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Commission on Devolution in Wales

Volume 570: debated on Monday 18 November 2013

Since the general election, the Wales Office has made investment in infrastructure its No. 1 priority to deliver growth in the Welsh economy. This Government have already committed over £2.25 billion to new infrastructure that will benefit Wales, directly or indirectly. We are spending almost £2 billion to modernise the rail network, including electrifying the Great Western main line to Swansea and the railways serving the south Wales valleys. We are investing £250 million to build a new prison in north Wales that will create up to 1,000 new jobs and require a supply chain that will bring an estimated £28 million a year more into the local economy. We have also committed £57 million to bring superfast broadband to Wales, a key element of a modern infrastructure network. Alongside that, Hitachi’s investment in new nuclear at Wylfa Newydd is a great opportunity to create jobs and drive economic growth across north Wales.

Earlier this month, I confirmed in a written statement to the House that we would enable the Welsh Government to use their existing borrowing powers to start work as soon as possible on the sorely needed upgrade to the M4 around Newport, tackling the congestion that my right hon. Friend the Prime Minister has described as

“a foot on the windpipe of the Welsh economy”.

Today, in making our full response to the Silk commission’s recommendations, the Government are unveiling a new and extensive package of financial powers that will be devolved to the National Assembly for Wales and the Welsh Government. I would like to commend my right hon. Friends the Chancellor and the Chief Secretary to the Treasury, and Jane Hutt, the Welsh Minister for Finance, for the positive and collaborative approach taken in agreeing this package of powers, which demonstrates the strength of the United Kingdom, and the flexibility and adaptability of devolution within our Union.

The Silk commission made 33 recommendations, 31 of which were for the Government to consider. Today we are accepting, in full or in part, all but one. We are devolving many new financial powers to the National Assembly and the Welsh Government, potentially giving the Welsh Government control over more than £3 billion of tax revenue, with commensurate levels of borrowing. We are providing the Welsh Government with additional tools to invest in the areas they are responsible for, to enable them to upgrade Wales’s infrastructure and help to quicken the pace of economic growth. This will facilitate the improvement of Wales’s deteriorating road network—not only the M4, which I have mentioned, but the other key Welsh trans-European route, the north Wales expressway.

The devolution of tax and borrowing powers will also make the Assembly and the Welsh Government more accountable to the people of Wales who elect them. Since devolution, the Assembly and the Welsh Government have been accountable only for how they spend taxpayers’ money; they will now become more accountable for how they raise it. The Government’s response to the Silk commission’s first report builds on the announcement made by the Prime Minister and the Deputy Prime Minister earlier this month, and sets out in detail the devolved financial powers we are giving to the National Assembly for Wales. We will give Welsh Ministers borrowing powers, so they can invest in the capital infrastructure I have described. We will devolve landfill tax and stamp duty land tax in Wales, ensuring that the Welsh Government have an independent funding stream to pay back the money they borrow.

We will also provide for a referendum to take place, so that people in Wales can decide whether some of their income tax should be devolved to the Welsh Government. Subject to the approval of the people of Wales in a referendum, we will deduct 10p from each of the main UK income tax rates in Wales, with the Welsh Government able to set an unrestricted Welsh rate of income tax for all Welsh taxpayers. This is consistent with the system being introduced in Scotland and will increase the accountability of the Welsh Government, while avoiding significant risks to UK revenues that would result from different Welsh rates for each band.

We will also fully devolve non-domestic business rates raised in Wales, so that the Welsh Government budget benefits more directly from growth in Wales; enable the National Assembly for Wales to create new taxes, with the UK Government’s consent; and devolve the tools to manage these new powers. A cash reserve will be created that the Welsh Government can add to when revenues are high and utilise when they are below forecast. We will also provide the Welsh Government with limited current borrowing powers to deal with shortfalls if their cash reserve is insufficient.

