Commission on Devolution in Wales

Owen Smith Excerpts

Monday 18th November 2013 Commons Chamber

[Owen Smith (Pontypridd) (Lab)]

I thank the Secretary of State for advance sight of his statement on this historic occasion. It is almost a year since the Silk Commission produced its report and 16 years since the last time a Conservative Secretary of State for Wales made a statement in this House—better late than never. Labour Members certainly welcome the acceptance of the Silk recommendations, especially coming from a Secretary of State who once described devolution as constitutional damage.

I would like to thank Paul Silk and his team for their work in producing the report. That report and the Government’s response to it are of enormous significance to the people of Wales—a part of the UK that has been harder hit by this Tory Government than anywhere else. Welsh wages have fallen faster and further than anywhere else in the UK, the Welsh budget has been cut by £1.7 billion by the current Tory Government, and we have seen energy and other bills rise higher and faster than elsewhere. That is the reality of the context of today’s announcement.

Because of those cuts, the Welsh Government have sought borrowing powers and agreed with the Silk recommendations that Wales should be able to exercise those powers, as Scotland and Northern Ireland do at present. We welcome the confirmation that Wales will in future have the capacity to borrow in order to invest in infrastructure, but will the Secretary of State clarify some of the many details that are left outstanding after today’s announcement?

First, will he clarify exactly when he expects that package of borrowing to be in place for the initial tranche of investment in the M4 and other roads? More importantly, will he tell us about the process by which that level of borrowing will be agreed? The Government previously indicated that the devolution of the minor taxes such as stamp duty and landfill tax, which are being devolved today, would be sufficient to trigger significant borrowing powers for the Welsh Government. Today’s statement, however, seems to suggest that that borrowing would now be contingent on income tax-varying powers being taken up in Wales. Will the Secretary of State confirm whether that is the case and say how much borrowing will be released once the minor taxes are devolved? Will he further confirm whether a mechanism, a set of methods and a formula similar to that used in Scotland under the Scotland Act 2012, which affords about £230 million of borrowing to Scotland, would be the method employed in Wales?

We welcome the devolution of the minor taxes—stamp duty and landfill tax—as this gives the Welsh Government the capacity to make some changes to the Welsh economy and to invest in order to grow and create jobs. Prior to the introduction of these new Welsh taxes, we would need to be very clear about whether the Welsh people would be better or worse off. That is our primary concern, so will the Secretary of State explain exactly how the process and methods will be agreed and set for offsetting the block grant by the amount devolved to Wales under the minor taxes?

The most significant aspect of today’s announcement relates to income tax and the proposal that the Government will legislate for a referendum in which the Welsh people may be asked if they want a proportion of income tax to be devolved to Wales. Our position on income tax is that we support the proposal as laid out by Silk on the basis of a “triple lock”, whereby we will judge whether the people of Wales will be worse off, we will see through the referendum whether the people of Wales want to take that responsibility and we will see whether fair funding is agreed for Wales. That remains our position today.

It is a significant that, in making today’s announcement, the Government have rejected Silk’s proposal to devolve the income tax bands independently of one another. Can the Secretary of State confirm why he has rejected that recommendation? The Government’s written statement suggests the reason is that the UK Government have discovered an interest in the progressivity of the UK tax system and are concerned that devolving those bands independently of one another might reduce that progressivity. That is ironic from a Government who have cut taxes for the wealthiest people in Wales. Will the right hon. Gentleman further confirm that the leader of the Welsh Conservatives in Cardiff Bay has said that he would use the tax powers only for the wealthiest by cutting only the 40% band, thus continuing the anti-progressive policies being pursued in Westminster?

I noted from the media today that the Secretary of State, in contrast, would cut all the bands by 1%. He will know that that would result in a £200 million shortfall in the Welsh Assembly’s budget. Will he tell us exactly how he would fill that shortfall, or, alternatively, tell us which services he suggests that the Welsh Government should cut to make the tax cut affordable?

May I ask the Secretary of State about fair funding? Last year the Government said that there was evidence of convergence in funding between Wales and England. Today’s statement commits them to

“review relative levels of funding for Wales and England in advance of each spending review and, if convergence is forecast to resume, to discuss options to address the issue in a fair and affordable manner.”

Will the Secretary of State tell us exactly what the result of those reviews will be? If there is evidence of convergence, will action be taken? Will we see what Paul Silk wanted, namely a review of the Barnett formula?

Without a hint of irony, the statement provides for the Government to give Wales a facility to save any “surplus revenues” that it might have lying around. Given that the Welsh budget has been cut by £1.7 billion over the last three years, can the Secretary of State tell us when that surplus is expected to materialise? Or have we just been given another set of false promises by a Government who do not believe in the Welsh people, and will not deliver for them? Is today another day on which we should beware Tories bearing gifts?

[Mr Jones]

I am grateful to the shadow Secretary of State for what I think was a welcome for my announcement. However, we heard the predictable preamble about Wales having been hit harder by the Government than any other part of the United Kingdom. In fact, the grant to the Welsh Government has been reduced proportionately less than that of any other Whitehall spending Department. Given that we are living in times of extreme difficulty—caused to no small extent by the last Labour Government—I should have thought that the hon. Gentleman would welcome the support that this Government have given the Welsh Government and the Welsh Assembly.

The hon. Gentleman asked a number of specific questions, the first few of which related to when the borrowing powers would be made available. I am pleased to be able to tell him that, as was announced in my written ministerial statement, the Welsh Government have already been given assurances that they can negotiate with the Treasury for borrowing powers in respect of the M4 and the north Wales expressway to take effect immediately. We will fund that by allowing the Welsh Government’s current borrowing powers to be used without any adverse impact on the departmental expenditure limit.

The hon. Gentleman welcomed the devolution of taxes. The two larger taxes that are being devolved are landfill tax and stamp duty land tax. That will of itself provide a funding stream against which the Welsh Assembly Government can borrow, but we want income tax to be devolved as well. The hon. Gentleman is right: I do support the devolution of income tax. I urge the Welsh Assembly Government to trigger the referendum as soon as they can, because the Conservative party will be campaigning vociferously for a yes vote in that referendum, and, furthermore, for a cut in income tax.

The hon. Gentleman made a point that revealed the poverty of the Labour party’s ambition. We believe that devolution should be used to give a competitive edge to Wales, and that the powers that are devolved should be used to make Wales a more prosperous place. Very far from wanting the tax cuts to apply to the wealthiest people in Wales, we would like them to apply across the board, to everybody in Wales, so that the brightest and best want to come to Wales to set up business, to make their livings and to look forward to a brighter future. That is what differentiates the Labour party from the Conservative party. Interestingly, the Welsh Finance Minister, Jane Hutt, hailed today’s announcement as

“a good deal for Wales, and a big step forward for devolution.”

However, the Eeyore-like shadow Secretary of State prefers to look for a cloud in every silver lining. He is out of step with everybody except himself.