I beg to move,

That this House has considered the matter of the Commission on Devolution in Wales.

Before I commence the debate, may I—with the permission of the Speaker, which I sought earlier—say to the right hon. Member for Neath (Mr Hain), who speaks for the Opposition on Wales, that I was shocked to hear of the incident at the Aberpergwm mine at 3 am, but I was also exceedingly glad to know that all three men have been brought out of that mine successfully? It reminds all of us, particularly after the sad events at the Gleision mine, that men are putting their lives on the line each and every day to recover coal. Because both those incidents involved the right hon. Gentleman’s constituency, I thought we should acknowledge that.

I am very grateful, and thank the right hon. Lady for that, as will the families and the individuals involved. I thank her too for her support for the miners appeal fund and for her support over the tragedy at Gleision. Today’s incident, although obviously serious, particularly for those concerned—they have suffered injuries, but fortunately they are okay—is in a very different category from Gleision, which was a major disaster and tragedy. Aberpergwm pit is run extremely efficiently by a company with high levels of investment, recruiting miners and apprentices, and in all respects an admirable company. The incident is rather an exception, but it is the third one in my constituency in the past couple of months.

The right hon. Gentleman knows that my door is always open. We have already spoken to other Departments from my office and we will continue to deal with these matters on a cross-party and non-political basis, as is the proper and right way to deal with them.

I am pleased that we have been able to give the House an opportunity to debate in Government time the work of the Silk Commission, the commission that I announced on 11 October would examine devolution for Wales.

The coalition agreement contained three specific items on Wales. First, we promised to take forward the housing legislative competence order that had been held up by the previous Government, and I am pleased to say that we delivered on that. Secondly, we promised a referendum on granting primary legislative powers in devolved areas to the Welsh Assembly Government, and we delivered on that, although on taking office I found that preparations were—how shall I put it?—behind the curve.

Before the right hon. Lady moves on from the subject of the coalition agreement, may I point out that her party, in opposition, blocked the housing LCO during the wash-up period before the general election?

The hon. Gentleman, who was serving in the Wales Office at the time, arranged the timetabling so that the LCO would fall in that period; he could have delivered it much earlier.

Thirdly, we promised that following the referendum we would establish a process for Wales, in the vein of the Calman commission, and I am pleased to inform the House that we have delivered on that.

Before the right hon. Lady takes credit for every achievement, may I ask her to acknowledge that although the Government put the legislative framework in place, the referendum was delivered by the people of Wales, who voted for it? I am sure she will want to acknowledge that.

The hon. Gentleman is dancing on the head of a pin. This Government gave the people of Wales the opportunity to vote in the referendum, as indeed they did, and I was pleased by the outcome. It was only as a result of a great deal of work and application by the Wales Office and others in government that we were able to deliver that on time and to the schedule anticipated.

I am pleased that today, before the first meeting of the Silk commission, we have given all Members an opportunity to register their views by allowing a full-day debate. It is fair to say that Westminster politicians rarely get the time to stand back and thoughtfully consider the future shape of our country’s constitution. We react to events, perhaps to political and tribal allegiances and timetables and, as John Major said in his Ditchley Foundation annual lecture, the Union cannot be maintained by constant antagonism—for example, between Wales and London.

Like our former Prime Minister, I opposed devolution because, as a Unionist, I believed it could be the slippery slope to separation. I am now less fearful of separation and more hopeful—

Not all of you are. What about the others?

The hon. Gentleman suggests that not all Members are less fearful. That is fair and, in the spirit of the debate, I want to hear from Members who do not share the views that he and I hold. My fears about separatism, which have diminished, might be reflected in some Members’ contributions. I am more hopeful that there will be a mature debate and reasoned solutions, delivering a degree of self-determination without threatening the strength of the Union. With the advent of the commission, we are getting time to contribute and reflect.

Is not the real Conservative agenda to offer tax-raising powers in order to freeze the block grant and end up with a semi-detached Wales, with less representation, thereby securing a permanent Tory-run Westminster, fracturing or destabilising the Union?

I do not know what tortuous mental processes the hon. Gentleman goes through, but I assure him that I have no ambitions in that direction whatsoever. He has been spending too much time with the right hon. Member for Neath, who sees conspiracy theories in every quarter. This is a genuine open consultation, and the hon. Gentleman will hear as I develop my speech that the Silk commission is giving us an opportunity to reflect and try to shape the architecture of devolution in Wales.

The commission provides a coherent opportunity to review the working of devolution in Wales and the financial accountability of the devolved institution. Assembly Members are accountable to the people of Wales at the ballot box. They are judged on their record, on the decisions they make and on the outcomes of their policy decisions. We all know that government is a difficult business that involves administering complex issues and looking after the totality of the system for the people of Wales. We therefore need the commission to examine how the devolution system is working, and whether changes might improve its performance.

Will the Secretary of State ensure that the commission looks carefully at the impact of the border? My constituency, and that of many others, is close to the English border. People who live in my constituency work in England, and people who live in England work in my constituency. The differing rates of VAT, corporation tax and quarrying tax, and of expenditure, are important on both sides of the border. I do not want the commission to look specifically at Welsh issues without taking representations from the English side of the border.

I could not agree more with the right hon. Gentleman. I refer him to the commission’s specifications, in which we state that it should

“consider and make recommendations on how best to resolve the legal and practical implementation issues from devolving a package of fiscal powers”.

I think that says it all: we are keeping an open mind. The right hon. Gentleman knows that since becoming shadow Secretary of State, I have been concerned about the implications of the permeability of the border. The commission offers us the chance to look not only at recommendations that might be made but at the practical difficulties.

Does the Secretary of State agree that one of the factors that the commission should take into account is that Welsh Members of Parliament such as me, whose constituents use hospitals in England and work in English businesses, should have the right to vote on those matters, too?

We proposed to hold this debate before the first meeting of the commission to enable Paul Silk and the other commissioners to hear Members’ views. The right hon. Gentleman’s point is well made, and I know that when the commissioners read Hansard they will take it on board. I do not want to tie the commissioners’ hands; they must decide how they will work.

The right hon. Member for Delyn (Mr Hanson) makes a principled point, the logic of which should have been extended to the previous referendums on devolution. Why did that not happen?

If I recall correctly, the Richard commission reported before the Government of Wales Act 2006 was enacted. Reaction to the commission—a pick-and-mix effect—was interesting. The 2006 Act contained some items that had not been telegraphed quite so clearly, and the House certainly did not have the opportunity to debate it as fully as I am trying to ensure that we debate things today and in future. My hon. Friend is quite right about that.

I do not understand whether the Secretary of State is saying that we did not have time to debate the Richard commission, which is a fair point, or that we did not have time to debate the 2006 Bill, which is not a fair point as we had plenty of time.

I am glad that the right hon. Gentleman agrees that we did not have enough time to debate the Richard commission, which is indeed a fact. I was thinking of the changes to the Assembly’s electoral system, which were not telegraphed extensively and we did not have a chance to discuss—

We did.

We may have had plenty of time in Committee, but not beforehand, and there was no wide or extensive consultation. I take the right hon. Gentleman’s point, however.

May I just recommend to the House in general, and perhaps to the Silk commission, that the commission look at the reports of the Welsh Affairs Committee on cross-border issues—which were what started this little exchange? Although the reports recognised that there were problems, they also recognised that there was a great deal of good will across the border, and that the systems were working very well indeed.

That is a very constructive intervention, and in my experience the system does work exceedingly well in some instances, but that will be a matter for the commission to consider, and it will want to look at examples of what is working well and what needs adjustment.

rose—

I will give way to the right hon. Gentleman, then I must make some progress.

Further to the point that my hon. Friend the Member for Arfon (Hywel Williams) made, the right hon. Lady will be aware that in the most recent referendum the majorities along the border in favour of further devolution were very high, apart from in Monmouth.

The right hon. Gentleman will be very pleased, therefore, that the Assembly now has primary legislative powers, and I am sure that he will be spending a lot of his time constructively trying to encourage the Welsh Government to come forward with some legislation, because it is now many months since the election, and correct me if I am wrong—I see the right hon. Member for Dwyfor Meirionnydd (Mr Llwyd) and the hon. Members for Carmarthen East and Dinefwr (Jonathan Edwards) and for Arfon (Hywel Williams) nodding their heads—but we have not yet seen any draft legislation from the Welsh Government, even though they were well prepared in advance of the referendum.

My right hon. Friend will be aware, of course, that the loyal county of Monmouthshire voted no in the recent referendum, as it always has in previous referendums.

That shows the advantage of this approach to constitutional change: all hon. Members, no matter where they come from, how they speak and from what direction they approach constitutional matters, will have an opportunity to express their views. I am grateful to my hon. Friend, and I am sure that he will speak later in the debate and let the House know what he feels the Silk commission should consider.

Before I took that series of interventions, I was saying that neither the Assembly nor the Welsh Government are accountable to the people of Wales for the money that they spend on the policies that they implement. The Welsh Government simply receive the Welsh block grant voted by Parliament, and spend it.

That cannot be right. With power comes responsibility, and it is surely better for the devolved institution to be accountable to the people of Wales not just for decisions on public spending in Wales, but by being responsible for raising some of the money needed to pay for those decisions. Even local authorities, despite receiving block grants, have responsibility for raising local council tax, and consequently they recognise the difficulty of raising tax moneys before they spend money. There is no reason why one institution—

Will the right hon. Lady give way?

I have been very generous, and would now like to make some progress.

There is no reason why one institution should be immune from raising taxes, and instead simply spend money and continue to ask for more—but the Labour party seems to think that that should continue. Only last Friday the right hon. Member for Neath said in The Western Mail that seeking more accountability for the Assembly and the Welsh Government was a “curiously disturbing motive”, so I certainly look forward to hearing his further observations in a minute, because I should like him also to explain the contradiction between his position and that of the Labour First Minister, who welcomes the commission and its objectives.

The first part of the Silk commission’s remit is to look at financial accountability. It will consider the case for devolving fiscal powers and recommend a package of powers that could improve the Assembly’s financial accountability. Those powers would need to be consistent with the United Kingdom’s wider fiscal objectives.

The commission will consider the tax and borrowing powers that could be devolved to the Assembly and the Welsh Government. Those include powers in relation to landfill tax, air passenger duty and stamp duty, but they are not limited to those taxes. The commission’s remit, however, is to recommend the devolution only of taxation powers that are likely to have wide support, and it will need to consult broadly to secure that support not only in Wales but in other parts of the United Kingdom.

I thank the right hon. Lady for giving way again; she is generous. I wish to ask about her position as Secretary of State on a point of principle underlying the Silk commission’s consideration of such fiscal powers. Does she agree that it would be wrong of any review to make recommendations that were to the financial disadvantage of the people of Wales, recognising, good Unionist that she is, that the nature of the Union depends on ensuring that economically disadvantaged areas receive greater subsidy from other parts of the UK? On that point of principle, does she concur that today we should all agree that any review of fiscal union does not disbenefit the status quo in Wales, and should if anything improve its lot?

The hon. Gentleman makes a valid and good point, but once again I do not want to prejudge or tie the hands of the Silk commission, although I cannot imagine a situation in which an agreed solution, as I have anticipated and laid out in the terms of reference, would disadvantage Wales. That is far from my motivation, as he will see as I progress with my speech.

The commission already has contributions to its evidence base from work such as the Holtham commission’s reports, which were prepared to a Welsh Assembly Government remit, but crucially, unlike Holtham, the Silk commission can take things a step further. The terms of reference require the commission to consider implementation and to make recommendations on how best to resolve the legal and practical implementation issues that arise from devolving a package of fiscal powers and having consistency within the United Kingdom.

The commission will aim to report on part 1 of its remit in the autumn of next year, and the Government will consider its recommendations very carefully. Members may wish to contribute directly to the commission as well as in today’s debate, but I very much hope that we will be able to hold a debate, again on the Floor of the House, at some stage following the delivery of part 1 of the commission’s findings, because the intention is to take the matter forward as consensually as possible.

The commission will then turn its attention to the second part of its remit—to look at the current constitutional arrangements in Wales. Specifically, it will consider the powers of the Assembly and the boundary between what is devolved and non-devolved, and make recommendations to modify the boundary, if they are likely to enable the Welsh devolution settlement to work better. Again, the commission will need to consult broadly on its proposals and make only those recommendations for change that are likely to have wide support.

Currently, the Assembly has powers in all 20 devolved areas, and it will be for the commission to decide whether there is a requirement to tidy up the devolution boundary, but any further changes to the settlement will need to be right for Wales and right for the United Kingdom as a whole. I anticipate the commission reporting on part II of its remit in 2013.

With the exception perhaps of the right hon. Member for Neath, there is broad agreement on the basis for moving forward and considering issues of both fiscal devolution and accountability. The Government have moved forward collaboratively with all four political parties in the Assembly, in establishing the terms of reference and the members of the commission, and I thank in particular all four party leaders in Cardiff Bay for the positive and co-operative spirit in which they are engaged with me and my office to agree the way forward.

We are at an early stage in proceedings, but will my right hon. Friend and, perhaps, the right hon. Member for Neath (Mr Hain) when he speaks explain whether those nominees will be representatives who represent what their parties think, or delegates who simply pass on what their parties suggest?

That is a matter not so much for me, but for the right hon. Gentleman, who I am sure will want to deal with it when he addresses the House. As far as the Conservative party is concerned, I want to be as inclusive as I can of people’s views, and that is why I am trying to create a period in which any member can make a contribution. The Conservative party, in particular, will make contributions to the Silk commission’s proceedings.

I merely wish to note that some distinguished members of the commission are not strictly aligned to political parties. I am sure that they will make a contribution that might even satisfy the hon. Member for Monmouth (David T. C. Davies). Given the quality of the representation, it would be strange if they were there merely to be mouthpieces for political parties. Clearly, they have a great deal to contribute as individuals.

I am about to come to the composition of the commission, and I will pick up the hon. Gentleman’s point then.

On a point of detail about the possible extension of powers that the Silk commission is considering, will that include energy consents? The matter has been debated a lot recently, as the Secretary of State knows, and it has some support, and opposition, on both sides of the House. Ministers have made it clear that they do not think that it should be part of the commission’s deliberations. Will she clarify the situation?

