Wales: Devolution

Lord Thomas of Gresford Excerpts

Thursday 19th July 2012 Lords Chamber

[Lord Thomas of Gresford]

My Lords, in the last Welsh Assembly election in 2011, Peter Hain, the shadow Secretary for Wales, introduced the Welsh Labour Party manifesto with a call to the voters to vote for Carwyn Jones and Welsh Labour, which was fair enough, but then added:

“'But it is also an opportunity to send a message to the Tory-led Government in Whitehall: that Wales is being treated unfairly and their deep and savage cuts are hurting but not working”.

On 17 April this year, in the build-up to the local elections in Wales, for which the Welsh Government are responsible, Carwyn Jones told a public meeting in Newport:

“Vote Labour on the 3rd of May to tell Cameron and Clegg that their brutal cuts have been rejected in Wales”.

Peter Hain at the same meeting urged voters to make 3 May,

“a referendum on this unfair and disastrous budget”.

He was not of course referring to the budget of the Labour Assembly Government, a budget that was passed only with the assistance of Liberal Democrat Assembly Members. He was fairly and squarely passing the buck for the underperformance of the Welsh economy, referred to by the noble Lord, Lord Roberts of Conwy, and the noble Lord, Lord Wigley.

Labour has indeed adopted my very useful family motto, “Ar Bwy Mae’r Bai?”—“Who can we blame?” Blaming Westminster for all the ills and inequalities in Wales is only too easy. It illustrates that the Welsh Government in Cardiff escape accountability for their spending decisions. They do not want the Welsh voter to ask the questions that almost every elected body in the world has to face: “How have you spent my money? What have you done to my taxes?” Those are the questions that I would ask of the Gresford Community Council about its precept, which forms part of my council tax.

Those of us who have campaigned for devolution for all our political lives hoped to see a Welsh Government who had fiscal responsibility for both the raising and the spending of people’s money within the policy areas devolved to them—I fought on that basis in 1964, which seems rather a long time ago. That has not happened; we got the Barnett formula. As the noble Lord, Lord Rowlands, has just admitted, Labour ducked its reform.

The fundamental weakness of the Silk commission is that the Secretary of State announced when setting it up:

“The Commission will not consider … the Holtham Commission’s proposals for funding reform in Wales, including Welsh Ministers’ existing borrowing powers”.—[Official Report, Commons, 11/10/11; col. 28WS.]

Those powers were to be dealt with in a different way. I fail to see how the Silk commission can fulfil its remit to,

“examine issues of fiscal devolution and accountability in Wales and … focus on building consensus”—[Official Report, Commons, 19/7/11; col. 115WS.]

without an examination of the present system and the Holtham proposals for reforming it. How can it be possible to build a consensus in which powers to raise funds by taxation of the people or of businesses in Wales are introduced to increase accountability without reform of the Barnett formula?

Everybody agrees that Barnett is inequitable, even the noble Lord, Lord Barnett. There is consensus, from the Richard commission, to which I gave evidence in 2004, to the Steel commission and the Calman commission in Scotland. The House of Lords commission on the Barnett formula of the noble Lord, Lord Richard, of which the noble Lord was a member, said that Barnett was “arbitrary and unfair” and the Holtham commission of 2010 said that it lacked any objective justification. Holtham’s conclusion was that the Barnett “squeeze”,

“has caused the funding of devolved activities in Wales to fall below what Wales would receive were its budget determined by the various formulae that the UK Government uses to allocate resources to comparable functions in England”.

It is a formula based on crude population percentages and it takes no account of need. Noble Lords have already referred to the figures. On the basis of need, Wales should get 117% of English per capita spending and currently gets only 112%—a deficit of £400 million. Scotland should get 105%, but gets 120%. Perhaps the reason that Barnett remains is that Scotland drags its feet—like the Cardis, Scots know the value of money, and they are getting an extra £4 billion out of it. That £4 billion might fire the English to vote for Scottish independence, if they ever had a chance to do so.

A needs formula for Wales would take into account the higher levels of deprivation, the lower levels of economic prosperity, a much higher degree of rurality and the quality of public health. In addition, Barnett does not fulfil the requirements for accountability. There is no link at all between the spending decisions made by the devolved Government and the revenue that is raised and handed over to them by the United Kingdom Government. How then do you build accountability into the system, which is the declared purpose of the Silk commission?

Holtham pointed out that there are only three areas of tax that raise significant revenue: VAT, national insurance and income tax. VAT is ruled out because Europe does not permit varying rates of VAT within the borders of a member country. Gresford roads would also be choked by smugglers heading across the border to Chester, some eight miles away, as they used to be choked by people struggling over the border for a drink in the dim and distant days when our part of Wales was dry. I can tell the noble Lord, Lord Rowlands, that I know all about border issues. Increases in national insurance would impact on jobs and, in any event, as it is linked to welfare, it is not a devolved matter. The Welsh Government should be funded primarily by income tax and corporation tax. There are difficulties, of course, but they have to be worked out. The revenues from those taxes would increase as the Welsh Government succeeded in boosting jobs and industry. As my noble friend Lady Randerson—who must be congratulated on introducing this debate—said, it would be the reward for the Government pursuing successful job creation and business-friendly policies. If the Assembly Government failed and the revenues decreased, the answer would lie in the ballot box. It does not currently. As the Labour Government said, “Send a message to Westminster”.

Another safeguard would be continued equalisation funding. I agree with Holtham that United Kingdom income tax should be reduced in Wales by 50% and the Assembly given the responsibility of voting annually to raise the remaining taxes, with the safeguard that the Assembly should set a rate of 3p either side of the UK rate, a matter to which other noble Lords have referred. The excellent submission to Silk by the Changing Union project, funded by the Joseph Rowntree Charitable Trust, pointed out that the Holtham commission estimated that in 2007-08 total identifiable expenditure in Wales was about £25 billion, exceeding Welsh tax receipts by £6 billion. It said:

“This represented a fiscal deficit of 10% of Welsh GDP, although he”—

Holtham—

“suggests this gap would have more than been made up with a possible revenue equalisation grant of £27.5 billion from the Treasury based on 5% of UK population share”.

Other devolved Administrations have borrowing powers. In Wales, speedy investment in much-needed infrastructure and capital projects will stimulate the economy in both the short and long term. The Welsh Government cannot fund a long-term programme of investment out of their general expenditure. Borrowing powers are essential.

In the 1960s, I was greatly influenced by the late Professor Ted Nevin, then of Swansea University, who attacked the policy of bribing companies to come to Wales with cash subsidies. His view was that you invest such funds as you have available in creating the infrastructure of communications—road, rail, air and telecommunications—designating enterprise zones and customs-free zones, and investing in training a skilled workforce. Business must want to come to Wales for the business-friendly environment that a Welsh Government should create. That is what we hope for. That was the policy of the Welsh Liberal Party back in the 1970 general election—I know, because I wrote it—and it remains the policy of the Welsh Liberal Democrats. The Welsh Government need the funds for these long-term aims to be realised. I fervently hope that the Silk commission produces the right decisions.