Silk Commission


The Committee consisted of the following Members:

Chairs: Martin Caton  , Albert Owen 

Bebb, Guto (Aberconwy) (Con) 

Brennan, Kevin (Cardiff West) (Lab) 

Bryant, Chris (Rhondda) (Lab) 

Buckland, Mr Robert (South Swindon) (Con) 

Cairns, Alun (Vale of Glamorgan) (Con) 

Clwyd, Ann (Cynon Valley) (Lab) 

Crabb, Stephen (Parliamentary Under-Secretary of State for Wales)  

David, Wayne (Caerphilly) (Lab) 

Davies, David T. C. (Monmouth) (Con) 

Davies, Geraint (Swansea West) (Lab/Co-op) 

Davies, Glyn (Montgomeryshire) (Con) 

Doughty, Stephen (Cardiff South and Penarth) (Lab/Co-op) 

Edwards, Jonathan (Carmarthen East and Dinefwr) (PC) 

Evans, Chris (Islwyn) (Lab/Co-op) 

Evans, Jonathan (Cardiff North) (Con) 

Flynn, Paul (Newport West) (Lab) 

Francis, Dr Hywel (Aberavon) (Lab) 

Griffith, Nia (Llanelli) (Lab) 

Hain, Mr Peter (Neath) (Lab) 

Hanson, Mr David (Delyn) (Lab) 

Hart, Simon (Carmarthen West and South Pembrokeshire) (Con) 

Havard, Mr Dai (Merthyr Tydfil and Rhymney) (Lab) 

Irranca-Davies, Huw (Ogmore) (Lab) 

James, Mrs Siân C. (Swansea East) (Lab) 

Jones, Mr David (Secretary of State for Wales)  

Jones, Susan Elan (Clwyd South) (Lab) 

Kawczynski, Daniel (Shrewsbury and Atcham) (Con) 

Llwyd, Mr Elfyn (Dwyfor Meirionnydd) (PC) 

Lucas, Ian (Wrexham) (Lab) 

Moon, Mrs Madeleine (Bridgend) (Lab) 

Morden, Jessica (Newport East) (Lab) 

Morris, David (Morecambe and Lunesdale) (Con) 

Mosley, Stephen (City of Chester) (Con) 

Murphy, Paul (Torfaen) (Lab) 

Newmark, Mr Brooks (Braintree) (Con) 

Ruane, Chris (Vale of Clwyd) (Lab) 

Smith, Nick (Blaenau Gwent) (Lab) 

Smith, Owen (Pontypridd) (Lab) 

Tami, Mark (Alyn and Deeside) (Lab) 

Williams, Hywel (Arfon) (PC) 

Williams, Mr Mark (Ceredigion) (LD) 

Williams, Roger (Brecon and Radnorshire) (LD) 

Willott, Jenny (Cardiff Central) (LD) 

Neil Caulfield, Fergus Reid, Committee Clerks

† attended the Committee

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Welsh Grand Committee 

Wednesday 5 February 2014  

(Afternoon)  

[Martin Caton in the Chair] 

Silk Commission

2 pm 

Question again proposed,  

That the Committee has considered the matter of the Government Response to Part 1 of the Commission on Devolution in Wales. 

The Secretary of State for Wales (Mr David Jones):  On a point of order, Mr Caton. I apologise to you and the Committee, because I obviously hoped to be here this afternoon, but as you probably heard at Prime Minister’s Questions there is to be a meeting of Cobra at 2.15 pm, led by the Prime Minister, and I am requested to attend. I hope that you and the rest of the Committee will accept my apologies for having to leave. 

The Chair:  Thank you for that information, Secretary of State. I call Paul Murphy. 

Paul Murphy (Torfaen) (Lab):  We all understand the Secretary of State’s position. I have reached my 65th birthday and find it incredibly cold in here. Perhaps we could raise the heating, not necessarily through the speeches that we make, but through mechanical agency.  

I referred this morning to the Government’s proposals on income tax in Wales. I repeat that I do not think they are worth a referendum. Referendums cost a great deal of money and are normally held to deal with great weighty matters of state. When there is a proposal that talks about locksteps, when the detail of the draft Bill is utterly confusing and confused, and when it would not raise a single penny extra for the people of Wales, that makes it very hard to explain to people why they have to go out on a wet and cold Thursday night to vote in favour of it. 

