Wales Bill

Debate between Baroness Randerson and Lord Howarth of Newport

Tuesday 11th November 2014 Lords Chamber

[Baroness Randerson]

My Lords, the amendment we are in the process of drafting specifically relates to this referendum on tax-raising powers because there are discussions still to be had across all parties—I suspect there will be lively discussions during the coming general election campaign—on whether votes at 16 should be adopted on a much wider basis.

[Lord Howarth of Newport]

Will the Minister also explain the difference of principle which makes it appropriate for people to vote in this particular referendum at 16 but not to vote in other elections in Wales at 16?

[Baroness Randerson]

There are various strands to that question. One point is that there must be a consistency in franchise across the United Kingdom in ordinary elections. It is also important to bear in mind that a referendum is in many ways a useful way for young people to be able to express their point of view in a very clear-cut manner. A referendum campaign is a very tight and straightforward campaign.

In the light of the Government’s commitment to bring forward amendments at Third Reading enabling the Assembly to decide whether 16 and 17 year-olds can vote in the income tax referendum, I urge the noble Lord to withdraw his amendment.

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[Lord Howarth of Newport]

My Lords, these amendments utter an important warning. It is one thing to devolve minor taxes, such as development land tax and landfill tax, it is another to devolve more significant taxes such as air passenger duty, of which the noble Lord, Lord Rowe-Beddoe, has just spoken. But when it comes to the major taxes such as income tax and corporation tax, very deep thought needs to be given to the viability of such devolution if the United Kingdom is still to hang together. It worries me very much that we can toy with such propositions without them having been thought through. My noble friend is absolutely right to insist that, in the event of further proposals for tax devolution being made, deep thought needs to be given to them, led by the Treasury, and there needs to be a responsible debate across the United Kingdom because we risk unravelling if we continue to play these games.

[Baroness Randerson]

My Lords, the issue underpinning Amendments 16 and 20 is symmetry between devolution settlements. Noble Lords have set out three guiding principles to support tax devolution. We believe that it should have cross-party support, be based on evidence and not be to the detriment of other parts of the UK. Based on the second of these principles, the Government have been consistently clear that decisions on devolution must be treated on their own merits using all the available evidence. This reflects the fact that what is right for one country is not necessarily right for another. The devolved countries are different and so, rather than seeking to achieve symmetry, it is more important that the three devolution settlements work in the best interests of the people of Wales, Northern Ireland and Scotland.

I point out to noble Lords that there are obvious differences. Reference has been made to the land border between Northern Ireland and the Republic of Ireland. The nature of the border between England and Wales is very different from the nature of the border between Scotland and England. Differences of that nature do affect decisions on devolution. Above all, we are determined to work in the best interests of each of the individual countries. Most recently, for example, we have removed the income tax lockstep from this Bill.

In response to the questions asked by noble Lords, I refer them to the Silk 2 report. Corporation tax was part of those recommendations, so it will be a natural part of those four-party discussions. I stress that both the Prime Minister and the Deputy Prime Minister have pledged to put Welsh devolution at the heart of the debate, and that is what the Secretary of State and I are seeking to do in discussions with the four party leaders. I hope that noble Lords will believe that our timetable for those discussions proves that we are determined to press ahead. I therefore ask the noble Baroness to withdraw the amendment.

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[Lord Howarth of Newport]

My Lords, I support the amendment that my noble friend has just moved. It is as important as any other that we have debated today. I cannot see a satisfactory future for devolution in Wales until the Barnett nettle has been grasped. It is scandalous that no Government have dealt with this problem since the mid-1970s when the formula was introduced. Cumulatively, since devolution was introduced, Wales has lost out on some £5 billion of funding that it ought to have had, had there been a fair funding formula based on needs rather than on population.

