CORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 371-viii

House of commons

oral EVIDENCE

TAKEN BEFORE THE

Political and Constitutional Reform Committee

Do we need a CONSTITUTIONAL convention for the UK?

Thursday 17 January 2013

Paul Silk and Professor Noel Lloyd CBE

Evidence heard in Public Questions 460 - 525

USE OF THE TRANSCRIPT

1.

This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.

2.

The transcript is an approved formal record of these proceedings. It will be printed in due course.

Oral Evidence

Taken before the Political and Constitutional Reform Committee

on Thursday 17 January 2013

Members present:

Mr Graham Allen (Chair)

Mr Christopher Chope

Paul Flynn

Sheila Gilmore

Fabian Hamilton

Mrs Eleanor Laing

Mr Andrew Turner

Stephen Williams

________________

Examination of Witnesses

Witnesses: Paul Silk, Chair of the Commission on Devolution in Wales, and Professor Noel Lloyd CBE, Member of the Commission on Devolution in Wales, gave evidence

Q460 Chair: Welcome, please come and join us. Paul, what is it like to be back in your old stomping ground?

Paul Silk: I never stomped in this room!

Chair: Very good to see you and many congratulations on your report, by the way. Paul and Noel, welcome. We are discussing a view that I think many people are catching up with in politics, which is the question, "Do we need a constitutional convention for the UK?" It needs to be answered given what is happening in Scotland in particular, but also given the contribution that you and your colleagues have made in producing the report from the Commission. Does there need to be an over-arching view now of devolution and some of the questions arising from that, not least the English question? There are also some fascinating proposals in terms of financing this in a relatively pain-free way, which would have positive implications for all the four nations within the United Kingdom. We are very pleased that you could spare the time today to come and see us and give some evidence. Would you like to make an opening statement, Paul or Noel?

Paul Silk: Perhaps I could just explain the genesis of the Commission if that is helpful. In Scotland, the Scottish Government of the time and the Scottish Parliament set up the Calman Commission that reported back in 2008, I think. In the Coalition agreement there was a commitment to have a Calman-like process in Wales and we are the outcome of that; known as "ap Calman" at one time, the Calman-like process for Wales. We were asked to do two things. We had two separate orders of reference. We reported on the first in November of last year and that was to look at the case for the devolution of fiscal powers to the National Assembly. As I said, we reported on that in November and we are due now to consider the second part of our remit and report on that in the spring of 2014, and that is to review the powers of the National Assembly in the light of experience and to recommend modifications to the present constitutional arrangements to enable the United Kingdom Parliament and the National Assembly for Wales to better serve the interests of the people of Wales. That is what we are engaged in at present. We have just sent out our call for evidence. We have not begun considering the second part of our remit but, as you know, we have reported on the first part.

I would just say one other thing about one important difference between us and the Calman Commission. The SNP was outside the Calman Commission; in our case we had all four parties represented in the Assembly and in the House of Commons as members of the Commission and that, I think, added immeasurably to our work and to the strength of the recommendations we made. We had all four parties as well as three independent members of the Commission for the first part of our remit. We now have four independent members of the Commission. Noel is one of those independent members and was a member both for part 1 and for part 2.

Chair: Noel, do you want to say anything on that?

Professor Lloyd: I felt the Commission worked very well as a group. Our report was a unanimous one, as you know, and I think we were very careful in looking at the evidence that was submitted to us. It was entirely a good experience to be part of it.

Q461 Chair: Paul, would you agree that, in a sense, some of what you are proposing means that Wales is following on from a precedent set for Scotland in the Scotland Act 2012, where there is a movement from a block grant to a mixture of block grants and an assignment of income tax, a retention of income tax, certainly in Scotland. Is that your proposal in Wales?

Paul Silk: We were very careful at the beginning of our work to say that we were going to look at solutions that were appropriate for Wales. There are differences between Wales and Scotland, not least that the number of people who live close to the English border in Scotland and the Welsh-English border are quite different proportions of the population, and we had to look at things that suited Welsh interests.

Having said that, many of the proposals that we made in our report are very similar to or identical to the proposals made by Calman and enacted in the Scotland Act 2012, but there were differences. There were differences in our proposals about income tax from what was enacted in the case of Scotland and we felt that was appropriate to reflect the needs of Wales. In many ways we did follow what happened in Scotland. It was useful that Scotland had gone before and provided a template and a precedent for us, but we did not feel that we were restricted by that.

Q462 Chair: Is there anything that would stop England following a precedent set in Wales and Scotland?

Paul Silk: Since we were considering Wales that was something we did not consider. We had quite enough on our plate thinking about the interests of Wales to consider the interests of England, but if England had devolved government in some way, I imagine that what applies in Scotland, and we hope will apply in Wales, could equally apply in England. Of course, we do not have devolved government in England.

Q463 Chair: Although we do have local government. Now I need your help on the mathematics. In Wales, if the Welsh Government retained the product of a 10 pence income tax band, as indeed is the commitment in Scotland, I understand that to mean that about 40% of the Welsh income tax would be retained for disposal by the Welsh Assembly. Am I right so far?

Paul Silk: As soon as you mention mathematics I ought to tell you that my colleague Noel is an academic mathematician with a speciality in very large numbers. Yes, you are broadly right. Perhaps Noel will want to come in on this, but in our report we say that if our proposals are to devolve 10 pence from each band of income tax are adopted, that would yield £2 billion, which is about 40% of the income tax take in Wales. Together with the other smaller taxes we recommend for devolution to Wales and if you include council tax and business rates, it would amount to 25% of the tax taken in Wales. That is the amount we would propose.

Chair: It would amount to 25% of spending in Wales, rather than tax take?

Paul Silk: Yes.

Q464 Chair: Okay. Just to read across to Scotland, the comparable figures are that if 10 pence were retained from each of the income tax bands for Scotland, which is going to happen in 2016, taken with the other taxes, like council tax, that will be retained, it would meet one third of Scotland’s requirements. Half of that, in other words one sixth, would be the retention of income tax in Scotland. I am just trying to get these big figures in my head.

Paul Silk: I am not familiar with the figures for Scotland, sorry. I can’t confirm that.

Professor Lloyd: We have the figures for Wales in the report. For the figures for Scotland, we would have to defer to others.

Chair: Would it be possible to drop us a note if you have a chance to talk to your colleagues about it?

Paul Silk: Yes1.

Chair: I do not want it down to the last penny but just to give members of this Committee a sense that if there is an assignment or retention of income tax in Wales, it would meet, with other taxes, about a quarter of the expenditure, and in Scotland it will meet about a third of their expenditure as it stands at the moment, without any variance in rate.

Paul Silk: This is set out in our report in table 9.1 and the paragraph that comes after that, but we will try to establish what those figures are as far as we can for Scotland and let you know.

Professor Lloyd: On the assumption of no variance in rate, as you say.

Q465 Chair: Yes. There is no proposal to change the method of collection through HMRC? We would still be paying our tax as now?

Paul Silk: I think what is happening in Scotland is that there is a discussion about whether there should be a Revenue Scotland established. In our proposals we leave open the question of whether HMRC would be responsible for this or not. Since HMRC has all the equipment in place at present it might not be prudent to move away from HMRC in the case of Wales, but we leave that as an operational matter for agreement between the UK Government and the Welsh Government. It is not something we reported on.

Q466 Chair: The name over the door of some of the offices might change, but in fact the method of collection, what appears on your wage slip, would be precisely the same as it is at the moment?

Paul Silk: For income tax, that would be the sensible way of doing it. For the other taxes, for example stamp duty, it might be that a different method of collection would be more efficient and I think that is what is being studied in Scotland at present.

Q467 Chair: It is all about transparency and accountability, in this case letting the Welsh people know that this amount of expenditure goes on their spending programmes.

