Wales Bill

Stephen Crabb Excerpts

Wednesday 10th December 2014 Commons Chamber

[The Secretary of State for Wales (Stephen Crabb)]

I beg to move, That this House agrees with Lords amendment 1.

[Madam Deputy Speaker (Dame Dawn Primarolo)]

With this we may take Lords amendments 2 to 13 and 17.

[Stephen Crabb]

Taken together, these amendments remove the so-called lockstep mechanism from the income tax provisions. By removing that mechanism so that the Bill reflects the Silk commission’s recommendation in its part I report, the National Assembly for Wales will be able to set separate Welsh rates of income tax for each band. Subject to a referendum, all three income tax rates would be reduced by 10p, and the Assembly would decide a separate Welsh rate for each band. Those Welsh rates would be added to the reduced UK rates.

The lockstep is probably second only to dual candidacy as the most debated aspect of the Bill; it has been debated at great length in both this House and the other place. I have been clear throughout the passage of the Bill that I have been prepared to listen to all the arguments and perspectives and, if necessary, to take a different approach on the lockstep. That is exactly what I have done. Before I go any further, I would like again to place on the record my thanks to my right hon. Friend the Member for Clwyd West (Mr Jones) for his hard work and perseverance as Secretary of State for Wales in guiding the Bill through its early stages.

On Second Reading, the hon. Member for Rhondda (Chris Bryant) made a point of counting the number of times my right hon. Friend used the word “accountability” in describing the Bill; I believe that he stopped at 15. Frankly, though, my right hon. Friend could have used it 15 times more because the Bill was, and is, all about accountability. By being made responsible for raising a proportion of the money that they spend, and allowing the people of Wales to judge them on how they spend it, the Assembly and the Welsh Government will become more accountable to the electorate.

In removing the lockstep, we are removing what was widely seen to be a deterrent to the Welsh Government’s accepting the devolution of income tax in Wales. Given the other financial provisions in the Bill and the full devolution of business rates, which, as my right hon. Friend the Chancellor confirmed last week, will be implemented as planned next April, the Assembly would become responsible for raising around a quarter of the money that it spends.

Hon. Members will be aware that last week the Office for Budget Responsibility published a forecast of devolved tax revenues for Wales alongside the autumn statement. That showed that revenue from the 10p of income tax that would be devolved to Wales would net the Welsh Government almost £2 billion in 2014-15—about nine times as much as stamp duty land tax and landfill tax combined. The figures show, in black and white, that through the Bill we are providing the Assembly and the Welsh Government the tools to help grow the Welsh economy and take responsibility for raising a significant portion of the money that they spend. The removal of the lockstep makes it even easier for them to do that.

I welcome the First Minister’s statement in the Senedd last week in which he confirmed for the first time that he would accept income tax devolution. That is indeed progress. But—and there is always a “but”—once again he hid behind the self-imposed “barrier” of funding. I have always said that the powers in the Bill should be as far-reaching and flexible as possible, to provide the Welsh Government with the tools to grow the Welsh economy. Where we have committed to removing obstacles, however, the First Minister continues to erect them. He seems intent on denying the people of Wales their rightful say on whether income tax powers should be devolved, rejecting the opportunity to make the Welsh Government more accountable to those who elect them and refusing to accept responsibility for raising more of the money that they spend.

[Sammy Wilson (East Antrim) (DUP)]

The Secretary of State has outlined the advantages of the devolution of those additional powers. Does he accept that giving more tax-raising powers, and hence reducing other income from central Government, exposes the Welsh Government to greater fluctuations in revenue and makes the long-term planning of services much more difficult?

[Stephen Crabb]

Part of devolving any tax—income tax or any other fiscal power—is the creation of an incentive for the devolved Government. They get an extra tool and an incentive, which they never had before, to grow that portion of their own tax base.

Crucially, the devolution of income tax in Wales will be done in line with what the Holtham commission proposed for Scotland: the indexed deduction mechanism. That would effectively shield the Welsh Government from UK-wide economic shocks but give them the incentive of holding on to the extra Welsh revenue that they were able to generate. That works both ways: if Welsh income tax grows at a slower pace than that of the rest of the UK generally, there will be a loss, but that is exactly what provides the incentive for the Welsh Government to seek to grow the tax base. The issue is about economic development.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

My reading of the Office for Budget Responsibility figures, published last week, was that the Welsh devolved tax take is projected to increase by half a billion pounds over the next Parliament. If the powers are not fully adopted by the Welsh Government, what would be the increase in the Welsh block during that period?

[Stephen Crabb]

I cannot provide a specific analysis in line with the question, but I agree with the general thrust of the hon. Gentleman’s point. There are distinct advantages, not only for the Welsh Government, but for businesses in Wales, which want the Welsh economy to grow through the devolution of these taxes.

[Jonathan Evans (Cardiff North) (Con)]

Let me be the first to congratulate my right hon. Friend on his recognition overnight as the Welsh politician of the year.

Does this debate not highlight one of the difficulties with devolution? People only really want half of it—they want the powers, but do not want the responsibilities. There is a statistic showing that a minority of people in Wales recognise that health policy is decided in Cardiff. Does that not illustrate the importance of giving responsibility as well as devolving the powers themselves?