That takes me back a few years to 1999-2000, the first time I was Secretary of State for Wales, and we were dealing with the issue of objective 1 funding from the European Union. Members of an advanced age will recall that in those days the issue was not the fact that we had won objective 1 funding, which was a great accolade for the Welsh people, but rather whether the money that came from Brussels was going to be genuinely additional to the money being received from the then Labour Government in London. 

The argument raged. The Treasury officials, over-cautious as they always are, were advising the then Chancellor, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), that it would be impossible to break the precedent, that the world would collapse on top of them if they suddenly agreed that the objective 1 funding would be on top of the funding that came from the block grant. For months they held that line, saying that if, for the sake of argument, we got £1 billion

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from Brussels there would be £1 billion less from London. There might have been a couple of things around the edges that would have been beneficial, but that was the essence of it. It was not worth going to Brussels to get the extra money unless it was genuinely extra. The same applies to this argument about income tax. Unless we can genuinely raise money with income tax, we should not burden people with having to go to a referendum to deal with that issue without knowing that they are going to get more money in their coffers. 

If I were an Assembly Member, I would argue that if I could raise the income tax by a penny in Wales and that could bring in £250,000—my hon. Friend the Member for Pontypridd gave us some figures this morning—that £250,000 could go specifically to cancer care or whatever it might be. We would ring-fence it so that people would know where their money was going. Those arguments pale to nothing if they are only about whether we can tinker a bit with the rates, and whether in years to come some extra money might come into the coffers from people who earn a bit more. It is simply not worth it. 

I turn to a point on which I agree with the Government. There is all-party support in the Committee on the issue of borrowing. I do not know why the Government of whom I was a member did not address it earlier. Perhaps it was too early in the devolution process. Certainly no Government, particularly one at Welsh level, can manage business properly without a borrowing function. This morning, my hon. Friend referred to the great discrepancy between Scotland’s and Northern Ireland’s ability to borrow. The figure in the Bill of £500 million for capital spending has no relationship to the borrowing ability of Scotland or Northern Ireland. For the life of me, I cannot understand it, unless my bête noir, the Treasury, has put down an arbitrary figure. 

Northern Ireland, for which I was finance Minister for two years, is half the size of Wales in every sense, but is able to borrow up to five times as much as we will be able to under the Bill, and it does not have the income streams from income tax that the Government are proposing for Wales. The devolution of minor taxes—landfill tax, stamp duty and business rates—is good news for Wales because they will give us an income stream, but it is right that the Assembly is able to vary them according to the needs of the Welsh people. In essence, £500 million simply is not enough. It is almost hardly worth it; it is the price of six flats in Mayfair. It is ludicrous that Wales, with a population of 3.5 million and a budget of £15 billion, will be able to borrow only £500 million. Hon. Members may say, “Ah, but Northern Ireland spends more money proportionally.” However, that money is linked, first, to a large security budget, and secondly, to the almost fictitious devolution of social security, which is effectively the same as Britain’s but is cosmetically run by the Northern Ireland Assembly. 

The Under-Secretary and his boss will have to go back to the Treasury to argue the case, but the Treasury has got bigger fish to fry. It has got bigger things to worry about than whether Wales can borrow £500 million or £1 billion. It is nothing to the Treasury. It has become fixated by its obsession with precedents. The reality is that there should be equality among the borrowing functions of Wales, Scotland and Northern Ireland. There is not, and that should be righted. There are battles to be fought. 

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The Parliamentary Under-Secretary of State for Wales (Stephen Crabb)  rose—  

Paul Murphy:  I am not going to fight a battle with the Under-Secretary. I am quite happy to give way to him. 

Stephen Crabb:  As ever, the right hon. Gentleman is making a good speech. He makes the point that there needs to be equality among the component parts of the UK. Several times he referred to Northern Ireland providing a benchmark against which to assess our proposals for borrowing powers in Wales. However, as I am sure he knows from his vast, distinguished experience of Northern Ireland, the functions of the Northern Ireland Assembly are quite different in scope from those of the Welsh Government. In particular, the Northern Ireland Assembly has the power to collect the equivalent of council tax, business rates and other taxes, which in England and Wales are the responsibility of local authorities. He is not comparing like with like. 

Paul Murphy:  I understand that. This morning—the Under-Secretary can read my speech when he gets the opportunity, as I am sure he will on a dark Friday night—I talked about the fact that the business rate in Northern Ireland is dealt with centrally by the Northern Ireland Assembly; I varied it when I was the finance Minister. But that argument is not sufficient to account for the huge gap between Wales and Northern Ireland, which gets more than £2 billion and has half the population of Wales. It may account for some of it, but not all of it; it is about the Treasury again. The Treasury has a serious job to do, but I am not sure that it understands devolution and how important it is that we have entered a new political world. 