Professor Lloyd: Absolutely. Accountability was the watchword.

Paul Silk: Yes. You were going to talk about our principles, I think.

Professor Lloyd: Yes, I was. We established a number of principles right at the beginning. Accountability was one of them, and empowerment, which appears in the title of the document. Incentivisation we felt was an issue as well, so that a Welsh Government has responsibility for collecting some of the taxes as well as spending them. Equity was the other one. In doing that, we looked at international comparisons, not just in Scotland and Northern Ireland but on a much wider basis, to learn from experience elsewhere. Not to follow in any sense slavishly, obviously, because we were looking at a particular set of circumstances in Wales within the UK, but I think those international comparisons are important when you look at what is possible and what is current thinking elsewhere.

Q468 Chair: The income tax system will stay as is and the collection will stay as is, but to aid accountability did you consider letting Welsh taxpayers know on their wage slips or their salary slips that, "Yes, this is still the income tax but, by the way, 40% of the income tax is going to be spent a little more directly; still on the same services but more directly by the people that you have elected in your Assembly"?

Paul Silk: Yes, we did and we recommended that.

Q469 Chair: How would that work?

Paul Silk: I believe there are proposals in the last Budget to have more information sent to taxpayers about how income tax is spent. We would envisage that as something that would be replicated in the system that we had in mind so that people would be aware how much of what they were spending in income tax was being spent by the Welsh Government rather than being spent by the Government in London.

Q470 Chair: This is about clarity, not hypothecation?

Paul Silk: It is about clarity and people being more aware and, through that awareness, the Welsh Government being even more accountable than it is at present. I think we were very clear in our minds that the Welsh Government was already accountable. We heard from some people who felt that it was wrong to imply that the Welsh Government was not accountable; we would not want to do that in any sense, but we felt that if they are also responsible for raising their revenue rather than simply spending their revenue then that enhances the level of accountability that they have.

Professor Lloyd: It enhances the level of accountability and transparency, but also it gives empowerment to the Welsh Government.

Q471 Chair: Finally, if a rate of 10% of the income tax is levied by Scotland, that would mean no change to the UK rates. If 10% was levied by Wales, that would mean no change to the UK rates, unless at a future point someone wished to change it by agreement. As far as I can tell, you do not think there is anything in the water in England that would preclude the English from doing something along similar lines.

Paul Silk: Our proposal is that 10 pence should be taken off each band of taxation in Wales and, of course, there would be a commensurate reduction in the funding through the Barnett formula and then it would be for the Welsh Government to determine whether it reimposed 10 pence or imposed a different amount. Under our recommendations-this is one of the differences between us and Scotland-the Welsh Government could impose different amounts on the different bands. What a taxpayer in Wales would pay might be different or might be the same as a taxpayer would be paying in England.

Q472 Chair: I suspect the politics of this are that people would want to do precisely what already existed in terms of the tax band because there would be a natural inclination to establish and bed in the concept, rather than slash or increase taxation. I guess stability would be important.

Paul Silk: We are clear in our report that we do not recommend anything about this. We recommend that the power should be given to the Welsh Government, but we do not recommend how they should use that power. That is the empowerment that we see as an important part of our recommendations, but I think you are right in saying that it seems, from all I understand, very unlikely that a Welsh Government would radically alter the levels of taxation in any band because of the consequences that might flow from that; not least, as I mentioned before, the amount of the population who live close to the Welsh border. One would not want to have tax-related migration flows across the border.

Q473 Stephen Williams: Could we just go back to the first principles about the mindset of your Commission? We have taken evidence in this long-ranging inquiry from quite a lot of people who have been involved in various aspects of Scottish devolution, including Canon Wright who was involved in the first Scottish convention. One of the questions I put to him was, "How could you be sure that your Commission represented the will of Scotland given that some of the political parties were outside it and essentially looked from the outside as though it was a coalition of the like-minded who had probably already made their minds up they were going to arrive at a predetermined conclusion?" Your Commission does seem to have the full set of mainstream political parties in Wales, but are you confident that your Commission members were not also in the same mindset as the Scottish convention-that they wanted devolution of fiscal powers and were trying to concoct a justification for arguing that position?

Paul Silk: As I said before, the fact that we had all four parties as members of the Commission was enormously advantageous to us, but you are right in saying that there is that strain of thought in Wales. There is an organisation called True Wales and I think True Wales, if they were giving evidence to you, would say "Well, the Commission on Devolution would have said that, wouldn’t they, because they all have exactly that mindset." There is a strain of thought in Wales that has been critical of what we have concluded, but we made it our business first of all to go around Wales; we had 28 meetings all over Wales. We met at least once in every local authority area in Wales. We had open sessions where members of the public could come. We did not always have large numbers at those sessions, but every community councillor, county councillor, was asked to attend one of those sessions. We felt that we had done as much as we could to reach out to people so that they could contribute to what we did. We also commissioned an opinion poll by ICM, which gave us some confidence that the recommendations we made have support from a majority of the population in Wales.

Professor Lloyd: Could I just say that, certainly as one of the members-but I think it is true of all the members-we went into this exercise with an open mind. We invited evidence. We looked at everything that was submitted to us, the views conveyed at the meetings that we held throughout Wales and the opinion poll, and our task was to look at what was presented to us and come to conclusions with no pre-set views or agenda whatsoever.

Q474 Stephen Williams: But is it fair to say that there is now a consensus among the four parties who were represented in the Assembly then that they are hungry to get their hands on fiscal levers?

Paul Silk: I was very pleased that before Christmas the Assembly unanimously passed a resolution calling for the full implementation of our recommendations. That is a pretty good indication that the four parties in the Assembly support what we are proposing.

Q475 Stephen Williams: Was what your Commission doing then effectively implementing what was likely to be the will of the Assembly members but given in some academic, social justification, but also sifting through the various taxes and basically saying, "It would be sensible for this tax to be devolved or partially devolved but not for that one"? Was it a sort of sifting exercise and was there a range of taxes that could be devolved?

Paul Silk: Yes. We were preceded by a commission that had been established by the Welsh Government, the Holtham Commission, which Gerry Holtham, David Miles and Bernd Spahn-three academic economists-sat on. They had looked at these issues already. A lot of the academic work had been done in advance. We were then asked by the UK Government, rather than the Welsh Government, to look at these issues. We had the advantage of having politically nominated members. Unlike the Holtham Commission, which consisted of technically able people but without the political involvement, we were able to give that political consideration as well as assess each tax, both in terms of its technical suitability for devolution and also its political suitability for devolution. I hope that process gave confidence to members of the National Assembly when they, as I said, voted unanimously to endorse our proposals.

Q476 Stephen Williams: Did you look at other devolved assemblies and parliaments from around the world? Is Wales in the peculiar position of now having not just the administrative powers that it was originally set up with, but after the referendum more legislative powers, of not having revenue-raising powers? Is that a unique position?

Paul Silk: As far as we could establish, it is unique. Yes.

Q477 Stephen Williams: Once you had done this sifting exercise among the various taxes that should be devolved, apart from income tax that the Chairman was asking you about, the only taxes, from what I could see, you have recommended should be devolved are stamp duty, the aggregates levy, land fill tax and the long-haul element of air passenger duty. Do you think that is an ambitious range of taxes or a very conservative range of taxes that could have been devolved?

Paul Silk: I am tempted to say that was what we concluded was the right range of taxes to devolve. For example, I believe the Scottish Government is arguing for the devolution of corporation tax to Scotland. Of course, the devolution of corporation tax to Northern Ireland is actively being considered at present. We considered that and came to the conclusion that, both because of the mobility of corporation tax and its volatility, it was not appropriate to devolve the headline rate of corporation tax, although we make some proposals about capital allowances under corporation tax. There will always be people who will think that we could have been more ambitious and there is a group of people in Wales who are opposed to any devolution, let alone further devolution. So there are people who think we have been too ambitious as well.

