Wales Bill

Lord Newby Excerpts

Wednesday 15th October 2014 Lords Chamber

[Lord Howarth of Newport]

My Lords, whatever the future structure of the United Kingdom, the union is surely to be based upon twin principles of solidarity and diversity. Tax credits are a principal structure of the welfare state. As my noble friend just now suggested, the welfare state is a fundamental underpinning of that solidarity. Given that in the last figures I saw only about 2% of the people of Wales do not wish to maintain the union, I very strongly suspect that noble Lords are a little bit ahead of themselves—not for the first time—and that the people of Wales would wish nothing to be done that would weaken the welfare state and undermine that principle of social solidarity that ought to underpin the union. I make this point particularly because great figures in Welsh political history were among the leading architects of the welfare state. Whether by accident or design, we should not do anything to undermine the welfare state and the solidarity that binds the people of Wales together with the rest of the United Kingdom through the welfare state and associated principles of fiscal redistribution.

[Lord Newby (LD)]

My Lords, Amendments 21 and 22 seek to include a reference to “associated tax credits” as part of the power to add further devolved taxes. I thought that the noble Lord was going to discuss tax credits associated with devolved taxes. In respect of landfill tax, at the moment, existing site operators can contribute a percentage of their tax liability to environmental benefits and get a 90% tax credit. As far as devolved taxes are concerned, that ability will still exist. For that type of tax credit, the power is there.

I think that the noble Lord, Lord Howarth of Newport, was talking about welfare benefit payments. Welfare benefits are not covered by the Bill. There has been no proposal to devolve power over welfare benefits to the Welsh Assembly. I thought that the noble Lord made strong arguments about why that might be opposed. The Bill makes no provision for devolving discretion over welfare benefits to Wales for good reason, and the Government are not minded to change their view on that.

Amendment 23 would remove the UK Parliament from the process of creating further devolved taxes. The Bill enables the Government to devolve further existing taxes as well as enabling the Welsh Government to create new devolved taxes. Clause 6 requires that if either of these powers is used the order would need to be approved by this House and the other place as well as by the Assembly.

[Lord Wigley]

Where powers to devise and implement new taxes in Wales are devolved to the National Assembly and those taxes have an appropriate dimension where tax credits could be introduced, would the powers allow that?

[Lord Newby]

Yes, they would, just as for existing taxes. The same principle would apply to any further taxes that were devolved to the Welsh Assembly.

Clause 6 requires that if either of the powers devolving further existing taxes or enabling the Welsh Government to create new ones is used, the order would need to be approved by this House and the other place as well as by the Assembly. The amendment would remove the UK Parliament from this process so that the order would need to be passed by the Assembly only. That would mean that the Assembly could pass an order under which existing tax powers would be transferred from the UK Parliament without this Parliament having any say. Clearly, that cannot be right. Surely it is important that the process of tax devolution continues to take place in the constructive and collaborative manner that has led to this Bill. As a mere Englishman now grappling with what we do about devolution within England, I have found the Silk process extremely impressive and one that could possibly be successfully emulated in England. The follow-up to the Silk process, under which there have been discussions with the UK Government and parliamentarians about how to take that forward, has been extremely constructive.

As for how we manage the existing devolution of tax proposals and take them forward, we have established the Joint Exchequer Committee, based on a similar body in Scotland, consisting of leading parliamentarians in Wales and the Treasury, specifically to look at how we implement the existing powers and at what further can be done. That would be one of the ways in which it would be sensible to contemplate adding additional tax powers. If Members of the Welsh Assembly have strong views about additional tax powers—and first they would have to express those views—they will then have a vehicle for discussing them. It seems to me that that is a very sensible way forward. Any change or devolution of powers over tax from the UK to Wales has, at the very least, implications for tax legislation in the rest of the UK, so it is only logical that the rest of the UK is involved in the discussions. It must be right that any future order-making process, whether initiated by the UK Government or the Welsh Government, should involve both the Assembly and Parliament. I hope that the noble Lord will withdraw his amendment on that basis.