I am grateful to the hon. Gentleman for raising that matter, particularly as before the debate I was looking at the party manifestos for the Assembly elections. He will know that I regularly receive requests for powers over all sorts of areas, and I expect those areas to be looked at. It is fair to say that I expect the commission—this is subject to the way in which it wishes to conduct its business—to consider requests for energy consents for projects of more than 50 MW, and to consider trust ports, rail and separate Welsh legal jurisdiction, all of which have been raised up the agenda by one or other party, or the Welsh Government. It is right that it should have the opportunity to consider energy consents, but I have an extremely long list of things that other parties want fully devolved, which will not stop until the point of separatism is reached. He and I agree that that is not the way to go. The commission may find itself having to consider several other areas, but I am not going to restrict its operation by anything we say in the House. Indeed, I am looking forward to seeing the outcome.

Will the Secretary of State give way?

May I make a little progress? The commissioners bring a wealth of experience to their important task. The commission is chaired by Paul Silk, a distinguished former Clerk to the National Assembly and to this House, whom we all know. Paul is already getting to grips with his task and introducing himself to those with an interest in the commission’s work.

The hon. Member for Arfon referred to the two independent members, and they are very distinguished. Dyfrig John CBE is chairman of the Principality building society and a former deputy chairman and chief executive of HSBC bank. Professor Noel Lloyd CBE is a former vice-chancellor and principal of Aberystwyth university. Neither is on the commission with a political remit. They are there as independent members to offer their best advice and to support the other members. I am sure that absolutely nothing from them will have a political bias. They will consider matters objectively and with expertise.

There are also four party political nominees on the commission, each nominated by one of the four political parties in the Assembly. Professor Nick Bourne is the Conservative nominee, and former leader of the Welsh Conservatives in the Assembly; Sue Essex is the Labour nominee, and a former Welsh Assembly Government Minister; Rob Humphreys is the Welsh Liberal Democrat nominee, and director of the Open university in Wales; and Dr Eurfyl ap Gwilym is the Plaid Cymru nominee, and best known for giving Jeremy Paxman a run for his money. I am sure that the commission’s debates will be lively. I believe that that is a first-class team, and it will meet for the first time tomorrow to consider how it will work through the next two years. The commission has a challenging brief because, importantly, we hope that it will build consensus on its proposals.

rose—

I will give way first to the hon. Member for Carmarthen East and Dinefwr—I have not given way to him previously—and then to my hon. Friend.

Based on what the Secretary of State says about consensus, which we hope the commission will be able to achieve, will she outline the process, how its recommendations will reach the statute book, and the time frame? No one in Wales is interested in a kicking-into-the-long-grass game.

It depresses me a great deal to hear hon. Members say that I am kicking the matter into the long grass. I am certainly not. I am trying to take a mature and adult look at the financial structures and the constitutional and legislative structures affecting Wales. However, I will not prejudge the outcome, and I will not be prescriptive, but I have to look at potential timetables. Three have been set out. One has a shorter time scale, which assumes that, whatever the recommendations, no manifesto commitments or referendum would be necessary. In fact, it would be very difficult to produce a Bill by the time of the next general election, and the time scale could be unfeasibly short. However, again, I am not ruling that out; I am simply saying that it would be difficult. If we did that, and if there were new fiscal and constitutional powers, they would be implemented post-2015.

Another scenario is based on a manifesto commitment and no referendum, which would lead us to believe that there would be legislation after the next general election. However, I do not know what the Silk commission will recommend, or whether it will require both manifesto commitments and a referendum, in which case the time scale would be slightly longer.

I would like the hon. Gentleman to take me at my word. We are taking a long, hard look at the matter in a genuinely cross-party way. I think he knows that I made some effort to ensure that his party was included, because I thought it was important to start as we mean to go on. I hope that we will continue in that vein, although I appreciate that anything could happen at any time.

I share the view that the membership is impressive and that it will do a good job, but I have been contacted by a small number of constituents who have asked whether it will be remunerated for its work on our behalf.

My hon. Friend can reassure his constituents that no member of the commission is being remunerated. They have all agreed to waive remuneration, but their expenses will be met from my Department. We have set aside a sum of money over three years to meet those expenses. At this stage, we are not sure how they will pan out, because I want the commission to decide how it will do its work, as it rightly should, and I do not want it to be restricted. He can reassure his constituents that the commission is doing this work for its love of Wales.

I apologise for my voice being about an octave lower than normal. This is not a point I often make, but there is only one woman on the commission. Will the Secretary of State assure the House that it will take evidence from and talk to a wide range of people to obtain a broad range of views from both genders and across all communities in Wales, including different ethnic minority groups, so that it can take account of different perspectives?

That point was well made. I, too, was concerned, and I looked at the gender balance, having been a former Minister for women. I think Sue Essex will be a doughty and robust member—[Interruption.] As my hon. Friend the Member for Lichfield (Michael Fabricant) says, she is equal to two men. I am sure she will give us a run for our money.

I agree entirely that many of the matters that the commission will discuss will be of great interest not only to women, but to ethnic minorities. I am sure that Paul Silk will take on board the concerns of my hon. Friend the Member for Cardiff Central (Jenny Willott).

We now have 12 years of experience of devolution in Wales. That has involved not one but two pieces of legislation that have been used to try to shape devolution to the purposes of the previous Government. There is obviously much that could be said about the effectiveness of the Assembly and the Welsh Government, but that can be better examined and tested with more accountability and the benefit of that experience.

The Government are now trying to ensure that we have a process to assess the position of Wales within the United Kingdom and to take a detailed, objective and structured examination of the architecture of devolution. This is a mature way to ensure that the Assembly and the Welsh Government get the responsibility they need to ensure accountability, and that the dividing lines on devolution benefit Wales and do not leave the Administration perpetually demanding more powers and more money rather than getting on with the business of running the devolved areas for which they have responsibility.

This is also an important statement of intent by the coalition Government. The Welsh Government receive nearly £15 billion a year from the Treasury, but, as I have said, are not accountable for raising a penny they spend. We do not think that is right, and I am certain that taxpayers do not think it is right either. I want the argument, for once, to move away from whether there is enough money to how it is spent and whether it is spent effectively. It is true to say that a Government who take from Peter and give to Paul can always rely on the support of Paul. We are asking the commission to see whether Paul can also make a contribution.

I look forward to hearing Members’ contributions and maintaining an open mind on how we can improve devolution and, through that, the economy of Wales and the well-being of its people. I hope that we will hear moderate, realistic and interesting views on the balance of powers between Westminster and Cardiff. I am sure that everyone in this House will send Paul Silk and the members of the Silk commission their best wishes for the task ahead.

Let me begin, Mr Deputy Speaker, by welcoming the fact that we have a Welshman in the Chair for this debate—a Swansea boy who is, I am sure, delighted that Swansea City is in the premiership playing some very good football this season.

Just for the record, I cannot let the Secretary of State continue to repeat the fiction that when she arrived at the Wales Office in Gwydyr house in early May, the cupboard was bare and nothing had been done about the referendum. She knows that that is not the case. She will also know that a couple of days before she went up the stairs at Gwydyr house to occupy the office, I had sought confirmation that we could have delivered the referendum by the autumn, if we really had to; it would have been a tight squeeze, to repeat the phrase used. Let us hear no more nonsense from her about that, or about the housing legislative competence order. As my hon. Friend the Member for Caerphilly (Mr David) reminded her, the housing LCO was ready for Royal Assent, and she sabotaged it; the Conservative party refused to carry it through. She knows that that is true, so I am surprised that she is continuing to say these things.

rose—

I am happy to take an intervention a little later.

I am intrigued by accountability; that is why I picked up the Secretary of State on that issue in The Western Mail. I am glad that she reads The Western Mail, and my comments in it, assiduously. It is not for the Secretary of State for Wales to decide in which way the Welsh Government or the Welsh Assembly should be accountable to the people of Wales. The Welsh Assembly is elected by the people of Wales; she is not elected by anybody in Wales. That is the true line of accountability that operates.

All I can say is that, as my hon. Friend the Under-Secretary once remarked, I am a Welshwoman born in Wales and therefore have a great interest in the land of my birth.

I read the right hon. Gentleman’s article in The Western Mail very carefully, and one of the things I objected to was his fear-mongering among the people of Wales. He gives the impression that we would halve public spending in Wales, and that is absolutely not the case. He should be ashamed of even suggesting that and frightening people in Wales in that way. He knows that this is an open consultation to see how we can do things better. Any fool can spend money, but those who spend money need to have some responsibility for raising it so that they can spend it rightly.

My, my—the Secretary of State sounds rather furious. I seem to have touched a sensitive spot. I shall deal with this point later.

We welcome the establishment of the Silk commission, which, as the Secretary of State said, has been established on an all-party basis. The Welsh Assembly, which is well over a decade old, is now truly embedded into Welsh civic society, so there may be a case for looking at increasing its financial powers and flexibility. As the First Minister, Carwyn Jones, has indicated, devolving stamp duty, aggregates tax and new borrowing could be advantageous to the Welsh Government and, indeed, to the people of Wales.

I agree that Paul Silk is a very good choice for this task—a distinguished Clerk in this House before he became the first, and even more distinguished, Clerk of the Assembly. I welcome what the Secretary of State has said about wanting to go forward on a consensual basis. It is important that any Bill emerging from the work of the Silk commission is born out of consultation and consensus, unlike the Parliamentary Voting System and Constituencies Bill or the Fixed-term Parliaments Bill, which were forced on Parliament with little or no engagement with Opposition parties, the public or interested groups and experts.

May I put the record straight? As the right hon. Gentleman knows, I gave every Welsh MP the opportunity to meet the relevant Minister on an open-ended basis. The PVSC Bill was debated on the Floor of the House for 53 hours and 40 minutes; there were plenty of opportunities for Members to contribute.

Let me say this to the Secretary of State: when in a hole, stop digging. She knows that she denied Members the opportunity of a Welsh Grand Committee debate, which was requested by my right hon. Friend the Member for Torfaen (Paul Murphy) and by the leader of Plaid Cymru, the right hon. Member for Dwyfor Meirionnydd (Mr Llwyd). Every member of the Welsh Labour group and other Members wanted that debate as well, because Wales is being savagely penalised by this Bill, on which there was no consultation at all.

I speak as someone who was here in this Chamber for most, if not all of the 54 hours on the Bill that the Secretary of State mentioned. Does the shadow Secretary of State accept that that Bill, in changing the parliamentary boundaries, affects not only Wales but the whole of the United Kingdom, and that matters that affect the whole of the United Kingdom, including Wales, have to be dealt with in this House?

Of course it had to be dealt with in this House, but the impact on Wales received virtually no debate. There is clearly a lot of sensitivity among Conservative Members on this matter, and I am not surprised. The Secretary of State rejected the request for a Welsh Grand Committee to discuss the fact that Wales is suffering a cut of 25%—a quarter—of our representation, which will affect a lot of parties and communities in Wales. That was never debated properly.

May I make one other point—

Will the right hon. Gentleman give way?

If I am allowed to finish my response to the hon. Member for Epping Forest (Mrs Laing).

My other point is that such constitutional matters, particularly parliamentary boundaries, have traditionally always been dealt with on a consensual basis. This is the first time that a politically partisan rigging of the parliamentary boundaries has been introduced in this House and forced through.

This is very pertinent in learning the lessons in terms of how the Silk commission operates. We cannot have a debate when none of the voices are heard. The Secretary of State has said that she wants these voices to figure as part of the work of the commission, but that did not happen in the boundaries review. None of the Welsh concerns was heard and none was acted on; it was a travesty of democracy.

I absolutely agree.

Order. As was intimated by the intervention by Huw Irranca-Davies, we are now straying off the subject of the Silk commission, so could we get back on to that, please?

Indeed, Mr Deputy Speaker, I am happy to, and I will not be led astray any more by interventions from the Conservative Benches.

The Labour Government, recognising the call from the majority within the Scottish Parliament, commissioned the Calman report, to instigate a serious and thorough analysis of how a new settlement in Scotland might be achieved. Crucially, it was based upon cross-party consensus, expert analysis and real engagement with the Scottish public. It is fundamentally important that this Government adopt a similar approach to Wales. I am encouraged by what the Secretary of State said in that respect, but in truth I am deeply suspicious of the real Tory agenda that lies behind the Silk commission.

The commission’s terms of reference state that any devolution of powers must be

“consistent with the United Kingdom’s fiscal objectives”.

Can the Secretary of State explain what is meant by that? I wonder whether, in drawing up the terms of reference, the Chancellor, the Secretary of State and others were thinking of Switzerland, which has a highly federalised and separate tax system in its various cantons, and which demonstrates how such a system can lead to lower public expenditure—not a model that we desire or will accept for Wales. Silk must not become an excuse for this right-wing Government to offload their financial obligations to lower-income parts of the UK, such as Wales.

Does my right hon. Friend accept that given that gross value added in Wales is 74% of the UK average, and that we therefore have a lower tax base to tax from, if an equivalent to the Scotland Bill passed 10 points of marginal taxation over to Wales, we would end up raising only 74% of the money possible? We could end up with 20p taxpayers contributing only 17.5p in the pound. That may be one of many methods used to reduce the amount of public expenditure in Wales, but the Government could say, “Oh, don’t worry, you’ve got tax-raising powers. You’ll be all right.”

My hon. Friend makes a significant point that the Silk commission will need to take account of in its deliberations.

The right hon. Gentleman asked me a direct question, and I will give him a direct answer. Devolved funding rules, as set out in the statement of funding policy, operate within the UK’s fiscal framework. We therefore expect any changes that come out of the commission’s work or intergovernmental talks to be consistent with that framework, for example as set out in the programme for government. As he knows, that is because macro-economic policy is a reserved matter for the UK.

I am grateful. The Secretary of State is confirming, then—I am not challenging her on this point—that should there be a derogation in the case of, for instance, stamp duty, that would be taken from the Welsh funding block. That is what I understand her reply to mean.

My second element of disappointment is that the Silk commission will not consider the Holtham commission’s proposals for funding reform in Wales. It was the previous Labour Welsh Government who established the Holtham commission, and it produced conclusive evidence that Wales is now underfunded compared with its needs. As I think both Government parties here in Westminster now acknowledge, it was either naive or cynical of them to promise in their manifestos swift and radical reform of the Barnett formula—a promise that they had to betray after just one week in government.

We are aware that Holtham does not offer a quick solution, and that there would be impacts on the other devolved nations and regions. The introduction of a Barnett floor, which was a Labour manifesto commitment and a proposition featured in the Holtham commission’s two reports, would have ensured that Wales’s position did not become worse. Why have the Government not considered introducing a floor similar to the one that we proposed, which was agreed with the Treasury? It could be implemented relatively straightforwardly, again with the agreement of the Treasury.