It is true that the gap between what Wales ought to receive and what it does receive has narrowed somewhat in recent years, but we have to anticipate that, as economic growth continues to recover, so the gap in funding and the unfairness of funding will be exacerbated again. It is therefore imperative that there is no further procrastination on this and that the Government agree, with real urgency, to act to secure a just settlement for Wales. The Government were quick to respond to political pressures in Scotland. Political pressures in Wales have been expressed in gentler terms so far, but there will be a continuing sense of injustice that will undermine all the other efforts that we make to establish harmonious and satisfactory political arrangements on devolution for Wales. There are, of course, wider issues affecting the relationships between the nations and regions of the United Kingdom as a whole. I look forward to the Minister giving us a very positive response to the amendment.

[Baroness Randerson]

My Lords, I always enjoy the conversion of the Labour Party to the idea that the Barnett formula is unfair. The noble Lord, Lord Howarth, made a very important point, which is that it is scandalous that this formula has lasted for so long without anyone inquiring into it. I can assure noble Lords that the Government are aware of the issues and have taken measures to ensure that they are addressed.

This amendment would make the devolution of an element of income tax conditional on changes in funding arrangements. Specifically, the First Minister has raised this issue on numerous occasions, saying that he would not be prepared to recommend devolution of income tax unless fair funding were obtained. The amendment suggests that the Welsh Government have to confirm that they are content with the way in which funds are allocated to Wales from the UK Government before the element of income tax can be devolved.

This Government have already recognised that there has been convergence between the levels of funding in England and Wales since devolution. We took steps in the matter just two years after taking office. In October 2012, we set up a joint process with the Welsh Government to review the levels of funding in Wales and England in advance of each spending review. If convergence is forecast to occur over the spending review period, there will be a joint discussion of options to address the issue in a fair and affordable manner. That system worked well in advance of the 2013 spending round and confirmed that spending is not forecast to converge during the period up to 2015-16. It also established that relative funding levels in Wales were within the range that the Welsh Government’s own Holtham commission regarded as fair. In that context, the noble Baroness, Lady Morgan, quoted the 114% figure that my noble friend Lord Newby referred to last week. I am happy to write to her, and to set out further detail on that figure.

In relation to ongoing discussions about the funding situation, following the first meeting of the Joint Exchequer Committee between the UK and the Welsh Governments last month, we have now further committed to revisit jointly the review process in the light of the powers in the Bill. In other words, we have agreed to find a way of facilitating fair funding. The Government therefore believe that there is a sound basis for an early referendum to be called and I urge the Welsh Government and the Assembly to do so as quickly as possible.

I hope that I have assured noble Lords that the Government are aware of the issues on funding and are addressing them in discussions with the Welsh Government, who are fully conversant with our plans. I urge the noble Baroness to withdraw her amendment.

Wales Bill

Debate between Baroness Randerson and Lord Howarth of Newport

Wednesday 15th October 2014 Lords Chamber

[Lord Howarth of Newport]

My Lords, it must be right as a matter of equity that Wales should have the same powers to alter tax rates as does Scotland, but my noble friend is right to remind the House that the exercise of those powers could be a poisoned chalice. In the extremely unfortunate situation in which we find ourselves, in which the Government are pledged to retain the Barnett formula, it is very hard to foresee circumstances in which it would be in the interests of Wales to use such further devolved powers of taxation. So long as Wales gets an unjust and inadequate funding settlement from the Exchequer, not based on needs but based on population, Wales will be at a loss, and it would be very dangerous for the Government of Wales to accept that it is their job to make up the shortfall by raising tax rates in Wales. I think that that would lead to extremely unhappy long-term consequences for the economy and society of Wales.

So, although I support my noble friend in her amendment to create powers that would be comparable to the powers in Scotland, we should keep our eyes wide open as to the realities of this. I cannot foresee that, in the absence of reform of Barnett, there is going to be any possibility of a stable and acceptable new constitutional settlement for the United Kingdom. However, these are larger issues that we shall debate another day.

My noble friend is also right to remind the House that the nature of the border between Wales and England also imposes a very powerful, practical restraint on the scope for differentiating tax rates. If people who are living in Wales near the border feel themselves to be so penalised, so disadvantaged by differential tax rates in Wales as compared with England, a number of them will move their residencies across the border and that would be very detrimental to Wales. As far as I can foresee, the practicalities are pretty unattractive compared with the notional possibilities that we are discussing in this legislation.

