Wales: Devolution

Lord Wigley Excerpts

Thursday 19th July 2012 Lords Chamber

[Lord Wigley]

My Lords, I welcome today’s debate and thank the noble Baroness, Lady Randerson, for facilitating it. However, I have no doubt that we will return to this subject when the Silk commission produces its report, which is expected in November. In addressing these matters today, I am conscious that Mr Ron Davies once famously stated that devolution is a process and not an event. Where are we in that ongoing process? We can now fairly assert that the National Assembly for Wales is here to stay. Fewer than 20% of respondents, in a whole series of polls, say that they would prefer to revert to the bad old days best typified when we had Mr John Redwood as a governor-general.

The two-to-one majority vote last year for primary law-making powers has given the Assembly the law-making tools in those areas devolved to it. The model, however, as the noble Baroness said, is nothing like as transparent as in Scotland, where all functions not reserved to Westminster come under the Scottish Parliament. Wales should operate on a similar basis. At some stage we are going to have to come back to that. There is also a case, as the noble Baroness asserted, for other portfolios to be devolved, most notably those of police and prisons. There is wide support for this within those services, and also for devolution of broadcasting, major energy projects and the courts.

How far should the process go? My party, Plaid Cymru, believes that ultimately Wales should have its own independent voice within the European Union, and for the present political union of these islands to be replaced with a new relationship. It should be more like a social union, with a more confederal link between Wales, Scotland and England. I expressed my own emphasis in my maiden speech in this Chamber. I want to see Wales as a nation taking all the decisions that can meaningfully be taken on an all-Wales level, and to have an effective voice in other decisions that have to be taken on a wider scale. There are models of government short of independence that may warrant consideration. These include federal, quasi-federal and confederal structures. As was noted by the noble Lord, Lord Maclennan, a moment ago, I believe that when we debate the future of this Chamber, it would be a missed opportunity not to consider the possibility of it becoming a federal Chamber, particularly if devolution for Wales, Scotland and Northern Ireland moves towards the devolution-max model that apparently is very widely supported in Scotland.

With regard to the appropriate fiscal powers, these will depend on the level of devolution that obtains. As the process moves forward, so too must the financial powers that correspond to the constitutional powers. So, at this point in time, I suppose that we can do two things. First, we can lay down the principles that should apply, and secondly, we can lay out the fiscal powers that are appropriate to our current position on the devolution pathway.

Plaid Cymru, in its evidence to the Silk commission part 1 study, highlighted four core principles:

“Fiscal devolution is part of an evolving process by which Wales will become more economically and democratically self-sufficient;

“The Welsh Government currently has accountability over its expenditure without responsibility for its income. There are no direct linkages between taxes paid in Wales and decisions taken by the Welsh Government; decisions taken do not impact its revenue. By creating linkages, the people of Wales would be empowered over decisions that affect their wellbeing;

“The economy of Wales is underperforming. We want to see a more prosperous and more equal society. Fiscal powers provide levers towards achieving these goals; and

“The workings of government should be transparent, but current fiscal arrangements are opaque. Fiscal devolution would create greater clarity in terms of responsibility. This would enable more effective scrutiny”.

I would add that I find it astounding that our National Assembly should have less tax-varying power than does my own local Llanwnda Community Council. I do not understand why Westminster did not insist at the very outset of devolution that tax-varying powers should be part of the settlement.

All but two of the countries within the OECD that have devolved legislatures require those regional bodies to raise at least 20% of their budget from their own taxes, which in Wales would be equivalent to some £3 billion a year. One cannot begin to address the question of what tax-varying powers should be devolved without at least reviewing the inadequacy of the Barnett formula in its application to Wales. The Holtham commission showed that Wales was being underfunded by up to £400 million a year if the settlement was supposed to allow the Assembly to maintain public services at a level comparable with England. Updating the Holtham figures to the 2010-11 situation shows a widening gap, with a shortfall of up to £540 million. The Secretary of State for Wales, Mrs Gillan, said in the Assembly on 23 May that:

“The Barnett formula is coming to the end of its life and needs to be looked at”.

Silk is not directed to review Barnett, but I cannot see how it can reach conclusions without knowing the Government’s intentions with regard to replacing Barnett, hopefully with a needs-based formula.

