Wales Bill

Lord Rowlands Excerpts

Wednesday 15th October 2014 Lords Chamber

Clause 8: Welsh rate of income tax

[Lord Rowlands (Lab)]

My Lords, I wonder if I may briefly intervene before the Minister moves her amendments. I have a very modest amendment, Amendment 31, which has been included in this list. It addresses a completely separate point from the whole swathe of government amendments and I would suggest that we take Amendment 31 separately. I hope that that would be possible.

[Baroness Randerson]

I understand the noble Lord’s point but I am intending to speak to my amendments and then give way to the noble Lord to make his points. I will then respond separately. Although it is in the same group, there will be plenty of time for us to give separate attention to the noble Lord’s amendment.

[Lord Rowlands]

I appreciate the Minister’s offer but it is a very different point altogether. I think that it would disrupt the flow of the debate on the Government’s amendments if Amendment 31 was included and involved in it.

[Baroness Randerson]

Following the points that the noble Lord has made, we will uncouple his amendment and have a separate debate at that point.

Amendment 24

--- Later in debate ---

Moved by

[Lord Rowlands]

31: Clause 8, page 10, line 20, leave out from beginning to end of line 15 on page 11.

[Lord Rowlands]

My Lords, like many Members of this House, for a number of years I have had to read through Bills. In doing so, I eventually developed a habit that I cannot kick, namely that if I come to a clause or part of a clause that I cannot fully understand or appreciate and translate into the language of a lay man, I table amendments to delete those particular elements in the clause. I do this in the hope and the expectation that when Ministers reply they will tell me what it really means, and it will become crystal clear. I have to say that there have been occasions in the past when that has not happened, but I am sure that it will happen tonight and that we will have a clear view of what some parts of this clause are saying.

I must confess that I struggled with much of Clause 8. It is a very long clause; it rambles on for four and a half pages of the Bill. However, I was okay and I was getting there, until I hit new Section 116F on page 10. I was particularly intrigued by its subtitle, “Welsh taxpayers: Scottish parliamentarians”. I was intrigued to find out how this clause—presumably—seeks to define those Scottish parliamentarians who may end up paying Welsh income tax. I immediately seized the text to find out who these unfortunate—or fortunate—Scottish parliamentarians would be who could become liable to pay a Welsh income tax. I went through the text of new Section 116F from line 20 on page 10. We find in this new section that the Scottish parliamentarian is:

“An individual (T) who is a Scottish parliamentarian for the whole or any part of a tax year is a Welsh taxpayer for that tax year if—

(a) T is resident in the UK for income tax purposes for that year (see Schedule 45 to the Finance Act 2013),

(b) T meets condition C in section 116E for that year, and

(c) T meets either of the following conditions for that year.

(2) T meets the first condition if—

(a) the number of days in that year on which T is a member as described in any of paragraphs (a) to (c) of section 116E(4), exceeds

(b) the number of days in that year on which T is a Scottish parliamentarian.

(3) T meets the second condition if—

(a) the number of days in that year mentioned in paragraphs (a) and (b) of subsection (2) are the same, and

(b) T meets condition A or B in section 116E for that year”.

I am sure now that every Member of the Committee who is here will know exactly who the Scottish parliamentarians are who are liable for tax.

I am quite good at the Times Codeword, but I have not decoded this particular new section at all. I immediately seized the opportunity to read the usually helpful Explanatory Note on this particular new section. It should be illuminating and answer all my queries. It states:

“Section 116F(1) sets out that if an individual has been a Scottish parliamentarian in a tax year, they will be a Welsh taxpayer if they are UK resident for the tax year, have also been a Welsh parliamentarian in that tax year and can meet one of the two conditions set out in the section. Taken with section 116E(5) this means that, if an individual is a Scottish parliamentarian for part of the year, but not a Welsh parliamentarian in that tax year, they will be a Scottish (rather than Welsh) taxpayer, even if, for example, they also have a close connection with Wales”.