[Baroness Randerson]

Noble Lords will have noticed that the pleasant agreement and consensus across the Chamber has disappeared in the last group of amendments. I thank the noble Lord, Lord Wigley, for his speech, bearing in mind that the transfer of powers proposed in his amendments would mean Wales becoming entirely separate in taxation terms. He will not be surprised to hear me say that I am not going to accept these amendments.

However, I wish to spend some time on the speech by the noble Baroness, Lady Morgan, and to express some considerable surprise. I took the trouble to reread what she said at Second Reading. The Labour Party’s views appear—to use a colloquial phrase—to be all over the place because of the considerable gap between what the noble Baroness said at Second Reading, what she is saying now, what the First Minister of Wales has said and what the honourable Owen Smith said in the other place. Name a person, name a debate and you can have a slightly different view. In fact, there is a huge gap between one debate and another.

The principle of accountability lies behind the proposal in the Bill to devolve an element of income tax to the Welsh Assembly. The noble Baroness asked me what the reason was for the Government changing their mind on the lock-step. The reason was quite simple. People such as the First Minister said that this power was no use, therefore they could not use it. They said that the lock-step was not a good idea. We listened to people and it seems that, across parties and across the country, there has been huge support for the removal of the lock-step except now, suddenly, in the Labour Party, which had condemned the lock-step as being fatally flawed. It therefore surprises me that, when the lock-step was proposed, the Labour Party did not make clear that it was totally opposed to the devolution of income tax, rather than simply opposed to the lock-step.

I want to take up a few issues that the noble Baroness, Lady Morgan, raised. She referred to the serious erosion of local accountability. That may be the case in Wales and, if so, it is down to the Welsh Government, because they have devolved responsibility for local government. However, looking at the pattern in England, there has been a big increase in the amount of local power and local discretion for local authorities and councils in England. I agree with the noble Baroness that there has been a contrast between the two countries. In Wales, there has been a process of centralisation; in England, there has been a process of decentralisation.

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[Lord Howarth of Newport]

I am grateful to the Minister but does she recognise that, in the context of an unfair funding formula which simply fails to address the reality of the needs of Wales, Wales has less scope to cut taxes than other parts of the United Kingdom?

[Baroness Randerson]

I recognise that there is an issue with the funding formula but I think it is also possible to overestimate the level of unfairness. I believe that this week the honourable Owen Smith suggested that the gap in funding for Wales was £150 million per annum. That is a significant amount of money but in a budget of more than £15 billion it would not offer a total revolution for Wales. Nevertheless, I recognise that it is an issue that needs to be looked at in the context of other devolution discussions at the moment.

I turn to the questions asked by the noble Baroness. An impact assessment of the costs was published alongside the Wales Bill. It indicated that the estimated cost of setting up the income tax changes in Scotland was £40 million to £45 million. An updated estimate is now available of £35 million to £40 million, which is rather less than we initially thought. There has also been an updated impact assessment. The estimate of the annual running costs is £4.2 million, and that will be updated in due course.

The noble Baroness also asked whether we would agree to a Treasury impact assessment of the taxes on either side of the border. The key thing is that there are provisions in the Bill on the transparency of the whole thing and of the discussions between the parties. A joint Treasury committee has been established between the Welsh Government and the UK Government, and it is already in discussions. Welsh Ministers and UK Ministers are discussing these matters. That is the kind of detail that would flow from those discussions.

I turn now to the Labour amendment. Forgive me, but I find it quite difficult to understand the intellectual inconsistency of arguing against the removal of the lock-step, while at the same time arguing for an increase in the amount of devolved income tax from 10p to 15p. I remind noble Lords that the First Minister said on several occasions that the lock-step was an inappropriate method of dealing with income tax devolution, and that this was unusable and unworkable. He did not say that he was opposed to income tax devolution. Now, apparently, it is dangerous as a mechanism to devolve income tax and, at the same time, it is also all right to devolve 15p but not 10p.

