Empowerment and Responsibility: Financial Powers to Strengthen Wales

Lord Wigley Excerpts

Tuesday 11th December 2012 Grand Committee

Tabled By

[Lord Wigley]

To ask Her Majesty’s Government what is their response to the first report of the Commission on Devolution in Wales, Empowerment and Responsibility: Financial Powers to Strengthen Wales.

[Lord Wigley]

My Lords, this is the first occasion I have had to sponsor a short debate. I am glad to have the opportunity to focus on the recommendations of the Silk commission’s first report, published last month, and, through my Question on the Order Paper, to invite the Government to spell out how they intend to take forward the commission’s recommendations.

The Silk commission was established by the UK Government in October 2011, with a double remit. The first is:

“To review the case for the devolution of fiscal powers to the National Assembly for Wales and to recommend a package of powers that would improve the financial accountability of the Assembly, which are consistent with the United Kingdom’s fiscal objectives and are likely to have a wide degree of support”.

Secondly, the commission is now considering the National Assembly’s non-financial powers. However, Silk was specifically asked to report on part 1 by autumn 2012 and the Government, as far as I know, have indicated no intention to await the completion of part 2 before implementing part 1 recommendations.

It may be worth reminding ourselves that the National Assembly has no tax-varying powers. Llanwnda Community Council, where I live, has greater taxation powers than our National Assembly. It was surely short-sighted to create such a body without adequate financial powers. It makes it far too easy for a Welsh Government, of any party, to blame Westminster when they do not have the resources they feel they need to fund portfolios such as health, education and roads. The Assembly should, as a matter of principle, have taxation powers so that it can be truly answerable to the people for the way in which it spends their money.

This is a totally different question to whether the Assembly is currently receiving adequate finance to maintain services to a standard comparable to those obtaining in England. Successive reports suggest that there is a shortfall of some £400 million per annum, and all parties in the Assembly believe that the Barnett formula should be replaced by a needs-based formula. The previous Secretary of State, Mrs Cheryl Gillan MP, stated categorically that,

“we all recognise that the Barnett formula is coming to the end of its life”.—[Official Report, Commons, 11/5/2011; col. 1146].

It is suffering a slow and painful death and it is high time it was put out of its misery.

The second reason for new powers is that if the Welsh Government want to change strategic priorities and spend more, say, on our schools or hospitals, or want to introduce more enterprise zones or extend the business rate relief, they should have the capacity to do so provided that they accept responsibility for raising additional resources to undertake those tasks.

Thirdly, the most significant issue facing Wales is that of economic regeneration. Wales has the lowest GVA per head of any nation or region in the UK, standing at 74% of the UK average. We must await updated figures which will be published tomorrow, but the UK Commission for Employment and Skills forecasts that Welsh economic growth will continue to lag 0.5% behind the UK as a whole. This would mean that, by 2020, the Welsh GVA per capita will be less than 70% of the UK average.

Currently, places like Kensington and Chelsea enjoy a GVA per head 10 times higher than that of Anglesey, Merthyr Tydfil or Blaenau Gwent. This is frankly intolerable. The Assembly has devolved responsibility for economic development, yet it has virtually none of the necessary tools to do the job. In particular, it has no borrowing powers which would enable it to launch capital investment programmes to stimulate economic growth. If it uses its powers under the Welsh Development Agency Act, it loses a pound of its DEL limits for every pound it borrows. Similarly, the Welsh Government have no power to issue bonds, something which would be available to regional Governments in many overseas countries.

Devolving material taxation and borrowing powers to the National Assembly would change the mindset of political parties in Wales. They would have to consider the impact of proposed policies on the tax base. Political parties would offer the voters of Wales different approaches to taxation at election time, giving voters a wider choice of policies. As things stand, the Welsh Government are a spending agency. They need to be a more rounded and responsible form of government. All these issues were carefully considered by Silk. Unlike the Calman commission in Scotland, the Silk commission consisted of representatives of all four parties and produced a unanimous report that has been widely welcomed. This was a remarkable feat and I congratulate the commission on it. It reflects a single-mindedness of purpose on these issues across party lines in the National Assembly.