[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]

It is entirely up to Welsh Ministers how they choose to use these tools. I am surprised by what the hon. Gentleman says, as I would expect him to be the last person to suggest that the Secretary of State should be directing how these powers are used. I am a Conservative, and, to my core, my aspiration is always to see lower taxes rather than higher taxes. That is a difference in values between Government and Opposition Members. We understand that lower taxes generally create the right circumstances for business growth and for growing wealth in an economy—and all Members, on both sides of the House, should be ambitious to see more of that in Wales.

[Sammy Wilson]

Does the Secretary of State accept, though, that unless we have the correct formula for deciding what are national impacts and what are local impacts on the tax revenue raised, there is a great danger that Wales could suffer as a result of the fact that fluctuations in income over the economic cycle tend to be much greater in the regions of the United Kingdom than in the United Kingdom as a whole?

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[Geraint Davies]

That is an interesting point, but it does intrinsically depend on the elasticity of demand. At a time when corporation tax is already the lowest in the G8, I suggest that inward investors are not looking to Britain to lower its corporation tax and making a marginal decision to invest. They are looking at the level of research and development and the prospects of being part of Europe. One issue for inward investors is the uncertainty of a referendum ending up with us as a sort of chip shop England floating out into obscurity with UKIP and the Tories.

In my view, if we cut corporation tax again there will be a net reduction in corporation tax revenues. On the income tax issue, I have an open mind. I am just throwing forward some of the scenarios whereby we can lose out in England and in Wales and making a point, which I ask the Minister to respond to in his summing up. I want to know what analysis has been done of the potential downside to the Exchequer of Wales reducing the top rate of tax and people migrating to Monmouth? What are those numbers and what consideration has he made? My guess is that he has made no consideration, and if so we should not be hurtling ahead in this way.

[Stephen Crabb]

I will be very brief as there is another set of Lords amendments that we need to debate.

We spent most of this debate not debating the specifics of the Lords amendments about the removal of the lockstep. Most of the time has been spent listening to the weight of arguments, largely from Labour Members, against fiscal devolution full-stop. So we end the parliamentary passage of the Wales Bill exactly where we started: with three parties in this Chamber recognising the potential benefits to Wales of devolving a portion of fiscal powers—we are not talking about a full step down the road of full fiscal devolution, but a strong step forward —and one party resolutely digging in, trying to pretend that there is some kind of plot or conspiracy; we have had all those words and that language used before.

[Mr Llwyd]

Will the right hon. Gentleman give way?

--- Later in debate ---

[Stephen Crabb]

I will give way to the right hon. Gentleman, who was rightly recognised last year as the MP of the year.

[Mr Llwyd]

And I am intervening on a Member of even higher status.

Is it not interesting that the excuse being put forward by those on the Labour Front Bench is that they need to sort out Barnett? For the last 20 years or so I have been arguing about the need to sort out Barnett when the Labour party denied that there was a problem.

[Stephen Crabb]

The right hon. Gentleman is absolutely right. We end the parliamentary passage of the Bill exactly as we began it, with Labour trying to place even more hurdles in the way of devolving a portion of income tax. You would have to be Colin Jackson to clear all the hurdles that the Opposition are trying to set up.

[Ian Lucas]

Will the Minister give way?

[Stephen Crabb]

I will not, because there is another group of Lords amendments to discuss.

I should like to finish by paying particular tribute to the contribution made by my hon. Friend the Member for Montgomeryshire (Glyn Davies). He set out some powerful arguments, and has done so from a position of real credibility, having been an Assembly Member. He has been ahead of the curve on many occasions in recognising the strategic direction that Welsh devolution needs to go in and the benefits that can be accrued to Wales by taking sensible, moderate and pragmatic steps forward. On that note, I shall bring my remarks to a close.

Lords amendment 1 agreed to, with Commons financial privilege waived.

Lords amendments 2 to 13 and 17 agreed to, with Commons financial privilege waived.



Clause 13

Proposal for referendum by Assembly

[Alun Cairns]

I beg to move, That this House agrees with Lords amendment 14.

--- Later in debate ---

[Chris Ruane]

I agree entirely, but that should not be left to a short campaign two or three weeks before a referendum; it should be as of right.

I was a teacher for 15 years, admittedly in a primary school rather than a secondary one. We should try to teach these issues at a level that young people will understand. By the age of 18, someone has the right to have a mortgage. We need to make sure that young people are educated, in ways they understand, about mortgage rates, interest rates and student loans.

[Stephen Crabb]

I know that the hon. Gentleman is in no way belittling primary school children, but I should say that I have faced some of my most challenging questions when visiting primary schools, not least about the Chartist movement when I visited a Newport primary school.

[Chris Ruane]

The right hon. Gentleman is absolutely right. I used to delegate the collection of the orange squash money to the brightest child in the class, whose money-counting skills were greater than mine.

We need to educate young people, especially about student loans and VAT, so that when they put their X in the box, they are making an informed decision. They need to know the crucial difference between progressive and regressive taxes.