I believe that noble Lords will be surprised that the Labour Party is having so much difficulty in coming to a firm position on this. The noble Lord, Lord Howarth, exposed one interesting piece of inside information with his use of the phrase “poisoned chalice”. He said that the devolution of income tax could be a poisoned chalice for the Labour Party in Wales. It is called “government”. I leave you with that thought.

Wales Bill

Debate between Baroness Randerson and Lord Howarth of Newport

Tuesday 22nd July 2014 Lords Chamber

[Baroness Randerson]

How the Welsh Government raise the additional money is, of course, entirely at their discretion. It could come directly from their capital budget or they could have a partnership with the private sector to ensure that additional funding is available for them.

[Lord Howarth of Newport]

Given that the M4 relief road around Newport is an infrastructural benefit to the United Kingdom as a whole, how much contribution are the Government of the UK planning to make to that very large cost?

[Baroness Randerson]

I think that the noble Lord raises a fundamental point about devolution. The control of building and road infrastructure in Wales is devolved. With it comes the Barnett consequential of the funding for infrastructure throughout the UK, which is reflected in the proportion of the Department for Transport’s budget that is devolved to the Welsh Government.

To complete the point I was making, we have agreed an annual limit of £125 million relating to borrowing in Wales. That limit was proposed by the Welsh Government. A lot of noble Lords referred to the Barnett formula. I remind them that the Holtham report recommended that Welsh funding should be between 15% and 17% above English funding. Funding in Wales is 15% above the funding for England at this time, so it is within the areas deemed as fair by the Holtham commission. That is not to say that it has been fair in the past; it is at the current point because there has been divergence in recent times rather than convergence. I remind noble Lords that in 2012 the Welsh Finance Minister Jane Hutt agreed with the Chief Secretary to the Treasury in an exchange of letters a system to review the situation in relation to Barnett if convergence was about to begin again. That system worked satisfactorily at the spending review last year and it provides a basis for fairness in the future. I am absolutely sure that noble Lords will return to this in the future and that we will be talking about it in some detail.

Wales: Commission on Devolution in Wales

Debate between Baroness Randerson and Lord Howarth of Newport

Monday 18th November 2013 Lords Chamber

[Lord Howarth of Newport (Lab)]

In welcoming this enhancement of devolution, I particularly welcome the improved prospect that we now have for the construction of the M4 relief road, which when it is opened will be of great benefit to quality of life and economic development in Newport and south-east Wales.

Perhaps I may press the Minister further on the points rightly raised by my noble and learned friend Lord Morris of Aberavon and my noble friend Lord Touhig on the funding of infrastructure. The Statement seemed to suggest, entirely implausibly, that, as a result of these changes, the land of Wales would flow with milk and honey and that the Welsh economy would be rejuvenated. Surely she recognises that the substantial cost of investment in transport and other infrastructure needed in Wales can be met only in limited part—I would say in small part—by the revenues from the minor taxes that are to be devolved and the limited borrowing powers that are proposed for Wales. Surely devolution should not mean an opportunity for the Treasury to be off the hook and for the important infrastructure needs of Wales to continue to be neglected.

[Baroness Randerson]

I know that the noble Lord is very conversant with the problems of the M4, and in the Newport area in particular. I am glad that he has welcomed the contribution that these changes will make to alleviating them.

The early part of the Statement set out the contribution that the UK Government have made to infrastructure in Wales, in particular railway infrastructure. The noble Lord needs to bear in mind that when an issue has been devolved the funding is devolved as well. If there are flaws in the devolution settlement in Wales, we have to look back to the Government of Wales Act 2006 and the original devolution settlement at the end of the last century. It has possibly been difficult in the past for the Welsh Government to deal with major infrastructure projects, which is exactly why we say that, as well as devolution of minor taxes, there needs to be a referendum to offer the people of Wales the opportunities given by the devolution of a portion of income tax.