Wales: Devolution

Lord Roberts of Conwy Excerpts

Thursday 19th July 2012 Lords Chamber

[Lord Roberts of Conwy]

My Lords, I congratulate my noble friend on securing this debate, which enables us, as she suggested, to have an input into the Silk commission’s deliberations.

My comments today will be very preliminary and tentative, because I hope that we shall have a further chance to debate the Silk report when it is published and before the Government make up their mind on the proposals. However, even as things stand, it is not difficult to make an informed guess about the recommendations of the first part of the Silk commission’s inquiry on taxation and accountability in Wales; and, indeed, perhaps about the eventual outcome after public reaction to its proposals and the Government’s consideration of it all. I say this with some confidence, because we know what happened to Scotland after the Calman inquiry and the subsequent Bill that came before this House. Unlike Scotland, Wales does not have a Parliament of its own, but it has a National Assembly and Government, and we can reasonably assume that developments in Wales will very likely follow a similar pathway to the one in Scotland.

The commission may well recommend that the revenue produced by certain UK taxes in Wales should be assigned to the Welsh Assembly Government and a corresponding deduction made from the block grant. I see no insuperable difficulty with this, although there may be some argument about the level of the taxes concerned and the power to change them. I first encountered this idea of assigning the product of taxation in a report produced by my noble friend Lord Steel of Aikwood when he presided over the Scottish Parliament, which takes us back a bit.

I also remember the conclusion of that report: namely, that even if the Scottish product of all the UK taxes he listed in his report—and it was a page full of transfers—was transferred to Scottish coffers, Scotland would still need a subsidy from the UK Treasury to maintain the level of spending that it was accustomed to. That is likely to be the position in Wales as well. To my mind, the real problems arise over powers to vary rates of tax of one sort or another and if power is given to raise new taxes unique to Wales, as allowed in the recently passed Scotland Act, although it is a power not yet used in Scotland.

With regard to the power to vary taxes, we have seen the argument arise over the desire to vary corporation tax in different parts of the UK, particularly in the face of the low rate of 12.5% in the Republic of Ireland. The rate is regarded as an all-important factor in attracting inward investors, and of course we all want inward investors in all parts of the UK. The UK Government’s view is that it would not be right to allow one UK country or region a more favourable rate of corporation tax than another. I do not see them changing their mind on this.

I am more perturbed by the possibility of new or increased rates of taxes being imposed on businesses and individuals in Wales. We have a Labour Government in Wales, with more of the flavour of old Labour than the new. They are convinced of the supreme importance of the state and of the primacy of its needs and requirements. Their views are not mine. Suffice it to say: by their deeds shall ye know them. As the noble Baroness has just said, their record in developing the Welsh economy over the past 13 years is not one to be proud of. They have seen Wales fall as a favoured destination for inward investment from being second only to Scotland to being the lowest bar one among the UK regions. That, I dare say, was due to the abolition of the Welsh Development Agency. Let us face it, Wales is one of the poorest regions in the European Union and one of the least able to bear additional taxation. Extra taxes would drive out businesses and individuals—of that we can be certain. If the Government were to lower taxes to incentivise people it would be a different matter, but that is most unlikely.

If the National Assembly and its Government do not have taxation powers, how can they be held accountable to the electorate? Arguably, that could be achieved through the National Audit Office, the Public Accounts Committee and all the other parliamentary mechanisms here, but I do not think that they have ever been applied. That is a dilemma that is being left to the Silk commission, and I do not envy its task of deciding how that accountability can be created. Even within a democracy, there must be safeguards against the deleterious, deeply damaging and mistaken use of powers. The trouble is that it often takes time for the abuse and hurt to be felt and realised by the electorate.

This possibly explains the somewhat conflicting views expressed to the ICM poll, which was commissioned by the Silk commission and published this week. We are told that 64% of those questioned thought that income tax levels should be determined in Wales. However, as the Guardian put it on Monday,

“other answers muddied the waters”.

It went on:

“Asked which level of government should have the most influence over taxes that Welsh people pay, the results seem to contradict the bottom-line conclusion, with … 53% saying it should be Westminster. The Welsh government was … second with 35%”.

There we have it.

I agree in principle that borrowing powers, which are already available to the Scottish Parliament and the Northern Ireland Assembly, should be granted to the Welsh National Assembly and its Government but under strict Treasury control, bearing in mind the UK deficit that the coalition Government inherited and which has got us into so much trouble. The ultimate safeguard—we must never allow this to go—must be the overriding power of this Parliament. I sincerely hope that it will be preserved for use in extreme circumstances if things go very badly wrong in Wales.

There are many other issues to consider: the transfer of business-rate setting to the Assembly, which has similarities to the transfer of corporation tax in that it can advantage or disadvantage an area, depending on the rate imposed. However, the key question is whether the product of any tax transfers is additional to the block grant or a substitute for some part of it. I suspect that most transfers will be substitutes.

There is also the issue raised by the Welsh Government in their evidence to the commission in the event of a transfer of power to vary income tax. They suggest that there should be a referendum. Incidentally, it is not a power that the Welsh Government have actually asked for. Much to my surprise, I see that the Welsh Conservatives, in their evidence, which is reproduced on page 7 of the excellent Library note, say that,

“consideration should be given to the devolution of some aspects of income tax, because this could make the … Assembly more accountable to the people it represents … There is considerable merit in exploring this policy”.

Wonders never cease.