Wales Bill

Lord Hain Excerpts

Committee: 4th sitting (Hansard): House of Lords
Wednesday 23rd November 2016 Lords Chamber

[Lord Judge (CB)]

My Lords, I have the privilege of being a member of the Constitution Committee, but I speak on my own behalf. I do not have the privilege of being a Welshman but I have the privilege of looking at a statute; I have the privilege of remembering what a baleful influence Henry VIII was on the history of Wales, and his baleful influence looks as though it will continue. The 1536 Act was intended to crush the Welsh nation and the Welsh language. The devolution process was intended to row back hundreds of years of history.

We are being invited to give Henry VIII powers to a Minister, by secondary legislation, to amend, modify, repeal or get rid of—whatever language we care to use—primary legislation. I have a very strong view on this, and shall address the House interminably about the besmirching effect on our constitutional arrangements of such clauses. However, I do not have to stop there in this instance. If Parliament chooses to give Henry VIII powers to the Minister, that is Parliament’s choice, but here it is giving Henry VIII powers to a Minister to reject, modify, get rid of or dispose of the legislation of the National Assembly—in other words, to eradicate, nullify or replace a statutory provision, enacted by a democratically elected legislature of our United Kingdom, on which the people living in Wales will have acted while the particular legislation has been enforced, and all without any consent from the Assembly. That seems an astonishing insult to the democratic process. The affirmative procedure that will undoubtedly be suggested as the solution does not—I say this with great respect—address the democratic deficit.

The solution to the problem involves having another look at Clause 2 and transposing it into Clause 53. I do not need to spell this out. It is perfectly obvious that the consent of the Welsh Assembly is needed. I reject in Clause 2 that weasel word “normally”, which has all sorts of connotations that are not helpful to the analysis. There is another word beginning with “n” which should take its place: never.

[Lord Hain (Lab)]

My Lords, I shall speak to Amendments 120 and 120A, first to Amendment 120, standing in my name and those of my noble friends Lord Murphy of Torfaen and Lord Kinnock and the noble Baroness, Lady Randerson. It is a very straightforward amendment. Clause 2 introduces a new requirement that Parliament,

“will not normally legislate with regard to devolved matters without the consent of the Assembly”.

That was at the heart of the amendments that have just been addressed. It is an admirable clause, and its logic should surely apply to the Bill as well. In other words, the Bill should not come into effect—which is what the terms of Amendment 120 spell out—without the legislative consent of the Assembly. That is all it is asking for. I know that the Minister has worked very closely with Welsh Government Ministers, and his officials with theirs, so it seems to me that there should be no objection on his part to this amendment. Indeed, I hope he will respond in a conciliatory way because in that way, I think, he will also expedite progress on the Bill.

I turn to Amendment 120A, standing in my name and that of my noble friend Lord Murphy of Torfaen. It will ensure that the Bill cannot come into force unless the Treasury has laid before each House of Parliament a document which sets out a fiscal framework for Wales agreed by the United Kingdom Government and the Welsh Government. As Your Lordships are aware from my speech at Second Reading, I am deeply sceptical that Wales will benefit from income tax devolution and fearful that Wales will actually lose out. The Treasury will not permit much-needed borrowing powers for Wales unless these are set against the revenue-raising powers that this Bill provides for. The First Minister desperately needs that borrowing to invest in infrastructure—from new roads and rail links to relieve chronic congestion, to new hospitals and schools. What is more, the Treasury will not otherwise provide the cover it could so easily do at such minuscule interest rates as currently exist for that infrastructure investment. I think this is financial smoke and mirrors—Treasury subterfuge. Yet the Government have trapped Wales between a rock and a hard place.

I am suspicious that Wales is being badly short-changed by this income tax devolution, which is what I seek to address in this amendment. It is not about the substance of devolution, because that has already been debated, but about the fiscal framework that accompanies it. We do not yet have sight of the fiscal framework to accompany tax devolution, though we are grateful to the Minister for promising, in answer—and on the record—to my question on Second Reading, that we would be able to scrutinise it very carefully by Report. I am also grateful for his recent letter on the subject. All I can say is that it will have to be a mighty, mighty generous fiscal framework to Wales to persuade me to support it. The Treasury in a generous frame of mind will be a novel experience for us all. I speak as someone who, like my noble friend Lord Murphy, has negotiated with the Treasury as a Cabinet Minister on behalf of Wales.

