Empowerment and Responsibility: Financial Powers to Strengthen Wales

Lord Morgan Excerpts

Tuesday 11th December 2012 Grand Committee

[Lord Morgan]

My Lords, the Silk commission indirectly draws attention to a fundamental weakness of the devolution settlement, with Wales consistently subordinated for what are said to be historical reasons but which are in fact quite unhistorical reasons. It is an asymmetric settlement that has in some respects undermined the Welsh Assembly. As we know, it had no primary or legislative powers until 2006. As the noble Lord, Lord Wigley, said, the Barnett formula is persistently unfair. You can see it as a stop-gap created a long time ago, based on archaic and now quite unfair calculations, and it has been shredded, first by the Holtham commission in Wales, and more recently by an extremely powerful Lords Select Committee, which included at least one former Chancellor of the Exchequer.

Above all, the Silk commission points out the inadequacy of representation without taxation. The democratically elected Welsh Government do not have the resources either to promote their objectives or to achieve accountability with the Welsh elector when they spend money that they do not raise. The Silk commission addresses this, and I hope that the Government will respond. So far we have heard the sound of silence, particularly from Conservatives. I notice that no Conservatives are speaking in this debate, so I hope that the Liberal Democrat Minister will be more communicative.

The Silk commission underlines the weaknesses of the present situation in key respects. First, it shows that, almost uniquely in Europe, Wales has a democratically elected Assembly that does not have taxing or borrowing powers. It is fundamentally undermined by being denied that basic authority, which has been fundamental to many of the great upheavals in the history of the world; not only, as everyone knows, to the American Revolution but to the Civil War in this country and the coming of the French Revolution. We have representation without taxation, which is no basis for a democracy.

Secondly, the Silk commission shows that the baseline of the block grant is determined in an arbitrary fashion, and that this has led in practice to its being reduced in size year by year.

Thirdly, as we have heard, the discredited Barnett formula complicates matters, and we await a settlement on that. We have had discussions about the Barnett formula for many years. The coalition has replied with speeches of total irrelevance, claiming that it is a problem of the debt, which is not germane to the issue. The Labour Party replied with unmitigated waffle. We heard waffle in debate after debate, which did not advance the argument.

Finally, the Silk commission shows that the borrowing powers that the Welsh Assembly has are, in effect, not under its control but under the control of the United Kingdom Treasury, which sets those powers against the block grant in such a way that Welsh resources do not increase overall. Again, therefore, authority in financial matters does not lie with the Welsh Assembly. The formula encapsulated in the famous phrase, “For Wales, see England”, is still being played out.

The Silk commission makes two major proposals, as the noble Lord, Lord Wigley, explained. First, it proposes that the Welsh Assembly should have the power to raise its own taxes. It lists, as we heard, a variety of taxes such as stamp duty, landfill and air passenger duties, but the most important is income tax. The devolution or transfer of income tax to the Welsh Assembly would be central, and would enable the Welsh Government to do things that they cannot do now and to have a clearer horizon in terms of economic planning. Furthermore, the prospect is raised—although not, as the noble Lord, Lord Wigley, said, with total clarity—of the ability to vary the rate of tax at the top, standard and bottom ends of the tax scale. The Silk commission is cautious about this, but it is a principle that is bound to grow and extend. Rightly, the Silk commission states that there has to be engagement on these matters between the Welsh and United Kingdom Governments, but it seems clear that this is the way we are moving in terms of devolution being implemented in a much more complete way.

It is interesting that the Silk commission for Wales is more radical in some respects than the Calman commission for Scotland, in that it raises the issue of varying taxes. Secondly, it raises the issue of the power to borrow for capital purposes. There would be a stronger case for borrowing if the Welsh Government could vary the size of its budget through taxation to meet the repayment of loans. It is, as the Welsh First Minister said, a very strange system under which Welsh local authorities can borrow on the open market, say from the European Investment Bank, but the Welsh Government cannot. This greater power to borrow would give the Welsh Government the flexibility to meet variations in income and would make them more accountable.

Silk points the way to a more pluralist United Kingdom. It affects the whole of the United Kingdom—which may need a codified constitution—but its proposals cannot be put into effect until Barnett is dealt with. At the moment, the Welsh Assembly is locked into an unjust system that gets more unfair every year. Therefore, the Silk commission proposals cannot be implemented immediately. I hope that the Minister will tell us that the Government will find the will to deal with both the matter of raising more resources for Wales and securing a more honest and honourable system for their distribution, which is lacking today. Above all, I hope that the Government will communicate and tell us what they are going to do.