Putting in a Barnett floor, as some have advocated, to limit the effects of the Barnett squeeze, is nothing like enough. To a large extent it is like closing the door after the horse has bolted. At a time of expenditure cuts it achieves next to nothing, and unless there is some backdating mechanism to take account of what has happened since 1999, which would generate the sum of £8 billion—the amount we have lost out on because of the Barnett squeeze over the period—the problems facing us now will not be answered. We need to replace Barnett with a needs-based formula, and we need to do it immediately. If the Government wait until after the Silk commission reports in November before indicating their intentions concerning Barnett, they will totally undermine the Silk commission and leave Wales suspended in mid-air with no inkling of where we are going. The problem is that the finance needs of Wales are distorted by viewing the Barnett settlement through the Scottish prism, but that is what happens all the time.

What are the taxes which, within our current limited autonomy, might be raised by the Assembly? If we are to aim at, say, 20% of the Welsh budget being funded by taxes raised in Wales—some £3 billion a year—that can come from one of only three major sources of taxation: from income tax, of which some £5 billion is raised annually in Wales; from VAT, which generates £3.5 billion a year; and from national insurance contributions, which raise a similar sum. Ignoring council tax and non-domestic rates, all other central taxes raised in Wales amount to some £4.5 billion. The EU rules make it difficult to devolve VAT in a meaningful way, and national insurance is directly associated with non-devolved responsibilities around social security, so my party’s evidence to the Silk commission advocated that 50% of the income tax take in Wales should come to the Assembly. In this we prefer the Holtham model to the Calman lock-step model, which makes it difficult to do more than maintain the status quo.

My party also favours devolving other smaller taxes such as stamp duty, aggregate levies, landfill taxes and airport passenger duty. I personally believe that we should look at alcohol and tobacco duties, and at oil duty. The argument that is always put forward is that of cross-border distortion, but I think that it can be overstated. There is considerable variation in taxes between the regions of other countries. One thinks of the huge difference in taxes between Zurich and Zug in Switzerland, with just a lake between the two that people can cross. In the United States, the greatest level of tax discrepancy is between two adjacent states, New Hampshire and Vermont, with no insurmountable problems. My party also believes that income arising from the Crown estates in Wales should also come to the Assembly, although that is not a massive sum, and we believe that we should have the same powers as Scotland to introduce new taxes. With regard to corporation tax, we would like the £800 million to come to the Assembly, but we accept that because of European rules, there are restrictions on our scope to make this a meaningful devolved tax. Personally, I believe that the tool we should be using should be that of providing greater investment allowances to trigger economic growth. At the moment they are available in the enterprise zone in Deeside. They should be more widely available in order to ensure that there is an incentive for those investing in Wales.

Finally, with regard to borrowing powers, there is an overwhelming case for the Assembly to have these powers. Local authorities have them, the Northern Ireland Executive have them and, under the forthcoming Scotland Act, Scotland will have them. Why on earth does Wales not have them? My belief is that we need much more than the £1 billion referred to by the noble Baroness; it would be nearer £4 billion or £5 billion. This should be brought forward immediately, and it could be done through the use of the Welsh Development Agency Act which allows such powers. It is not being used now because the Treasury insists that it should be offset against the departmental expenditure limit figure for Wales.

What is the attitude of the people of Wales towards such a change? As we have heard, 64% believe that income tax should be determined in Wales, two-thirds believe that the Welsh Government should have the right to change the level of tobacco and alcohol taxes in their budget, and when it comes to allowing borrowing, a staggering 80% support it. What are we waiting for? Can we be assured that, when Silk reports in November, the UK Government will immediately press ahead with its recommendations? That will create better and more transparent government, which is a big demand. Democratic answerability needs it and the Welsh public want it, so let us get on with it.

--- Later in debate ---

[The Advocate-General for Scotland (Lord Wallace of Tankerness)]

My Lords, I start by joining others who have contributed to the debate in congratulating my noble friend Lady Randerson on securing it. It has been a welcome debate with welcome contributions from all sides of the House. I certainly know from recent debates in the Moses Room that there has been an appetite among a number of noble Lords who have contributed today for a debate on a Welsh issue in your Lordships’ Chamber. I therefore welcome this particular debate, which is very timely. I also welcome the constructive tone of my noble friend Lady Randerson, who herself had distinguished service in the Welsh Assembly, and in the contributions from noble Lords in all parties and the Cross Benches.

