Owen Smith
Main Page: Owen Smith (Labour - Pontypridd)Department Debates - View all Owen Smith's debates with the Wales Office
(9 years, 4 months ago)
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Stephen Crabb
My hon. Friend is exactly right and characteristically articulates his point better than anybody else in the House could. Devolution got stuck. The settlement meant that the Welsh Government were essentially a spending Department with no real responsibility for raising money—in fact, local authorities or parish councils probably had more ability to raise revenue than the Welsh Government. The Bill is all about letting Welsh devolution take the next step forward, which is about fiscal devolution, giving responsibility and enhancing accountability to create a more meaningful relationship between the Welsh Government and the people who elect Assembly Members and Welsh Ministers.
Owen Smith (Pontypridd) (Lab)
The Secretary of State speaks of the incentives that these powers would give to the Welsh Government. Will he be clear, as his predecessor was, as to how they ought to deploy those incentives? His predecessor thought that they should cut taxes in Wales to lower rates than in England. Does he agree?
Stephen Crabb
I do not dismiss the risk that the hon. Gentleman has outlined, but I think he exaggerates its impact on Wales. Alongside any perception of risk in relation to such fluctuations, there is a powerful opportunity for Wales to take greater control over wealth creation inside the nation of Wales. That is an exciting opportunity for the Welsh people, and it represents the next stage of devolution.
This is all about accountability. The former US President Harry Truman famously had on his desk a card that said, “The buck stops here.” I want to see a Welsh Government who stand up proudly and say, “The buck stops here” rather than “The buck is passed there.” That is what this Bill is all about: it creates that enhanced accountability and enhanced responsibility. I repeat my challenge to the First Minister and the Welsh Government: as soon as this Bill receives Royal Assent, take steps to call the referendum and do it as soon as possible. Let us seize the new tools and powers in this Bill with both hands and move forward.
Owen Smith
May I be the second Member of this House to congratulate the Secretary of State on becoming Welsh politician of the year? I think the whole House would agree that anybody who can move from describing devolution as “constitutional vandalism” to being its most ardent supporter on the Government Benches deserves to have his political footwork duly recognised.
These amendments to the Wales Bill best exemplify the damascene conversion that the Secretary of State and his party have undergone on the devolution cause, because they relate to the devolution of income tax varying powers. Just as the Secretary of State used to denounce devolution and has now changed his mind, the Government have performed—he understated the extent of this—a handbrake U-turn on the lockstep.
Stephen Crabb
For clarification, the shadow Secretary of State has accurately reported a quote of mine that appeared in an article in 2007, but he should do full justice to the article by adding that in it I set out exactly the same case for fiscal devolution that I have set out today. I have been entirely consistent over a long period as to how fiscal devolution would enhance the devolution settlement for Wales.
Owen Smith
I am happy to agree that that is how the article went on, but it did indeed describe devolution as “constitutional vandalism”. I shall not forget that, and nor should the country of Wales, for which the right hon. Gentleman is now Secretary of State.
The Government have undertaken a U-turn on this. Let me refresh the House’s memory. Just a few months ago, the Secretary of State’s party wholly opposed the removal of the lockstep. In fact, his Department and the Treasury produced a substantive Command Paper, Cmd 14, which said:
“The Government is firm in its view that the income tax structure is a key mechanism to redistribute wealth across the whole of the UK, which is why the ‘progressivity’—
a word I think they made up—
“of this system is properly determined at the UK level.
The inclusion of the lock-step is also consistent with the principle that fiscal devolution should not benefit one part of the UK to the detriment of another—this could occur if the Welsh Government is able to set a substantially lower rate for higher/additional taxpayers without needing to change the basic rate”.
That is what the Secretary of State seems to be suggesting —that we set lower rates in Wales than in England.
We do not demur from the sentiment expressed in the Command Paper, but nor do we greatly object to the Government changing their mind on this issue. That is partly because they are reflecting the views of all parties in the National Assembly—it is appropriate and good that the Secretary of State has listened to them on this —and partly in the light of the Smith commission findings, which have shifted the debate significantly by proposing 100% devolution of income tax to Scotland. In fact, it could be argued that there is now a case for going further than is proposed in the Bill. It seems unlikely to me that the people of Wales would find it acceptable to be asked in a referendum about having lesser tax varying powers than those on offer in Scotland.
Many of us in the House now recognise that perhaps one of the mistakes of the previous Government was to allow asymmetry to develop between different parts of the UK in earlier rounds of devolution. That has driven pressure for greater change in Wales to reflect changes in other parts of the country. In fact, the case has now clearly been made for a constitutional convention to consider all the issues in the round and to try to derive a lasting settlement acceptable to all parts of the UK.