The green budget published last year by the Institute for Fiscal Studies entirely vindicated Labour’s approach to the funding of Wales. By showing that the Barnett formula is only now beginning to disadvantage Wales for the first time, it proved that we were right to stick with it until last year, and equally right to proceed with reforming it thereafter. Make no mistake, up until that point the Barnett formula had served Wales well. There is no doubt that had we ripped it up several decades ago, as the nationalists advocated, Wales would have lost out. The collapse of the banks and the scale of the financial crisis suffered by Iceland and Ireland have been devastating to the nationalists’ arguments for fiscal autonomy.

I take it that the right hon. Gentleman read the deliberations of the Holtham commission. If so, he will have seen that Gerry Holtham opined that the year-on-year underfunding of Wales went back quite a few years. It is absolute revisionism to suggest that it goes back just to the last year of the Labour Government.

If the right hon. Gentleman looks at the whole Holtham commission report, he will notice that spending was converging with the English average and coming towards the point that it reached last year, when it started seriously to disadvantage Wales. That was the point I was making.

To the best of my knowledge, the Holtham report did not mention the fact that in successive years of the Labour Administration, it was vital that we recognised Wales’s particular needs through the Barnett-plus funding settlements, which increased funding for Wales from some £7 billion to something in excess of £14 billion—way above Barnett. That reflects how the Labour Government ensured that Wales had the proper funds to do the work we needed to do.

My hon. Friend is absolutely right. The Welsh budget more than doubled under our Government, and special additional funding meant that it went above what Barnett would have offered.

The right hon. Gentleman underlines the fact that the Welsh budget doubled in that period, but will he recognise that Holtham also reported that in a period of spending constraint and public spending reduction, the Barnett formula protects the Welsh budget?

I accept the hon. Gentleman’s point to the extent that Holtham did recognise that when there is a period of spending restraint, or even cuts, underfunding and funding convergence do not happen to the same degree. However, I am not sure what the hon. Gentleman is arguing. Is he saying that spending cuts and restraint have a good impact on Wales?

Does the right hon. Gentleman agree that reform of the Barnett formula is about not just Wales but Scotland as well? Of course, circumstances are very different in Scotland, and trying to reform the formula when there is a contracting economy would be very difficult for Scotland.

We are talking about Wales, but I think most people, including the Scots, would concede that Scotland has done pretty well out of the formula compared with Wales. Wales is now losing out under it.

As the Barnett formula reaches the end of its life, now is the time to act. In refusing to address the convergence problem that is now occurring, the Government are penalising and disadvantaging Wales. We always acted responsibly and in the interests of Wales, and we are the only party with a deliverable and fair funding plan for Wales. Silk cannot be used to let the Government off the hook on Barnett. Although we are open to the idea of Wales raising some of the money that it spends—perhaps, as the First Minister has indicated, through stamp duty and aggregates tax—that must not be at the expense of the needs-based settlement that is vital for Wales.

As the right hon. Gentleman knows full well, the issue of Barnett will now be dealt with through discussions between the Welsh Government and the UK Government. Rather than try to undermine the Silk commission, would he not be better off turning his guns on the First Minister so that he gets his act together?

I do not think I want to turn my guns on the First Minister at all, but I know the hon. Gentleman is fond of doing that. The First Minister is seeking to make progress on these matters, as he has very effectively so far.

Will my right hon. Friend give way?

I will make a bit of progress, then I will happily take interventions.

Holtham calculated that approximately £17.1 billion of tax revenue is raised in Wales every year. Total public spending in Wales is about £33.5 billion—almost twice the amount raised. We should not be ashamed or embarrassed by that. Wales’s needs are greater than those of other parts of the UK. We have a history of relatively high levels of ill health, caused by our industrial legacy of mining and heavy industry. Also, we suffered the cataclysmic shock of sudden and mass unemployment, with the wholesale pit and traditional industry closures in the 1980s, which left high levels of economic inactivity and, because the then Tory Government did not drive investment to create new industrial sectors, relatively lower levels of business activity. That is why we should look before we leap. The so-called devolution-max or independence-light settlement advocated by the nationalists —and, I suspect, tempting to the Tories—could be disastrous for Wales.

The shadow Secretary of State is quoting figures from the Holtham commission, but that commission reported that the revenue raised in Wales by UK-wide taxes was £17.1 billion and that UK expenditure was £25 billion, not the £33 billion that he has been quoting in the press today.

I disagree. I checked with the House of Commons Library, and it was in the same territory as the Holtham commission.

I am not sure whether the right hon. Gentleman has a brass neck or simply selective hearing or a selective memory. Does he not recall that Wales, in the 1980s, was not the poorest part of the UK, and that, in spite of Labour Governments in Cardiff Bay and a Labour Government in Westminster, Wales is now the poorest part of the UK?

I am astonished that a Member of Parliament for a Welsh seat is trying to defend the Government’s impact on Wales in the 1980s. As a result of Tory policies, there was mass unemployment and people were smuggled on to incapacity benefit to disguise the unemployment figures and left there—a whole generation of young people—never to work again. I am astonished that he is trying to defend that.

I have figures from the House of Commons Library on the difference between expenditure and revenue showing net contributions of £14.6 billion in Wales and £14.3 billion in Scotland. Does that not demonstrate that independence for Scotland and Wales would only result in an impoverished Scotland and Wales? We need a fair system based on needs.

That is exactly what I have been arguing.

Under devolution-max, as we understand it from the Scottish model, Wales would be responsible for raising all its own revenue, but we simply could not do it. It would be impossible suddenly to halve public spending in Wales. With devo-max, income tax and other taxes would literally have to double overnight just to maintain current spending levels, which is clearly a preposterous scenario—if ever implemented, it would have a devastating impact upon the Welsh economy and people’s way of life. However, I can see how it would be an attractive solution to some Tory stockbrokers in the south-east—people in Chesham and Amersham, for example—because it could mean massive tax cuts for them. Devo-max is yet another example of shared interests by the Conservatives and nationalists. It is no wonder that Plaid Cymru is so reluctant to criticise the Government, preferring to focus all its fire on Labour, as has happened in the past few minutes. They have much in common, which explains why they have consistently refused to rule out a coalition in Wales.

We should celebrate both the successes of devolution and the economic, social, cultural and political ties that bind us together—they are probably stronger now than ever before—but devo-max, or independence-light, is not the answer to the economic problems that Wales still confronts. Labour’s vision is of a Britain in which the stronger, richer parts support the weaker, poorer parts—a Britain fairer, more just and more equal, not an unfair, unjust, unequal Britain where the weakest go to the wall. I hope that the Silk commission will take close account of that important principle.

Is it not the case that, during the 13 years of Labour Government, the Labour party’s ambition for Wales was to create a dependency culture, in which we were given handouts by England, rather than to encourage the entrepreneurial activity that we saw in the 1980s?

If that nonsense is true, why did we have record employment under our Labour Government, why were there more jobs in Wales than ever before in our history under our Labour Government and why were there higher levels of business activity under our Labour Government? We had a record of economic success before the global financial crisis that was second to none. I am astonished that the hon. Gentleman is seeking to dispute that.

Does my right hon. Friend agree that it is amazing to hear Government Members trying to rewrite the history of the ’80s? Many of us entered the House because of the experience of seeing young people abandoned by a Conservative Government and their economic policies so that they were unable to make their way in the world.

My right hon. Friend makes a powerful point with great passion precisely because he was one of the people who entered Parliament to fight for the rights of young Welsh citizens who were denied by that callous Conservative Government.

I hope that the Silk commission will take account of the principles of fairness and justice in its deliberations. Some resources from the south-east of England are, and in future should still be, redistributed to Wales, the north-east of England and other areas of England with lower levels of economic activity and prosperity in order to help everywhere in Britain to become economically more sustainable. However, I remain suspicious that this right-wing Government do not share this vision for Britain and may exploit the Silk commission for their own ulterior motives.

Compared with Scotland, there is a much more significant amount of commuting across our border with England, as pointed out earlier by my right hon. Friend the Member for Delyn (Mr Hanson). Traffic flows across the Wales-England border are substantial. North-east Wales is highly integrated into the economy of Merseyside and north-west England, while in south Wales the bulk of traffic movement is focused along the M4 corridor. About 80,000 people live in Wales but work outside Wales in the UK, and about 50,000 people work in Wales but live in the UK outside Wales. This gives a total of about 130,000 people who travel across the border to work every day. A little over half of this cross-border traffic is accounted for by people commuting in and out of north Wales. Despite Scotland’s much larger population, the number of commuters crossing its border is roughly one third of the number commuting in and out of Wales.

More than 1.4 million people in Wales—nearly half its total population—live within 25 miles of the border with England, and nearly 5 million people in England live within 25 miles of the border with Wales. In aggregate, 30% of the population of Wales and England—nearly one third, or more than 16 million people—live within 50 miles of the border between the two countries. In contrast, the number of people living close to the Scotland-England border is much smaller. Only 5% of the combined population of Scotland and England—just one sixth of the equivalent for Wales, or about 3 million people—live within 50 miles of the border between those countries. Given that the Welsh economy is much more closely bound into the economy of England than is the Scottish economy, the potential for economic distortions and tax avoidance as a result of tax devolution is of greater concern in Wales than in Scotland, which is why the Calman agenda cannot simply be transposed wholesale on to Wales. We would like a clearer indication from the Government of how they intend to deal with these crucial cross-border issues, and I hope that the Silk commission will address them.

Something else is not within remit of the Silk commission, however, but the issue is much bigger than the Barnett formula or tinkering with the constitution—it has felt like the elephant in the room during today’s debate. There is a serious jobs crisis in Wales, and the Government need to wake up urgently to that. For example, Tata Steel employs 20,000 people in the UK, of whom 8,000 are in Wales, in overwhelmingly highly skilled, well-paid jobs, with three to four times that number of dependent jobs in the economy outside. In Wales, that means perhaps 25,000 or more jobs. Last week, MPs were briefed by Tata’s European chief executive. He did not mention corporation or any other tax, which the Silk commission is considering. Instead, his overriding criticisms of Government policy, which he worried was threatening the future of steel manufacturing in the UK—at Port Talbot, for example—were very different. He said that the Government had to act on raising demand for UK steel through infrastructure investment—in other words, through more growth and jobs. He also argued that energy costs were far too high—fully half as high again as in France. What are the Government going to do about that? Nothing.

I had similar representations from Tata. The company is clearly worried about energy costs rising as a result of environmental taxes, which are being implemented because of a perception of increased temperatures, which do not seem to be increasing at the moment. Does the right hon. Gentleman think it is time to look at the issue again?

I know that the hon. Gentleman has a reactionary view on the climate change agenda—perhaps that is reflected in his question—but the briefing that we had from the European chief of Tata Steel was clear. He said that it was overwhelmingly the lack of Government support and investment in the economy—and the demand for steel that comes from that—that was hitting his industry so badly, along with energy prices, thereby risking future investment. Incidentally, the hon. Gentleman’s question also gives me the opportunity to remind him that although he celebrated the county of Monmouthshire’s no vote, the fact is that 49.36% voted yes, while 50.64% voted no. That does not seem to be a massive rejection of devolution in Monmouth.

Will my right hon. Friend confirm from the discussions with Tata Steel and others that they are not opposed to environmental taxes per se? They are opposed to the Government’s inept handling of taxes such as the CRC, or carbon reduction commitment, and the carbon floor price, which are rightly perceived not as stealth taxes—there is nothing stealthy about them—but as a deliberate blow to our energy-intensive users. What they are saying to the Government is: “When you’re dealing with taxation issues”—as the Silk commission is—“you should do it with industry, not tell industry what’s happened to it after the event.”

My hon. Friend, who has expertise in this matter from his previous shadow ministerial job, makes a valid point. Indeed, Tata Steel also talked to us about the carbon price element that is threatening the future of its industry in areas such as Llanwern and Port Talbot.

The right hon. Gentleman will therefore be greatly reassured to know that I was at Tata Steel for our business advisory group meeting at the end of last month, where I had long discussions. I am sure that he would not want to cause any anxiety to the work force. I was pleased to hear that long-term investments continue to be made by Tata Steel and that it welcomes its good relationships and exchanges with my colleagues in the Cabinet on matters pertaining to the success of that business.

I am glad that the Secretary of State had that conversation, but all I can do is report to the House—and it is important that she hears it too—what the European chief of Tata Steel told a group of Members who met him last week, which is as I have described it. He was not concerned about any of the issues to do with the Silk commission, as we are in this debate. It is important for the Government to recognise that they should not ignore the economic realities and flirt with tax devolution—by, for example, devolving corporation tax—when that is not even on Tata’s agenda.

As for investment, Tata Steel’s European chief pointed out that the new and welcome investment at Port Talbot might not have been made had he been aware of the climate now affecting the company as a result of the Government’s incompetence, which is damaging steel production. Instead of addressing that, the Government are, through the Silk commission, considering matters such as devolving corporation tax.

A review undertaken in 2007 by Sir David Varney for the Treasury pointed to academic research that suggested that only about half the impact of a corporation tax cut was usually recovered through increased growth and investment. The question is: would lowering corporation tax in Wales to, say, the Irish level—if the Silk commission is to consider that—generate enough extra tax, including income tax, to compensate for the £400 million or so that is likely to be lopped off the Welsh block grant to comply with European Union state aid rules and compensate the Treasury for lost revenue?

The Secretary of State for Northern Ireland is an enthusiast for devolving corporation tax. Nevertheless, he told me that he thought it would take at least 15 years for the Northern Ireland economy to generate the growth and jobs that he anticipated from halving corporation tax, as is planned there, that would be sufficient to produce an equivalent income to compensate for the loss to the Northern Ireland block grant. What Welsh Government would choose to lose around £400 million now and each year for the best part of two decades in the hope—and only the hope—that extra inward investment and business activity would eventually make up the shortfall?

To return to the cross-border issue, in the event of the Silk commission determining that corporation tax could be varied, would not the north-west of England then make the same demands on the Treasury for varying powers for its region? The point that my right hon. Friend should emphasise to the Secretary of State is that the Silk commission should look at the consequences of those variations for both Wales and the English side of the border.

My right hon. Friend makes a powerful point that I hope the Silk commission will take account of.

It is simply no answer to offload tax-raising powers to Wales that will at best have a marginal impact and at worst—because of the compensating cuts in the Welsh budget—worsen the prospects for jobs, business and infrastructure investment in Wales. Meanwhile, in the real world, unemployment in Wales is rocketing. Six people are chasing every vacancy—many more in some areas of Wales—and the Government have no plan to deal with the problem. Unless they change course, it will get worse and worse.

