Commission on Devolution in Wales

Lord Hanson of Flint Excerpts

Thursday 3rd November 2011 Commons Chamber

[Mrs Gillan]

I do not know what tortuous mental processes the hon. Gentleman goes through, but I assure him that I have no ambitions in that direction whatsoever. He has been spending too much time with the right hon. Member for Neath, who sees conspiracy theories in every quarter. This is a genuine open consultation, and the hon. Gentleman will hear as I develop my speech that the Silk commission is giving us an opportunity to reflect and try to shape the architecture of devolution in Wales.

The commission provides a coherent opportunity to review the working of devolution in Wales and the financial accountability of the devolved institution. Assembly Members are accountable to the people of Wales at the ballot box. They are judged on their record, on the decisions they make and on the outcomes of their policy decisions. We all know that government is a difficult business that involves administering complex issues and looking after the totality of the system for the people of Wales. We therefore need the commission to examine how the devolution system is working, and whether changes might improve its performance.

[Mr David Hanson (Delyn) (Lab)]

Will the Secretary of State ensure that the commission looks carefully at the impact of the border? My constituency, and that of many others, is close to the English border. People who live in my constituency work in England, and people who live in England work in my constituency. The differing rates of VAT, corporation tax and quarrying tax, and of expenditure, are important on both sides of the border. I do not want the commission to look specifically at Welsh issues without taking representations from the English side of the border.

[Mrs Gillan]

I could not agree more with the right hon. Gentleman. I refer him to the commission’s specifications, in which we state that it should

“consider and make recommendations on how best to resolve the legal and practical implementation issues from devolving a package of fiscal powers”.

I think that says it all: we are keeping an open mind. The right hon. Gentleman knows that since becoming shadow Secretary of State, I have been concerned about the implications of the permeability of the border. The commission offers us the chance to look not only at recommendations that might be made but at the practical difficulties.

[Mr Hanson]

Does the Secretary of State agree that one of the factors that the commission should take into account is that Welsh Members of Parliament such as me, whose constituents use hospitals in England and work in English businesses, should have the right to vote on those matters, too?

[Mrs Gillan]

We proposed to hold this debate before the first meeting of the commission to enable Paul Silk and the other commissioners to hear Members’ views. The right hon. Gentleman’s point is well made, and I know that when the commissioners read Hansard they will take it on board. I do not want to tie the commissioners’ hands; they must decide how they will work.

--- Later in debate ---

[Mr Hain]

I am glad that the Secretary of State had that conversation, but all I can do is report to the House—and it is important that she hears it too—what the European chief of Tata Steel told a group of Members who met him last week, which is as I have described it. He was not concerned about any of the issues to do with the Silk commission, as we are in this debate. It is important for the Government to recognise that they should not ignore the economic realities and flirt with tax devolution—by, for example, devolving corporation tax—when that is not even on Tata’s agenda.

As for investment, Tata Steel’s European chief pointed out that the new and welcome investment at Port Talbot might not have been made had he been aware of the climate now affecting the company as a result of the Government’s incompetence, which is damaging steel production. Instead of addressing that, the Government are, through the Silk commission, considering matters such as devolving corporation tax.

A review undertaken in 2007 by Sir David Varney for the Treasury pointed to academic research that suggested that only about half the impact of a corporation tax cut was usually recovered through increased growth and investment. The question is: would lowering corporation tax in Wales to, say, the Irish level—if the Silk commission is to consider that—generate enough extra tax, including income tax, to compensate for the £400 million or so that is likely to be lopped off the Welsh block grant to comply with European Union state aid rules and compensate the Treasury for lost revenue?

The Secretary of State for Northern Ireland is an enthusiast for devolving corporation tax. Nevertheless, he told me that he thought it would take at least 15 years for the Northern Ireland economy to generate the growth and jobs that he anticipated from halving corporation tax, as is planned there, that would be sufficient to produce an equivalent income to compensate for the loss to the Northern Ireland block grant. What Welsh Government would choose to lose around £400 million now and each year for the best part of two decades in the hope—and only the hope—that extra inward investment and business activity would eventually make up the shortfall?

[Mr Hanson]

To return to the cross-border issue, in the event of the Silk commission determining that corporation tax could be varied, would not the north-west of England then make the same demands on the Treasury for varying powers for its region? The point that my right hon. Friend should emphasise to the Secretary of State is that the Silk commission should look at the consequences of those variations for both Wales and the English side of the border.

[Mr Hain]

My right hon. Friend makes a powerful point that I hope the Silk commission will take account of.

It is simply no answer to offload tax-raising powers to Wales that will at best have a marginal impact and at worst—because of the compensating cuts in the Welsh budget—worsen the prospects for jobs, business and infrastructure investment in Wales. Meanwhile, in the real world, unemployment in Wales is rocketing. Six people are chasing every vacancy—many more in some areas of Wales—and the Government have no plan to deal with the problem. Unless they change course, it will get worse and worse.