The Commission on Devolution in Wales, commonly known as the Silk commission, was set up by my right honourable friend the Secretary of State for Wales in October 2011 to review the present financial and constitutional arrangements in Wales. The commission has met nine times to date, most recently last week in Cardiff.

The noble Lord, Lord Howarth, queried the commission’s terms of reference. It is fair to point out that the Government sought to work collaboratively—indeed, succeeded in doing so—with the party leaders in the Assembly to establish the commission. It is supported by all four parties in the commission. The terms of reference were agreed by all four party leaders in the Assembly. They are similar in many respects to many of those of the Calman commission on devolution, on which I was privileged to serve during the previous Parliament. However, the Silk commission has a considerable benefit over the Calman commission as it has buy-in from all parties in the Assembly. Rather regrettably, the Calman commission did not have buy-in from the SNP Government in Scotland when it deliberated.

As has been indicated, the first part of the commission’s remit concerns improving the financial accountability of the National Assembly. The commission is looking at the case for devolving tax-raising powers to the Assembly and the Welsh Ministers. While Members of the Assembly are accountable to the electorate via the ballot box every four years, the Welsh Government and the Assembly as a whole are not accountable to Welsh electors for the money that they spend. They simply spend what they are given. This point was very graphically made by a number of contributors to the debate, not least my noble friend Lord Thomas of Gresford and the noble Lord, Lord Rowlands, who talked about representation without taxation.

The public, it is fair to say, have placed their trust in the devolved institutions in Wales in the 13 years since they were established. During that time, the Assembly has been seen to mature, culminating in the overwhelming yes vote in the referendum on further law-making powers in March 2011. However, as my noble friend Lord Roberts of Llandudno graphically reminded us, the original vote in 1997 was on a knife edge. I remember watching it on television in the small hours of the morning. The point made by the noble Lord, Lord Rowlands, is important: over time a consensus has emerged. That is probably reflected in the fact that all four parties were able to agree on the terms of reference and the setting up of the Silk commission.

However, the financial accountability of the devolved institutions in Wales has not changed. That cannot be right. My noble friend Lord Roberts of Conwy drew attention to the fact that existing bodies such as the National Audit Office and the committees of Parliament already exist. Obviously there is a role for them, and perhaps it is a role that has not been developed as much as it could be in achieving greater accountability for the way in which money is spent. With power comes responsibility. With the powers that the Assembly has acquired, Welsh Ministers should be responsible not just for spending the money but for raising some of the money needed to pay for the decisions which they make.

A number of comments have been made about the survey carried out by ICM on behalf of the commission and published earlier this week. It appears that the Welsh public agree with the need for greater accountability. I share my noble friend Lord Roberts of Conwy’s view that it is not always clear precisely what was said, given that a number of the findings do not seem to quite add up. Nevertheless, there was quite a clear finding that 66% of those surveyed were positive about the Welsh Government having the right to change the level of taxation in Wales, and 56% believed that doing so would make the Welsh Government more accountable.

The commission itself has a wealth of experience, being chaired by Paul Silk, a former clerk in both the Assembly and this Parliament, and comprises nominees from each of the four political parties in the Assembly: Sue Essex, the Welsh Labour nominee; Nick Bourne, the Welsh Conservative nominee; Rob Humphreys, the Liberal Democrat nominee; and Dr Eurfyl ap Gwilym, the Plaid Cymru nominee. In addition, there are two independent members, who are equally experienced: Dyfrig John CBE, chairman of the Principality Building Society; and Professor Noel Lloyd CBE, former vice-chancellor and principal of Aberystwyth University.

As we have debated, the commission has been looking at the possible tax and borrowing powers that could be devolved to the Assembly and the Welsh Government. These include powers in relation to landfill tax, air passenger duty and stamp duty, but they are in no way limited to those taxes. The commission’s terms of reference require it to make recommendations that are likely to have a wide degree of public support. In announcing the commission, my right honourable friend the Secretary of State for Wales acknowledged that it would have to consult widely to secure that support, not just in Wales but throughout the United Kingdom.

The commission’s call for written evidence closed in February this year and there has been a series of public meetings throughout Wales, starting in March in Swansea, ending in Flint in May and including every local authority in Wales in between. The commission has received written and oral evidence from a number of cross-border bodies—some referred to by the noble Lord, Lord Rowe-Beddoe—such as the Confederation of British Industry, the Institute of Directors and the Federation of Small Businesses. It has also held drop-in sessions to allow representations from Members of your Lordships’ House and of the House of Commons.