I used to meet the Chancellor of the Exchequer once or twice a year, as all territorial Secretaries of State do, to deal with the Budget, the autumn statement and other issues. Lots of Whitehall Departments share the Treasury’s belief, and the job of the Wales Office is to disabuse them of it. We must ensure that they are aware that we are in a different world and that devolution has brought a different type of government to the governance of 10 million of our people. That has not been accepted. Although there are technical issues that have to be addressed, the politics is such that half a billion pounds, in relative terms, is too little. That is a criticism; nevertheless, I applaud the thrust of the Bill, which is that borrowing powers will be given to the Welsh Government. The First Minister and all parties in Cardiff agree with that. 

We look forward to debate on the Bill on the Floor of the House, whenever it comes. We will discuss other issues that we will not be allowed to touch on today, such as the size of the Assembly, the length of the term, dual representation and so on. Those are all important, but central to any Government institution is how it gets its money. 

Finally, I make the plea that we must have a resolution of the Barnett formula and the block grant, because the relationship between that and anything raised by way of revenue will be critical to the future well-being of our people. Ultimately, whether decisions are made by MPs or AMs, what matters is the services that people receive, particularly at times such as this. 

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2.10 pm 

Glyn Davies (Montgomeryshire) (Con):  The issue is particularly important to me, because for eight years I served as a Member of the National Assembly and was involved in the governance of Wales, and for four years I have served here. That gives me a broad perspective on where we are. 

Today we are considering the Government’s response to part 1 of the Silk commission’s report, but generally the way in which Wales is governed is also part of the debate. Perhaps I should give some context on the thought processes that have led me to believe what I believe now. 

In 1999 we had a referendum on whether there should be a National Assembly at all. I was not in favour, and I tried to persuade the people of Montgomeryshire not to vote for the Assembly, as it did not seem that a rational institution was being offered. I did not think that it would have the powers to be a proper governing body; I just thought it would be a new administrative body without much point. That was my view then, but as soon as Wales voted yes, I took a completely different view. It was obvious immediately after the vote that we would have a National Assembly for Wales and that, for it to be a realistic body, it should have law-making and tax-raising powers. I served on various bodies—community councils and district councils—and they all had tax-raising powers. To have a governing institution without such powers or fiscal accountability seemed nonsensical. 

Paul Murphy:  The hon. Gentleman makes a valid point. A local authority has a revenue-raising function, in that it can adjust council tax up or down or leave it the same. That, however, does not affect the grant that comes from the Welsh Government. Council tax is unaffected by the Welsh grant, which remains stable, so what comes in from the council tax is over and above what comes from central Government. That will not necessarily be the case in the future. 

Glyn Davies:  I thank the right hon. Gentleman, but when I was the chairman of a district council finance committee, we had a fixed sum from the then Welsh Office, acting on behalf of the Government. The biggest debate of the year in the council, by a long way, was on the level at which we set the rate. We would speak for probably four hours, arguing bitterly about an increase of 1%, because the councillors had accountability to the rate payers. If they put it up by 2p, there would be an outcry in the local newspapers. There was therefore pressure on the councillors to keep that rate down. 

Paul Murphy:  Of course, and I understand that. I was once a chairman of a finance committee in Wales, too, but I knew that if I put up the council tax by a penny, that would not automatically mean that I would lose from the block grant. That could happen in this case. 

Glyn Davies:  I do not accept that. I want to come to income tax later on, but there is a principle here, and that is not the case. If the Welsh Government used their power to raise or lower income tax, that would not affect the block grant. It would be a decision to raise or lower rates within their 10%. It would not affect the block grant. Transferring money from one institution

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to the other obviously would affect the block grant, because it would clearly reduce the amount of money that travels by block grant, but that is just a straightforward way of establishing financial accountability and tax-raising powers for the Welsh Government. 

Owen Smith (Pontypridd) (Lab):  Perhaps the Minister will clarify this later, but I think that the hon. Gentleman misunderstands what is proposed, which is precisely what my right hon. Friend the Member for Torfaen says. Any additional moneys raised through putting up a Welsh rate in Wales would be netted off the block grant and indexed against any increase in the revenues provided to Wales compared with England. That is what Silk proposed and what the Conservative-led coalition has accepted in the Bill, so the situation is precisely as my right hon. Friend describes. 