Does my right hon. Friend accept that a huge problem in Wales is that the private sector is dependent on the public sector, which means that cuts in the public sector affect the private sector as well?

Absolutely. I have had many discussions with businesses in Wales that have been severely damaged—some have even been threatened with extinction and bankruptcy—as a result of public spending cuts, because they depend for their activities, whether they be providing services, procurement or whatever, on the public purse.

By all means consider the Silk commission agenda, but unless the Government change course, things will get worse and worse for Wales. It is the most vicious of circles: fewer working means fewer people paying taxes, which means less money to pay off the deficit. As Wales gets poorer, how can it be expected to raise its own money through taxes, as the Secretary of State would like, if the revenue coming in is being cut? There are serious questions for the Silk commission to consider, because the Government’s cuts are choking off growth, and tax revenue in Wales is diminishing substantially. I do not want the Welsh budget to be cut because of what might be deemed to be the gap in the revenue going to the Treasury arising from devolving taxes—which might happen as a result of the Silk commission—only to find that those taxes do not make up that gap.

Will my right hon. Friend give way?

I will, but then I had better make some progress, because I have been on my feet for a while.

My right hon. Friend is generous in giving way again. May I urge him to advocate from the Dispatch Box a tax change that we can introduce right now, namely a national insurance tax holiday for small businesses? That would encourage far more people to take on more employees, including women, who are significantly disadvantaged at the moment. We do not have to wait for the Silk commission; the Government should adopt our five-point plan right now.

I completely agree, and I have been urging that on the Secretary of State in this debate. Cutting VAT to 5% for businesses involved in home maintenance and repairs could revitalise a building industry that is on its back in Wales. That should be the priority for the Secretary of State.

Families across Wales are struggling with rocketing food prices and electricity, oil and gas bills, and are worried about their jobs and their children’s futures. Far from our economy being a safe haven, our recovery was choked off last autumn, well before the eurozone crisis. Our economy has stagnated for over a year now. However, there is a better way. We need a plan for jobs and growth to get the Welsh economy moving again and help get the deficit down in a steadier and more balanced way. That is what the Secretary of State should be focusing on for Wales, not simply the Silk commission’s tax and powers agenda.

My right hon. Friend has been generous in giving way, and I agree with him wholeheartedly. What my constituents want more than anything is for the Government urgently to come up with a jobs and growth strategy, which is currently missing. Does he agree that the establishment of the Silk commission, although a great thing in the long run, should not deflect from the urgency of the current situation?

I completely agree; I could not have put it better myself. I hope that the Silk commission will consider the context in which it is operating, and that, if it does advocate some tax devolution, which I think would be sensible in some respects, it will consider the wider picture and the impact of the lost revenue, indirectly, to the Welsh budget.

Will my right hon. Friend give way?

I want to make some progress, if my hon. Friend does not mind. If there is time at the end, I will certainly give way to him.

Labour has set out a clear five-point plan to create jobs, to help struggling families and to support small businesses in Wales. Our jobs plan includes tax breaks for small businesses taking on extra workers, a temporary VAT cut that would give families a boost of around £450 a year, and a tax on bank bonuses to fund jobs and training for young people. I urge the right hon. Lady’s Government to implement it, alongside the work of the Silk commission. If the Chancellor were to come to the House with such a plan for growth, we would support him.

Thanks to devolution, Wales is showing that there is an alternative. The Welsh jobs fund will provide 4,000 job and training opportunities for 16 to 25-year-olds each year, along with an extra 500 police community support officers for safer communities, and support for Welsh students so that they do not have to pay higher tuition fees. Labour First Minister, Carwyn Jones, is proving that, although cuts are unavoidable, they do not have to be allied to the chaos of a privatisation plan for the NHS, or to a plan to close down opportunities in our universities, or, with the greatest hypocrisy of all, to the simultaneous devaluation of vocational education while making it even harder for young people leaving school to get a job.

Was it not rather unreasonable of the right hon. Gentleman to say what he did about the health service in Wales, given that the National Assembly is cutting health expenditure in Wales while those cuts are not happening in England? My constituents are very aware that the Betsi Cadwaladr health trust is facing serious financial difficulties, not as a result of changes in Westminster but as a direct consequence of choices made by the Labour Government in Cardiff.

Labour’s Government in Wales are not adopting a back-door privatisation plan for the health service in Wales, thank goodness—unlike what is happening in England. In addition, did the hon. Gentleman not see the important report in the media recently that leading health officials and clinicians are now stating conclusively that the health service in England is being cut as a result of his Government’s policies? All services in Wales are having to be reduced—of course they are—but why does he think that is happening? It is a result of the programme of cuts by the Government whom he supports.

Of course our Labour Government in the Welsh Assembly cannot insulate Wales from this Government’s damaging policies. But they can show that, for schools, for hospitals, and for jobs and skills, even in the toughest of times, there is and always will be an alternative to this right-wing Westminster agenda. It was wrong to say that there was no alternative to Margaret Thatcher’s destructive policies in the 1980s. That was paid for by hundreds of thousands of people across Wales in lost jobs, futures and, yes, even lives as that Government systematically undermined the national health service.

In Wales, thanks to devolution, we can protect ourselves just a little from the consequences of Tory-Liberalism. It is not full protection—it never could be—but it makes a real difference, a Labour difference, because the people of Wales voted for the only party committed to standing up for Wales: the Labour party. Wales is an example to the rest of the United Kingdom of devolution working as it should do. We have in Wales a new devolution generation led by Carwyn Jones. That new generation are not devo-sceptics or nationalists, but devo-realists who are at ease with devolution and who recognise the benefits of empowering people.

The strength of Welsh devolution is a testament to Labour’s achievements in office. We should not forget that the Prime Minister and the Secretary of State tried to prevent it from happening. They both stood on an anti-devolution platform as Tory party candidates in 1997. They both voted against the Government of Wales Act 2006, which I brought in as Secretary of State, and which delivered the full law-making powers now enjoyed by the Assembly. Now, in 2011, we will not allow them to use the Silk commission to diminish the devolution project, or to cut Wales adrift to appease the little Englanders on their own Benches. We will give the Silk commission a cautious welcome, but we are suspicious of the Government’s motives, as are the more than 130,000 people in Wales who are now out of work, and who are desperate for the Secretary of State to focus on jobs and growth, not on contriving devices to abandon her responsibilities in Wales.

For us, devolution has always been a means to an end. Labour has never fought elections solely on the issue of constitutional change. That would be a diversion from the real task, which at this moment requires above all taking a stand on the side of the people in the face of the most reactionary Government since the 1920s. Our vision for Wales does not involve a defence of the status quo. Our stance is one of modernisation and progress, even as we face the most difficult of policies inflicted on us by this Government. We urge the Silk commission to join us in standing up for Wales, and not to be seduced by this Government’s real agenda of hiving off their obligations to Wales.

It is always a pleasure to be here on a Thursday discussing Wales. Unlike some Members, I shall not be offering a welcome, cautious or otherwise, to the Silk commission. I have no doubts about the motives or the knowledge of any of those taking part in it, some of whom are well known to me, but I feel that we could save ourselves a lot of time and money by doing away with the commission and getting on with what we all know is going to happen. We know that the commission is going to spend until the summer of 2012 looking into the granting of fiscal powers to the Welsh Assembly. I suspect that all sorts of things will appear in the newspapers and on BBC Wales, and that there will be a debate or two. The usual faces of the great and the good in Wales will be wheeled out in support of all of this, and there will be public meetings on wet weekday evenings in various parts of Wales, to which a small representative sample of the public who all like the idea of giving further powers to the Assembly will turn up. At the end of it all, we will be told that the vast majority of people who responded were in favour of giving further powers to the Assembly, and those further powers will be given. Then phase 2 will begin, in which, I see from the report, we will consider “varying” the powers of the Assembly. Well, we all know what that actually means. It means increasing the powers.

The hon. Gentleman seems to be taking a rather “conspiratorial” view of these developments in Welsh politics. Does he think that the referendum, too, was a conspiracy?

It is not a conspiratorial view; it is a view based on the history of what has been going on. We seem to be locked in a kind of constitutional groundhog day, with the same sequence of political events repeating itself over and over again. The process starts with the Welsh Assembly being granted a whole load of powers and saying, “That’s it, we’ve got all the tools we need for our toolkit.” That seems to be the popular term at the moment. “We’ve got everything we need now. We’re just going to get on with the job.” Then, a few years—or, in this case, a few months—later, it says, “Well, actually, we can’t do the job we need to do. We just need a few extra powers.” Then a commission of the great and the good is set up, often with the same people appearing time and again. They go off and consider the matter, public meetings are held, and they come back and say, “Yes, we need a bit more.” Perhaps a referendum is held, or perhaps there is just another Act of Parliament or some statutory instrument. The Assembly gets what it is given and everything goes quiet for a few months. Then the whole thing starts up again. We are in the first phase of the cycle at the moment. This is not a conspiracy; it is just how things have been happening in Wales since about 1999.

I would be delighted if we really were going to consider varying the powers of the Welsh Assembly, because I assume that varying can cut both ways. It could mean that, rather than just handing the Assembly new powers, we could look at taking a few powers away from it, once in a while. I suggested that in a Westminster Hall debate a few years ago, when Wales was doing particularly badly on the health service, but it did not seem to meet with much approval from anyone—certainly not anyone in my political party. The very fact that it had been suggested was a source of outrage to many.

The Welsh Assembly can take powers away from local authorities that are failing in Wales and, quite rightly, it has used them from time to time, so I see no reason why the Silk commission should not look realistically at the possibility of removing powers from the Welsh Assembly in devolved areas if standards have clearly dropped below those that all in the United Kingdom are entitled to expect.

Another area that I suspect the Silk commission will not look into—the right hon. Member for Neath (Mr Hain) mentioned it—is environmental taxes. To my mind, that would be very interesting indeed. As the right hon. Gentleman rightly said, Tata and other manufacturing companies in Wales that use large amounts of electricity are very angry about the way in which the environment has been used as a means to impose all sorts of extra tax burdens. The issue of the environment is worth exploring, but now is not the time or place—[Hon. Members: “Come on.”] It is very tempting, but I see Mr Deputy Speaker imperceptibly shaking his head at me. It is not for me to pose the question of why the temperature has not got any hotter since 1998, despite the fact that large amounts of carbon dioxide have gone into the atmosphere. That is not a question for today, but it is a very interesting one none the less—and I have never heard a satisfactory answer to it.

Let me move on to a more important question. If we accept that things will at some point start getting hotter because of carbon dioxide, requiring us to put all sorts of taxes on our industries, and if Welsh industries such as steel are affected, surely it is only right that those taxes be applied not just across the whole of the European Union or Europe but across the whole world. If we do not insist on that as a starting point, all that will happen is that those manufacturing industries—so important to us in Wales for jobs—will simply relocate to other parts of the world where those taxes are not being applied. It will not make a jot of difference to global carbon emissions, which will continue to come from wherever those factories relocate, but it will make a difference to jobs and the amount of tax that the Treasury collects within the UK. I would love to see the Silk commission looking into that idea, but I am afraid that I shall probably be disappointed.

You might conclude, Mr Deputy Speaker, from what I am saying that I am in some way against devolution—[Hon. Members: “No, never!”] I am not. I am devo-realist. I was against the idea of a Welsh Assembly and I have voted no at every opportunity ever since, but I say genuinely that I have a very high opinion of the abilities of the individual Members of the Welsh Assembly. I had the pleasure of working with them for eight years. I do not doubt their motives. I do not doubt the credibility of people like Rhodri Morgan, Dafydd Elis-Thomas or Nick Bourne, even though I might disagree with them on many fundamental issues.

My problem with what we are doing is very simple. The West Lothian question is the elephant in the room here. Every time we give further powers to the Welsh Assembly, we are weakening the United Kingdom. I believe that even some Labour Members, in their quieter and more reflective moments, share some of these concerns. Surely the priority for us constitutionally should not be thinking about granting further powers to the Welsh Assembly, but ensuring that all citizens of the UK have the same constitutional powers. The issue is about addressing the fact that we here in the Westminster Parliament vote on how the English run their schools, discuss how the English run their hospitals, yet we do not accept the right of anyone, including Members of Parliament, to have any say in how these issues are dealt with in Wales.

May I take it from the hon. Gentleman’s comments that he is arguing for a fully federal United Kingdom, whereby all the historic nations of the UK are treated on an equal basis?

The hon. Gentleman is right. I have made that view public in the past. I think there is a strong case for looking at some form of English Parliament or some means to prevent Welsh and Scottish MPs from voting on matters that affect only England. I repeat that I have already made that viewpoint public. I do not pretend to know the exact answer, but I am in favour of something along those lines. It might well be that at that point, we would have to consider increasing the powers of the Welsh Assembly in line with those of the other parts of the United Kingdom. The hon. Gentleman will know, however, that that is something that happens in many countries across the world—in Canada, Germany and countries with a Commonwealth tradition such as Australia, for example. If that is thought through properly, it can work. My current difficulty is with the asymmetric nature of our arrangements. Giving further powers to Wales in this way—through the Silk commission if that is what it decides—is going to make them even more asymmetric.

Would the hon. Gentleman not accept that in a border area such as mine, people go across the border to use hospitals, for example, so it is quite reasonable for me to be concerned about what is happening to the health service in England, because many people in my area use it?

Of course I agree with the hon. Gentleman. I live on the border as well. Many of my constituents go across the border, but what right do he and I have to tell the English how to run their health service if we are not prepared to accept that English MPs whose constituents might come over into Wales should also have a voice over what happens within the Welsh health service?

No doubt my hon. Friend will therefore give a warm welcome to the statement made on 8 September by the Parliamentary Secretary, Cabinet Office, my hon. Friend the Member for Forest of Dean (Mr Harper), the Minister responsible for political and constitutional reform, announcing our intention of establishing a commission to look into the West Lothian question. I understand that in the not too distant future there will be further statements on the subject, which will of course address the important questions that my hon. Friend is raising today.

I do indeed welcome that statement, and I look forward to participating, but I hope that we do not end up putting the cart before the horse. I hope that we do not all go off in different directions, rather than getting things done in an orderly fashion. The constitution is a very delicate thing, and it needs to be balanced.