Professor Lloyd: We did look at all the taxes, corporation tax and others, very carefully and came to what I think were reasoned conclusions about what taxes were appropriate to be devolved and what elements within those were appropriate as well. As Paul said, in corporation tax in particular, it is not just the headline rate that is relevant but the system of allowances, and we have comments on that in the report.

Q478 Stephen Williams: I should say at this point, Chairman, that Mr Silk mentioned in his opening remarks he had looked at the border aspects of this. You very kindly took evidence from me, as a Welshman who happens to represent a seat in Bristol, about the cross-border economy on the other side of the Severn, and I advised against devolving corporation tax and I am glad you at least took that on board. Coming back to the taxes you have decided on, do you think that range of taxes, which in UK terms are small revenue raisers, give the Assembly members who are in the Government in Wales enough fiscal flexibility to do anything particularly interesting? I do not know how much landfill there is in Wales. We know Cardiff Airport is in trouble. There are not that many long-haul flights to attract air passenger duty and presumably they would want to lower it anyway to get more long-haul flights. Property prices in Wales tend to be lower than the UK, so you would have to have a completely different regime presumably and bands of stamp duty. Have you come up with some sort of estimate of what this small range of taxes might raise for the Assembly?

Paul Silk: What it might raise or whether it gives enough flexibility for things to be done differently? I think we have an estimate of what it would raise and these are modest amounts: stamp duty land tax, £150 million; land fill tax, £62 million; aggregates duty, £21 million; air passenger duty, £1 million.

Q479 Stephen Williams: What is the total budget of the Assembly Government?

Paul Silk: This would amount to £2.2 billion. That is about 15% of the total budget of the Assembly Government, but the Welsh Government would see the devolution of these taxes as giving them extra tools. For example, stamp duty land tax might stimulate the housing market. It might be able to stimulate it in a particular way the Welsh Government would think desirable. Our empowerment agenda said, "Give these taxes to Wales and let the Welsh Government decide how it is going to use them". We hope beneficially in the interests of Wales, but there is a responsibility that goes with that empowerment as well, and the Welsh Government should be able to decide in these cases how it uses these taxes in a way that it is then politically accountable for. For example, if it wanted to remove air passenger duty to stimulate Cardiff Airport, that would be something for which they should be politically accountable and able to decide. As I said before, there are always arguments that more taxation should be devolved, but we felt that this was the judicious mix of taxation and reflected broadly what the Welsh Government had asked for, and indeed the other political parties in Wales.

Professor Lloyd: It is a case of enabling the Government to take policy decisions that it feels appropriate at the time.

Paul Silk: I should add that we also recommend, as in Scotland, that there should be the ability to introduce new taxes if the Welsh Government thought that was appropriate and they met the same criteria as are set out in the Scotland Act in the case of new taxes in Scotland. For example-it is not a tax but it is akin to a tax-the levy on single-use carrier bags in Wales has resulted in very many fewer carrier bags being used.

Stephen Williams: Welsh relatives of people that live in England plead for plastic bags to be taken over the border in Wales.

Paul Silk: Yes. That does have a distorting effect just on the border. I go shopping just across the border from Hay-on-Wye sometimes and I am very surprised when I get my plastic bags given to me. That is an example of a relatively minor use of in that case not a taxation power but what could be a taxation power to bring about a change that the Welsh Government feels is desirable. We do not make any recommendations about what those changes ought to be. We just think they should have the power to do that and be accountable politically for the decisions they make. We also think that what we propose will enhance the political process because political parties, when they are fighting Welsh elections, will need to say how they are going to use the taxation powers they have, whether they are going to reduce taxes or whether they are going to propose increasing taxes, and we think that will enrich the political debate in Wales.

Q480 Stephen Williams: Other taxes that are perhaps more easily described as having a local element to them would be council tax and a uniform business rate that could have a local aspect to it. In England the Deputy Prime Minister and DCLG are setting up city deals and giving more flexibility to Bristol City region and other cities, the ability to retain more of the nationally set uniform business rate, and in time there will be more autonomy of setting the rates I am sure. Did you look at that for Wales, either perhaps having a Welsh uniform business rate or perhaps devolving even further and giving Cardiff or Gwynedd or whatever more flexibility over business rates and council tax in their areas?

Paul Silk: The legislative devolution of business rates already exists. We recommended some technical changes to ensure that there are fully devolved business rates. Council tax is already devolved. Those are taxes that the Welsh Government already has in its legislative control and we make no recommendations about how they should use those, but you are absolutely right that those are things that the Welsh Government could choose already to operate, and indeed they do operate, in a different way from England. There is no freeze on council tax in Wales as there is in England.

Q481 Paul Flynn: You received evidence from the Federation of Small Businesses suggesting the power to introduce new taxes would lead to a system that was overly complicated. Is this a valid point? If so, what can be done to avoid problems?

Paul Silk: I think the Federation of Small Businesses was very supportive of our recommendations when they were made and spoke publicly in support of them. I do not recollect the evidence that they gave originally, but I could imagine that they might have been arguing at that time that any extra complication in the taxation system was something that small businesses would find particularly difficult to cope with. We recognised that in the case of corporation tax and that is one of the reasons why we did not recommend the devolution of corporation tax. In the case of income tax, it is already the case, following the Scotland Act, that any business that employs people who work both in England and Wales and in Scotland will have to cope with Scottish taxpayers.

We do not think that is going to be particularly difficult for businesses because most of the work will be done by HMRC. Similarly for a small business that might employ people on both sides of the English and Welsh border, if under our proposals there are Welsh taxpayers because they are domiciled in Wales and English-domiciled taxpayers working in the same business, most of the work will have been done by HMRC rather than by the business themselves. They will simply be given the PAYE coding in the business and that might be potentially different for a Welsh taxpayer than for an English taxpayer. I do not think that we do add a great deal of complication and it would be for that reason, I suspect, that the FSB was supportive of what we recommended.

Professor Lloyd: In each of the taxes we looked, at we did take into account the implications of making any changes that would be necessary, and that is in our report. In each of the instances that we considered in relation to income tax in particular, because of the changes that have to be made in relation to Scotland, as Paul indicated, we do not think that it is an onerous task and I think that is accepted broadly within Wales.

Paul Silk: We do recognise and address in the report that, if you are, let us say, a business that is involved in disposal to landfill, and you have a different tax regime in Wales from the regime on the other side of the border, it does add some complication potentially to your business, but we think that those complications are able to be coped with.

Q482 Paul Flynn: What I was quoting from was their written evidence but, as you rightly say, they might have changed their mind now. Your report states that if income tax revenues grow at a faster rate in Wales than in the rest of the UK then the budget of the Welsh Government would be higher than if it were wholly dependent on the block grant. What would be the budgetary impact if the reverse happens and income tax revenue grows more slowly or not at all?

Paul Silk: Then the opposite would be the effect. We set this out in an appendix to the report. What almost counter-intuitively has happened in Wales is that income tax revenues have grown at a greater rate than income tax revenues have grown in England. If that trend continued in the future, then under our proposals Wales would do better, but it is only relatively marginal amounts of money we are talking about.

Professor Lloyd: Yes, it is relatively marginal but the point is-and this relates to the principle of incentivisation-if Wales does better than the average in the UK it benefits and if it does less well, of course the other side of the coin is that it loses. It is a small effect one way or another, but it is very much at the heart of the principles of empowerment and incentivisation.