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[Baroness Morgan of Ely]

In this amendment we are looking at future-proofing the legislation. We are very aware that there is a fast-moving feast going on in terms of constitutional changes in Scotland so we need to look at how we future-proof it. That is why we have suggested that if any new taxes are devolved to Scotland—and I must say that we probably need to tighten up the amendment’s wording—we would like an opportunity to assess whether they could be offered to Wales as well. That is the idea behind the amendment.

We are conscious that things are changing very quickly and we do not want to lock ourselves in because of the timing of this Bill. Labour is very keen to ensure through our suggestion, which we will come to later, that Wales can vary income tax rates, for example, to 15p in the pound rather than 10p, which is consistent with our position in Scotland. That is not the position of the Tory party which has suggested that it wants to see 100% of income tax being devolved to Scotland. The amendment looks at this consistency in approach and would at least give us the opportunity to think about whether we might like to pick up other opportunities that may be offered to Scotland later; we have to understand that there will be an impact on other parts of the UK if income tax rates are varied. It is correct to ensure that we take the temperature of how devolution has changed between now and the time when the powers to vary taxation at a Welsh level are taken up.

It is interesting to look at the joint agreement that has been made by the parties and the Assembly. On the proposal that if, for example, air passenger duty for long-haul flights were to be devolved to Scotland and Northern Ireland, we would want to look at that. That is the spirit of the amendment: we need to understand that if they are getting extra powers it will have an impact on us. We need to think about how we would want to respond to that.

[Lord Newby]

My Lords, Amendment 23A seeks to place two statutory duties on the Chancellor of the Exchequer when a new devolved tax is created in Wales. The first would be to review the benefits of symmetry in the devolution of taxes between Scotland and Wales. This would effectively require the Government to assess whether a tax being devolved to Wales should also be devolved to Scotland, although the way in which the noble Baroness moved the amendment inverted Scotland and Wales.

The second duty would be to review the principles of tax devolution. These are three: it should have cross-party support; it should be evidence-based; and any devolution of taxation should not be detrimental to the rest of the UK. These are good principles, and I am not sure that we want to have a root-and-branch discussion of them. What the noble Baroness was talking about, however, were the circumstances in which Scotland gets more powers, and the formalisation of a structure under which the Welsh Assembly not only thinks about them but has a process for discussing those matters with the UK Government.

On the symmetry of devolution settlement, until now the Government have been clear that we consider devolution decisions for each country on their own merits. The existing arrangements provide flexibility for the Government to consider Wales and Scotland either separately or at the same time. However, the Scottish referendum result puts us in a new position in discussing devolution. Nobody seriously believes that we are at the end point in terms of devolution anywhere in the United Kingdom. Over the next year or two, we are clearly going to see a debate of an intensity that we have not seen in England at all, and have not seen in Wales since the Assembly was first established. We are talking about considerable potential changes. In these circumstances, it seems that the Welsh Assembly will be involved in those discussions, not least through the Joint Exchequer Committee if it has any specific proposals. There will be also be almost ceaseless debate in any constitutional convention, if one is established, or more generally in Parliament about what the future structure should look like.

I therefore think that the kind of formal review the noble Baroness proposes will be unnecessary. There will be no lack of opportunity for these issues to be debated. The challenge to the English regions and counties and to Wales is to produce a compelling argument for the kind of change that is required, and then to seek and obtain a political consensus for it. Whoever is in government after the next election will be faced with a situation in which there is a clear appetite for devolution in various respects. That will only crystallise into action when there is real pressure and a consensus in the nations and regions of the UK as to what that future of greater devolution might involve. With that in mind, I hope that the noble Baroness will feel able to withdraw her amendment.

[Baroness Morgan of Ely]

I thank the noble Lord. It is important to understand that, at the moment, we do not know what that process is. My concern is that if we do not get this down somewhere, it is possible that Wales will be left out of that debate, until a mechanism is devised. Ministers have talked eloquently about the mechanism that may be put in place but, at the moment, there is no formal structure. At this point, we are trying to make sure that there is a proper mechanism in place so that there is an opportunity for us to work out whether anything that is offered in Scotland is something we would want to take up in Wales.