What are the recommendations that should now be implemented? They include the devolution to the Assembly of business rates in totality, stamp duty land tax, landfill tax, the aggregates levy, long-haul air passenger duty, powers to provide enhanced capital allowances at an increased number of sites and enterprise zones, the right—already conceded to Scotland—to raise new taxes with Treasury agreement, the right to borrow above DEL limits to fund capital projects with Treasury agreement, and the power to issue bonds. The Silk report also recommends that income tax raised in Wales should be shared between the Welsh and UK Governments. The Welsh Government should be able to change the basic, standard and additional rates of income tax independently, with the Assembly bearing the consequences of such changes. The income tax proposals would not be implemented until the fair funding dispute had been resolved.

Such unanimous recommendations from a body set up by the UK Government demand a positive response. In the debate of 27 November in the National Assembly on the Silk report, First Minister Carwyn Jones said that he was happy to accept the report as the basis for future funding reform and that he expected the UK Government to publish a White Paper in the new year. Plaid Cymru leader Leanne Wood stated that the recommendations,

“should be accepted in full and pushed forward”.

Conservative spokesman Paul Davies AM formally placed on record his party’s support for the Silk report and its recommendation, and Liberal Democrat leader Kirsty Williams called for early legislation at Westminster to implement the report. On the same day, I was heartened to hear the Minister say in our Chamber that the Government intended to respond to the report with all due speed and in a timely manner. Might a start be made today?

On the issue of income tax, I do not see why all income tax on earned income should not be transferred to the Assembly, so that taxpayers will be clear where responsibility lies for their income tax bills. Some colleagues seem to fear Wales taking responsibility for income tax because of our lower average-income levels. However, provided that—as recommended by Silk—there is agreement on fair funding, that a needs-based equalisation mechanism is introduced before responsibility is transferred, and that there is an agreement on the method by which the block grant is reduced to reflect the changes in taxation arrangements, there is no reason to fear the taking over of income tax by the Assembly.

I also believe that corporation tax should be devolved to the National Assembly. It is one of the tools with which we can tackle our economic problems. The Silk report was ambivalent about corporation tax. On page 84 it states that,

“it is clear that corporation tax is a potentially useful policy tool”.

However, it continues:

“We do not recommend devolving corporation tax to Wales”.

But then it adds:

“However, if the UK Government were to agree to devolve corporation tax to both Scotland and Northern Ireland, we would recommend the same powers be given to Wales”.

Will the Minister ensure that, if corporation tax is devolved to Scotland and Northern Ireland, the Wales Office will fight to secure the same powers for Wales?

What has been recommended by the commission is no more than common practice across the member states of the OECD. Silk’s first report pointed out that, on average, sub-state Governments in OECD countries are responsible for raising a material proportion of their budgets. Silk recommends a figure of about 25% of total devolved spending, which is in line with international practice.

The commission recommends that changes that do not need legislation should be implemented without delay, and that a new Wales Bill should be introduced in this Parliament to devolve tax and borrowing powers. The commission specifically states that this should not wait until the completion of part 2 of Silk. In the foreword to the report, Paul Silk pointedly states that he is proud to recommend the package of his recommendations to the Government “for early implementation”. From this it is clear that the commission expects the Government not to cherry pick the report but to implement it quickly in its totality as a balanced package of measures.

In conclusion, will the Minister confirm, first, that the Government accept the Silk recommendation that, in order to empower the National Assembly and to improve its answerability, it is necessary to give it the right to finance a material proportion of its budget, and that the most effective way of doing this will be by sharing responsibility for income tax between the UK and Welsh Governments? Secondly, will he confirm that if a referendum is to be held on the income tax issue, it can take place meaningfully only after the fair funding issue has been resolved? When do the Government intend to announce their proposals for fair funding for Wales? Thirdly, will the Government commit to implement the Silk recommendations during this Parliament?

I hope that the Government can now make a clear statement of their intentions, and I look forward to the Minister’s response.