Q483 Paul Flynn: If Wales becomes more prosperous than the rest of the United Kingdom one can see a spiral of prosperity going there but there is the opposite, the nightmare of a spiral of decline; that if the Welsh economy is doing badly the incomes then go down. It would be possible now to balance that. If Wales was declining, with de-industrialisation as has happened in the past, at a faster rate than the rest of the United Kingdom, those problems could be balanced out if the rest of the United Kingdom was more prosperous. Is there not a danger there that if we look forward to prosperity, which we all would expect and wish for, if it does go the other way that decline could be accelerated by having these Welsh-dependent taxes?

Paul Silk: It would be wrong for us to pretend there is not some risk. I am just turning up the figures here. If the historic trends were projected into the future, we would be talking about £27 million over five years. If it went the other way, we would be talking about £27 million less over five years. It is relatively marginal, but it is obviously an appreciable amount. As Noel said, what we believe is that the extra incentivisation the Welsh Government would have as a result of our proposals should result in an optimistic outcome. We did not start our work with an expectation that Wales is in a spiral of continuous decline. We rather thought the opposite. We rather wanted to think the opposite, at least, and so we wanted to produce a report that reflected, we hope, not a naively optimistic view of the future but an optimistic view rather than something that, as you well know, we are all too inclined to do in Wales, which is be pessimistic about ourselves.

Q484 Paul Flynn: I wonder how you assess the value of evidence from various groups. You mentioned one group that is a relatively small organisation. I know the people involved in it very well. What credence do you give bodies like the one that you mentioned?

Paul Silk: We made a great effort to listen to organisations like them. They came in for a very productive session with us. They said afterwards, "We don’t agree with the way you are going, but thank you very much for taking the time to have us in and listen to us". I have done that with Rachel Banner2 on several occasions. It does represent, as you know, an authentic voice in certain parts of Wales and among certain groups of Welsh people. It is very important to listen to them as well and not be part of a devolutionist bandwagon. It was very important for us to do that.

Q485 Chair: Just to pick up those points so I am clear. You are not proposing, as I read your report, to do anything that ends the equalisation mechanisms that currently exist.

Paul Silk: That is correct, yes.

Q486 Chair: I did not want there to be a certainty of dependency that we need to preserve somehow. Is it true to say that devolving and, in your proposals, devolving financial capability, might have tremendously liberating and creative impacts upon the Welsh economy and the ability of people to make their own destinies and to retain some of the additional income that that dynamism generates?

Paul Silk: Yes, I think that probably was the leitmotif behind us all. I do not want to predict a golden future any more than a pessimistic future, but you are right in saying that we had an optimism that we hope comes through in the report.

Professor Lloyd: Which is encapsulated in the word I have been using-incentivisation.

Chair: Could you elaborate on that a little bit?

Professor Lloyd: I think it gives the point of incentivisation, which is that the Welsh Government has the ability to develop and to take positive decisions that are for economic benefit in the longer term.

Q487 Sheila Gilmore: I think we have covered the business fairly well. One of the questions I was going to ask was your response to Plaid Cymru’s criticism about business taxes not being devolved, but do you feel you have covered that sufficiently?

Paul Silk: Plaid Cymru was certainly disappointed that corporation tax was not in our proposals, but perhaps I should say again that our report was unanimous and we did have a very distinguished representative of Plaid Cymru in the Commission. I am sure that he will have explained to his colleagues inside Plaid Cymru why we made those proposals, but we came to the conclusion that that was right in the interests of Wales. I remember reading a striking piece of evidence to the Scottish Parliament that the one thing one did not want to do as a result of tax devolution was to create more business only for accountants. I think we felt that, in the case of corporation tax, it is a very easy tax to move to one side of the border or another and to bring no economic benefit to Wales simply by claiming that a business was domiciled in Wales and was paying a lower rate of Welsh corporation tax. There was no benefit for the United Kingdom as a whole or indeed for Wales.

Professor Lloyd: We looked at it very carefully and, in broad terms, the mobility of corporation tax and its volatility persuaded us that it was not one that would be appropriate to devolve.

Q488 Sheila Gilmore: I suppose to some extent one of the big issues about the current move is the question of these taxes internationally as well. One of the big issues-I do not want to categorise it as a kind of Starbucks-is precisely people being able to decide where their business is making its profits.

Professor Lloyd: That is what I mean by mobility.

Q489 Sheila Gilmore: Yes. Do you think we would be creating our own internal problem, in terms of the UK, that many people are against when they see it? People are very quick to say it is terrible that Starbucks have managed to put their profits somewhere other than where they appear to be making them. Do you think those people who say, "We want it devolved", have thought through those consequences?

Paul Silk: I think I should confine myself to saying what we thought was right for Wales because obviously there is a different argument in Northern Ireland and there may be a different argument in Scotland, but the fact that it would be very easy to move a business from Chester to Wrexham without moving the headquarters of the business from Chester to Wrexham if there were a lower corporation tax in Wales than in England without moving any economic activity or any benefit to Wales, simply reducing the tax take for that business, did not seem to us to be a very sensible proposal to make.

One proposal we did make about corporation tax was that if it were devolved to both Scotland and to Northern Ireland then we felt it should be devolved to Wales. Gerry Holtham,3 who I mentioned before, in his report on taxation did make some interesting proposals about varying corporation tax rates, as I understand them, throughout the United Kingdom depending on the economic prosperity of the area where the business is based, so the North East of England would benefit as well. I think the difficulty with that is the European Court rulings, which only allow the devolution of corporation tax to an area of legislative competence. So the only places where corporation tax could be considered to be devolved are Scotland, Wales and Northern Ireland. Our view was that if Scotland and Northern Ireland both had corporation tax then the level playing field should allow that to be devolved to Wales, but absent it being devolved to Scotland and Northern Ireland we did not think it should be devolved to Wales.

Q490 Sheila Gilmore: I think your Commission says it is a radical transfer of power from London to Cardiff that is being proposed here. What challenges do you see in implementing that?

Paul Silk: One of the challenges that we address in the report is the capacity issue. The capacity in terms of the Welsh Government, that they at present do not have a function akin to the Treasury. We suggest that they would need to have that sort of capability before they dealt with taxation matters. There is also a capability issue in the National Assembly where, of course, they have not had to consider financial legislation yet. There are certainly challenges, but there will also be some challenges for business-we talked about those before-in implementing different systems inside Wales from England. As Noel said earlier, the international evidence is that this is the norm in sub-national units, in federations most typically where people do this as a matter of course; that they have taxation that they administer locally, and we see no reason why Wales could not do just as competently as any of those other sub-national regions around the world.

Q491 Sheila Gilmore: In terms of your timetable, for example the changes to income tax for Scotland-of course subject to the referendum-are due to kick in earlier. Do you think that is an opportunity for Wales to learn from the Scottish experience, assuming we get to that point?

Paul Silk: Yes, absolutely. We set out a timetable in our report. We recommend that there should be a referendum before the devolution of income tax powers to Wales and that would mean that the Welsh Government would have had experience of operating the smaller taxes, if our proposals were followed, and the Welsh people would have been able to see what the consequences will have been in Scotland through the devolution of income tax before that referendum happens. There is a gradual build-up for our proposal for the devolution of income tax, which we do not think could happen before 2020.

Professor Lloyd: I think that process of developing experience within the Welsh Government is important but also, as I mentioned, it is a case of being able to learn from experience elsewhere. That itself is part of the development of that experience.

Q492 Sheila Gilmore: Do you think the UK Government is ready to cope with these changes?

Paul Silk: The UK Government’s formal response to our report will be out in April4-that was announced in the autumn statement-but I have to say that we have had very cordial and optimistic discussions with both Ministers in the Treasury and Ministers in the Wales Office. I have emphasised optimism already. I am pretty optimistic that we will get a favourable response to our recommendations.

Q493 Sheila Gilmore: There are significant consequences in terms of both administration and, potentially, financially as well for the UK Government if Wales takes the option of removing what is clearly a substantial chunk of income tax. Do you think that has been taken on board?