Did I read that right? Are we talking about a Scottish parliamentarian who would be liable if he or she was also a Welsh parliamentarian in the same tax year? Who is this amazing creature? Who has this amazing electoral capacity to serve in one tax year both as a Welsh parliamentarian and a Scottish parliamentarian so that he or she would then be liable to pay tax in Wales? I find it difficult to envisage such a person ever existing. Everyone talks about belt-and-braces draftsmanship and this must surely be it. I would be grateful, when the Minister comes to reply, if he or she will tell me whether they know of anyone who is likely ever to be a Welsh parliamentarian and a Scottish parliamentarian in the same tax year so that we might then know which Scottish parliamentarian may be liable for Welsh income tax.

I use this as an illustration because I sometimes find that in this House—and I was a strong campaigner in the other House—I occasionally rebel against parliamentary draftsmanship of this kind. All these cross-references make it almost impossible to read. Even an intelligent person who is used to reading legislation should not be faced with drafting of this kind. It would be a good idea, once in a while, for the House to say to the Government, “Take this back, not because we do not agree with the intent but because it is drafted in such a way that it is almost incomprehensible”. If we started doing that, maybe we would have Bills better drafted than this one is.

[The Deputy Chairman of Committees (Lord Geddes) (Con)]

Having posed such a fascinating question, would the noble Lord like to move his amendment?

[Lord Rowlands]

I beg to move.

--- Later in debate ---

[Baroness Randerson]

We are talking about the situation in the past. Keith Raffan moved from Wales to Scotland; he also moved from the Conservative Party to the Liberal Democrats. The whole thing is a relevant example: the thing you would imagine would never happen has already happened.

[Lord Rowlands]

I am sorry; I do not know Mr Raffan’s parliamentary history? Was Mr Raffan both a European Member and a Member of the Commons in the same tax year?

[Baroness Randerson]

He was an MP and an MSP in the same tax year. I am pretty certain I am right, but the principle is that he moved from Wales to Scotland, straight from one job to the other.

--- Later in debate ---

[Baroness Randerson]

These rules flesh out what the term “residence” means in tax rules in relation to Wales. I hope noble Lords will accept that although the rules may not make pretty reading, they are workmanlike and, despite their complexity, they are clear, unambiguous and easy for people to follow.

[Lord Rowlands]

I find it difficult to believe that they are very easy to follow. I also do not believe that there is clarity here: there is a lot of confusion. I am delighted that the noble Lord, Lord Thomas, will become completely tax-free as a result of the other provisions in the Bill. What we are trying to show and expose is that we are getting fed up with the way in which Bills are drafted in this kind of way. The constant cross-referencing makes it almost impossible for a Member of Parliament or Member of this House to follow the Bill as closely as he or she would want. This amendment was tabled to cause this debate and I have no intention of forcing it to a vote because, of course, in the process I would take out other parts of the Bill that I would support. I hope that, if nothing else, when Ministers go away and talk to parliamentary draftsmen, they will say that there is great and bitter agitation against this type of drafting and legislation. If nothing else, this debate would then have served a purpose. I beg leave to withdraw my amendment.

Amendment 31 withdrawn.

--- Later in debate ---

Debate on whether Clause 15 should stand part of the Bill.

[Lord Rowlands]

My Lords, there is a consensus that both stamp duty and landfill tax should be devolved. I have no intention of questioning that consensus. The purpose of my seeking a debate on these clauses is to ensure that we know the implications of devolving these taxes, particularly on the block grant. To date, I do not think we have concentrated on that issue.

I have some questions, first, about stamp duty. Stamp duty revenues were £115 million in 2010-11, according to the Silk commission. This represents only 2% of the total. The Silk commission makes the obvious point that stamp duty is a very volatile tax. It can vary from year to year depending on the state of the housing market. No form of indexation such as has been developed to deal with income tax devolution was recommended; in fact the recommendation was for a fixed reduction. How is the fixed deduction from the block grant going to be determined? What will be the arrangements and process, and how will it be assessed? What impact will the devolution of stamp duty have on the block grant?

The second tax that we are devolving—the landfill tax—is very different. It is a tax that is not really aimed at raising revenue. It is intended to encourage waste saving and recycling. In fact, the success of this tax would be if the revenue declined. Indeed, the Silk commission points out that that is exactly what is happening: the taxable base—that is, the volume of waste sent to landfill—is declining. Across the UK, the taxable base for landfill has fallen by 33% in the last five years, and so the value of the block grant offset would need to reflect a declining tax base. Again, there is a serious issue about what impact the devolution of this tax would have on the block grant: how it will be assessed and how it will be decided what the deduction will be.

