Wales: Devolution

Baroness Randerson Excerpts

Thursday 19th July 2012 Lords Chamber

Moved by

[Baroness Randerson]

That this House takes note of the progress being made by the Commission on Devolution in Wales chaired by Paul Silk.

[Baroness Randerson]

My Lords, first, I declare an interest as I am in receipt of a pension from the National Assembly for Wales. I am also a member of the advisory board of the Wales Governance Centre, to which I will refer later.

Since I entered this House 18 months ago, noble Lords have devoted many hours to Scottish constitutional issues. In putting down this Motion for debate today, I am hoping to start to redress the balance and shine a little light on Welsh constitutional issues. We recently had an excellent debate on the Government’s Green Paper on electoral systems, which demonstrated that we have plenty to say. In the 1990s, as a Liberal Democrat, I was a supporter and campaigner for a full Parliament for Wales, rather than the little fledgling we were given in 1999. However, I am a pragmatist and long ago accepted that the Assembly we were given, fashioned like a county council as a corporate body, was the best that the then Secretary of State for Wales could persuade his party to accept. In my view, something is better than nothing.

We then set about building the Assembly into a proper legislature. First, the Liberal Democrat-Labour partnership Government established the Richard commission, which produced a radical and far-sighted set of recommendations, which I regret were not pursued by the then Secretary of State. Instead of a giant leap forward, we were consigned to a series of short hops. One such short hop, in 2006, saw the second Government of Wales Act, which introduced primary legislative powers—but only so long as MPs gave their permission on a one-by-one basis. Hence, the infamous legislative competence order was born and with it a great deal of resentment between the two institutions. It complicated an already very complex system.

It is worth noting that there is a fundamental difference in how the original Government of Wales Act and the Scotland Act were written. The Scotland Act gave power to the Scottish Parliament over wide areas of public policy, with specific and narrow exceptions. By contrast, in Wales, the Assembly was given much more narrow and specific powers, which were added to in a haphazard and lopsided way as and when the Assembly asked for them, an issue I will return to later. The second stage envisaged in the Government of Wales Act 2006—full legislative powers—was pressed for throughout the third Assembly. However, there was little progress prior to the coalition coming to power in 2010.

The history I have outlined so far will tell you that the people of Wales have got used to looking over their shoulder with envy at the powers enjoyed by the Scottish Parliament. Just as resentment was building, rescue arrived in the perhaps unlikely form of the coalition. A number of key developments followed pretty quickly after the coalition came to power. There are four pieces on the chess board at the moment and, just as in the game of chess, the movement of one piece has a knock-on effect on all the others.

A referendum was held on legislative powers, which was won resoundingly. Intergovernment talks have started on the Barnett formula, which has been a growing source of acrimony for the past 12 years. Recently the Secretary of State issued a Green Paper on electoral arrangements for Wales which proposes some significant and, to me, very welcome changes. The Silk commission set up in October 2011 is a long-burning fuse looking at two key aspects. Part one deals with financial accountability. The Assembly has always lacked some credibility because, uniquely in the UK, it has no responsibility for raising the money it spends. Even a parish council has more financial credibility than the Assembly. The Welsh Assembly is probably the only body in the world able to pass laws and spend money while having no power or responsibility over tax. Indeed, only last week the Wales Governance Centre, the Institute for Welsh Affairs and Tomorrow’s Wales came together to produce a joint submission to the Silk commission in which they emphasise this anomaly. They labelled it,

“an aberration from international and British norms”,

and expressed the view that such powers were needed in order to increase the accountability of Welsh government.

The commission, chaired by Paul Silk, formerly a clerk to the National Assembly and, indeed, formerly a clerk to Parliament, in the other place, is modelled on Scotland’s Calman commission, but, significantly, it has even greater credibility because unlike Calman, all four main political parties are represented on it. So far it has taken evidence on financial accountability and we expect its report on this aspect early next year. It has had more than 40 submissions, the majority in favour of some element of fiscal powers for the Assembly. Of course, the big question is exactly which taxes should the Assembly be allowed to levy. In a country with such a long border with England there are practical problems to be addressed in order to ensure that devolution of tax-varying powers does not lead to increased tax avoidance.

The foundations for the commission’s discussions were laid by the Holtham commission, which was established by the Welsh Government in 2007. That looked at the Barnett formula as well as tax-raising powers. In contrast, the Silk commission is looking only at taxation, discussions on the Barnett formula being held between Governments. While that is understandable, as the Barnett formula does not affect only Wales, it makes the situation more complex and I believe that it will be essential to reform the Barnett formula before we can have satisfactory devolution of any significant tax-varying powers. Discussions between the two Governments seem to be progressing and I wonder whether my noble friend the Minister, when he replies to this debate, can give us an update on progress. I am particularly interested in the concept of the introduction of a Barnett floor, which would ensure that when public expenditure begins to rise again, Wales will not be subject to the Barnett squeeze suffered from so badly so far.