Further afield, the commissioners have met legislators and interest groups in Scotland and Northern Ireland to discuss the implications of ongoing developments in these countries on the commission’s work. These included, in Scotland, Sir Kenneth Calman, Scottish Government officials, members of the Scottish Parliament’s Finance Committee; and in Northern Ireland, the First Minister and Deputy First Minister and the Committee for Finance and Personnel.

I have no doubt that, in addressing its work, the commission will take into account some of the very important considerations that have been raised during our debate: issues such as tax competition and—as mentioned by my noble friend Lady Randerson and graphically illustrated with figures by the noble Lord, Lord Rowlands—the practical problem of the percentage of the population living very close to the Welsh-English border. This is much greater than the equivalent on the Scottish-English border, which itself brings its own implications and considerations when looking at tax. Indeed, the noble Lord, Lord Rowlands, mentioned the impact of using a tax-varying power of 3p in the pound on the purchasing power of poorer communities. That is the sort of consideration that one would expect that the commission might take into account.

As I said, the commission is expected to report on part 1 in late autumn this year, and the Government will consider its recommendations very carefully. The noble Baroness, Lady Gale, asked for a further debate. As she knows, that is not in the gift of Ministers, but no doubt the usual channels will look at this. My own view, and clearly that of the opposition Front Bench, and I am sure others in the Chamber too, is that it would be useful. Once we have some concrete proposals, having a debate would be a useful part of considering them.

My noble friend Lord Roberts of Conwy asked about a referendum. We think that this is probably jumping the gun at the moment, given that we do not actually know what the proposals might be. However, it is obviously an issue that would have to be considered in view of any decisions which the Government came to on the commission’s findings. Certainly at the moment, we believe it is premature.

After publication of part 1, the commission will begin work on part 2, which will look at the powers of the Assembly and modifications that may be needed to the boundary between what is devolved and what is non-devolved. The aim here is to simplify the settlement where possible and to make it work better. Again, the commission will need to consult widely and make recommendations only where they are likely to have a wide degree of public support. As we know, the Assembly has powers in 20 devolved areas, and it is for the commission to decide where there is a requirement to tidy up the boundary of the settlement. Any further changes to the settlement must be right for Wales and for the United Kingdom as a whole. In the course of this debate, we have heard references to water, prisons, police, local government finance and broadcasting. I do not think that there will be a shortage of matters for the commission to consider, but it would certainly be inappropriate to comment on these at this stage.

My noble friend Lady Randerson also talked about the structures of the different devolution Acts. There was a difference between the Scotland Act and the original Wales Act, subsequently the Government of Wales Act; and a different settlement again in the Northern Ireland Act. I did not wholly agree with the noble Lord, Lord Elystan-Morgan, when he said that the reservations in the Scotland Act were all relatively simple. Part of my job is to look at these regularly, and sometimes it can be quite difficult to interpret them. Indeed, a case has recently been referred to the Supreme Court on the extent of some of the reserved functions, so it is not straightforward.

[Lord Wigley]

The Minister will have noticed that several noble Lords raised the issue of borrowing powers. He is coming to that in a moment, I gather. When he does, will he address the question of the Welsh Assembly’s existing powers to borrow via the Welsh Development Agency Act? The problem is that the full sum is placed against the DEL allocation by the Treasury. If that could be lifted, it would enable that power to be used as it is now available in Scotland.

[Lord Wallace of Tankerness]

Almost on cue, I was about to turn to a number of the specific points that noble Lords raised in the course of this debate. What was described by at least one noble Lord as the elephant in the room is the Barnett formula. This, of course, is not part of the remit of the Silk commission, nor of the Calman commission.

I know it will disappoint noble Lords, but the Government made it very clear in the coalition agreement that the priority is to stabilise the public finances and that no replacement to the Barnett formula will be considered until the nation’s finances are back on track. However, I could not fail to hear the comments of everyone who contributed to the debate, I think without exception. Someone pointed out, although admittedly not in the context of what appears in the coalition agreement, that the Secretary of State for Wales had said that the Barnett formula was coming to the end of its life. However, I reiterate that the Government’s position is that the priority must be the stabilisation of the public finances.