Wales Bill

Lord Wigley Excerpts

Wednesday 15th October 2014 Lords Chamber

Moved by

[Lord Wigley]

52: Clause 20, page 23, line 19, at end insert—
“(5A) The Secretary of State shall make arrangements for an independent report to be compiled on the issuance of bonds by Welsh Ministers.
(5B) The Secretary of State shall lay a copy of the report specified in subsection (5A) before each House of Parliament within three months of this Act being passed.”

[Lord Wigley (PC)]

My Lords, I will also speak to Amendments 53 to 55. This group seeks to bolster the Assembly’s economic accountability and resources. We in Plaid Cymru believe that the Welsh Government should be able to issue bonds, just as the Scottish Government can. Amendment 52 would hence provide for a review into whether this could in fact take place. It is a very modest amendment giving the opportunity for this to be further investigated. I should point out that this was a recommendation of the Silk commission and is supported by the Welsh Government as well as by my own party.

Having this power would allow the Welsh Government to use innovative, less volatile ways of borrowing such as the Build for Wales scheme that we have championed. Such a project would create a new entity to invest in public infrastructure. At present, if the Welsh Government want to undertake large amounts of capital expenditure to invest in building schools, hospitals, roads and so on, they are unable to borrow and cannot raise enough by way of tax to provide the necessary resources. If they save the funds, the Treasury may claw the money back if it is not spent within a certain period—as was so disgracefully done in 2011 when savings prudently accumulated by the Welsh Government were ruthlessly purloined by Her Majesty’s Treasury. It is surely against common sense that the Welsh Government are unable to borrow funds long term to fund capital assets.

Amendments 53 to 55 would ensure that the threshold for the Assembly’s capital borrowing powers is raised from the £500 million in the Bill to £1,500 million—that is, £1.5 billion—which would make the Welsh Assembly more closely aligned to the £2.2 billion threshold afforded to the Scottish Parliament. We would feel very unhappy if the Scottish Parliament were able to borrow four times the sum that we can in Wales. We arrived at our figure by taking into consideration Wales’s population base as well as the fact that we have fewer PFI commitments than Scotland, hence giving us greater flexibility over repayments. I beg to move.

[Lord Howarth of Newport (Lab)]

My Lords, it is absurd that there should be a need for a review of such a matter. It is absurd that there should be limits on the ability of the Welsh Government to borrow. We all remember—I think we are all old enough—that in the 1960s and 1970s local authorities issued bonds, as did utilities. Much more recently, universities have issued bonds, notwithstanding that to a significant extent they are publicly funded. This is an elementary tool of financial management which, if the Assembly is to take serious responsibility for its own affairs, of course it ought to have.

My only complaint about Amendment 55, proposed by the noble Lord, Lord Wigley, is that he has been so modest. He wants to limit the amount that the Assembly is permitted to borrow to £1,500 million. There is a constraint on the amount of borrowing that rests in the ability of the Welsh Government to service the interest. That should be a sufficient discipline.

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[Lord Wigley]

I am very grateful to the Minister. I certainly welcome his announcement that progress has been made with the bonds issue, and I hope that the National Assembly can move forward rapidly to take advantage of that opportunity.

With regard to borrowing, the capital budget of the National Assembly was reduced by just over 40% when the changes introduced by the Government were brought in. That put an immense squeeze on, among other things, the capital requirements of Governments, such as the Government in Wales, with responsibility for roads, schools, hospitals and all the rest. To get the economy moving, we have to get the capital injection, particularly into the economic infrastructure. I entirely accept that there has to be a cash stream to service this, and the Minister once again mentioned the income tax proposals. As he knows, I welcome those and want to see them used. Are the Welsh Government constrained to income tax? There are other sources of taxation revenue, and there may be other sources of revenue as well. For example, in the next four or five years, the M4 tolls will be reconsidered and renewed. Is it not possible for the Welsh Government to use sources other than income tax to service the capital borrowing that they need? Can the Minister give any indication on that?

[Lord Newby]

As the noble Lord knows, the Bill is permissive in terms of additional taxes being established in Wales. My working assumption would be that if such new taxes were devolved or established, there would be a commensurate rise in borrowing powers. However, many of the taxes that people sometimes talk about do not necessarily raise a huge amount of money. Therefore even if you got a commensurate increase in borrowing it would not necessarily be a transformative amount on its own. However, I think that the principle is very clear. The Bill is permissive in terms of additional tax powers for the Assembly and, as it were, borrowing follows income.

[Lord Wigley]

I am glad that the Minister has emphasised that there is a basket of possible sources of revenue which would justify the capital that is needed. No doubt the Welsh Government will need to use the capital responsibly as it is for capital investment projects and not just to subsidise revenue budgets that are running at a loss. As far as that is concerned we are making progress. Can I just pick him up on the comments that he made about Northern Ireland when he said that the situation there is different. Of course the situation is different from Wales. I understand the historic difference and all the rest but in economic terms the challenges in Wales are just as great as those in Northern Ireland—they are in terms of the income per head, the GDA. Is the Minister aware that the GDA per head in areas such as Kensington and Chelsea is 10 times the GDA per head in the Gwent valleys and Anglesey? That is the scale of the discrepancy. We need to regenerate the economy, otherwise we are always going to be going down this spiral. We need the tools to do the job and quite clearly this will be a responsibility of the Welsh Government. All I would press for is for him to be as sympathetic to the economic needs of Wales as he clearly is to the economic needs of Northern Ireland. I beg leave to withdraw the amendment.