I believe that it is more or less inevitable that the final recommendations of the commission will include some which are dependent on Barnett reform for their implementation. Indeed, a large number of the responses to its consultation concentrate on this issue. It is a happy coincidence that this week has seen the publication of the ICM poll commissioned by the Silk commission which gave a strong, if a bit confused, endorsement for proposals for the Assembly to be granted tax-varying powers. Some 64% favoured powers to set income tax and 80% agreed with borrowing powers. My view is that borrowing powers are a vital first stage that can be implemented quickly and easily. The Northern Ireland Executive has used its borrowing powers for infrastructure and public service investment. There has been significant development in the borrowing powers of the Scottish Parliament. Wales needs this freedom as well if there are ever to be major infrastructure projects, such as the badly needed improvements to the M4. I accept that the Treasury has to place limits on such borrowing, but if Wales were to be given similar powers—similar limits to those applied in Scotland and Northern Ireland—we would be looking at something in the order of a cumulative limit to borrowing over a period of 10 years of just over £1 billion. I am pretty certain that the Treasury can cope with that.

It is of course easy to agree in principle that some taxation powers should be devolved, but the difficult decision comes in agreeing exactly which taxes and to what extent. The two most commonly cited proposals are for part of income tax and for corporation tax to be devolved. Corporation tax has the advantage of ensuring that the Welsh Government would benefit from higher tax revenues as a reward for pursuing successful economic policies. More prosperous businesses mean more tax revenue. The Welsh economy desperately needs stimulation. I am a strong devolutionist, but I fully recognise that the Welsh economy has suffered badly in the years since devolution. It would be useful for the Welsh Government to be able to attract new business with the incentive, for example, of a slightly lower rate of corporation tax.

The Silk commission is looking at the devolution of some powers over income tax, following the Scottish model and as recommended by the Holtham commission, which said that half of income tax should be allocated to Wales but with the ability to vary it by 3p from the English rate. But without a fairer funding formula, this could lead to a further drop in income, which would be simply unacceptable. Therefore, in my view, the devolution of a proportion of income must be predicated on a reform of Barnett running alongside it.

If not income tax, what other taxes could successfully be devolved? Maybe stamp duty, to help lower the cost of homes in Wales. As waste management and recycling are both largely devolved, both the landfill tax and aggregates levy, if devolved to Wales, would enable the Welsh Government to take a more strategic approach to environmental issues. There should be a greater freedom to reform the local government rating system, domestic and non-domestic. The complexity of Welsh devolution is such that both business support and local government are devolved, but the Assembly does not have the powers to change the rating system beyond some control over the multiplier.

Another possible candidate is the devolution of our passenger duty. There is really no reason why the Assembly should not be allowed to create a new tax—maybe a green tax—to stimulate environmental efficiency. Clearly, this is a complex area and there must be detailed analysis by tax experts before decisions are made. It is clear to me, however, that control over some tax levers would encourage the Welsh Government to be more strategic in their thinking, and to concentrate on the economic growth that Wales so badly needs. It would increase democratic accountability.

Finally, and briefly, I will anticipate the second stage of the Silk commission and look at the issue of powers more generally. I have just cited an example of complex powers over local government finance. There are many more such anomalies, where a gap in powers makes it difficult for the Welsh Government to wield the powers they do have as effectively as they should. Basically, the Government of Wales Act is chaotic and becomes more so by the year as additional powers are tacked on like sticking plaster. In my view, the Act needs to be entirely rewritten on the Scottish model, which I referred to earlier in my speech.

There is, in addition, a pretty long list of additional powers that the Assembly could justifiably claim should be devolved to Wales. Powers to deal with energy consents for projects over 50 megawatts would be particularly welcomed in a country which is home to so many large wind farms. Policing is a strong contender, because the police nowadays work so closely with local authorities, and local government is devolved. The gradual development of a body of Welsh law makes it logical that there should be a separate Welsh jurisdiction. We are already, de facto, half way there, and that is important to recognise. Some aspects of broadcasting, such as S4C, could sensibly be overseen by the Assembly and there is a host of more minor powers that would tidy up the settlement, such as reforming the electoral arrangements for local government.

I am very pleased indeed to see the list of distinguished speakers planning to take part here today. I have already referred to the noble Lord, Lord Richard, and his report. I am pleased to see him in the Chamber. I look forward to hearing all your Lordships’ views. I regard this as our opportunity to make our voice heard in this consultation and I ask the Minister when he speaks to suggest how we can most effectively put the points made in this debate on record for consideration by the Silk commission.

--- Later in debate ---

[Baroness Randerson]

My Lords, I thank all those who have contributed to the debate. Every noble Lord who has done so has made a very valuable contribution. In particular, I thank the Minister for his informative reply.

A wide variety of opinions have been expressed but I think there is consensus that the time is now right for the Welsh Assembly to have tax-varying powers. In some of our eyes, that time is well overdue. However, I detect that some people are coming to this for the first time. The debate has revealed the complexity of the issues. However, there is certainly agreement across the board that the Assembly needs borrowing powers. Some very interesting ideas have been put forward on the convention—for example, on the future of the UK constitution. The idea that there should be a permanent monitoring commission is very interesting.

Of course, you can never get a largely Welsh group of people together without their discussing the Barnett formula. After today’s debate, the Minister is well aware of the strength of feeling on this. I shall make just one quick point of clarification: when I referred to the Barnett floor, I was referring to it as a way in which we could quickly make some progress on this issue. Something to which no noble Lord has referred today is how long it will take once the decision is made to reform the formula. It will take years, rather than months, to develop a new needs-based formula, and in Wales we need that action quickly.

Once again, I thank every noble Lord for their contribution.

Motion agreed.