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[Lord Newby]

My Lords, I am grateful to the noble Lord, Lord Rowlands, for raising these questions, which are central to how these two devolved taxes are administered. As he said, stamp duty land tax is a somewhat volatile tax and is not as steady as some others. However, there is a borrowing power to deal with any volatility. As with any other body, it will be available to the Assembly to build up cash balances which could be used should it find that in a particular year stamp duty brings in less than it expected. However, the volatility is not all one way. As with the UK Government more generally, in some years the Welsh Assembly will do very well out of stamp duty land tax and may choose in such a year to set aside a certain amount against any potential property downturn.

The noble Lord’s most fundamental question concerned how one decided what the block grant off-set should be for both these taxes. As he pointed out, the Command Paper says that there is a two-part process. First, you make an initial reduction to the block grant which is based on current takings from those two taxes. That is straightforward; it is just a mathematical calculation. Secondly, you have to decide how you amend the block grant in every subsequent year. As we say in the Command Paper, a logical way to do it is by having smaller Barnett consequentials every year. However, that may be an unacceptable way of doing it from a Welsh perspective. There are other ways of doing it. For example, it could in theory be linked to overall changes in public expenditure. However, this is one of the key issues to be discussed by the Joint Exchequer Committee, which will have its first meeting next week. Therefore, I hope that by the time we reach Report there will be something further to report on all this. However, that is the mechanism for deciding exactly how the subsequent year adjustment is calculated. The key point is that it is something that will be agreed with the Welsh Assembly, rather than being imposed by the UK Government.

The noble Lord, Lord Rowlands, asked about the eligibility for UK tax credits, or rather how tax credits will be treated. It will be for the Welsh Assembly to determine what sort of tax credits it wants. If it wants to set up the same operation as we have had with the Landfill Communities Fund, it has the power to do so.

[Lord Rowlands]

Where is the power? Is it in the Bill?

[Lord Newby]

It is in the Bill. I will correct myself if I am wrong but I am sure that this flows from the point I made earlier about the ability for tax credits to be assigned to these taxes in the same way in Wales as they are in the UK.

The noble Lord, Lord Rowlands, asked what would happen in respect of the existing Landfill Communities Fund and possible contributions to Wales. The fund is financed by contributions from landfill site operators. Obviously, once the Welsh landfill tax is in operation, the eligibility under the UK fund will eventually dissipate. However, I understand that this will not happen immediately. I believe that the Joint Exchequer Committee will determine the exact mechanism for dealing with that, bearing in mind that the Welsh tax is not envisaged to be operational until 2018, so there will be a transitional period and projects that are already in the planning process, or where allocations have already been made, will go ahead.

Questions were asked about how you determine whether somebody is an eligible landfill operator. My understanding is that 13 landfill operators have all their landfill sites in Wales and would need to register for the new Welsh tax and deregister from the UK landfill tax, and that another 11 have landfill sites in both Wales and elsewhere in the UK and would need to register for the new Welsh landfill tax in respect of their sites in Wales but would remain registered for the current UK landfill tax.

The noble Lord, Lord Rowlands, asked what would happen if, as a result of Welsh decision-making, the UK failed to meet its landfill reduction targets under the landfill directive. He also asked about the meaning of the statement,

“the Government will seek to recover this cost from the Welsh Government”—

that is, if the UK were fined. Obviously, if the Welsh Government were to say that they were setting the landfill tax rate at or near zero, and as a result all English landfill operators were rushing to landfill in Wales, and we therefore missed our target, it would be reasonable for the UK Government to say, “We are being fined only because of that decision and therefore it is reasonable that the Welsh pay any fine”. We are talking about a very remote possibility, not least because we are making reasonably good progress in reducing landfill across the UK. We do not believe that we are in danger of being fined under that directive in the foreseeable future.

The noble Lord, Lord Anderson, raised a word of caution and talked about borrowing powers and their limits. All I will say is that the sooner the Welsh Assembly agrees to have a referendum, that referendum is won and an element of income tax is devolved to Wales, the greater the borrowing powers for the Welsh Assembly will be.