Amendment 52 withdrawn.

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Moved by

[Lord Wigley]

56: After Clause 23, insert the following new Clause—
“Review of Barnett Formula
(1) The Secretary of State shall make arrangements for an independent review of options for reforming the Barnett Formula in order to meet the objective of calculating the block grant funding for Wales on the basis of need.
(2) The Secretary of State shall lay a copy of the report of the review specified in subsection (1) before each House of Parliament within 3 months of the passing of this Act.”

[Lord Wigley]

This amendment stands in my name and that of my noble friend Lord Elis-Thomas. Noble Lords will be glad to know that this is the final amendment tabled in our names for today’s debate. It deals with perhaps one of the most central questions of all. We are coming to it last: the much-beleaguered Barnett formula which every party in Wales accepts must be replaced. Unfortunately, for what appear to be narrow political reasons the parties up here do not agree on that point. Those of us in Wales who know how much Wales misses out on funding due to this formula were horrified to hear the government parties giving pledges to the Scottish electorate that they would keep the discredited system in place in the event of a no vote. If it is to stay in place without amendment it will have very dire consequences for Wales.

As the Minister will know, in Wales an independent commission, the Holtham commission, has shown how we are disadvantaged by the implementation of the Barnett formula which, as noble Lords will be aware, calculates how much consequential funding the devolved nations get based on the spending levels in England. The Holtham commission argued in 2010 that we in Wales are underfunded by between £300 million and £400 million every year. We believed at that time that it was probably an underestimate. Since 1999 the aggregate shortfall in Wales arising from the Barnett underfunding of the necessary services amounts to more than £5 billion. That is why our NHS, education system and local government have been inadequately financed. Services vital to the people of Wales are being squeezed because successive Governments at Westminster have not got to grips with this problem.

The Holtham commission argued that the formula should be replaced with a mechanism based on needs as opposed to the per head of population as is currently the case. This would allow for the fact that Wales has more vulnerable and disadvantaged people, including older people—many people retire to Wales—disabled people and those on benefits. The level per head of population is higher than the UK average. Even the noble Lord, Lord Barnett, has openly argued that the formula to which he gave his name should be replaced. A committee of this House came to the same conclusion.

Our amendment calls for a review of the options for replacing this formula. In the Motion to which I referred in earlier debates in the Chamber today there has been agreement between the four party leaders. There is a Motion coming up for debate on Tuesday in the name of the four party leaders, including the First Minister, Carwyn Jones. It states in the context of Barnett that the National Assembly for Wales,

“calls for bilateral talks that are informed by the Holtham and Silk 1 Commissions’ findings, including an updated assessment of the current level and likely future direction of Welsh relative funding”,

and,

“calls for those talks, which should begin immediately and be completed by January 2015, to have a particular focus on fair funding, with the goal of securing rapid implementation of a funding floor which both addresses underfunding in a way that is consistent with Welsh needs and halts future convergence”.

There are three steps that can be taken to sort this out and I put to the Minister that they are within the Government’s easy competence and can be achieved. The first is to determine the extent of the shortfall at present. I accept that it has come down because of the economic patterns and it may now be at £150 million to £200 million rather than the £400 million back in 2010, but it is almost certainly still there. If the Government were also to commit to a one-off adjustment to sort that out and bring in a floor so that as the economy picks up again we do not get the Barnett squeeze hitting us in the way that it has, and if the Barnett formula is adjusted to a percentage basis rather than an absolute one so that we do not lose out every time the absolute figure in Wales gives a lower percentage of benefit than happens elsewhere, it would be possible to live with the Barnett formula although it still does not give us a needs-based formula.

Ideally, however, what Wales needs—and what all the parties in Wales have been calling for—is a needs-based formula. At some point we are going to get some daylight on this. We cannot go on from year to year with this underfunding. I press the Government very strongly indeed, even if they cannot accept these amendments, to please give us some ray of hope that we might find our way out of the hole in which we find ourselves in Wales. I beg to move.

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[Baroness Randerson]

Yes, that is policy, announced by the Secretary of State for Wales.

[Lord Wigley]

And of course, every word uttered from the Dispatch Box is government policy, as well. What I am trying to reconcile from the Minister’s response are the comments that things are more or less right now and that there is a need to look at fair funding. There is something a little bit contradictory about that. They are not absolutely right now, or at least we do not know that they are. That is the argument in favour of having more investigation.

The Holtham methodology may or may not have been right, though it has generally been accepted that it was. That indicates there has been a closure of the gap, though there probably is still a gap, of maybe £200 million rather than £300 million to £400 million. We do not know. Taking the comments that the Minister made a moment ago in response to the noble Lord, Lord Richard, if there is a gap of £200 million which could be put right, it would bring us on to roughly what a needs-based formula would generate.

The assumption is that Holtham was looking for a communality of standards in public services in Wales, as might be expected in England. Whether it be £300 million or £400 million as it was, or £200 million as it is now, if that could happen with a one-off adjustment and by bringing in a floor and making sure that the changes—convergence or divergence—were on percentage rather than absolute terms, so that we are not missing out, we would at least have a system that would be sort of needs-based. It is not the radical needs-based formula that a lot of us are looking for, where you have determinants that generate entitlement to certain funding, but at least it would meet the Holtham assessment of the needs as he saw them at that point in time.