Paul Silk: In the case of our recommendations, it is simply that more of the Welsh budget will be funded by income tax raised in Wales and that will have a consequence on the Barnett grant. It will not have any adverse consequences for the UK Treasury.

Sheila Gilmore: Not even in terms of administration?

Paul Silk: One of the issues in terms of administration is who should pay for the changes and the practice, as you know, in the past has been when something is devolved then Scotland or Wales picks up the administrative consequences of that. Take the case of stamp duty where it is wholly to be devolved; HMRC will not be responsible for stamp duty inside Wales, so they presumably will save some money by not having to do it inside Wales. Who picks up the bill for the new administration, to what extent Wales will receive some sort of subvention from HMRC for that, is for negotiation in the future.

Q494 Sheila Gilmore: In terms of what you have done, do you think you have achieved your objective of commanding a wide degree of support for the proposals you are making?

Paul Silk: Yes, we do; I think both in terms of internally inside the Commission by having a unanimous report and in terms of having a unanimous resolution of the Assembly saying, "Implement it", and indeed from the majority of people we met when we went around Wales as well as the public opinion poll. Yes, I think we did.

Professor Lloyd: It is important to emphasise that both in the preparation of the report and in the meetings that we had and the evidence that was presented to us, but also in terms of the response to the publication of the report, I think we are quite encouraged that it is seen as a rational, well thought-out set of recommendations. It is up to the two Governments to decide.

Sheila Gilmore: Now we are just waiting for the UK Government to respond. Thank you.

Q495 Chair: Just so I am clear, under your proposal HMRC will continue to collect tax wherever it is based, whether it is Scotland, Wales, England, and you are not suggesting the creation of a super Welsh HMRC that sends out separate bills and raises different rates? I think we all need to be clear about this.

Paul Silk: I was perhaps not entirely clear when I answered a previous question about this. In the case of income tax then, yes, HMRC would carry on doing it because it is a tax that is shared. In the case of the other taxes, it is possible that HMRC will not want to do the tax in Wales if it is an entirely different tax and the Welsh Government will have to find some alternative means of raising stamp duty land tax. That is being considered in Scotland at present, but in the case of income tax, yes, we envisage that will be done by HMRC because it is a shared tax.

Chair: That is very helpful.

Professor Lloyd: We do not recommend any change to the structure of income tax, which is quite important.

Chair: I think that is not only economically but also politically important to underline if this is to progress in the way that I know you would like it to.

Q496 Mr Turner: Are there any lessons for England in the devolution of finance to Wales and Scotland?

Paul Silk: It would be difficult for me to say that there are lessons that ought to be drawn by those who make decisions for England from what we have proposed. I hope that what we have proposed can be read by people who are interested in, I do not know, regional government inside England, devolution inside England, and that something can be drawn that is useful and relevant for them. But we did not, quite clearly, write our report with the intention of producing lessons for England. If other people draw conclusions from our report that are relevant in England then I would be delighted, but I would not like to say that anything had an English label.

One thing that I would say about England, though, was it was rather difficult in producing our report to hear a voice that spoke on behalf of England. Mr Williams mentioned that I met him. We contacted all Members of Parliament with contiguous or nearby constituencies. We contacted local authorities that border Wales and we had some interesting evidence from them, but of course they do not speak on behalf of England. They speak on behalf of cross-border issues. So we had difficulty thinking about who speaks for England and I believe that is something that your Committee has also encountered.

Mr Turner: It is true, yes. You did not take evidence from England. One might well ask who does speak for England.

Paul Silk: Yes.

Q497 Mr Turner: I think you recognise the difficulty. Do you recognise the difficulty finding a voice for England?

Paul Silk: Yes, certainly in the narrow context of our work. It would have been very nice to test some of the ideas we had against somebody who spoke on behalf of England. Clearly we spoke to Ministers in the Treasury, one of whom represents an English constituency and one of whom represents a Scottish constituency, and the Treasury in some sense speaks on behalf of England, but I think this is a problem.

Mr Turner: I think we may have been searching for something further down.

Paul Silk: Yes.

Professor Lloyd: We hope that the research underlying our report is going to be helpful in general terms. I think that the research papers that were produced are very good papers and I hope they will be beneficial to others.

Q498 Mr Turner: Do you think people will read them? I am sure they are very good. The question is whether people in the Isle of Wight, for example, will ever turn to page WA, rather than WI. Do you think people in the rural areas, in the small and for that matter the large towns, understand that what is happening over the whole of England is responding to what you are asking for or is there a way of finding them more locally?

Paul Silk: Do you mean people in England now or people in Wales?

Mr Turner: No, I am talking about the Isle of Wight or West Berkshire or Westmorland.

Paul Silk: That is a very difficult question to answer because it is not one that we have had to think about. There is a problem in Wales itself of people not really understanding the purport of our recommendations. People don’t understand the way in which government works, they don’t understand the way the tax system works. It became quite apparent to us as we went around Wales that that is a general malaise in Wales, and probably a general malaise in England as well. Sometimes one can be depressed by that and feel people ought to know more about the way in which the government system and taxation works, but the optimistic side of that is that people often expect their elected members, others who go away to do these sorts of things, to go away and do it for them and trust them to do it well.

Q499 Mr Turner: I would deduce from that that you feel that representative democracy is okay and that you feel-from relatively limited connection with England I realise-that we should have a responsibility for representing England as well as representing the UK?

Paul Silk: As a Member of Parliament for an English constituency you have a role in representing England. I know that the commission on the West Lothian question is considering some of these issues now and I think we are all waiting to see what they conclude. One thing I will mention is our recommendation about a referendum. In the particular case of income tax we felt that that was a decision that ought to be put to the people of Wales as a whole by means of a referendum because it was an important issue, an issue that some might think from the last referendum we had in Wales would be subject to another referendum and, of course, was subject to a referendum in Scotland. I am going to be rather theoretical now. There are circumstances when choices should not be left to representatives but perhaps given back to people to decide by means of a referendum. Whether the UK Government agrees with this we will wait and see in April5 when they respond to us.

Professor Lloyd: We felt that we were talking about something that was of significance to Wales and that it was proper to test that in the referendum, and that is the recommendation we have made.

Q500 Fabian Hamilton: When Lord Prescott was Deputy Prime Minister he tried very hard to emulate the devolution to Wales and Scotland to the regions of England, and we know what the result of that was. To some extent it was quite a surprise. I am an MP in Leeds. Leeds proudly styles itself as the capital of Yorkshire, although I think Sheffield and Bradford might disagree. West Yorkshire certainly is an area of large cities and towns, unlike the parts of England, the Isle of Wight, that my colleague has described. Do you believe, from the information you have gathered in Wales, that regional devolution in England is just impossible because of the diversity and that a more likely form of devolution would be the city region model? How do you think that might work? Is that something you looked at, for example with Cardiff and Swansea?

Paul Silk: The straight answer to that is, no, it is not something we have looked at. I understand that the issue of the city region is being considered in both Cardiff and Swansea by the Welsh Government but it was not something that we addressed.

Professor Lloyd: That is clearly outside the remit of the Commission. We did not consider those issues and the Commission does not have a view on it.

Q501 Fabian Hamilton: Mr Turner raised a very important point, and the question that I know we have tried to discuss, of who really does speak for England. If you ask local authority leaders in Yorkshire who speaks for Yorkshire obviously you are going to get several voices from the leaders of the major cities and districts in West Yorkshire, South Yorkshire, Humberside and North Yorkshire, North Yorkshire being far more rural. Presumably you did not look at devolution or at concentrations of power within Cardiff and Swansea and the major urban and city areas of Wales. Is that something that concentrated your minds? You have a huge diversity, haven’t you? You have hugely populated urban areas and then you have vast wildernesses of very little population. How do you have a model that satisfies the needs and demands of that variety?