Therefore I wish to put a series of arguments to the Minister which will need to be fully addressed by the fiscal framework. In the time that he has left to tidy up that framework, I hope he will address them.

I draw first on the authoritative 2010 report of the Independent Commission on Funding and Finance for Wales, chaired by Gerald Holtham. The key point is that Holtham acknowledged explicitly the risk that Wales’s income tax base might grow more slowly than the United Kingdom’s income tax base—that is to say, the risk of differential tax base growth. If that happened, the Wales budget would shrink relative to the UK as a whole and the degree of redistribution to Wales from richer parts of the UK would reduce.

Holtham noted that one option could be to index deductions from the block grant to the growth over time of the devolved tax base in Wales. This would completely offset a devolved income tax in Wales and eliminate any risk arising from differential tax base growth. Other options would only partially eliminate this risk. So Holtham came up with a compromise, concluding in paragraph 5.25 that the,

“best compromise appears to be very infrequent reviews of the tax bases of the devolved administration and a consequent adjustment to deductions from the block grant”.

Such reviews and adjustments would require negotiations between the Wales Government and UK Ministers. Holtham suggested reviews every 12 to 15 years. Frankly that is far, far too long a period in my view, especially with the outlook for the British economy looking so uncertain with Brexit, as the Chancellor confirmed in his Statement today.

Holtham made no recommendation for any kind of Treasury assurance to ensure that Wales did not lose out. The Holtham report simply recommended that the block grant should be reduced by an equivalent amount in the first year of the new system and that in,

“subsequent years, the size of the block grant deduction should be calculated to reflect the growth of the relevant income tax bases across the UK as a whole”.

That leaves the Wales budget open to being squeezed due to the Wales income tax base growing at a slower rate than that of the UK as a whole, with no guarantee that the Treasury would top up the block grant to fill the gap, meaning that Wales could certainly lose out. Holtham recommended that the block grant should be based on a needs-based formula that would determine budgets across England, Wales and Scotland. The three most relevant factors determining need would be demography, deprivation and costs.

Based on past spending in England, Scotland and Wales, Holtham recommended that Wales should receive £115 per person to spend on devolved activities for every £100 per person spent on comparable activities in England. Will that be achieved by the fiscal framework—I hope that the Minister will reassure me—or will Wales be left with a funding gap? Holtham acknowledged that, had his needs formula been applied in 2010-11, Wales would have received only £112 for every £100 spent on devolved activities in England, due to weaknesses in the Barnett formula. This would have left Wales with a shortfall, a funding gap of about £400 million. Will the fiscal framework eliminate that gap?

I also refer to the report by the respected Wales Governance Centre, Income Tax and Wales, published in February this year. On page 4 of the executive summary, it chillingly warns that,

“the method chosen to reduce the Welsh block grant to account for the additional Income Tax revenues has the potential to cause losses of hundreds of millions of pounds each year to the Welsh budget”.

Hundreds of millions each year—that is a massive risk, surely; a serious risk of hospitals and care homes closing, teacher numbers being cut, and local government budgets being savaged still further on top of the current round of austerity. Those issues need to be addressed in the fiscal framework.

The Wales Governance Centre draws attention to important developments since the Holtham and Silk commissions. UK Government decisions to raise the personal tax allowance have drawn disproportionately more of Welsh incomes out of the income tax base than across the UK as a whole. So while UK income tax receipts have grown by 6% across the UK since 2010-11, the equivalent figure for Wales is only 2%—worryingly, only one-third of the UK figure. That is because Wales has income levels below the UK average. Fifty-five per cent of all taxpayers’ income in Wales comes from individuals earning less than £30,000 per annum compared with 42% across the UK.

When in November 2015 the previous Chancellor of the Exchequer announced the Government’s decision to drop the referendum requirement for income tax devolution to Wales, he also declared that they would protect the Welsh budget by introducing a floor underneath Wales’ relative per capita funding, to save it from any so-called “Barnett squeeze”. But lack of clarification about this proposed Barnett floor has prevented the Wales Governance Centre from checking in detail how it might interact with income tax devolution and subsequent block grant adjustments—so we just do not know. The floor may be flawed, but nobody can tell.