I agree with the hon. Gentleman that the constitution is delicate and needs to be balanced, but is not the answer to his question—the answer to the English question, if you like—that we should remedy the asymmetrical nature of devolution in the United Kingdom by devolving powers to the English regions, not just to the London region, which already has considerable powers? [Interruption.] The Secretary of State mutters from a sedentary position that that has been rejected, and I accept that it was rejected under our Government in the north-east referendum, but I felt at the time that that was a very low-grade form of devolution. One of the things that people told me on the doorsteps in such places as Middlesbrough and Tyneside was that they did not believe in another form of regional government if it did not involve any real powers. If it did involve real powers, however, that would be the answer to the hon. Gentleman’s question.

I suspect that there may be something in what the right hon. Gentleman says. The referendum on powers in the north-east took place quite early in the process, and there is now a much wider understanding of the implications of devolution throughout the United Kingdom. Nevertheless, there is still a problem.

We devolved powers to Wales, Scotland and Northern Ireland on the basis of their historical roles as nations within the United Kingdom. I do not see how we can just come along and artificially create nations within England where nations have not previously existed. I also suspect that this is not a debate that any of us here should be having. It must ultimately be for English MPs to decide for themselves whether they are content to remain representatives in England or would prefer to be representatives in the regions thereof. Let us not forget that there are 6 million people in Scotland, 3 million in Wales and 1.5 million in Northern Ireland. We have not so far devolved powers on the basis of the numbers of people in the countries concerned, and we therefore have no real right to say that because there are 50 million or 55 million people in England, they do not have the right to have a Parliament based on their own historic nation.

Does the hon. Gentleman not accept that until now the primary motivation for devolution has been not a recognition of nationhood, but the need to enhance democracy? That is what devolution is ultimately all about. It is not about placating nationalism; it is about enhancing democracy.

There have been several motives for devolution. Nationalists saw it as a stepping stone towards independence—I imagine that they would be fairly honest about that—while others, some of whom are now on the Opposition Benches, were afraid of nationalism, and saw devolution as a way of preventing the nationalist genie from getting out of the bottle. I think that they were mistaken. I fear that some may have taken the narrow political view that Wales would always be dominated by Labour whereas Britain would not necessarily be, and that therefore it would not be a bad idea to carve out little corners of the United Kingdom where Labour could always have an inbuilt majority and a left-wing Government could rule. I dread to think that that is the case, but, being a bit cynical, I suspect that there may be some grounds for believing that it is.

The hon. Gentleman is, as usual, being generous in giving way. Does he agree that a further crucial aspect of the rationale for devolution in Wales and Scotland was demand, and that that may have been a greater consideration than nationhood? Does he also recognise that, because of a feeling that—for reasons related to distance and divergence in economic performance—people are getting worse deals from the Government in some parts of England than in others, such as the south-east, there may well be a growing demand in some areas for a fresh look at the possibility of English regional devolution?

The answer to the hon. Gentleman’s first question is that despite the enormous amount of money spent on the referendum in 1999, only one in four people went out and voted yes, so the demand could not have been that great. As for his second question about the issues that are bubbling away in the various regions of England, I do not profess to know the answer, and I certainly will not be trying to pose that question. As I said to the right hon. Member for Neath (Mr Hain), the English will have to work out for themselves whether they wish to base a future settlement on England itself or on regions thereof. It is not for us to tell them what to do.

It would be wrong for English MPs alone to discuss, and decide on, such matters. As a UK parliamentarian, I agree that English devolution is the great unanswered question. However, Welsh MPs—along with Scottish and Northern Ireland MPs—will want to have a say in that because it will have a considerable impact on the UK as a whole. I ask the hon. Gentleman to consider this point in his peroration, because we would not want non-England MPs to be shut out from the debate on English devolution. Nor would I want England MPs to be shut out from our debate here today, and it is great that some England MPs are present.

That is a sensible point, but my peroration has become more of a conversation now, and I wish to return to it. I shall think about what the hon. Gentleman has said, however, and I suspect that all of us will want to contribute in various and different ways if and when the England question arises.

The Silk commission is addressing fiscal powers. The leader of Plaid Cymru—I think he is still the leader—said that that could have an historic effect on Wales, by which I assume he means that it will lead to all sorts of extra powers being acquired and Wales heading much further along the road that he wishes to travel down. I am very concerned about the prospect of giving fiscal powers to Wales, however. It is hard to see how we could maintain the integration of the various parts of the United Kingdom if we were all doing different things fiscally. The Silk commission has apparently ruled out borrowing, but I have been told by those in a position to know that it has ruled out only some kinds of borrowing, and anything can be examined. There are certainly ongoing discussions about different kinds of borrowing.

The Silk commission can look at future borrowing, whereas current borrowing is at present the subject of bilateral discussions between the Treasury and the Welsh Government. The Silk commission can look at future borrowing.

I thank my right hon. Friend for that clarification, but what she says will not help me sleep any more easily tonight.

Before this debate started, an urgent question was asked on the Floor of the House about what has been going on in the eurozone area. That is, in fact, fairly simple to understand. There is a central bank and a currency area with all sorts of individual parts within it—we call them nation states still, although Brussels will probably want to change that in a few years—and those individual parts have all been doing their own thing. The Greeks have been borrowing as much as they wanted, and have been spending it on allowing their civil servants to retire at 50 and on buying off strikes. In short, they have been spending it on doing things we would never even consider doing—filling people’s mouths with gold, as Nye Bevan would have put it. As a result, there is now an enormous crisis across the whole area because the taxpayers of Germany are simply not prepared to bail out nations that have been behaving in an irresponsible fashion.

Yet we in the United Kingdom, having escaped the economic servitude of the euro—which many Opposition Members would have liked to put us into—now seem to want to create a situation whereby exactly the same thing could happen on a smaller scale. We have a central bank and Government responsible for interest rates and general financial policy, but there is now a proposal that the constituent parts of the United Kingdom—specifically, in this instance, Wales—should be free to go off and borrow at low interest rates, knowing that ultimately somebody else could pick up the bill.

Does the hon. Gentleman not recognise that currently local authorities in Wales can borrow and raise their own revenue, so what is the difference?

They can only do so under fairly strict terms of engagement. There is no major difference, but what I am saying is that I do not want any more bodies to be able to do that. I certainly would not welcome the idea of the Assembly doing what Westminster Governments have done before—let us be honest about it—which is wait until a general election is coming along and then suddenly borrow billions of pounds on the international markets knowing that not many people understand the difference between debt and deficit, and are therefore unlikely to be able to work out the probable consequences of what is happening. Governments buy themselves elections in that way. I do not want to put that temptation in front of Members of the Welsh Assembly.

Finally, I am even more concerned about the idea of a separate judicial system for Wales. That would be costly and complex.

Before the hon. Gentleman leaves the subject of taxation, on the important issue of inward investment and growth, which various speakers have focused on, does he agree that what business needs to provide inward investment is certainty? If there can be changes in corporation tax, income tax and all sorts of other tax, that will put companies off investing in Wales. The only tax that people want to get rid of is the tax that everybody is charged when they cross the Severn bridge—the Severn bridge toll. That is a real barrier to inward investment and trade. We should get rid of that and forget the rest.

The hon. Gentleman knows perfectly well that getting rid of the Severn bridge toll is impossible, because he and I helped to write the report. It is not a matter of law, but a matter of a commercial contract between four companies that came together to build the bridge under certain agreements. There is nothing that we can do about it. Of course the Welsh Assembly, or even the UK Government, could decide to take on the costs of the Severn bridge if they wanted to. However, the hon. Gentleman knows very well that the Government do not have any money at the moment. We have a £1 trillion debt, most of which we inherited from his colleagues in the previous Government, and we are overspending by £168 billion every year. We are not really in a position suddenly to take on the burden of the Severn crossing.

I do praise the hon. Gentleman, however, because he has said something with which I entirely agree: business needs certainty. Businesses are already annoyed that they have to pay the cost of coming over the Severn bridge. The last thing they want is the potential for a load of extra taxes when they come into Wales, and a lack of certainty over whether those taxes may be applied at a later date if they decide to relocate there. To my mind, that is a very good argument for not devolving the power over such taxes to the Welsh Assembly.

I will finish on my point about the judicial system. The last person to toy around with the judicial arrangements in Wales was Henry VIII. He formed a judicial area for Wales, but people in Monmouthshire were so incensed that they decided to opt out of it and in to the Oxford assizes. That caused confusion all the way through to the local government reorganisation of 1974. Various people passed legislation, and some of it applied to Wales, some to Monmouthshire and some did not apply anywhere. Nobody knew what they were doing. People were driving to Chepstow to get a drink in the pub because the chapels had banned it, or something. It was absolute chaos. The last thing we want is a repeat of that. I say to all Members of the House that Monmouth is an integral part of Wales, Wales is an integral part of the United Kingdom, and for as long as I represent this constituency, long may that remain the case.

It is always interesting and a pleasure to follow the hon. Member for Monmouth (David T. C. Davies). I am not a great fan of Henry VIII, for obvious reasons. I agreed with some parts of the hon. Gentleman’s speech and disagreed with others. The thrust of his argument, I think, was that he was not keen on the Silk commission and its activities. I remind him that it was the Secretary of State for Wales who took the responsibility to initiate the commission, as she told us today. Government Members really have to get their act together on what they do and do not want.

I welcome the commission and I certainly welcome its members. I have known Paul Silk for at least a quarter of a century. I know all the other members in one capacity or another. I think that they are excellent people who will doubtless do a very good job. It would have been better, however, if the House of Commons had debated this issue before the commission’s terms of reference had been agreed, so that Members, including me, had the opportunity to contribute the ideas that are put before the House this afternoon.

I warn this House, my colleagues in the National Assembly and, I suppose, the members of the Silk commission that I, like the hon. Member for Monmouth, have some misgivings, warnings and suspicions about what lies behind this initiative. As with the Bible, people have different interpretations. Wars have been fought on interpretations of the Bible, but in this case people have different ideas as to what the Silk commission should or should not do, or as to why it should do it in the first place.

The first point to make is that the Secretary of State mentioned “consensus” at least six times. My right hon. Friend the shadow Secretary of State referred to the fact that there has been no consensus on constitutional issues in this House of Commons since the coalition Government took over. So I find it strange that we are now going to have consensus on this commission, given that we did not have consensus on the most important constitutional development that Wales has seen for generations: the 25% reduction in the number of our Members of Parliament. That is what I am concerned about. How can we accept that the Secretary of State or the Government are serious about consensus given not only that they did not give us time to debate that matter in the Welsh Grand Committee, as she knows we should have done, but when various debates were held in the other place, any sort of so-called consensus fell to bits and the decision was made anyway? Why should we, at this stage, believe that there is consensus on the Silk commission?

The right hon. Gentleman makes an extremely important point about consensus and it is a strong message that needs to go to the Silk commission, but is not the original root of all these inconsistencies that we now face the lack of consensus in 1997, when Labour let the genie out of the bottle and we started on the devolution road? I am mixing my metaphors, but I hope that I have made the point.

The hon. Gentleman knows that historically I was opposed to devolution—I changed my mind as the years went by—but we had to accept what the people of Wales decided. In 1997, they decided on devolution, albeit by a small majority—we must remember that the Conservative party did not get a majority of Members of Parliament, but we still have a Conservative-led Government—and in the referendum held earlier this year the overwhelming view of people in Wales was that there should be extra powers. It was the people who decided what they wanted in the end, and I agreed with them this time.

I repeat that we do not want to hear about consensus, given that that was abandoned by this Government when they introduced the Bill to reduce the number of our Members of Parliament. For the first time since 1832 we will have fewer than 40 Members of Parliament representing Wales in this House. I am not arguing about the nature of equal constituencies—that is for another debate—but I am saying that the reduction from 40 to 30 in the number of Welsh MPs reduces the influence of Wales within the United Kingdom. I will address that in a few moments’ time.

Part I of the commission’s remit is to deal with money: the financial responsibilities and the remit of the Welsh Assembly. We are told that this is all about accountability, but the hon. Member for Vale of Glamorgan (Alun Cairns) just referred to the devolution settlement of 1997. Such a settlement also took place in Scotland and later in Northern Ireland, where I played a part. In all those settlements that issue of financial accountability was raised, and it was argued by some, “If a parish or community council can raise revenue, why cannot a Government in Edinburgh, Belfast or Cardiff do so?”

When I chaired the talks in Northern Ireland on whether there should be income tax powers in Northern Ireland, the meeting lasted less than an hour. People in Scotland decided that they would have the possibility of tax-varying powers, but those have never been used. We in Wales rejected this from the beginning, and there was a reason for that: the resource base of Wales is much lower than that of Scotland—the resource base of Northern Ireland is even lower than that of Wales—and therefore the amount of money that could be raised by income tax in Wales or Northern Ireland, and, to a certain extent, in Scotland, is infinitesimally smaller than the amount that could be raised in England. This proposal was therefore abandoned.

The idea of how we finance our devolved Administrations, therefore, came down to the idea of the block grant. That system is not unique. The hon. Member for Monmouth (David T. C. Davies) referred to asymmetrical devolution, and that is what occurs in Spain, except that there they have devolution everywhere. They get their money through a system of distribution of block grants and, as my right hon. Friend the Member for Neath (Mr Hain) said, they are able to ensure that there is proper distribution of money so that poorer areas are helped by richer areas such as Catalonia.

There is of course the exception in Spain of the Basque country. I am not arguing for us to adopt that model, under which the Basque country is taxed and money is sent down to Madrid, rather than the other way around.

Yes; I am talking in general terms and that may well be an exception. A block grant, based on need, going to various parts of the devolved administration is the system that was decided on. That is why we have to be very careful; we tinker with this at our peril.

An issue on which the Secretary of State and I had an exchange back in May was about whether, were there ever to be income tax-raising or varying powers in Wales, we should have a referendum to approve that. She stated in her answer to me:

“He is quite right that giving tax-raising powers would involve another referendum”.—[Official Report, 11 May 2011; Vol. 527, c. 1148.]

It would not be constitutionally right or proper for there to be tax-raising or tax-varying powers in Wales, so far as income tax is concerned, without the people’s saying so.

I do not think it has ever been suggested that the block grant should be replaced entirely by tax-raising powers. Most systems rely on a hybrid system, as with local government systems, in which there is a block grant as well as tax-raising powers.