The Government have not yet agreed to a constitutional convention, and in its absence we must still consider the Welsh Government’s rationale for taking up powers to raise taxes, if those powers were accepted at a referendum.
Jonathan Edwards
Labour’s policy is to have a constitutional convention. Is the hon. Gentleman saying that, in the event that we have a Labour UK Government, there will be a constitutional convention, and if so, would it halt the Smith process and the proposed Bill for Scotland?
Owen Smith
No. I am saying that if there were a Labour Government, we would have a constitutional convention to look at the whole of the UK. Therefore, wherever we were in the Smith commission proposals, which will continue on their course, that would need to be fed into the convention. A constitutional convention would not need to slow down or stop further devolution to Scotland, but it would have to take cognisance of what was happening in Scotland.
Whatever further changes are made in Wales should reflect what happens in Scotland, because the willingness to accept asymmetry has diminished in Wales and elsewhere. Many of us feel that such asymmetry inherently leads, over time, to instability in the existing settlement.
In the absence of a convention, we must consider why the Government think that Wales should take up the new powers. I want to start not with Labour, but with the current Government. Why do they now feel that the Labour Welsh Government should have an unfettered ability to raise taxes or to lower them to levels below those in England? The Secretary of State has made a couple of soundbites or comments today to illustrate why he thinks we should do so—he talked repeatedly about accountability and responsibility—but I must say that none of them was quite as blunt and honest as the rationale he gave to the Institute of Welsh Affairs a few weeks ago. He said clearly that his objective in providing the tax varying powers was to
“end the politics of the begging bowl in Wales”—
[Interruption.] The Secretary of State says, “Absolutely,” but I find that quite an offensive position for him to take. He should not describe Wales as, in effect, a supplicant, and nor should he suggest that we are a scrounger or a shirker asking for handouts. It is not for him to suggest that the cure for the
“politics of the begging bowl”,
as he injudiciously puts it, is to force the Welsh people to raise taxes within their own borders. I do not espouse such a dog-eat-dog, race-to-the-bottom version of Britain, and nor should he.
The Parliamentary Under-Secretary of State for Wales (Alun Cairns)
The phrase “begging bowl”, as used in this context, originated with former First Minister Rhodri Morgan. Does the shadow Secretary of State completely dissociate himself from that?
Owen Smith
It was deployed in an entirely different context. The implication of the Secretary of State’s pejorative use of the phrase was—I am paraphrasing, but this was broadly what he said in the rest of his speech —that the Welsh Government have not been responsible or accountable, but that they would become so for the first time if tax powers were afforded to them. I have never accepted that the Welsh Government are unaccountable —they are as accountable as any elected Government—and I certainly do not subscribe to the view that Wales has ever held out a begging bowl.
Stephen Crabb
I think that the shadow Secretary of State is getting slightly bogged down and has now resorted to what he calls “paraphrasing” the speech I made to the IWA, although he is actually misrepresenting it entirely. My strong and clear point is that we have had 15 years of devolution in which the dominant theme of Welsh politics has been discussing how much money handed down through the block grant can be spent in Wales. The Bill and the new shift in devolution are about changing the nature of the debate so that it is not just about how much money we have handed down from London, but about raising money within Wales, growing the economy in Wales and seeing Wales stand on its own two feet.
Owen Smith
The Secretary of State makes my point for me because I do not for a minute subscribe to the notion that Wales has money handed down to it from Westminster. That money reflects the taxes paid by Welsh people, and more importantly, in a Union that is meant to be about our ability to share resources, pool risk and redistribute from wealthier to less wealthy parts, it reflects the morality and values of our country. Unfortunately, that morality and that set of values are being undermined by the Secretary of State’s description of the Union as one in which one part is a supplicant and another is handing down money.
Ian Lucas (Wrexham) (Lab)
Does my hon. Friend agree that we need to be wary of the politics of the hospital pass in Wales? I am always suspicious of Tories bearing gifts, to mix my metaphors, and I do not trust the Conservative party to defend the interests of my constituents.
Owen Smith
Nor do I and, more importantly, nor do the people of Wales—that is why they do not elect Tories in Wales. The very least we owe the Welsh people is that we consider extremely carefully the likely impact of these radical changes to such a cornerstone of the redistributive Union as taxation. They will have an impact on the potential prosperity and well-being of the Welsh people, which is why, although Labour will not oppose the Lords amendments, as we have not opposed the Bill at other stages, we will continue to be clear that we want far more explanation from the Government about how and why they think the powers in question might be deployed in Wales, and what the benefits will be for the Welsh people.