I was pleased that Carwyn Jones, the First Minister of Wales, welcomed the Prime Minister and Deputy Prime Minister’s announcement earlier this month. This package of powers gives the Welsh Government additional tools to invest in Wales to rejuvenate the Welsh economy, which has languished behind the rest of the United Kingdom for far too long. This package will make the Assembly and the Welsh Government more accountable to the people they serve and place important taxation levers in the hands of the Welsh Government, which, if used wisely, can help to make Wales a more prosperous place. This is a once-in-a-generation opportunity for Wales. I hope that the Welsh Government will rise to the challenge and look beyond the M4 to invest wisely and strategically across the whole of Wales. I will place a copy of the response in the Libraries of both Houses, and I commend this statement to the House.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

May I congratulate Paul Silk and the Silk commission on the excellent work they have done on part I? May I also heartily congratulate my right hon. Friend on his excellent response to this thoughtful piece of work? I am pleased that he has taken time in responding, because it is the right response. I am particularly delighted with the extension of borrowing powers. He will be familiar with the fact that the Welsh Assembly Government have always made excuses about why they could not improve the M4 and the A55. Does he agree with me that we should have a start-date for those improvements this week from the Labour Government down in Wales?

May I, in turn, commend my right hon. Friend on the hard work she carried out in setting up the Silk commission in the first place? I would also like to repeat the thanks I gave in my response to the Silk commission’s recommendations for the hard work carried out by Paul Silk and his commission. The truth is, indeed, that responsibility for the maintenance and upgrade of those major routes always lay with the Welsh Assembly Government. They have in the past acknowledged that the cost of that was difficult to meet within their budget. We could not allow the deterioration of those major routes to continue indefinitely, and I therefore hope they will proceed swiftly with the upgrade of both those routes. I am pleased to see, however, that they are already consulting on the upgrade to the M4.

Timeo Tories et dona ferentes, as we say in Newport. Are the people of Newport and Wales right to be cautious about Tory promises, particularly in the light of the very small share Wales has had of the Olympic legacy? Although it was promised a larger share, it is on protozoan level. Can we have a guarantee from the Government that if the Welsh Assembly Government implement these measures, it will mean fair funding, not a continuation of underfunding?

Well, we clearly have another representative of the Eeyore tendency in the hon. Gentleman. All I would say is that his concern is not shared by the Welsh Government who, I repeat, have said very strongly that the announcement

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

I, too, congratulate the Secretary of State on his statement today. We are very pleased that there is a consensus in the Welsh Assembly about the proposals. May I add that I hope that that consensus can spread to this place as well and that best advantage can be made of the proposals?

Indeed, all parties in the Assembly have welcomed the announcement. The only exceptions appear to be the hon. Ladies and hon. Gentlemen on the Opposition Benches. It is essential that all parties work together in order to get a referendum as quickly as possible, so that Wales can get the tax-raising powers it needs to give it a competitive edge.

May I thank the right hon. Gentleman for advance sight of his statement? I also congratulate all the members of the Silk commission on the very hard and conscientious work they undertook in the past 12 months or so. I think today’s statement is something we can build on; with a little ambition, we can improve the lot of the people of Wales, rather than look for problems with it. I would like to ask one or two brief questions, however. When will the UK Government set out the clear detail on borrowing limits? Will there be separate borrowing powers from those set aside for funding the M4 relief road without the partial devolving of income tax, and will the borrowing deal to fund the M4 relief road contribute towards an overall borrowing limit?

It is indeed contemplated that further borrowing powers will be conferred on the Assembly Government, although that will depend very much on the income stream that is available to fund that. Certainly, if there were a positive vote in the referendum on income tax, there would be that much more scope. As far as the M4 is concerned, negotiations between the Treasury and the Welsh Government are already well under way to work out the detail of how those powers will be applied.

Today is truly an historic day, and it is great to hear these announcements from a Conservative Secretary of State. Given Her Majesty’s Revenue and Customs’ recent assessment that the average per capita tax take in Wales is 25% less than in the UK as a whole, the only appropriate movement for income tax in Wales must surely be downwards.

