the fiscal framework before we enter the next phase of the Bill. It is important that, in that fiscal framework, we have an offset to the block grant in return for that tax revenue. We need to see how that offset will interact with the Barnett formula, and we need the funding floor to be made permanent. It is critical that we should not accept a situation where Wales will be materially worse off as a consequence of devolving taxation. That would not be good for the people of Wales?

We expect the Minister to negotiate that with the Finance Minister in the Assembly, but can he can assure us that that fiscal framework will be resolved before we have an understanding? We will come in the next amendment to the amount that may be borrowed, but can he assure us that we will be able to have an increase in borrowing powers as a result of the fiscal autonomy that will be coming to Wales?

[Lord Bourne of Aberystwyth]

My Lords, I thank noble Lords who have participated in this debate. For the sake of clarity—I correct myself as well—this is a clause stand part debate rather than a debate on an amendment to Clause 17.

I thank the noble Lords, Lord Murphy and Lord Kinnock, for moving and speaking to the Motion that the clause do not stand part. I disagree with their intent. As the noble Lord, Lord Murphy, said, we have been here for nearly 20 years since the first successful referendum in 1997. Circumstances massively changed in that time, as the noble Baroness, Lady Morgan of Ely, said.

Let me try to deal with some of the points. Circumstances have changed since the Silk commission’s first report. The noble Lord, Lord Wigley, has been consistent on this topic, as has the noble Lord, Lord Kinnock. I confess that I have not. I am more like the brother-in-law of the noble Lord, Lord Thomas of Gresford: I have changed my mind on some of these issues. I should set that out first. In the Silk commission, all four parties recognised the need for income tax powers for the National Assembly for Wales. If it was to become a full legislature in the proper sense, it was accepted that it needed income tax powers. Some noble Lords have used the phrase as if it meant all income tax powers; of course, it does not; some income tax powers remain with the United Kingdom. We should make it clear that this is not transferring all income tax powers; it is transferring some. It is a significant change, I agree, but the suggestion made by the noble Lord, Lord Kinnock, for example, that it is a fundamental, apocalyptic change to the way things happen but that it will not be exercised is somewhat inconsistent. It cannot be both apocalyptic and not be used.

I very much hope that it will be used. We cannot necessarily draw conclusions from what has been happening in Scotland. I hope that the National Assembly for Wales will be more imaginative. I was there for 12 years, and there was evidence of a lot of free thinking on many issues, not least in this area, so I do not accept that the power will not be used. We must realise that it is a limited power; it is not transferring all income tax powers to Wales.

I agree with the points made by the noble Baroness, Lady Humphreys, and the noble Lords, Lord Wigley, Lord Crickhowell and Lord Morgan, about circumstances having changed, that perhaps we make use of referendums too freely, and that they are not always appropriate. I feel that if we were to insist on a referendum, it is arguable that we would be holding Wales back. In some quarters—I certainly exempt the noble Lord, Lord Kinnock, from this—it is being put forward as a means of trying to defeat the proposal or slow things down. We would not be doing Wales a great service if we did that. This is a power for a purpose, as was identified by the Silk commission. It is bringing in accountability. It is making what I hope becomes the Welsh Parliament, in name as well as reality, a real Parliament with this element of tax-raising power on income tax.

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Moved by

[Baroness Morgan of Ely]

24: After Clause 17, insert the following new Clause—
“Lending for capital expenditure
(1) In section 122A of the Government of Wales Act 2006 (lending for capital expenditure), in subsections (1) and (3), for “£500 million” substitute “£2 billion”.(2) In section 161(2) of the Government of Wales Act 2006 (commencement), after “120(3) and (7)” insert —“section 122A(1) and (3),”.”

[Baroness Morgan of Ely]

My Lords, to me this is one of the key clauses in the whole Bill. I have made no secret of my lack of enthusiasm for the way the Bill has been written, but we are now living in very difficult financial times. The IFS has claimed that there will be a 3.2% cut, in real terms, in the Welsh budget over the next three years. We have little confidence that the UK Government are going to make up the losses that Wales will face as a result of Brexit. The IFS has said that if they do not make up the losses, that will lead to a doubling of those cuts if EU aid is not replaced after Brexit. I am aware that there has been a promise until 2020, but nothing beyond that.

The devolution of tax powers through the Wales Act 2014 will also enable the Welsh Government to borrow in order to invest in capital infrastructure. That will benefit the economy and communities across Wales. The current level of capital borrowing permitted to the Welsh Government is £500 million. That is based on the devolution of two fairly minor taxes: stamp duty land tax and landfill tax. In the Command Paper published alongside the Wales Bill in March 2014, the UK Government committed to reviewing the level of capital borrowing available to Wales if income tax is partially devolved. This Wales Bill will result in the transfer of an additional £2 billion in tax revenue to the Welsh Government, and so will significantly increase the size of the independent revenue stream available to the Welsh Government. In line with the commitment given in 2014, the Bill provides an opportunity to give Welsh Ministers a more meaningful degree of borrowing power to reflect the significant increase in devolved tax revenues under their control.