Paul Silk: Again, the reform for local government in Wales was not something that was inside our remit but is something that is always being actively discussed inside Wales because of precisely that diversity of small areas in the south and in the northeast of high development and otherwise a very large rural hinterland.

Turning your question slightly on its head, one of the things that you can do in Wales is you can talk to people who represent Wales, so you have a First Minister and it is quite clear that he represents something called the Welsh Government. You have bodies like the FSB for Wales who represent Wales, and the political parties, indeed, organise at a Welsh level. So you do have interlocutors you can speak to and it is clearly more difficult to find out who represents Yorkshire.

Professor Lloyd: The Commission engaged with those bodies, of course, in relation to the very specific terms of reference that we had to look at fiscal devolution in Wales.

Paul Silk: When we look at international examples, the ones we habitually come back to are federations and then it is quite clear what the relationship is between the centre and the sub-national units. When we come to address the second part of our work, I think that is one of the questions we are going to have to think a little bit about-the relationship between the centre and, in our case, Wales, but of course also for Scotland, Northern Ireland and the regions of England.

Q502 Fabian Hamilton: It would certainly be interesting to know why regional government in Saxony, for example, works well, as far as I can see having visited there last summer, but won’t work in Yorkshire, or the people of Yorkshire don’t want it. Let me move on a little. Do you think that the recommendations and proposals contained in your report strengthen or weaken the Union?

Paul Silk: We think they strengthen the Union.

Fabian Hamilton: Why is that?

Paul Silk: We think that a strong Wales, which we think will result from our report, leads to a stronger United Kingdom. Our terms of reference instructed us to look at Wales inside the context of the United Kingdom as a whole, so we did always ask ourselves the question about whether what we were recommending would be detrimental to the interests of the United Kingdom. Going back to what I was saying about corporation tax before, we felt that to devolve that would be detrimental to the interests of the United Kingdom as a whole, but we think that a strong and empowered Wales is a benefit to the United Kingdom as a whole.

Q503 Fabian Hamilton: Can you understand why some parts of England feel a slight resentment that Wales has this devolution, this self-government, and yet Yorkshire or Hampshire or other parts of the country that feel quite a clear identity of their own don’t have it? Yet there is a contradiction, isn’t there, because the only referendum we have had in the North East said, "No, we don’t want it"?

Paul Silk: We certainly do. We spoke to the IPPR who had done some work on this some months ago and there is a growing evidence of English resentment of, particularly, Scotland but also of Wales. I referred earlier to the Azores judgment of the European Court, which would allow the devolution of corporation tax to Wales, Scotland or Northern Ireland because they have legislative competence, but would not allow the devolution of corporation tax to Yorkshire or to the North East. I can understand why people might feel resentful about that but, of course, it was definitely outside our brief to look at the future of England.

Fabian Hamilton: Perhaps we need a Silk Commission for England.

Chair: It could be called the Constitutional Convention.

Q504 Mrs Laing: Before we move on, just on that very last point, it would be within the competence of the United Kingdom Government to vary corporation tax in one way or another for, let’s say, Yorkshire or the South West or any part of the country that it chose to do so, would it not?

Paul Silk: I think we should take advice and write to you about that, but my understanding is it is not in the competence because of European law.

Professor Lloyd: That was my understanding but we will check on that.

Mrs Laing: Thank you. That opens such a can of worms. I love it. Thank you very much.

Paul Silk: Please wait until we have written and confirmed that before the can is entirely opened6.

Q505 Mrs Laing: There are layers and layers and layers, are there not, and that is what you have been looking at? If it transpired that, let’s say, Sheffield and the area around Sheffield was at some economic disadvantage because of its geographic or historic position, then there are ways in which the United Kingdom Government can give a tax advantage or an economic advantage of some kind to an area, and I take your point about European law putting restrictions on corporation tax. For example, what needs to be done with development agencies, enterprise zones, variation of business rates? Is it the case that the United Kingdom Government has the competence to treat different parts of the British Isles, let’s say, because I am not talking about the United Kingdom as an entity, differently according to their economic status?

Paul Silk: I am not an expert in how European law relates to the competences of the UK Government in respect to the regions of England, but there are things like enterprise zones and so on that the UK Government does to stimulate growth and development in the parts of England that it thinks needs those sorts of interventions. There are clearly things that can be done in an area with legislative competence, like Wales, Scotland and Northern Ireland, that can’t be done inside England.

Q506 Mrs Laing: Thank you very much. I will steer away from the can of worms and come back to safer ground on the question of our general investigation of whether we need a constitutional convention and the way in which devolution has developed. Given that the devolution that was started some 15 years ago has now evolved and, for example, the 2012 Scotland Act gives Scotland new powers to vary income tax, which we have already discussed-your Commission report recommends income tax powers for Wales, as we have also been discussing-do you think it is time to look at the future of the union from a UK perspective and have a national conversation of some kind about what the future of the United Kingdom should look like?

Paul Silk: Again, this is something that is beyond our terms of reference and not something the Commission has really engaged with. Speaking as an individual, I am always a bit of an anorak about these things. I am always interested to hear conversations about the future of the constitution, but I think the Commission has no view and I can’t express a view on behalf of the Commission about that.

Professor Lloyd: I think that is right. It is not something that was within our remit. It is not something that we have discussed and it is an issue that we have to say the Commission has no view upon.

Q507 Chair: If I may press Eleanor’s point. Surely something as significant as the Scotland Act 2012 or the Silk Commission and its proposals-let’s imagine the proposals have been unanimously accepted by the Assembly, that they become law-while not trying to say that you should take on the role of a constitutional convention for the UK, nonetheless surely something as important as that has consequences for the UK that would need to be examined in that broader context, as Eleanor says. Isn’t it really an obvious consequence of your work?

Paul Silk: I agree that it is what we have already recommended and the issues we are going to be discussing in part 2 have a salience outside Wales. I hope that if there was such a convention they would look at the sorts of conclusions that we would come to, as Calman came to and as Mackay will come to.

Q508 Mrs Laing: Looking more deeply into all of that, do you share the concerns that some of our witnesses have expressed? For example, Dr Robin Wilson said to us that codifying the relationship between the UK and its constituent parts could help avoid the devolved assemblies and legislatures from becoming what he described as "hermetically sealed political spheres", which he considered to be a risk with the way devolution is currently being applied-his words, not mine. Do you share that concern about hermetically sealed political spheres within the UK?

Paul Silk: I have not read that before. I can see that that would be a concern if it were a reality. I know that in part 2 of our work we are going to be considering broader issues than we considered in part 1, not the fiscal issues. I think that these questions of the relationship between the centre, between London and Cardiff, will clearly be questions we will be considering over the next year. We have not yet had our evidence but there are issues clear to us already that are going to be raised with us about the sort of relationship that ought to exist between the Government in London and the Government in Cardiff.

Professor Lloyd: Some of the recommendations that we have made and the content of our report do require there to be a mutual understanding between the Welsh Government and the Government in Westminster.

Paul Silk: If I may just add, on the first part of our report we made quite a lot of recommendations about how to improve the dialogue between London and Cardiff, because it seemed to us it was in the interests of Wales and also in the interests of the United Kingdom for that dialogue to be a fruitful one.

Q509 Mrs Laing: Would it help your future deliberations about the position of Cardiff and London to examine, for example, what has happened here in the UK Parliament over the last two days when the House of Commons on Tuesday and then the House of Lords yesterday debated a particular order under the 1998 Scotland Act? Originally back in 1998 it was envisaged that the Scottish Assembly, as it was then referred to, now Parliament, would not need and should not have powers to hold a referendum on the future constitutional position of Scotland. We are talking about evolution of the relationships within the United Kingdom. The situation having evolved, namely by the political developments, depending on the way in which the people of Scotland voted, exercised their democratic rights, changed the situation so significantly that the Scotland Act has, over these last two days, now been amended in terms of the order under section 30 giving power to the Scottish Parliament to hold the referendum, for which 15 years ago power was specifically withheld. Do you consider that that sort of evolution is significant?