I agree entirely with my hon. Friend. I repeat that the difference between Labour and the Conservatives is that we are ambitious for Wales, whereas Labour seems to think that Wales should be a supplicant nation for ever more. The best way to increase the economic success of Wales is to ensure that it has a competitive edge, and I believe, as does my hon. Friend, that that purpose will be best served by reducing the rate of tax.

The Secretary of State will know that many thousands of my constituents work in the city of Chester, in Eddisbury, in Manchester, in Liverpool and in Ellesmere Port. Similarly, thousands of people from all those constituencies work in my constituency in Flintshire. Has he thought through properly how the income tax-varying power might work in practice? What consultation on this matter does he intend to undertake with businesses on both sides of the border?

As the right hon. Gentleman knows, 12 months’ thought has been put into this exercise. Over the years, Wales has grown progressively poorer compared with the rest of the United Kingdom, and I hope that he will welcome and support our giving it a competitive edge through a beneficial rate of income tax. Also, he knows that it is easy to move from one side of the border to the other. That is another reason we had to think carefully before doing anything that might unbalance the economy of that important part of the world.

I greatly welcome the work of Mr Paul Silk and his commission. I also welcome my right hon. Friend’s statement as an exciting step forward for the devolution process in Wales. If meaningful fiscal accountability is to lie with the Welsh Government, it is crucial that responsibility for a significant proportion of income tax should be devolved. Does my right hon. Friend share my hope that all the political parties in the Assembly and here in Westminster will enthusiastically support the campaign for a yes vote in the referendum?

My reading of the situation is that the Conservative and Liberal Democrat parties will certainly campaign in that way, and I imagine that Plaid Cymru will do so as well. I am not so certain about the Labour party, however, although I hope that it will be bold and ambitious for Wales.

I should like to press the Secretary of State on a detail that seems to have been omitted. Under the Scotland Act 2012, the Scottish Government can borrow up to 10% of their capital budget, up to a maximum stock of £2.2 billion. I believe that the relevant figure for the financial year 2014-15 will be £230 million. Will the formula be the same for the Welsh Government?

We certainly propose to use the Scotland Act as a model, but these matters require further negotiation, and further details will emerge in due course.

The Secretary of State’s statement referred to the investment of £250 million to build a new prison in north Wales. May I urge him to have urgent discussions with his colleagues in the Ministry of Justice to make sure that from the moment it opens it is a completely drug-free establishment?

The Secretary of State has described Opposition Members as Eeyores, so I will try to be a bit more like Tigger—a bit more optimistic—as long as he does not pooh-pooh this question. May I ask him for some more accuracy on when he expects the discussions between the Treasury and the Finance Minister in the Assembly Government to have concluded on the borrowing powers that will allow the M4 relief road to go ahead, releasing £2.1 billion into the south Wales economy?

I am glad to see the more upbeat attitude of the hon. Gentleman. Those negotiations are continuing and, knowing both individuals involved—the Chief Secretary to the Treasury and the Finance Minister in the Welsh Assembly Government—I have no doubt that they have every intention of concluding them as quickly as possible.

I congratulate the Secretary of State and Paul Silk on this excellent work and the statement. The Secretary of State is right not to take the advice in the puny and unworthy response of the official Opposition, but I urge him to give a good answer on the following matter. Some of us have shared economic interests across the border; as has been said, many people on either side of the border commute. Whether we are talking about the Wrexham industrial park in north Wales and the economic basis, or the Environment Agency and the river catchment areas, there is an absence of accountability—those living on the “wrong” side of the border in England cannot hold anybody in Wales to account for their decisions. At the moment, there is an absence of democratic legitimacy. Will he provide an answer on that point?

My right hon. Friend raises a fair point, which has been made on many occasions. The devolution settlement, as currently constituted, does lead in some cases to a democratic deficit. These matters were raised on several occasions with the previous Labour Government. At the moment, my right hon. Friend is best served by finding a friendly Assembly Member who will raise the issues that are of concern to his constituents but which relate to matters on the Welsh side of the border. On the basis of the current devolution settlement, that is the best answer I can give.