I think that if the National Assembly for Wales ever had any tax-raising powers, the system would involve such hybridity. However, I say to the hon. Gentleman that there is a concern, which I suspect is shared by people in Northern Ireland, although the comparison between Northern Ireland and Wales can go only so far because there is a land border between Northern Ireland and another sovereign state on the island of Ireland and, obviously, we have no such border. It is suggested that if a corporation tax were introduced in Northern Ireland, although some interesting benefits could result from it, the block grant would be reduced correspondingly. If that is what is happening in Northern Ireland I would say to the Silk commissioners to beware, because the same could happen in Wales. We might be told, “You can have this tax or that tax, but we’ll cut your block grant,” and that will address the accountability gap that has been referred to. That would be dangerous because it would mean that what we are entitled to through the United Kingdom taxation system would be reduced by even more than is the case at the moment.

In recent months, other Members of Parliament have said in the House of Commons, including, doubtless, in this debate, “Wales, Scotland and Northern Ireland do much better than we do in the English regions. Look at the Barnett system that they have had for all these years. Look what they can do in Scotland—they can change student fees and pay to have their old people in homes and all the rest of it.” But those people forget that those countries might not do other things in the way that England does. That is what devolution is all about.

The thrust of that argument is that we in Wales are somehow or other getting more money than any other part of the United Kingdom. That is the case for some parts of the UK, but an interesting fact was referred to by the Holtham commission and in the House of Commons note in relation to the Oxford Economics report, which my hon. Friend the Member for Swansea West (Geraint Davies) mentioned. If we say how much money goes to Wales from central Government and how much money is raised in Wales, of course there will be a deficit. In Wales, the deficit between the money raised and the money going in is £14.6 billion. Some might say that that is a great deal of money, but in the south-west, across the Bristol channel from us, the deficit is £15.6 billion. In the west midlands, across the border from Powys, it is £16 billion, whereas in Yorkshire and Humberside it is £16.9 billion and in the north-west of England it is £23.9 billion. Let no one in this House, or anywhere else, tell us that somehow or other we are getting some sort of better deal in Wales than the English regions. It simply is not true.

There are two other issues on finance including, first, the Barnett formula, on which my right hon. Friend the Member for Neath touched. I cannot for the life of me understand why it is impossible for the Silk commission to consider the Holtham commission and, indeed, what happens to Barnett as part of its remit. I am not suggesting that it should hold up discussions between the Secretary of State, the National Assembly for Wales and the Welsh Government, but to say that a commission that is dealing with the Assembly’s financial responsibilities cannot look at how the block grant is dealt with is daft.

I agree, but it has been suggested that such an approach would not be welcomed by the Welsh Assembly Government.

That is for the two Governments to discuss. In the House of Commons, we are debating what it is sensible for the Silk commission to consider. I said that I did not want that to hold up any discussions that are under way, because there are implications for Scotland and Northern Ireland, but it is crazy that that cannot be discussed while all the other issues affecting money are being discussed.

I cannot understand from the response of the Secretary of State to the hon. Member for Monmouth the difference between current and future borrowing. Either one agrees with the concept of the Welsh Government being able to borrow, or one does not. The Northern Ireland Executive and the Scottish Government will be able to borrow, and local government can borrow, so why on earth can the Welsh Government not borrow? It is quite incongruous that that is the case, and I am glad at least that they can discuss borrowing, even if they cannot discuss borrowing at the moment.

Part II of the terms of reference is about powers and functions, and I agree that there is a case for looking at incongruous and difficult cross-border issues, which need to be tidied up. Most Members of the House of Commons would be wary of transferring policing and justice to the Welsh Assembly. We have a different system from Scotland, and we are so bound up with the English judicial and legal system that I would not agree with such a transfer. Another issue that will not be discussed at all by the commission—this is why it would have been useful for the House of Commons to discuss its terms of reference before we had the debate—is the way in which the Assembly is voted in. If there is going to be a reduction in the number of constituencies, presumably to 30, with a relationship between Parliament and the National Assembly, which is voted on, it is unusual that that issue should not be debated or discussed by the Silk commission, particularly as any decision on how we elect the Welsh Assembly should be based on a proper mandate at a general election. I hope that the Secretary of State and her Government will not even contemplate discussing those matters until after the next election.

I am interested in my right hon. Friend’s point about constituencies and coterminosity. Wherever possible, Assembly constituencies should align closely with boroughs and parliamentary constituencies, because that leads to better government, better democracy and better services.

But the Parliamentary Voting System and Constituencies Bill had nothing to do with better democracy and everything to do with partisanship. The Government were so stubborn in the other place in refusing 10% flexibility that taking local government boundaries into account is hardly possible because of the rigidity that has been introduced in the system. If there had been consensus, that might have been considered, but there was no such consensus.

Finally, we have to be careful that the proposals are not based on a hidden agenda from the Government—what I call the Trojan horse. The hon. Member for Monmouth referred to the West Lothian question, and the Silk commission’s hiving off financial responsibility to the Welsh Assembly, and perhaps—we do not know for sure —taking away the block grant is part of the agenda of the new Conservative party. It used to be the Conservative and Unionist party, but it has long since ceased to be Unionist.

The West Lothian question means that the Government want to have two classes of Members of Parliament, not British-United Kingdom Members of Parliament who speak on everything because we have been elected by our electors to talk about the United Kingdom—every part of it: Northern Ireland, Scotland, Wales and England. I referred to the complaints time and again that we are getting too much money in Wales and Scotland. Perhaps the most obvious thing is that out of 117 Members of Parliament representing constituencies in Wales, Scotland and Northern Ireland, only nine come from the Conservative party. It will probably be wiped out at the next general election in Scotland and who knows where else. The combination of all those things, to me, means that the Conservative party has now become a party of little England. I am sure the hon. Member for Monmouth, who represents a Welsh constituency, would agree.

Does the right hon. Gentleman share my concern, then, about colleagues in his own party who refuse to appear before the Welsh Affairs Committee to discuss devolved issues? Does he not think that that smacks of a little Wales mentality?

No, I do not. I accept, though, that there are people in my own party who may agree with some of the things that I think the Conservative party is guilty of—that is, not being awfully worried if Scotland and Wales left the Union. I have been thinking that for over a year now.

The New Statesman published a very good editorial last week, which finished with this:

“For the Tory right, an independent England—economically liberal, fiscally conservative, Eurosceptic, Atlanticist—is an attractive prospect. The United Kingdom, one of the most successful multiracial, multi-faith, multinational states the world has ever known, remains a cause worth fighting for. Yet, over the past weeks, fixated by the EU, the Conservative and Unionist Party seemed less aware of this than ever.”

The Trojan horse is not Welsh nationalism, but the English nationalism of the Conservative and former Unionist party.

I am enjoying the right hon. Gentleman’s contribution and I know that his words will be passed on to the Silk commission. I assure him that I remain a firm Unionist, not the sort of Tory that he describes.

On a point of information for him on the borrowing powers, the Welsh Government have the ability to borrow under the powers that they inherited from the Welsh Development Agency. The bilateral talks on those borrowing powers are about how that borrowing could be used more effectively. What the Silk commission has been entrusted with is examining new borrowing powers in the context of the package of tax and borrowing powers. I hope that that clarifies the position on borrowing, which I know has been the subject of some speculation.

Indeed; I am grateful to the right hon. Lady for telling the House that. In a sense, it confirms my view that there is confusion about what is happening with regard to Barnett and to borrowing. There appear to be simultaneous discussions on borrowing and on what happens to Barnett on the one hand, and the Silk Commission on the other, whose job it is to look at financial responsibility as well. I am saying, “Don’t stop the talks.” It is obvious that Governments have to talk to each other, particularly as we live in difficult times, but I am also saying—she has clarified the position with regard to borrowing—that it is important for that to be part of the Silk commission’s remit.

Although I welcome the Silk commission, I warn the people of Wales that the position is not as simple as it might seem on the surface. I believe that the Secretary of State is generally in favour of the Union, but—judging by the actions that have been taken in the House of Commons over the past year or so—I do not believe that that is true of much of the rest of her party. Those of us who are genuinely in favour of the Union want the Silk commission to be about helping the people of Wales ultimately to have a better deal from the United Kingdom.

It is always a privilege and a challenge to follow the right hon. Member for Torfaen (Paul Murphy). He put forward some considered and powerful arguments that I am sure the commission will read and take into account when they set out their programme for the work that they have to undertake.

As we look forward to Armistice day and remember the men and women who have made a sacrifice for this nation, we also remember the Welsh men and women who are currently serving in the British Army. Just today I had an e-mail from Brigadier Russ Wardle, who recently finished his tour of duty as brigadier of 160 (Wales) Brigade in Brecon. He told me that 40 servicemen are still in Baghdad performing important roles, training the Iraqi army and police in the duties they will take up shortly. I will meet the new brigadier, Brigadier Napier, shortly. I am so pleased the 160 (Wales) Brigade will stay in Wales, contrary to speculation just before the Welsh Assembly election.

I thank the Secretary of State for securing this important debate, which has already proved its worth. It is a great day for Wales. It is fantastic that there is cross-party consensus on the commission’s terms of reference to take a considered view on the funding and future of the Welsh Assembly. Liberal Democrats have consistently supported a commission to look at the funding arrangements between Westminster and Cardiff, and it is to the credit of the coalition Government that the Silk commission will go ahead after 13 years of Labour inaction on this crucial issue. Notably, the three promises on Wales made in the coalition agreement—the housing LCO, the further powers referendum and the commission—have now been met, and I commend the right hon. Lady for that. With good Conservative support, Liberal Democrat policies are helping the people of Wales.

The hon. Gentleman refers, rather provocatively for him, to Labour inaction and the fact that great events have taken place, but does he accept that it was a Labour Government who brought in devolution in the first place?

I absolutely accept that and am sure that he would accept that Labour had the full support of the Liberal Democrats, including those in Wales. Indeed, my predecessor, Richard Livsey—sadly, deceased—played an important part in that and, I am sure, would have liked to play a part in the Silk commission, too.

That is not to say that the Secretary of State’s work is over; many other things need to be done for Wales, including nurturing and supporting the devolution settlement. I look forward to working closely with her in the near future.

Does my hon. Friend take some assurance, as I do, from the Secretary of State’s words on timetables? When questioned by the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards), she set out a range of timetabling scenarios, which was a relief to many of us. There is a hope and expectation that that can be achieved before the general election, but the fact that there is a timetable reassures those of us who were concerned about this being shoved into the long grass or into a cul-de-sac. The Government have proposed that as a real commitment.

I thank my hon. Friend for his intervention, which brings me to a point I had intended to make later. The present coalition agreement sets out the programme for the first half of this Parliament. Work now needs to be set in hand to take forward the coalition for the second half, which will obviously include proposals for Wales. When Wales said yes to having a Welsh Assembly in 1997, the devolution package was missing one critical element. The Welsh Government have the luxury of spending money handed out by others, but unlike those in Scotland and Northern Ireland they have no power to borrow or raise money; as has been suggested, they have fewer powers than local authorities. I believe that the lack of accountability has led to some irresponsibility in the Welsh Government’s spending of money. Indeed, when the Chief Secretary to the Treasury visited Wales in April he said that the commission

“will aim to develop the financial autonomy of the Welsh Government to give Wales more opportunity to create the right environment for encouraging growth”

and jobs. I thank him for his support. As a Scottish MP, he brought knowledge of the Calman commission to the proposals, whose usefulness should not be underestimated. Welsh Liberal Democrats will engage fully and constructively in this process. We will urge the commission to bring more accountability and responsibility to the Welsh Government and to give Wales further power to drive forward economic development, creating jobs and prosperity in Wales.

I thank the hon. Gentleman for giving way in the midst already of several very good contributions, but will he clarify what he understands by “financial accountability”? We all understand it in broad terms, but will it be financial accountability with some additional tax-raising or tax-varying powers, or accountability from within a deficit that has been lopped off the block grant? Robbing Peter to pay Paul and then asking the Welsh Government to be accountable for money that the UK Government have taken away from them, and for which the Welsh Government are then able to raise taxes, does not seem like real accountability. I want to protect what is already in Wales, and if there is accountability let it be for additionality, not for something that has been taken away from Wales.

I recognise the hon. Gentleman’s first point, but not his second. We would all like to see local authorities raising more of their spending power locally so that they become more accountable, and I believe that the situation would be the same for the Welsh Assembly Government, although I do not see any reduction in the spending proposed for them. I may come on to that later, however.

I thank also the Deputy Prime Minister for his work in broadening the commission’s terms of reference and composition. There were people who wanted a much smaller commission, of perhaps only three people and without political appointees, but I am glad that the consensus was for a much larger and broader one. The political appointees are a huge boost to the commission, and they bring vital political experience to its work.

I commend the choice of Paul Silk to chair the body. Paul has worked in this House, where he had a fine reputation, and in the Welsh Assembly, so he is perfectly placed to understand the workings of both. I cannot think of an individual who is better informed to carry out this important task, and I wish him well. I and my right hon. Friend the Member for Bermondsey and Old Southwark (Simon Hughes) went to the same school at the same time as Paul, so I can vouch for his high academic attainment.

Dyfrig John brings to the table 35 years of experience in financial services, and his financial know-how will be invaluable to the commission. He and I were members of the Development Board for Rural Wales, along with the hon. Member for Montgomeryshire (Glyn Davies), who was chairman at the time, and Dyfrig was instrumental in maintaining a banking presence in Llandrindod Wells, which on its own would be enough to recommend him for the job.

Professor Noel Lloyd is a distinguished academic from Aberystwyth university, and before he became its highly regarded vice-chancellor he was a practising mathematician, so his ability to do sums means that Wales will not fall into the same trap as Ireland, which underestimated its reserves by €3 billion, or Germany, which did so by €50 billion.

Rob Humphreys, the Liberal Democrat representative, has long been a champion of devolution. He was heavily involved in Swansea’s yes campaign in 1997; he served on the all Wales convention; and he was the Liberal Democrat representative on the yes campaign steering group in 2011. Rob’s leadership of the Open university gives him a knowledge and understanding of young people and adults, and he will bring real expertise to the commission.

I also pay tribute to Nick Bourne, who served the people of mid-Wales very well during his time as an Assembly Member. His commitment to Wales, all things Welsh and, particularly, the Welsh assembly made him an example to all political leaders in Wales—and I look forward to his memoirs.

It is also great to have the ministerial experience of Sue Essex. She became the Minister for Finance, Local Government and Public Services following the 2003 election, so she has first-hand experience of the financial arrangements between Cardiff and Westminster.

Last, but certainly not least, there is Dr ap Gwilym, whose performance against Paxman showed his commitment to, knowledge of and passion for devolution. It is a dedicated and highly talented team with a range of expertise.