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[Lord Bourne of Aberystwyth]

My Lords, much as I have the greatest respect for the noble Lord, that is not a tenable argument in law, as I am sure he knows. I take the point about the political dimension, as he knows, but on the legal aspect, the two bodies operate in just the same way. However, as I say, I will write to noble Lords on that. I understand the arguments being put forward, by the noble Lord, Lord Rowlands, in particular, as well as his point about the evolving devolution process, which makes this type of arrangement sensible where there is reciprocity. I will write to noble Lords on that point.

Amendments 120 and 120A were spoken to effectively by the noble Lord, Lord Hain, who took us through some of the financial aspects that have to be considered. I understand that. First, on something I have stated many times, although I will certainly state it again, we will not move to Third Reading—as I said at Second Reading—until there is a legislative consent Motion. So, if there is no legislative consent Motion—and there may not be; that is an issue for the National Assembly for Wales and the Ministers of the Welsh Government—we will have no Third Reading.

In relation to Report, I understand from discussions with officials—this may well be confirmed by Members of the Opposition Front Bench, who obviously have had discussions with Welsh Ministers—that there is a desire for us to move to Report so that we are closer to the sort of Bill that we will see at the end and so that the Welsh Government can then move to the legislative consent Motion, content that we are moving in an appropriate way. So we are keeping in touch on that, but I understand that there is a consensual element here to having Report, the first date of which is already public and will take place before Christmas.

We will have two days on Report to reflect on many of the important issues we have dealt with, and the second day will be soon after we come back in the new year. As I understand it—the noble Baroness pressed me on this issue—we are hoping for a legislative consent Motion in the middle of January before moving to Third Reading shortly after that. That is the suggested choreography, but of course we are in the hands of the Welsh Government and the National Assembly for Wales in relation to the legislative consent Motion. I cannot be definitive about that but I can be definitive, as I think I have been in the past, that we will not move to Third Reading until we have the legislative consent Motion. I should also say that there is pressure elsewhere in the legislative programme, as I am sure noble Lords will accept.

[Lord Hain]

Just briefly, given what the Minister has just said, does that mean that the fiscal framework will not be available to be scrutinised before the Assembly has given its legislative consent Motion? In other words, if he is promising it only by Third Reading, is he saying that the legislative consent Motion would have to be passed by the Assembly without the fiscal framework being agreed—or, indeed, without both Houses having had a look at it?

[Lord Bourne of Aberystwyth]

The noble Lord raises a point about my stating that we would not proceed until Third Reading. That is a restatement of what I said at Second Reading—I checked that before coming to the House. As I have indicated, the precise timing of the legislative consent Motion is not dependent on me, the Government, the House of Lords or on the House of Commons but on agreement between the Treasury and Welsh Government Ministers and then the agreement of the National Assembly for Wales.

On the fiscal framework document, the noble Lord will know that the Bill has already been through the other place and will go back there for consideration of government amendments—we have many government amendments that are measures that we all agree upon. But I am not sure that in any event that would give the opportunity for consideration of the fiscal framework as it will be only Commons consideration of Lords amendments: so they will only be able to consider any amendments we make on Third Reading.

I will endeavour through representations to see what additional information we can give on the discussions. Another meeting is due on 1 December, and from what we can gather, discussions are going well—I have heard this from both the Welsh Government side and our own Treasury side. I will endeavour to give an update as to where we are on 1 December. If we are able to give additional information, I will be happy to do that—but to some extent that will depend on the consent of the Welsh Government as well as our own Government. I do not foresee any problem on that, but obviously that is for them to determine. The date of the legislative consent Motion is dependent not just upon having the fiscal framework agreed, as I understand it; it then has to be considered by the Constitutional and Legislative Affairs Committee of the National Assembly—I can see that the noble Baroness, Lady Morgan, is indicating agreement to that.

--- Later in debate ---

Tabled by

[Lord Hain]

120: Clause 55, page 43, line 32, at end insert—
“(1A) Subsections (2) to (7) are subject to subsection (1B).(1B) The following provisions may not come into force until the Welsh Assembly has passed a legislative consent motion in respect of this Act—(a) sections 1 to 52,(b) section 53(1), and(c) Schedules 1 to 5.”

[Lord Hain]

My Lords, I hope that the Minister will give an assurance that a Treasury Minister will write to me specifically answering the points that I made earlier. On that basis, I will not move the amendment.

Amendment 120 not moved.