There are a couple of other complications with the landfill tax, as listed in paragraph 24 of the March 2014 White Paper. There is a UK Landfill Communities Fund attached to the landfill tax. This fund is financed by contributions from the landfill site operators, who receive an LfT credit worth 90% of any contribution they make. This is a UK fund and a UK landfill tax credit arrangement. However, once devolved, the operators in Wales will no longer be eligible for UK tax credits. As I understand it—and it is clearly stated in paragraph 24 of the White Paper—once we devolve the landfill tax, the eligibility for the UK-based landfill tax credits will disappear. I am not quite sure but I thought that the Minister implied in an earlier remark that in fact it would not, but according to paragraph 24, that is the case. It says:

“Once LfT is devolved to Wales, operators of landfill sites in Wales will no longer be eligible for a UK LfT credit”.

So that credit would fall. Are there powers in the Bill to allow a Welsh Government to create an equivalent landfill tax credit scheme of this kind?

In Wales, there are 24 registered landfill site operators, of which 15 were in receipt of tax credits during the financial year 2013-14. HMRC will not disclose information relating to how much the individual operators receive but the landfill communities contributed £4.19 million in 2010-11, £4.3 million in 2011-12 and £4.3 million in 2012-13 towards environmental projects in Wales.

Paragraph 24 on page 11 of the White Paper explains that there is going to be a transitional period. Will the Welsh Government, if they wish to, be able to establish an equivalent landfill tax scheme, of the kind that has been operating and which has successfully ensured that in some areas—where these landfill sites are often very controversial and have impacts upon local communities—they are able to make contributions and maintain some kind of local community fund?

The second problem identified in paragraph 24 is that:

“LfT is a key lever for the UK Government to achieve its 2020 landfill reduction target under the Landfill Directive (relating to the biodegradable municipal waste). Member states may be fined if they fail to achieve their target. In the unlikely event that the UK fails to meet its landfill reduction target solely because of changes to landfill tax policy in Wales, the Government will seek to recover this cost from the Welsh Government”.

There is an uncertainty hanging over this issue and the impact that it will have.

We are advised in paragraphs 31 and 32 of the Government’s White Paper on the question of how we are going to determine the reduction in the block grant. I would be grateful if the Minister could elaborate and explain paragraph 31 in more detail, as I have not fully understood it. It indicates some kind of proposition for the way they will handle the assessment of the reduction in the block grant once these taxes are devolved.

Paragraph 32 says:

“The Government continues to discuss this proposal, and other options, with the Scottish Government and has now opened similar discussions with the Welsh Government”.

Could the Minister update us on these discussions? How close are they to coming to some real understanding and agreement on the basis for reductions in the block grant as a result of devolving these taxes? I hope that the Minister will give an assurance that when we come to Report, these two important implications of how the block grant will be reduced will be much clearer and we will be able to approve these clauses in the full knowledge of the impact they will have on the block grant. I hope that the Minister will be able to reply.

[Lord Anderson of Swansea]

My noble friend as usual asks some very probing and cogent questions. On the face of it, these transfers of tax responsibility are relatively symbolic because, on the “bucket and the well” principle, what is gained on the one hand is lost on the other in terms of the block grant. It would be helpful if that could be elaborated on. Perhaps the best answer is that these transfers give a basis for the borrowing powers, which are very welcome, and which are contained in the Bill. Just a word of caution, however: the idea of a transfer of stamp duty has already been seized upon by other groups, notably by the Mayor of London, Boris Johnson. London, of course, has far greater resources and far more wealthy houses and land than Wales. If this were to move along the spectrum in the UK, it could have substantial implications, not least for Wales. Therefore, I utter a word of caution. However, on the other side of the coin, the borrowing powers, and the use to which they will be put—pace the noble Lord, Lord Thomas of Gresford, who feels that north Wales is likely to lose out in terms of the borrowing powers—are indeed welcome in principle.

--- Later in debate ---

[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.

[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.