The Secretary of State says in his statement that the National Assembly for Wales will be allowed to create new taxes with the consent of the UK Government. How does he envisage that process developing? Will the Chancellor of the Exchequer, rather than the Welsh Assembly, be deciding the tax regime in Wales?

I am sure that the hon. Gentleman would understand that any new taxes would need to be constituted in such a way as not to unbalance the national economy, but the response that has been given to the Silk report makes it clear that, subject to that consent, the Assembly Government will be in a position to create new taxes.

My right hon. Friend will be aware that in the Chester area the Anglo-Welsh border goes through the middle of housing estates—it goes through an urban area—and on one side of the road people are in England and on the other side people are in Wales. Significant differences in tax rates either side of the border could lead to significant strains on the local economy. What consideration has the Department given to trying to ameliorate those strains?

I am well aware of the points my hon. Friend raises. It was for the very reason he mentions that further consultation was undertaken on the proposed devolution of stamp duty land tax; it was ultimately felt that, as a capital tax, a balance would naturally be struck. There is no doubt that were income tax to be devolved, there might be some impact overall, but in terms of the local economy I would imagine that the same people would live very close to one another, albeit on different sides of the border.

Like everybody else, I support the proposals. However, I hope that my constituents are not watching this session, because all they will be thinking about is the cost of living crisis in Wales. Hundreds of thousands of families are worrying about whether they will be able to heat or eat this winter, and yet here we are again fiddling around with the constitutional settlement. Our constituents want us to deal with the real issues that matter to them. I suggest that we get rid of the idea of having a referendum and that we spend the money instead on keeping open the Porth and Treherbert libraries.

I am afraid that I cannot speak on behalf of the users of the Porth or the Treherbert libraries. Those are matters for the hon. Gentleman’s colleagues in the Welsh Assembly Government. None the less, those are important matters. The recommendations have been widely welcomed by all parts of the political spectrum, except of course by the hon. Gentleman.

I have the greatest respect for the high office of state that my right hon. Friend holds and fills with such distinction. Wales has a Secretary of State and England does not. I fully support his efforts to devolve income tax rates to Wales and to create a competitive tax economy in Wales, but will he ensure that the administrative costs of the Wales Office are met entirely by Welsh taxpayers?

Over recent months, the Tories in the Senedd and the Liberal Democrats have pledged to alter individual tax bands should they form the next Welsh Government. Would not those specific pledges be undeliverable due to the lockstep that the Secretary of State has announced today?

One solution to the problem raised by Conservative Members from constituencies near the border is to extend the Welsh border eastwards. Ludlow used to be the administrative capital of Wales—[Interruption]as was Oswestry.

There are plenty of suggestions. If that is not within the powers of the Secretary of State, perhaps he could consider once again a more flexible approach to the level of bands of income tax under his proposals.

That is a very attractive proposition. In fact, Terfyn in Cheshire derives its name from terfyn, which means a border, so perhaps that is something that we should press. However, we have given careful consideration to this matter and believe that the lockstep proposal is the best way forward.

After listening to the Minister’s statement, the question that looms large is whether he is proposing tax competition between different parts of the United Kingdom.

That would certainly be attractive in many parts of Wales. Of course, in Scotland, that is precisely what is available.

Will the Secretary of State elaborate a little on the case-by-case process for establishing new taxes to which he referred earlier? He and I served on the Welsh Affairs Committee. I hope that he is not proposing the ghoulish resurrection of the legislative competence order process.

Certainly not. I would imagine that, in most cases, those would be issues for negotiation between the Welsh Finance Department and the Treasury.

Wales is currently underfunded to the tune of £300 million. Why does the Secretary of State for Wales not come forward with a fair funding formula?

The hon. Gentleman will know that in October 2012 the Welsh Finance Minister, the Chief Secretary to the Treasury and I announced new arrangements in Cardiff, which ensured that if there were any issue of convergence, there would be further negotiations between the Welsh Finance Department and the Treasury. [Interruption.] We believe that Barnett certainly is coming to the end of its life. The issue is to rebalance the economy, which was left in such an appalling condition by the Government of whom he was a member.