The noble Baroness, Lady Morgan, raised a couple of problems. I am new to this debate, but I am slightly surprised at the tone of the noble Baroness. She speaks of problems, of everything being difficult and of unforeseen circumstances. It is quite depressing. She asked about what would happen if London asked for control of its own stamp duty land tax. The English regions—not just London but the Core Cities Group, which represents all the northern cities as well as London—have argued that all property taxes should be devolved to them in the same way that stamp duty land tax will be devolved to Wales. I cannot see it being a problem for Wales as, in cash terms, stamp duty land tax is a very small proportion of the total tax take. It will not have a significant impact on the overall level of public expenditure by the UK. Therefore any Barnett consequentials, for example, of London having control of its own stamp duty land tax, would be minimal. I would have thought—and I know that this applies to my colleagues—that Wales would welcome the thought that England would benefit from a degree of devolution in the same way that Wales expects to benefit.

[Baroness Morgan of Ely]

If you just look at stamp duty in London, the estimate is that £1.3 billion is collected there. That is quite significant. It is worth pointing out that that is a concern. We want to see this devolved, but I thought that the whole point of the House of Lords was that we look at something and say that there may be a problem here—let us check it out. I thought that was the point of this place.

[Lord Newby]

We like to do it in a positive spirit. The truth is that stamp duty land tax is a very small proportion of the overall UK tax take compared to income tax, national insurance and VAT. It is only a couple of per cent of that. It is a small tax. It is important for local areas, and it will be interesting to see what Scotland proposes to do, now that it has powers over its stamp duty land tax, to shift the balance of where that tax is borne. One of the advantages of devolving the tax to Wales is that the Welsh Assembly can choose to do something similar if it wishes.

[Lord Rowlands]

I apologise for interrupting the Minister, but he has mentioned Scotland. Presumably the discussions between the Government and Scotland on how the reductions will take place in the block grant to Scotland are much further down the road. May we assume that our arrangements will be very similar to, if not the same as, what will be agreed in Scotland?

[Lord Newby]

There is a Joint Exchequer Committee in Scotland, as there is in Wales. It will be for the Welsh Assembly representatives to decide whether the approach that is eventually adopted in Scotland makes sense for Wales. I think that there is a presumption that it probably will. The less complexity that there is in how we do these things, the better. Although there may be a presumption in that respect, there is no rule that requires it. It will be for that committee to look at Scotland and other examples in making up their minds.

I hope that I have answered the principal questions that were raised and, on that basis, that the noble Lord will remove his objections to the clauses.

Clause 15 agreed.

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[Baroness Morgan of Ely]

Not at all. Let me be clear: we in the Labour Party are not encouraging this; we do not want it to happen. At the moment we are not in charge of the government of this country. If it is introduced by the Government, then, of course, we want to make sure that we have a fair crack of the whip, so that Wales can compete as well. We are not encouraging this, though.

[Lord Newby]

I shall take the amendments in turn. Amendments 49 and 51A seek to include explicit provision in the Bill for fuel duty and air passenger duty to be devolved to the Welsh Assembly. First, I remind noble Lords that Clause 6 of the Bill already contains the power for further taxes to be devolved to the Assembly by Order in Council and therefore the Bill does not rule out in perpetuity any tax being devolved at a future point if there is agreement to do so. I shall explain why we are not devolving these powers in the Bill, starting with air passenger duty. As has been pointed out, the Silk commission recommended that long-haul rates should initially be devolved with devolution of all rates considered subsequently. In the Government’s response to the Silk commission we highlighted HMRC research which suggested that differential rates of APD could end up redistributing passengers rather than creating additional growth. This potential distortion, despite what the noble Lord has said, is particularly acute in relation to Wales, given the short distance between Cardiff and Bristol airports. As the noble Lord, Lord Anderson, pointed out, for many people who fly from south Wales and just across the Severn there is a real and immediate choice between those airports, which they see as close competitors.