Sammy Wilson
In light of the language about money given to the devolved Administrations being “handed down”, rather than the result of tax revenues, and, as the hon. Gentleman said, the redistributive nature of some fiscal policy, does he accept that the danger of the devolution of income tax is that it is an underhand attempt to ensure that less money goes to the devolved Administrations, who will then be forced to raise money through higher taxation in their own jurisdictions?
Owen Smith
In a nutshell, the hon. Gentleman, who is expert in this matter, having been the Finance Minister for his own devolved Administration, explains why we are so concerned about the change. We are worried that the Tories are eager to legislate in haste to foist on the Welsh people the power to raise taxes in Wales.
Our concerns are not just obstacles that the First Minister has placed in the way of the change, as the Secretary of State suggested. They are reasoned questions about the nature of the powers that might be deployed and what their impact will be. We have been clear and consistent in saying that the Government need to meet three tests. It is not really for the Opposition to meet them, because we cannot. It is for the Government proposing the changes to meet them, but it is disappointing that they have not done so. The first test, as the First Minister made clear, is on the baseline for funding and the Barnett formula. That will need to be addressed before the changes can ever be accepted in Wales, because we will not recommend the devolution of income tax varying powers to Wales until we know that we will not be locking in a degree of underfunding. Secondly, we want to be clear that even if the Barnett question is resolved, Wales will be better off.
Mr Mark Williams (Ceredigion) (LD)
Although I share the Secretary of State’s impatience for the Assembly Government to be speedy in addressing the issue once the Bill is passed, does the shadow Secretary of State agree that the Government need to assess the funding shortfall? One way that could be done would be if the Government here and the Assembly Government again commissioned Gerald Holtham, for example, to assess the level of underfunding before we move forward, which I agree with the Secretary of State that we should.
Owen Smith
That is not a bad idea. We have recently heard Government statements about the reduction in the Barnett gap, and one can imagine that there would be such a reduction because public spending in England has been curtailed so dramatically under this Government, although we do not know that for certain. It is beholden on the Treasury to provide evidence of the current gap, and it would be sensible for it to consider making the process independent, not least because I do not think that we would fully trust what it might produce on its own.
Jonathan Evans
The hon. Gentleman should be a bit cautious in his dismissal of the Conservative party, given this week’s opinion polls. His argument is the complete antithesis of the position adopted by the Labour party in Scotland—late in the day, it must be said—which is to agree to the devolution of all tax raising powers to Scotland. Against that background, how is his argument in any way consistent with the position adopted north of the border?
Owen Smith
To paraphrase the infamous, notorious entry in the Encyclopaedia Britannica, it is not a question of “For Wales, see England”, “For Scotland, see Wales”, or “For Wales, see Scotland”. We have different countries with different demographics, histories and relative tax takes, and on behalf of the Welsh people, we should sensibly take a position that reflects their best interest, rather than talking an ideological perspective across the board. On the prospects of the Tory party in Wales, I would be a little more hopeful that it might do well were it not for those such as the hon. Gentleman not fighting their seats at the next election. We can read into that what we will.
Owen Smith
Indeed, but I do not suggest for a minute that there is any prospect of my right hon. Friend being replaced by a Tory. Not now, not tomorrow, not ever. [Interruption.] It will be a cold day in hell before Neath turns Tory, and ditto Pontypridd.
Let me return to my point about whether Wales will be better off with these tax powers. As the hon. Member for East Antrim (Sammy Wilson) said, we can look to last week’s autumn statement to demonstrate that Welsh tax receipts are now £2 billion less than what was planned by the Chancellor in 2010. That is our proportion of the £66 billion shortfall in tax receipts that is a result of our underperforming economy under this Conservative Government. Had these measures applied in 2010, they would have devolved to Wales about £1 billion of that shortfall. That decline makes a mockery of the notion that such powers make the Welsh Government more accountable, because a poor performance across the board by the UK economy would not have been down to the actions of the Welsh Government. That performance would have been wholly down to a Tory Government in Westminster, and there is little that a smaller economy and country such as Wales could have done to mitigate that effect.
The other thing that those numbers illustrate—again, the hon. Member for East Antrim effectively made this point—concerns the volatility of tax receipts across the UK. That volatility has led to a £66 billion shortfall, and traditionally there are greater fluctuations in peripheral and regional parts of the UK economy than at the centre, and especially in London and the south-east. It is difficult to imagine how a country such as Wales with a small economy could manage the risk associated with that greater volatility. That shows some of the benefit of our being part of a wider Union, and it makes clear the dangers and risks associated with disaggregating that Union.