It was almost inevitable that we would talk about the Barnett formula, because it is an essential part of delivering a prosperous Wales. I am disappointed that it is not included in the Silk commission’s remit, but I understand that the Welsh Assembly’s Labour First Minister was not keen that it should be included.

I understand that bilateral discussions are taking place between London and Cardiff, and they will include not only the Secretary of State, but the Treasury.

I was surprised by the comments of the right hon. Member for Neath (Mr Hain) when he said that the Silk commission’s lack of consideration of the Holtham report is an omission. I, too, have heard the First Minister state categorically that the Holtham report should be subject to bilateral discussion between the two Governments. Are we seeing a split in the Labour party’s approach to the issue?

I am sure that if there is a split, my hon. Friend will comment on it later in the debate.

I understand that bilateral discussions will take place, but I ask for more openness and transparency in that dialogue, because other people can play an important part in that work.

We can learn lessons from the Calman commission, which concluded that the devolution settlement had established a Parliament in Scotland that could be held to account for spending choices, but that lacked accountability in raising revenue. It proposed a reduction in block grant funding from the UK Government to Scotland in exchange for power for the Scottish Parliament to raise its own taxes. The Scotland Bill implements the recommendations and creates a Scottish rate of income tax. That will apply alongside existing UK-wide income tax.

In Scotland, the lower, higher and top rates of income tax will be reduced by 10p. The Scottish Parliament will then make a tax decision to levy an additional rate, which may match rates elsewhere in the UK, or be higher or lower. That will replace the Scottish Parliament’s existing power to vary income tax in Scotland by 3p up or down. Such a change, implemented by a Liberal Democrat Secretary of State, gives Scotland more accountability for its spending, and can be only good for the country. I would be pleased if the Silk commission recommended something similar for Wales.

The Calman commission addressed the rebalancing of the boundaries between devolved and reserved policy matters. It recommended devolution of further powers, including administration of elections, licensing power in relation to misuse of drugs, power to set the drink-drive limit, and power to set the national speed limit. It recommended that some powers be retained by Westminster, including regulation of health professionals and corporate insolvency. Aggregates and air passenger duty are not being taken forward for various reasons.

Luckily, this debate includes hon. Members on both sides of the House with first-hand experience of the devolved Welsh Assembly. They include the hon. Members for Monmouth (David T. C. Davies) and for Clwyd West (Mr Jones) and the right hon. Member for Cardiff South and Penarth (Alun Michael). I look forward to their contributions, and have enjoyed some of those that have already been made. My hon. Friend the Member for Montgomeryshire (Glyn Davies) also has considerable knowledge of the matter, but because of his Government role, he will not be able to speak.

Although the new arrangement has been simplified since the referendum, a lot of relevant legislation is spread among many Acts of Parliament. The Government would provide a service if they introduced a consolidation Bill to simplify and make accessible those elements of law that have been devolved, or if there were a 180° turn so that legislation sets out matters that are reserved to Westminster, and all others are devolved, instead of having the present position of legislation setting out devolved matters, and everything else being reserved.

The hon. Gentleman makes an important point, because there is confusion among the general public about which areas are devolved and which are reserved, as my hon. Friend will know from his constituents, and as I know from mine. We have an important duty to get the message of devolution out there to the general public. Does he hope, as I do, that the Silk commission will also reflect on that?

My hon. Friend makes an important point. Even politicians sometimes have a less than perfect grasp of which issues are reserved and which are devolved. More importantly, the legal profession finds it very expensive to maintain an up-to-date record, or database, of changes in legislation. If something could be done to simplify that, it would benefit not only the public but the legal profession and people who have to deal with the legislation.

With the commission due to publish in autumn 2012, that leaves two and half years for this Parliament to see the implementation of measures on the issues on which agreement can be achieved. Will the Minister ensure that the report on those issues is produced as quickly as possible?

This is a historic opportunity for Wales. Finally, 12 years after the Welsh Assembly was set up, we can give it the ability and financial responsibility to do that which it was set up to do. It is building a better Wales—a strong nation, firm within the United Kingdom, and active in the European Union and on the world stage.

I am long-standing supporter of devolution. I believe that it is fundamentally correct for decision making to be as close to the people as is practicable. I consider myself to be a proud Welshman, and British, and I am also an internationalist and a European. I see no contradiction between those various identities.

In practical terms, I strongly supported the work conducted by Gerry Holtham, whose report is seminal. In particular, I strongly endorse his recommendation of the introduction of a Barnett formula, and I am pleased that that was in the Labour party’s manifesto at the last election. It would have been appropriate and sensible for it to be part of the wider consideration of fiscal issues. Nevertheless, that does not alter the fact that it is an important statement, and I look forward to its being acted on.

I welcome the establishment of the Silk commission. Like other hon. Members, I have enormous respect for Paul Silk, who has worked in the Assembly as well as in this institution. He is a long-standing occupant of the Welsh Room here in Westminster, and therefore, in some ways, follows in the footsteps of David Lloyd George. I also welcome the appointment of Sue Essex, whom I know personally and who has a profound understanding of finance and devolution. However, like my right hon. Friend the Member for Torfaen (Paul Murphy) and others, I have reservations about what might be the motivation behind some aspects of the establishment of this commission.

I think that the shadow Secretary of State, my right hon. Friend the Member for Neath (Mr Hain), has been very unfair on the Secretary of State for Wales.

Unfair?

Yes, very unfair indeed. He asked how a Member from the south-east of England can have a proper understanding of the situation in Wales—but of course, as we all know, Chesham and Amersham is not in the south-east of England; it is in Buckinghamshire, which is a lot closer to Wales. However, I doubt whether that fundamentally alters the lack of understanding, let alone empathy, for the people of Wales on the part of our current Secretary of State. That is clearly shown in the way that the boundary changes that we are soon to see enacted were pushed through the House of Commons against the interests of democracy and without proper discussion in this House. Unfortunately, therefore, when the word “consensus” is used regarding constitutional matters, a question mark has to be put over whether that involves a genuine statement of intent.

I am concerned that the terms of reference are written in such a way that the work of the commission will be conducted within the parameters of the United Kingdom’s fiscal objectives. We all know what those central Government objectives are—to make cuts, cuts, cuts, and nothing but austerity, austerity, austerity. It is important to realise that when we are talking about fiscal matters regarding Wales, we are talking about not increased resources but fewer resources. The question is how that reduction in resources will be introduced.

We all know that Wales is very dependent upon the block grant, which has been cut by 1.3% since the Conservative-Liberal Democrat coalition came to power. The big danger is that there will be bigger cuts before too long, which is why the context of the commission is very important.

Another of the commission’s terms of reference is worth noting—the need to ensure consistency of fiscal powers within the UK. The hon. Member for Monmouth (David T. C. Davies) made the point that devolution, by definition, is asymmetrical, so why does consistency have to be a bedrock principle of the commission? We ought to recognise that whatever is proposed for Wales will be different from what happens in other parts of the UK, and so it should be.

My third and final reservation about the commission is the fact that Wales has historically been, and currently is, very dependent upon public expenditure. We all know that the Barnett formula and the block grant are important, but let us also recognise that there are other elements of public expenditure in Wales, which are often not recognised but are nevertheless crucial to its well-being.

One of the strengths of the United Kingdom is that, contrary to the nationalist interpretation of British history, Wales is not a subjected nation, under the heel of England. The reality is that there have been transfers of resources from the richer parts of the United Kingdom, particularly the south-east of England, to the poorer parts, and that is how it should be. That is the strength of the UK, and I would not like to see any measures adopted that placed a question mark over the integrity of the UK. Anything that did that would be not just a retrograde step for the concept of the United Kingdom, but potentially damaging to the people of Wales.

I mentioned Gerry Holtham, and we must recognise the importance of his in-depth analysis of the possibilities and options for the development of fiscal powers for Wales. In his introduction to that report, he stated:

“To be sure, economic reality and the integrity of the UK impose constraints on what it is practical or advisable to devolve.”

It is extremely important to bear that in mind, not least because he is an eminent economist but also because he is passionately committed to the principle of devolution. He is saying, in other words, that there is no point having devolution for devolution’s sake. We have to take a pragmatic approach of bringing power closer to the people, but we also need measures that enhance the material well-being of the people of Wales.

I, too, support the principle of devolution, but what people in the towns of Tredegar, Ebbw Vale, Abertillery and Brynmawr are interested in at the moment is jobs. With long-term youth unemployment having risen by 60%, they want a Government who deliver real jobs to boost our economy in Wales.

My hon. Friend makes a very important point. It is essential that we do not consider this as an abstract constitutional debate, because it has a direct bearing on the well-being of the people of Wales, their economic prosperity and the levels of employment that they enjoy.

I have sought to emphasise the importance of public expenditure to Wales. It remains important and will continue to be so well into the future. We are in the process of changing the nature of the Welsh economy, but by definition that process will take a long time to work through. It is important to recognise that. My hon. Friend the Member for Blaenau Gwent (Nick Smith) is correct, therefore, about the need to ensure that this is not an abstract debate, because it impinges on the lives and realities of the people of Wales.

I hope that this will be the start of the ongoing debate that unquestionably we need to have. I also genuinely hope that if we are to have change, there will be a political consensus, not only in the House, but among our colleagues in the Welsh Assembly and many people in Wales, too. That is a desirable outcome to work for, and I hope that it will be achieved, but at the end of the day, whatever course of action is decided upon, our acid test must be: what is best for Wales and its people?

I welcome the opportunity to speak in this debate, which is an important debate—although that could have been questioned last night when I was out dining with colleagues. As some Members will realise, we are on a one-line Whip, but I was explaining to colleagues last night that the Welsh Members were on a three-line Whip and that I had to take part in a debate on the Silk commission. One of my colleagues looked at me in a slightly surprised fashion, before asking, “What has silk production got to do with Wales?” Unfortunately, if we talked about the Silk commission to most people in my constituency, apart from the two or three who contacted me about the remuneration of its members, most people would probably give the same response as my colleague, so we need to get out there and talk about the commission so that people can engage with the process.

I fully recognise the description given by my hon. Friend the Member for Monmouth (David T. C. Davies) of how devolution has developed in Wales. Too often, something has been asked for as a means to an end, because the Assembly has argued, “If we get a little more power, we will change the situation in Wales”, and time and time again, further power has been given to the Assembly, only for the complaint to be made that more power is needed. It is crucial, therefore, that we have a real public debate in Wales.

Is the hon. Gentleman reassured by the breadth of the commission and the fact that there are representatives of all four political parties? Is he also reassured by Mr Silk’s assurance that he intends to take the commission out to the different communities in Wales in order to reassure them and further advance the debate?

I am grateful for that intervention; it is an issue that I shall touch on later, but yes, I welcome the fact that the intention is to ensure significant public engagement. However, we have experience in Wales of public consultation in relation to the Assembly that resulted in a pint and a curry and very few people turning up. It is important, therefore, that we have proper consultation on the commission.

Some of the comments made by the hon. Member for Caerphilly (Mr David) need clarifying. We hear a lot from Opposition Members about the cuts being imposed upon the Welsh Assembly by the Westminster coalition Government, but often those cuts are not placed in any context—no recognition that we face a financial crisis or recognition of the £150 billion deficit this financial year. I do not blame all those things on the previous Labour Government, but to make those comments about the cuts to the Welsh Assembly budget without any recognition of the context is irresponsible.

My point is simple. Where there is demonstrable need, as in much of Wales, it is morally wrong for this Government, up here in London, to introduce cuts that will impinge upon the lives of ordinary, decent, hard-working people.

It is interesting to note that the Labour Government in Cardiff Bay were planning for 3% cuts per year for four years, yet, as we saw from the settlement granted by the coalition Government, the actual cut is in the region of 2% per year. That would be manageable in any small or medium-sized business in Wales, so I see no reason why it should not be manageable for the Welsh Assembly Government.

Some Members will have noticed that when the right hon. Member for Neath (Mr Hain) was commenting on the boundary changes, indicating, once again, that Wales was being extremely harshly treated, he refused more than once to allow me to intervene. The reason I wanted to intervene was that I was of the opinion that the hon. Member for Pontypridd (Owen Smith) had been promoted to the Opposition Front Bench as a result of his superb understanding of financial matters, because it transpires that he has written in a pamphlet that there is a need to reduce the number of Welsh MPs. However, the shadow Secretary of State for Wales argues otherwise, so now we understand why there has been a change on the Opposition Front Bench. The reason is simply because of disagreements between the two spokespersons.

I would merely ask the hon. Gentleman to clarify this reference, which he appears to have plucked out of thin air.

The reference is to a pamphlet to which the hon. Gentleman contributed that was quoted at length by Professor Wyn Jones in a recent article in Barn. If he has misquoted the hon. Gentleman, the hon. Gentleman can take it up with the professor, but that article has been printed in a taxpayer-supported publication in Wales, and I shall stick by my comments.

We need to ask ourselves a simple question: why are we here today? We are here because the Wales Office has delivered on the promise in the coalition agreement to establish a Calman-like commission to consider how the Welsh Assembly is accountable to the people of Wales. I accept entirely that the Assembly is accountable to the people of Wales because they elect its Members, as several hon. Members have said. However, every Member in the Chamber will also recognise that local authorities are accountable to the electorate because local councillors are elected; yet they are accountable through the council tax increases they impose as well. Therefore, it is certainly arguable that there is a need for some financial and fiscal accountability in how the Welsh Assembly operates. We should welcome the fact that the coalition Government have recognised the need to consider the issue. It is a strength of the coalition that we are willing to look at difficult questions and consider them at length.

Does my hon. Friend sympathise with companies such as those in my constituency that have said to the Silk commission, through us, “Please recognise that we are UK companies competing in the UK and global markets. We are proud to be Welsh, but we are UK-based companies when it comes to tendering for important work”?

I fully accept that. Indeed, I was recently at a CBI event in Flintshire at which exactly the same points were made, albeit not specifically in relation to the Silk commission, about how devolution has to work for Wales, while also recognising that small and large businesses—especially in parts of north Wales such as my constituency, where one can reach the English border in 45 minutes or less—must be treated equally to those across the United Kingdom. The commission that is being established will look into those issues. I would encourage businesses in my constituency and across Wales to engage fully, as I did to the CBI audience in Flintshire recently.

Does the hon. Gentleman agree that even though the commission’s terms of reference do not include the West Lothian question and the Barnett formula, it would be hard for the commission entirely to ignore them? It must proceed with some cognisance of the additional work being done across Government, because otherwise its conclusions may be aborted before they have even been published.