[Lord Rowe-Beddoe]

Let me just point out that Cardiff—perhaps noble Lords do not know—has lost more than 1 million passengers to Bristol in the past five years. This happened because of the management of the airport at the time and the company that owned it, but there was a bleeding of that number of people. We have got to get the passengers back. It is not a distortion of competition; it is to restore the services. You require two things for an airport: good customer experience and a plane that goes where the passenger wants to go. We are desperately trying to bring people back; this is a levelling to help that situation. It is not a question of distortion. We have heard about the 100 kilometres, or whatever. Forgive me—go around the Midlands and see where the airports are. It is not a question of distortion in that sense.

[Lord Newby]

The noble Lord has just made my point that they are part of a single market for passengers in south Wales, or there would not have been that bleeding away. Passengers are not bleeding away from south Wales to Manchester airport because it is just too far. The point is that Bristol is within a relatively easy ambit and people are going there. The noble Lord discussed the question of distortion in respect of strict EU law, but the kind of competition we have been debating—and, indeed, his description of what has happened and how he wishes to reverse it—suggests that if we were to devolve this power and APD was reduced it could and probably would contravene the third principle of devolution, which we discussed earlier, that any change in one part of the UK should not be to the detriment of another part of the UK. The noble Lord wants it to be to the detriment of Bristol, so that there will be a balancing away from Bristol towards Cardiff.

[Lord Thomas of Gresford]

If I may interrupt, the noble Lord, Lord Rowe-Beddoe, does not want to do something to the detriment of Bristol—he wants to do something for the people of south Wales so that they have easy access to an airport and do not have to go more than 60 miles down the road to Bristol. I really do not see why it is not possible for the Assembly to have this power of setting a lower airport tax so that it attracts people in. It might then be possible to balance, with the use of that lever, the number of passengers going to Bristol or Cardiff; those coming from Swansea or further west may think, “Well, I’d rather go to Cardiff than to Bristol”. Eventually, you could start equalising the airport tax again, if the economics are correct. I am sorry to repeat myself, but we are talking about putting levers into the hands of the Welsh Government. I should have thought that the Government of the noble Baroness, Lady Morgan, in Wales would welcome levers of that sort to try to do something about the Welsh economy—otherwise we are just stuck with what we have got.

[Lord Newby]

Noble Lords are, as ever, extremely eloquently making a case for preferential treatment for Wales, which would benefit Wales. I am just making the point that it might well benefit Cardiff Airport but that would be to the detriment of Bristol Airport. That only stands to reason. There is not going to be a sudden explosion of long-haul traffic because of a tax change.

[Lord Rowe-Beddoe]

In my definition of a regional airport, I made it very clear that it had between 1 million and 3 million passengers. We want to develop regional airports. Howard Davies’s commission refers to this. That is what we are talking about. Of course it would benefit Wales, if it were ever to happen. Cardiff Airport falls exactly within the categorisation made by Howard Davies and the EU.

[Lord Newby]

My Lords, I am sure that the Welsh Assembly, which I believe—including the Labour element of it—is in favour of devolution of air passenger duty to Wales, will continue to make the case. However, I am afraid that the Government are not at this point persuaded of it. The situation in Northern Ireland is completely different, in that it shares a land border with the Republic, which has a significantly lower rate of air passenger duty. That is its competitor.

The Silk commission recommended against devolution of fuel duty largely on the basis that member states must set a single rate for each fuel under the EU energy products directive. It also highlighted that fuel duty is a highly mobile tax base—no pun intended. As noble Lords have made clear, we could very easily see queues of motorists across the border if there was a significant disparity, which in itself makes it an unlikely candidate for devolution. So the Government accepted the Silk commission conclusion on that.

The noble Lord, Lord Thomas of Gresford, referred to the issue of whether the rural fuel scheme in Scotland might be extended to Wales. The Silk commission recommended that the Government assess whether the rural fuels scheme should be extended to remote and rural areas of Wales. It now operates in the Scottish islands and the Isles of Scilly. The Government have applied to the European Commission to extend the current scheme to areas on the UK mainland that meet strict criteria around pump price, population density and cost of fuel transportation. However, no areas in Wales were included, because they were not felt to meet the objective criteria. The Government believe that areas should experience similar characteristics to the islands in the current scheme to make the strongest possible case to the European Commission. The Government have yet to receive a response from the Commission to their existing proposal.