Jonathan Edwards
I watched with great interest the hon. Gentleman’s prophecy of doom on “Sunday Politics”. I have also read the OBR report and looked at all the tables on the Welsh devolved figures, and they do not reflect his claims about a £1 billion loss. Indeed, the only table on this issue in the report suggests that the Welsh devolved tax base will increase over the next five years by £500 million. The shortfall that he mentions might be as a result of the raising of income tax personal allowances that has been announced by the UK Government, but the Silk commission made it clear that the indexed deduction method for the partial tax raising arrangement in the Bill means that that would not come into effect. Is not the hon. Gentleman guilty of scaremongering? Project fear is alive and well in Wales once again.
Owen Smith
No, it is project reasoned analysis of the numbers, and that project shows clearly a £66 billion shortfall over the past five years and a projected further shortfall across the UK over the next five years. We will see a worse performance in terms of corporate and income tax receipts across the UK as a result of the low- wage, deeply insecure, second-rate economy that the Tory Government are building. Wales has been particularly ill served by what has happened because of the additional fragilities of our economy due to our industrial heritage and the preponderance of low-wage jobs in Wales.
The reality is that—[Interruption.] The Secretary of State shakes his head, but he should think about this. He said earlier that the indexed method cited in Holtham means that Wales would effectively be incentivised to grow its tax base at a faster rate than England’s to enjoy uplifts under these powers. The truth is that over the past five years the Welsh tax base has declined at a faster rate than that of England, as the figure is 4.8% in Wales whereas the UK average is 4.2%. That means that Wales would have been worse off under the indexation had the provisions applied in the last five years, which is a further illustration of the need for the Government to undertake some proper, detailed analysis to let the Welsh people know whether we would be better or worse off.
Owen Smith
My hon. Friend reinforces my point. We know that the Welsh economy has historic weaknesses because of the decline in heavy industry, and its distance from London and the powerhouse of the south-east. Those are well understood, but they are not reflected in the debate that we are having, which is largely politically motivated.
Some in Wales argue that we do not need a referendum to decide this matter, but we think that the Welsh people should have a debate and ultimately take the decision on what would be a radical change. The debate cannot be driven by the Tory party’s desire to insulate itself against the charge that it has reduced Welsh budgets by 10%, which it has; or by the need to support the Tory objective of reducing public spending to levels we have not seen since the 1930s, as was manifest last week; or even by the wish to sustain a partisan argument of English votes for English laws. All three of those rationales feature as part of the Government’s motivation for this debate, and we are disappointed that they have not provided any real response to these questions throughout the passage of the Bill.
It will now be for the Welsh Labour Government to consider what is best for the Welsh people. I have no doubt that they will do so using Welsh Labour values and thinking about the benefits for the Welsh people, as well as about how we deliver equality and improvements to the lot of working people across the UK.
Glyn Davies (Montgomeryshire) (Con)
I am grateful for the opportunity to speak on the occasion of the Bill’s return from the House of Lords in much improved form, if I may say so. In general, I welcome the Bill although I am concerned about some elements. Perhaps it is a Welsh trait that we can never completely agree on things, and I want to touch on one issue where I am not in agreement.
What I welcome in particular is the new reality of the Conservative and Liberal Democrat coalition shaping the process and future of devolution and driving forward, leaving—if I may say so to the shadow Secretary of State—Labour languishing in its wake. He may describe that as a U-turn, but that is the reality today. I want to make just one important point, which is very much a personal view. I disagree with one specific aspect of the Bill, but I would like to emphasise my overall support: it is a very good and welcome Bill.
I would like to put my point in context by painting some background to my personal journey in the devolution debate. I was not in favour of the form of devolution on offer in the referendum on 18 September 1997. It seemed to me to be creating a permanently unstable constitutional settlement. A settlement is the last thing it was. I attended the count in Llandrindod Wells leisure centre, watching the TV coverage as the decision of the voters of Wales came through and they decided in favour of establishing a national assembly for Wales. I drove home knowing that there was no going back. The people had spoken, albeit by a tiny margin of 0.6%. We were now facing an entirely new question: how would devolution work in practice? I concluded immediately that the new Welsh Assembly would eventually become a law-making, tax-raising Parliament based in Wales. That has influenced my thinking on the issue ever since. I did not want to be dragged, kicking and screaming, and trying to refight the 1997 devolution referendum. I preferred to get ahead of the curve and identify where we were going to get to, and move towards that in a positive and smooth way. That was not a change of mind, but a recognition of a new reality.