I thank the hon. Gentleman for what was again a thoughtful comment. It is recognised that there is a debate to be had on the Barnett formula between the Government in Cardiff and the Government in London. Where the Welsh Assembly wants to speak up on behalf of the people of Wales about the implementation of Holtham, that is the proper way to proceed. I welcome the fact that the coalition Government have announced movement on the West Lothian question. It has received a lot of attention in this debate, but when there was a Back-Bench motion on the West Lothian question, my hon. Friend the Member for Carmarthen West and South Pembrokeshire (Simon Hart) and I were the only two Welsh Members present. However, it is important to take the issue into consideration, because ultimately—I think it was the hon. Member for Alyn and Deeside (Mark Tami) who also said this—it is important that, for example, Members from north Wales should have a voice on health issues in England. As someone who is dependent on health services provided in Liverpool and other parts of England, I sympathise with that view. Another argument, however, asks why we should have a voice on the health service in England if we do not allow any English Member to have a voice on the health service in Wales.

As an English Member, and a member of the Welsh Affairs Select Committee, I recognise that problem. Does my hon. Friend acknowledge that the cuts being made by the Welsh Assembly Government are placing an extra burden on those parts of England whose health services are used by people coming from Wales? Does he agree that the commission should take that into account?

I agree with my hon. Friend; that issue is being brought into sharp focus by the health service cuts in Wales. We have heard a lot about spending the health pound in Wales, which is something that I generally welcome, but sometimes the expertise for those services happens to exist in Liverpool or Shrewsbury—

Or Worcester.

Indeed. In those circumstances, it is crucial to recognise that there is an issue that needs to be addressed.

There are other reasons why we should welcome the Silk commission. When the referendum in 1997 produced a narrow decision by the people of Wales in favour of establishing the Welsh Assembly, Ron Davies, the Secretary of State for Wales at the time, famously said that devolution was a “process, not an event”. The reason for welcoming the commission is that, for too long, the devolution process has been one that has been internal to the Labour party. It has been driven by a need to keep the Welsh Labour party united, rather than by a need to ensure that the people of Wales have the best possible governance.

One subject that has been mentioned in the debate is the legislative competence orders, which many of us had to endure in the Select Committee. Attempts were made to set them in stone as an illustration of good government, rather than the real devolution that some of us are committed to.

It could be argued that the legislative competence order procedures and the Government of Wales Act 2006 were very successful in the context of what they were supposed to do, which was to keep the Labour party united. In terms of providing for good governance in Wales, however, they were an absolute disaster, and recognised as such by the people of Wales. The 2006 Act was also a belated party political attempt to create a situation that was favourable to Welsh Labour. It could be argued that my hon. Friend the Member for Montgomeryshire (Glyn Davies) lost his Assembly seat as a result of the changes to the way in which Welsh Assembly Members were elected, as implemented by the Act. Those changes were made for internal Labour party purposes, not as a result of any demand by the people of Wales. Not a single individual in my hon. Friend’s constituency argued that he should lose his seat because of changes that had been implemented to keep the Labour party happy.

Does my hon. Friend also recall that those changes to the electoral system were introduced against the advice of the Electoral Commission?

Indeed; we should not be surprised by any of the actions taken by the Labour Administration.

The principle that brought about that change was quite simple. It was that an individual should not stand for two types of seat. Why should they have two bites of the cherry? That would be undemocratic.

The hon. Gentleman should be aware that the system was changed specifically as a result of pressure within Labour party. There was no call for such change from the Welsh public. It has been argued that change should be made as a result of demand from the Welsh people, and I recollect no such demand.

I am sure that the hon. Gentleman will recall that that kind of dual mandate was allowed in Scotland. In fact, if my memory serves me correctly, I think that there was a Minister who held that kind of mandate when he was in the Labour Government there.

I thank the hon. Gentleman for that contribution. I do not doubt that his comment is accurate.

Another reason for welcoming the announcement is that it creates a cross-party and non-party commission, which is something very fresh and new in the Welsh context. As I have said, however, it will not work unless the people of Wales take an interest in the issue. I would therefore stress that we, as Members, need to go out and persuade our own electorate to take an interest in the commission and its work.

A second reason why we need to welcome the commission is the fact that although there have been numerous commissions and inquiries into the powers of the Welsh Assembly Government and how it should work, the Silk commission is different because it has been created by the Westminster Government. The Holtham commission produced a superb piece of work. I have read the documentation, and the arguments in the research are persuasive, showing that Wales has for several years suffered a degree of unfairness in the funding provided by central Government. The degree of unfairness was not as great as was claimed by Plaid Cymru Members, but the main point—that the Barnett formula was unfair—was, I think, proven by the report.

The Silk commission is different and more advantageous. Because it is a commission established by the coalition Government in Westminster, the ability to act on its findings is stronger. We are still waiting for the Holtham recommendations to be implemented, but our ability to act on the findings of the Silk commission is clear, which is another reason why we should welcome its establishment.

I thank the hon. Gentleman for being so generous in giving way. Having praised the Holtham report, as I do, does he agree that in respect of the Silk commission, one thing that we do not need to wait for is putting a funding floor in place to protect the interests of Wales as we go forward? As the Secretary of State said, we could be expecting to receive the Silk commission report just before the next election, perhaps just after it or even a bit longer after it. If we got on with the Holtham recommendations and put the funding floor in place, we would at least be doing our job for our constituents right now.

I thank the hon. Gentleman for that intervention. Given that an intergovernmental approach has been applauded by the First Minister, it is imperative for him to get down to the Treasury as soon as possible to discuss the issue. We are often told that there is a respect agenda between Westminster and Cardiff. It is not therefore for us to say to the First Minister that he must act now, but I would certainly recommend that the discussions should start—and the sooner they start, the better.

Let me reassure my hon. Friend that the bilateral discussions on the Holtham floor are already taking place between the two Governments. It is quite right that those matters have been reserved for bilateral intergovernmental conversations.

I thank the Secretary of State, and I am delighted to hear that those discussions have already started. I take the view that the sooner they are concluded, the better.

I do not intend to refer to the quotation in the pamphlet now—I shall do so later, if I may, and perhaps seek to get it withdrawn. I am intrigued to hear the hon. Gentleman say that he thinks the discussions should conclude as quickly as possible. Do I take it that he will urge his right hon. Friend the Secretary of State to do just that—to conclude the negotiations as soon as possible and then to implement them? As my hon. Friend the Member for Ogmore (Huw Irranca-Davies) has said, we do not need to wait for Silk; we could have this now.

I am slightly surprised by that intervention, because I thought it was self-explanatory. The sooner the discussions between the Government in Cardiff and the Treasury are concluded, the better. [Interruption.] My understanding is that this is a matter for the Welsh Government and the Treasury. I am sure that the pressure is being brought to bear by my Front-Bench colleagues.

Will the hon. Gentleman give way on that point?

Once again, yes.

I am genuinely trying to be helpful. I think the hon. Gentleman is saying that he would support the principle of the Holtham commission— that there should be a funding floor at this time. I understand what he says about the respect agenda. As a strong pro-devolutionist myself, I say that the respect cuts both ways. If parliamentarians like the hon. Gentleman and my hon. Friends were to express our clear opinion today, it would help our Welsh Assembly Government colleagues and the First Minister to come to a rapid conclusion, while also assisting the hon. Gentleman’s Front-Bench colleagues.

I thank the hon. Gentleman for his intervention. For clarity, let me say that I am previously on record as stating that the Holtham report was persuasive, and the sooner the recommendations were implemented the better—recognising, of course, the financial constraints faced by the Westminster Government. I hope that fully clarifies the matter.

Before I turn to the detail, let me say that when we talk about the process of devolution in the Welsh context, there is often a misunderstanding about exactly what the people of Wales are saying. Many Members will claim that the result of the referendum in March was a clear indication of the will of the people of Wales. Like many of my colleagues, I was surprised by the extent of the support for change, but it must be said that that change happened on the basis of a comparatively low turnout. I am not one to argue that those who do not turn out have an equal voice: democracy means that people must take part in order to ensure that their voices are heard. However, I think it should concern all of us who want to ensure that we have an Assembly that works for the benefit of the people of Wales that only 35% or 36% of the Welsh population turned out to vote in that referendum.

There is currently a disengagement with the political process in Wales, which, unfortunately, is more pronounced in relation to elections to the Welsh Assembly than it is in relation to Westminster elections. For example, I was elected to the Aberconwy constituency on a turnout of 70%, one of the highest turnouts in any Welsh constituency for a Westminster election. The turnout for the Assembly election was about 40%. Those who argue that the voice of the people of Wales was heard clearly back in March are actually arguing that a turnout of 35% and a yes vote of 60% constitute a clear democratic mandate. They do not. A great deal of work remains to be done to persuade the people of Wales that the Assembly is working on their behalf, and I think that the commission will have an opportunity to engage with them.

Other myths are being peddled by those who do not support the Assembly. There are plenty of them in Wales, and they tend to hear what they want to hear. They say that when they mention the Assembly, people complain that it is not delivering on health. I think that that is true, and it is a complaint that we hear on the doorstep. They say that people also complain that educational standards in Wales are extremely poor in comparison with those in England and many other parts of the European Union. I think that that is true as well, and again we hear about it on the doorstep. However, I believe that the enemies of the Welsh Assembly often misunderstand complaints about its performance. They consider those complaints to be an indication that people are fed up with the Assembly and do not want it, but I do not agree.

I think that the people who complain are not dissimilar to a mother who criticises a badly behaved son or daughter. The mother will be more than happy to complain about the behaviour of that son or daughter, because after all she has a right to do so, but when she hears someone else complain about it, she immediately goes on the defensive. I think that the same applies to the attitudes of people in Wales towards the Assembly. Yes they criticise, yes they complain, but ultimately there is a feeling—which I think those who are unhappy about the Assembly must take on board—that it is “our” Assembly. Perfect? No, it is not. Could do better? Undoubtedly. But there is, I believe, an acceptance that it is the Welsh Assembly, and I think that those who are unhappy about the way in which it is developing should engage in the process that we are discussing to ensure that we have a better performing Assembly to serve the people of Wales.

The first part of the Silk commission’s work will relate to fiscal responsibility—an issue that I believe we should consider seriously. Yes, the Assembly has a responsibility to answer to the people of Wales, and yes, its members are elected by the people of Wales, but ultimately we need a degree of accountability for fiscal decisions. Time and again during the 18 months for which I have been a Member of Parliament, we have heard members of Opposition parties criticise the cuts being made at Westminster, and we have heard Assembly Members criticise them as well. It is easy for them to make such criticisms: there is no need for them even to think about the deficit, because it is not the Assembly’s responsibility. The cuts being made in Wales—which are much lower than expected, and lower than cuts in many other parts of the United Kingdom—are being made in a context, and the problem with the current set-up in the Welsh Assembly is that that context is missing from its debates. That is why I think we should think about fiscal responsibility.

Welfare reform provides a useful analogy. The changes proposed in the Welfare Reform Bill, which has completed its passage through the House of Commons and is currently in the other place, are built on the concept of giving people who receive state benefits a degree of accountability and responsibility. There is a difficult argument to be had. I have been talking to housing associations in my constituency about the importance of ensuring that housing benefit is paid directly to claimants, to enable them to have the same respect and dignity as any other member of society in terms of paying rent and taking responsibility for their financial position. The same responsibility should apply to Governments. After all, the smallest community council in my constituency will raise local taxation, and I see no reason why the Welsh Assembly should not have the same degree of responsibility and accountability.

Having said that, it is important to point out that there are difficulties. The right hon. Member for Delyn (Mr Hanson) is no longer present, but he made an important point about people commuting across the border to work in jobs in north Wales. One of the jewels of the Wales economy is the Airbus factory in Broughton, which is committed to apprenticeships and training, and giving young people from north-east Wales genuine employment opportunities. We should be proud of that, and we should also be proud of the support Broughton has received from the Welsh Assembly, but we cannot deny the fact that many of the workers at Broughton travel in from England—or that many of the workers at the Ellesmere Port factories producing Vauxhall cars travel in from north-east Wales.

I am slightly disappointed that the hon. Gentleman and other Members seem to think of such cross-border traffic as a problem. As I have already said, a Welsh Affairs Committee report acknowledged that there were some problems, but noted that in general the arrangements were working quite well. To give just one example, more people from England are registered with GPs in Wales than vice versa. There is a technical reason for that, by my point is that cross-border travel need not be a problem.

The hon. Gentleman is mixing up the question of fiscal changes, which is what we are discussing, with the issue he raises about GP surgeries. The fact that Northern Ireland has an uncompetitive tax regime compared with that of the Republic of Ireland is a huge political issue, and it is also well known that the republican factions in Northern Ireland have financed themselves through smuggling operations because of the different rates of duty on petrol.

I do not want to overstate this issue, but we should take it seriously. I am sure that we can successfully address it, and the Silk commission has been set up precisely to examine such matters. Members of Plaid Cymru often refer to the Holtham report as a document that is beyond criticism, and it highlights this issue in some detail. I think the Silk commission needs to look into it and come to a conclusion.

On fiscal responsibility, I was intrigued by an article in today’s edition of The Western Mail. I do not read The Western Mail often—after all, I am a north Walian, and we tend to read the Daily Post up in north Wales—but in that article it appears that the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) said that he did not support fully devolving fiscal responsibility and tax-raising powers to Wales at this point in time, as he thinks that would be inappropriate.

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I agree with that; I think it would be inappropriate. We know that there is a huge funding gap between the amount of money raised in taxes in Wales and the public expenditure in Wales. I would therefore ask the hon. Gentleman whether he disowns the policy of his party, which is to call for independence—a policy that I am pleased to say the party never advocated when I was a member of it.

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The question of fiscal responsibility does raise issues, therefore. [Interruption.] I was under the impression that honesty in this Chamber was appreciated. There are issues that we need to consider.

On a point of order, Mr Deputy Speaker. Do you agree that when a Member mentions another Member, it is usually proper for the Member mentioned to be able to respond?

That is not a point of order, as the hon. Gentleman knows, but it is a customary courtesy in this House that if a Member mentions another Member they then give way to them. That is up to the Member concerned, however.

I did not notice that the hon. Member for Carmarthen East and Dinefwr was seeking to intervene. Earlier, I spoke with him in the Tea Room and told him I would be making that comment, and I would be delighted to take an intervention from him.

I thank the hon. Gentleman for his courtesy in giving way. As a former Member of my party, he will know that independence for our country is an aspiration, but that does not mean that we want it tomorrow. One reason for gradually devolving fiscal powers is to empower our economy to be strong enough to achieve that ambition.