Paul Silk: It is clearly significant in the case of Scotland. Issues like that are the issues that we are going to be considering in part 2 of our work-what areas ought to be devolved. I think one of the questions we probably are going to need to address very early in our own thinking is what the intellectual case is for certain areas being devolved to Wales and certain areas being reserved to London. Why do you reserve something to London and why do you devolve something to Cardiff? Do we have the boundaries right? Should things move either way? Some people suggest things should move back to London. More people perhaps suggest things should move down to Cardiff. What is the reason for that boundary being set at a particular place is one of the questions that I hope that our Commission will address.

Professor Lloyd: That is very much at the heart of our remit.

Q510 Mrs Laing: That is a very interesting point. Would it be right to say then that it is not just a question of place but of time, the example that I have just given you of section 30 of the Scotland Act 1998 and its change over the last two days? Is it logical or politically acceptable to say that those lines of what is devolved and what is reserved should be set down at any point in time? Should they not be allowed to evolve?

Paul Silk: The model in Wales does allow evolution and change at present and there has been a process of change constantly since devolution happened in Wales. I think that has been also the case in Scotland and Northern Ireland. What I would like us as a Commission to think about is-this is the first time I have mentioned this to Noel-is there a line that ought to be drawn somewhere and if so why, or do you always need a flexibility? Events happen, things change, circumstances change, and what might have seemed a sensible demarcation in a particular year no longer seems a sensible demarcation 10 years later. I was talking to somebody yesterday about the Government of Wales Act. He was saying to me that quite a lot of the things that are in that Government of Wales Act reflect issues that were very important at that time and now have disappeared as important issues. They are enshrined in legislation.

Professor Lloyd: Evolution is inevitable, isn’t it?

Paul Silk: So that is a danger, isn’t it?

Q511 Mrs Laing: I would suggest that it is, but I have to ask the question so I am glad you say that it is. It is potentially a danger. My colleague Mr Hamilton talked about the referendum that took place in the North East of England regarding a possible regional assembly and we all recall the massive vote against a regional assembly. In your deliberations have you detected any real appetite for extra layers of government in England?

Paul Silk: In our deliberations we neither asked that question nor detected any, no.

Q512 Mrs Laing: You have not been searching for them so perhaps it is an unfair question, and I don’t mean to ask an unfair question. Let me put it another way. From your examinations in respect of Wales, are there any lessons to be learned for England about devolution of power from the centre?

Paul Silk: As I said to Mr Turner, if politicians and others who represent England feel there are things that they can glean from our recommendations then we are delighted but they were not written with that audience particularly in mind.

Q513 Mrs Laing: But nevertheless they are scientifically constructed deliberations and one would hope that the work that you have done could possibly be extrapolated.

Professor Lloyd: It is the comment I made earlier really, that the work and the research behind our report is available for wider consideration.

Mrs Laing: We appreciate that. Thank you very much.

Q514 Chair: Noel, do forgive me, I had forgotten that you have an appointment elsewhere. Please feel free to-

Professor Lloyd: You don’t really mind, Chair?

Chair: Not at all, no. It is my fault. I should have said something about 20 minutes ago. Thank you very much for coming this morning.

Professor Lloyd: I do apologise. I appreciate the opportunity to come along. Thank you very much.

Q515 Chair: In looking at English local government, one of the considerations the Committee has had is how much further devolution goes beyond local government, in other words parish councils, town councils, neighbourhood councils and so on. There are lots of different varieties. I don’t want to pre-empt the Committee’s view, but I think the Committee felt it was very important that a centralised state was not replaced purely by a local central state, if you know what I mean, that there was room to breathe to let lower forms of government develop if necessary. Does this read across to the work that you have done, Paul, in the sense of, while many would welcome strengthening of government in Cardiff, were there concerns or were opportunities seen that this could go further into the local councils and perhaps beyond? Did you have a similar experience to our learning curve?

Paul Silk: That wasn’t something that we addressed in our report on fiscal powers. The second part of our work is going to be directed principally at the relations between London and Cardiff. But I would say that when we went around Wales it was an interesting and salutary experience, because when you go, as we did, to Llangefni it is a very long way from Cardiff. People in Llangefni sometimes feel that their interests are not heard in Cardiff. I guess exactly the same as happens in England, where people think that if you live in Truro your interests are not being properly considered in London, certainly applies in Wales as well. I say this as an observation, there is a dynamic relationship between government in Cardiff and local government in Wales.

Q516 Mr Chope: I think everybody seems to have been very gentle with you about this, I must say. I am surprised that the Government’s priorities include spending money on this type of commission. That is no reflection upon you as an individual. One thing that did emerge from your earlier evidence was that it seems as though you think you would be able to have more flexibility and freedom if you were outside the European Union. Is that right?

Paul Silk: I am surprised you deduced that from what I said. Perhaps I shouldn’t have said what I said about England and Wales.

Q517 Mr Chope: For example, the Azores judgment would not impinge, would it?

Paul Silk: You are absolutely right. The Azores judgment would not impinge if we were outside the European Union but since we are inside the European Union it does. It was certainly beyond our terms of reference to consider whether Wales would be better off or worse off if we were outside the European Union.

Q518 Mr Chope: You say you have not really discussed this with the English but your terms of reference said that you had to, "Bring forward a package of powers that would improve the financial accountability of the Assembly, which are consistent with the UK’s fiscal objectives and are likely to have a wide degree of support". Can I ask you specifically about the air passenger duty proposal? At the moment if somebody goes from Cardiff to Dublin airport and they want to take a long-haul flight to America, they can change planes at Dublin but they have to get a fresh ticket in order to avoid the long-haul air passenger duty. Under your proposal it would be possible to go from Cardiff to Dublin and get on a long-haul flight without having to re-ticket. Therefore, it would give a significant competitive advantage to carriers that were offering a flight from Cardiff to the United States via Dublin with one through ticket, whereas people who wanted to make the same trip from, say, my local airport in Bournemouth would not be able to take advantage of that. They would have to have fresh ticketing.

At the moment the Welsh Assembly would not get any notional revenue from long-haul air passenger duty because, as you have said, you do not have any long-haul flights going out of Cardiff. You do not have any income at the moment, therefore any change in the arrangements could only be beneficial because if you have any income, which you probably wouldn’t under your proposal, that would not matter but what you would be doing is taking income away from the United Kingdom airports and the United Kingdom taxpayers. What you would be doing is attracting people to go to Cardiff airport rather than to Heathrow, for example, and then stop off, whether it be at Schiphol or Dublin, in order to fulfil their long-haul journey without having to pay long-haul air passenger duty.

How is that proposal consistent with the remit that you were given, which was that it had to be consistent with our fiscal objectives? The Chancellor has said that the whole purpose of air passenger duty is to raise revenue. He has admitted that. He has abandoned the original environmental case for it and said it is in order to raise revenue. Your proposal here would undermine the UK’s revenue raising capacity in that particular respect.

Paul Silk: It is exactly the same proposal as has been implemented in the Finance Act 2012 in respect of long-haul flights from Northern Ireland. HMRC’s justification for that was the economic development of Northern Ireland. We felt that this proposal was right in the context of Wales for the economic development of Wales.

Q519 Mr Chope: But what is happening in Northern Ireland is that people are going into the Republic of Ireland to take long-haul flights from there in order to avoid the air passenger duty.7 I don’t think you can say that the arguments are analogous, but would you accept that the consequence of what you are proposing is that it would undermine the tax revenue of the rest of the United Kingdom?