Amendment 51 would devolve corporation tax to the Welsh Assembly if it is devolved to either Scotland or Northern Ireland. The Government have been consistently clear that the devolved countries are different and that it is therefore right that decisions on devolution are treated on their own merits. In relation to corporation tax, the Government are committed to making a decision on devolving rate-setting powers to Northern Ireland by the time of the Autumn Statement. However, similar to the position on long-haul rates of air passenger duty, the potential devolution of corporation tax to Northern Ireland is being considered in the light of two unique features. First, Northern Ireland is competing against the Republic, which has a much lower headline rate of corporation tax. Secondly, the stated purpose of tax devolution in Northern Ireland is to help to rebalance the Northern Ireland economy. In Wales, as noble Lords will be aware, the principal aim of devolution is to increase the accountability of the Welsh Assembly and Welsh Government. Different objectives potentially require different decisions on devolution; it is therefore right that the UK Government retain the flexibility to take the right decisions for each part of the UK.

Finally, I turn to Amendment 50, which would require the publication of an independent report on options for the UK and Welsh Governments to share tax revenues from natural resources in Wales. The noble Lord in moving the amendment spoke about the resources available potentially to the Crown Estate and referred to energy. With regard to the Crown Estate, there are no provisions in the Bill to change its status, and I find it difficult to envisage circumstances in which that would happen. Therefore, I am not sure how relevant that is. On energy, I can only agree with the comments of the noble Baroness, Lady Morgan, about the fact that one does not tax wind power in the same way as one taxes a barrel of oil, and it is very difficult to envisage that we ever would do so. So I do not think that an independent report as proposed by the noble Lord would be of any real value.

In the light of my remarks, I hope that all noble Lords who have proposed amendments in this group will feel able not to press them.

[Lord Wigley]

I am grateful to noble Lords who have taken part in this short debate. On the amendment proposed by the noble Lord, Lord Rowe-Beddoe, on Cardiff Airport, of course we need intervention—that is the whole point of government. If we just leave it to free market forces, those areas that have difficulties with the economy will get worse and worse. I am amazed that the Government look at devolution and powers of the Assembly only in terms of answerability and do not see the central need to have intervention in the economy to build it up. In Wales, the GDP per head is 25% below the UK average, so something is going wrong. If London is not capable of sorting that out, and Westminster is not capable of sorting it out, we have to do the job ourselves. But we need the tools to do that job and to intervene, as the noble Lord, Lord Thomas of Gresford, said. Some tools may be more appropriate than others, but in the case of Cardiff Airport, when all the effort that is being made to rebuild it at the moment is in question, I find it staggering that they want just to turn it down on that basis.

On the other amendments and the reasons given against them, with regard to petrol charges we already have a massive differential. We do not see people queuing from north Wales to Chester to find cheaper fuel because there is a cost involved in travelling. The need to get fair play in rural areas should be recognised by the Government. Goodness only knows that life is difficult enough as it is without the very high petrol taxes that we have.

On the natural resources of Wales, we hear so much about fracking coming along, and we know it is a matter of considerable concern. That is a new source of energy, and it may be something that comes into the purview of government in those terms. We need those powers to be there.

On corporation tax, I again underline that there is unanimity within the Assembly to have those powers, if they are going to Scotland and Northern Ireland, and the Government in fairness should allow it for Wales, which is in competition for inward investment against the Irish Republic. The Irish Republic has this advantage, so why do we not? We need that in order to rebuild our economy. It is something that the First Minister of Wales has very reasonably asked for and I hope that the Opposition Front Bench will support the First Minister in those representations.

I was heartened by the comments made by the Minister that there are provisions for other taxes to be devolved by order. We shall have to look to the order-making system to try to ensure that we have the tools necessary to do the job.