The Silk commission, of which the noble Lord, Lord Bourne, was a member, recommended that the Welsh Government’s capital borrowing limit should be at least proportionate to the limit agreed for Scotland, taking into consideration the relative lack of exposure to PFI in Wales. With comparable devolved tax powers, the UK Government agreed a capital borrowing limit of £2.2 billion in the Scotland Act 2012. In line with the recommendation from the Silk commission, a capital borrowing limit of £2 billion would therefore be proportionate to that agreed for the Scottish Government, after taking into account the Welsh Government’s lower exposure to PFI. The UK Government’s position that a limit of £500 million is appropriate, as set out in the Government of Wales Act, is contradictory to the approach taken for the Scottish Government in the Scotland Act. At a time when there are significant economic uncertainties, the ability to bring forward additional capital investment would provide a much needed economic stimulus to Wales. With a capital borrowing limit of £2 billion, the Welsh Government would have the fiscal tools available to support the level of investment needed in Wales.

The Welsh Government and Assembly are anxious to grow up, but it is as if the UK Government still want to treat them like children, telling them how much money they can spend and that they are allowed to borrow only if they tell “daddy” what they are going to spend the money on. An increase in the Welsh Government’s borrowing capacity is absolutely critical, and I for one would find it very difficult to support the Bill without that increase. We understand that this will form part of the discussions on the financial framework, but we strongly recommend that both the Welsh Government and the UK Government come to an agreement on this critical area. I ask the Minister to give a commitment that there will be a revision of the amount that is currently in the Government of Wales Act.

[Lord Wigley]

My Lords, I will speak briefly to Amendment 24 moved by the noble Baroness, Lady Morgan of Ely, which seeks to raise the limit on capital expenditure lending from £500 million to £2 billion. We touched on this issue in our debate on the previous group of amendments.

In the economic climate we find ourselves today, with further uncertainties ahead of us, it is more necessary than ever to have available to the Welsh Government a facility to boost jobs and stimulate growth by way of capital investment—in particular, in capital expenditure on infrastructure projects. Many expect the Chancellor to reflect that sentiment in his Autumn Statement later this month. The Bill imposes on capital borrowing the disappointing limit of only £500 million, which is not enough even to pay for the Welsh Government’s M4 relief road scheme—unless they were to adopt a more sensible route than that currently being advocated.

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[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Lords who have participated in the debate on Amendment 24, and I thank the noble Baroness, Lady Morgan of Ely, for moving it.

The amendment seeks to quadruple the Welsh Government’s capital borrowing limit set in the Wales Act 2014 from £500 million to £2 billion. As the noble Baroness is of course aware, borrowing falls within the scope of the funding discussions between the United Kingdom Government and the Welsh Government that are proceeding alongside the Bill. As we know, the Bill cannot proceed without the legislative consent Motion, which is dependent on those discussions being successful.

I refer noble Lords to the communiqué published following the Joint Exchequer Committee meeting in September. The two Governments discussed the rationale for the existing capital borrowing arrangements and agreed to consider changing them. Therefore, I can give the noble Baroness the undertaking that she seeks, and I think it is consistent with what I said in the previous debate. It is unthinkable that the matter would not be raised. However, I think she will understand that I cannot give a specific figure. Indeed, the comments of the noble Baroness, Lady Randerson, perhaps indicate that we do not want to constrain the figure in case the discussions lead to it going higher than that. I have given noble Lords an undertaking, which I will repeat: ahead of Report I will give a summary of where we are on the fiscal discussions, which are going well—including, as I understand it, in this area.

As noble Lords have indicated, there are two key considerations in relation to the borrowing limit. The first is ensuring that borrowing is affordable for the Welsh Government. Of course, the transfer of the taxation powers that we have just been looking at will certainly help in that regard, as will the smaller taxes that have already been transferred. The second is ensuring that borrowing is appropriate within the funding arrangements for the United Kingdom as a whole. I am sure that those two points are being borne in mind during the discussions—which, as I said, seem to be going well.

In relation to Welsh Government affordability, as I have indicated, we need to ensure that the Welsh Government have sufficient independent revenues to manage their borrowing costs. As I said, the new taxation powers that are being carried forward by the Bill will help in that regard. In relation to the wider United Kingdom funding arrangements, it is important to recognise that, within any given fiscal position, additional Welsh Government borrowing will mean less spending in the rest of the UK, including in relation to some of the issues funded for Wales from United Kingdom taxation.

Those are the issues being looked at, and I can give two undertakings: first, we will not get the legislation without the LCM; and, secondly, I repeat the undertaking that I gave at Second Reading—I appreciate that not all noble Lords were here for that—to give a summary of where we are so that noble Lords will be aware of it ahead of Report.

I understand the points that are being made and I think all noble Lords who have spoken—the noble Lord, Lord Wigley, my noble friend Lord Crickhowell, and the noble Lords, Lord Howarth and Lord Berkeley—recognise the need for these powers in order that the Welsh Government can borrow. Of course, it is then for the Welsh Government to decide how they borrow and how they spend the money—that is within their devolved competence.

Given the undertakings I have given, I ask the noble Baroness to withdraw her amendment.

[Baroness Morgan of Ely]

I thank the noble Lord for those undertakings. I was particularly pleased to hear that the amount could even go above £2 billion. We will certainly underline and take note of that. I beg leave to withdraw the amendment.

Amendment 24 withdrawn.