Paul Silk: There were two justifications in the case of Northern Ireland. One was the Dublin flight and also the economic development of Northern Ireland, so the stimulation of more flights into Northern Ireland, in the view of HMRC and the UK Government, would stimulate the economy of Northern Ireland. We felt that the economy of Wales could be stimulated in the same way by the same method. So, unless you would say that the UK in its own proposals in the Finance Act 2012 was undermining the fiscal stability of the United Kingdom, I can’t see that that doesn’t apply equally in Wales.

Q520 Mr Chope: Surely the difference is that the United Kingdom Parliament passed that legislation. The United Kingdom Parliament decided collectively that it would be reasonable to allow this exception in relation to Northern Ireland. What you are proposing is that the Welsh Parliament on its own should be able to decide this in relation to Wales, irrespective of the consequences for the rest of the United Kingdom and, in particular, England.

Paul Silk: No. What we are proposing is that the United Kingdom Parliament should, in the same way as they devolved that power to Northern Ireland, be asked whether they want to devolve that power to Wales, and there clearly will be an argument that it should not be devolved to Wales because it has adverse effects on airports in England. Bristol airport has been quite clear in their opposition to the proposals we make as the closest competitor airport to Cardiff. Certainly, yes, there are arguments that this is unfair competition to English airports. The argument was put to us by some, including the Welsh Government, that all air passenger duty should be devolved to Wales. Our conclusion was that it was right to devolve long-haul air passenger duty for the time being and then to ask the commission that is considering congestion in London-and we are going to probably look at the way in which regional airports throughout the United Kingdom might be stimulated-to look at the issue more generally and perhaps their conclusions will be that there ought to be some sort of regional variation of those duties.

Q521 Mr Chope: Doesn’t this whole argument show that this sort of piecemeal approach-the sort of Balkanisation by default, by stealth-is not the right way forward? I am very much against it, but if there was a coherent argument for changing the balance of powers between different parts of the United Kingdom it should be done through a proper constitutional commission rather than on a piecemeal basis as seems to be happening at the moment.

Paul Silk: I can certainly see the argument for all of the constitutional changes that have happened in the last 20 years having been considered altogether in some sort of Kilbrandon type commission. Our responsibility was to do what our terms of reference asked us to do, and it is really not for me to say whether it was right to establish my Commission. It was part of the coalition agreement and when I was asked to chair it I accepted because I thought it was a worthwhile thing to do, but whether there should have been a much wider commission looking at the United Kingdom as a whole is really beyond my pay grade.

Q522 Mr Chope: Would you support a UK-wide constitutional convention?

Paul Silk: As I said before, I would be very interested, as somebody who is interested in these things, if there were such a body but, speaking on behalf of the Commission, it is not for me to support that or not.

Q523 Chair: Can I press you a little bit further on Chris’ last question? The Commission is not operating in complete isolation. It has its terms of reference, and we all accept that. But let me just turn this round. If there was a commission on England and it made proposals about taxation and corporation tax and airport passenger duty and it did not make reference to our fellow nations within the union, I think Scotland, Wales and Northern Ireland would be hopping up and down pretty rapidly. Perhaps the English don’t hop particularly well but take this as a hop, that if Wales is coming forward with what I think are some very positive and very welcome proposals, there are consequences and knock-ons for other members of the union. I think you mentioned earlier that part of your desire is to strengthen not weaken the union. Would you therefore consider, not least in part 2 of your Commission, looking at these consequentials and their impact on other parts of the union and therefore consider whether you felt a constitutional convention might be a helpful way forward, even if it is not precisely within the terms of your remit?

Paul Silk: I can certainly take that back to the Commission and tell them that view. I think I ought not, on behalf of the Commission, to undertake to do any more than that. I would like to foster the dialogue with whoever represents England and if that can be done through, as a surrogate, this Committee then I would be delighted if that could happen. We do want to take decisions or make recommendations that take properly into account the interests of people who live across the border from us. As I said before, a very large proportion of the Welsh population are very close to the border and a very large number of people work in England and a large number of people who are domiciled in England work in Wales. We can’t pretend, and we wouldn’t want to pretend, that the interests of England are not something with which we ought to be concerned.

Chair: Devolution, looking after your own affairs, raising as much of your own income as possible are principles that I think we would all wish to adhere to and learn from each other, from our friends in different parts of the union. Distinguished as this Committee is, I am not sure that we can take up the mantle of speaking for England but we would certainly wish to engage with the Commission if you felt that was appropriate.

Mr Chope: Why don’t we take it to the European Union?

Chair: I think we can delegate Chris to be our ambassador to speak and engage with the European Union.

Q524 Stephen Williams: I wasn’t going to say anything about Bristol airport or APD. That is a micro-parochial detail, but Mr Chope has now provoked me. I assume, because it is in fact the long-haul element of APD that you have asked for, that rather than incentivising people to take short-haul flights, which obviously there would not be any duty for because you have not asked for the power to Dublin, in order to take a long-haul flight from Dublin, you are actually trying to incentivise carriers to have long-haul flights from Cardiff?

Paul Silk: Yes.

Q525 Stephen Williams: So the basis of Mr Chope’s question was misguided, perhaps. Given that there are also no long-haul flights from Bristol airport-the New York service that we did have failed-if the incentive to have long-haul flights from Cardiff to New York or somewhere like that worked, it would be quite good for people who live in Bristol, Gloucester, Cheltenham, Hereford or wherever because they would then have a more convenient flight, good for the environment, than trundling up to Heathrow. I am not trying to lead you, but do you agree with that?

Chair: Not much. One-word answers are fine.

Paul Silk: I don’t want to lift the veil of the discussion in the Commission too high but I will say we had an awfully long time discussing air passenger duty and our conclusion, as you will know from the Select Committee process, represents the fact that there was a long and quite difficult discussion about air passenger duty.

Chair: Which we will not repeat here, but thank you very much for that insight. Paul, thank you so much. It really is nice to see you back in the House of Commons. Again, congratulations on your report and we look forward to interacting with you in future.

Paul Silk: Thank you.


[1] Note by witness: – if our proposals on income tax devolution are implemented, then the revenue yield transferred to the Welsh Government would be around £2 billion out of the total Welsh income tax yield of around £4. 8 billion ie around 40%; – if all our tax proposals are implemented, the Welsh Government revenue yield including council tax and business rates would be around £4.4 billion, compared to total Welsh devolved spending of about £18 billion including local authority spending ie around 25%. Details are set out in paragraphs 9.2.17 and 9.2 18 of our report. The Scotland Office’s paper “Strengthening Scotland’s Future” Cm 7973 indicates that the Scottish figure arising from the Scottish proposals is around 35%.

[2] True Wales, campaign director

[3] Chair, Holtham Commission into Finance and F unding for Wales

[4] Witness correction: the announcement was Spring, rather than April.

[5] Witness correction: in the Spring

[6] Note by witness: Certain requirements are set out in the so called Azores judgement, which requires that the sub national body must exercise sufficiently autonomous powers, which includes financial autonomy ie that the sub national body assumes the financial consequences of a tax reduction measure.

[6] In addition, certain tax reliefs are allowed in Assisted Areas and the UK Government and Welsh Government have designed their Enterprise Zone measures to comply with EU state aid requirements. Further details may be found in Box 3.3 , paragraph 5.2.7 and paragraphs 5.2.18 to 5.2.21 of our report.

[6]

[7] The Finance Act 2012 devolved to the Northern Ireland Assembly (NIA) the power to set APD rates on direct long haul flights to certain destinations. With effect from 1 January 2013, the NIA have legislated to set these devolved rates at £0.

Prepared 11th March 2013