Glyn Davies:  I simply do not accept that interpretation. I, too, look forward to the Minister’s response when he is clarifying the matter for the shadow Secretary of State. 

I want to go back to where I was before I was derailed a little—the context of the matter. In the mid-1990s, we moved to give law-making powers to the new institution, and every party was of the view that it had to have some financial accountability. As a lot of people giving evidence to the Welsh Affairs Committee said, when there is anything that might be deemed favourable, the Welsh Assembly Government say to the Welsh people, “Aren’t we wonderful?” When anything is unfavourable, they blame the Westminster Government for not giving them enough money. We have to get to a position where there is a debate within the National Assembly for Wales about balancing off the amount of money it raises against the amount of money it spends. To my mind, that is crucial. 

At one stage, I was the finance spokesman for the Conservative party in the National Assembly. We had a budget annually, although I would not use the term “budget”. I always used the term “spending plan”, because it was not raising any money. It was a straightforward spending plan, and to my mind it was dealt with pretty quickly. The first year, it was potentially a budget and there was a big debate, but it has become much more relaxed and casual, because does not raise any money. It is not really a contentious issue. 

I believe, and I thought all parties agreed, that we need to move to a position of financial accountability for the National Assembly. That is one of the two reasons why the Silk commission was established. The first was to deliver fiscal accountability to the Assembly and the second was extend more powers. I thought that there was a measure of consensus and agreement about that. When we dealt with the matter in the Select Committee, there seemed to be a fair measure of consensus. 

Clearly, there are going to be areas for discussion. The right hon. Member for Torfaen mentioned the Barnett formula. I can perfectly well see, and the Silk commission recommended, that that issue needed to be addressed. There are issues that we need to talk about as we move forward, but that is part of the debate and discussion, and there will be different views within each

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party. However, today the Opposition have pretty well completely torpedoed part 1 of the Silk commission recommendations, because the most important aspect of that was devolution of income tax. If that is not going to go ahead, Silk 1 looks dead in the water, completely torpedoed by what seems to me to be the changed position of the Opposition. 

Roger Williams (Brecon and Radnorshire) (LD):  The hon. Gentleman will have served in the Welsh Assembly with Sue Essex and Jane Davidson, and I am sure he will agree that they must have been very disappointed by the words of the shadow Secretary of State for Wales today. 

Glyn Davies:  I thank the hon. Gentleman for that comment. I was genuinely surprised by the tone of the Opposition today on this issue. It was clearly an orchestrated tone, because several Members took the same view. The Trojan horse started it, and there were other comments. It is pretty clear that there has been a discussion about it. I am not sure whether all Opposition Members have agreed. [ Interruption. ] That, too, is an interesting comment. There has clearly been discussion in the Conservative party, and there will be more. It is right that there should be. We should discuss various aspects of how the Silk recommendations will go forward. That is the serious, adult way to progress, not to dismiss completely the main thrust of the report and torpedo it. Perhaps I should not have used the word “discussion”; I would like to have been a fly on the wall when the matter was discussed, because the Labour party’s orchestrated view is clearly that it wants to torpedo Silk at this early stage. I cannot see how Silk can possibly recover from the blow that has been dealt it today. 

Hywel Williams (Arfon) (PC):  For clarity, will the hon. Gentleman tell the Committee what he thinks of the lockstep proposal? Is there unity on the Government Benches on that matter? 

Glyn Davies:  There are issues to consider relating to income tax. I will come to that issue now—I was going to come to it later. To me, that is the key part of the Silk commission’s recommendations. I know that there has been debate, and I have said publicly that I would have preferred there not to be a lockstep. However, I still think that giving the Assembly the power to levy income tax without a lockstep is a big step forward. What I would then have done—we could still do it—was to ensure that if the referendum went forward there was a degree of flexibility in the question. That might have enabled us to return to the issue at a later date without a referendum. That is the proper way to make an important change in how we govern Wales. 

Within each party there will be different views, and there is nothing wrong with that if one has been open and public—I do not see why we should hide those views. It is a matter on which there will be debate. Some people in my party might agree with my view; others will not. In the end, we will come to a compromise and agree the Bill as it goes forward—that is, if it goes forward, as today’s events have made it extremely doubtful that it will in any meaningful way. 

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Guto Bebb (Aberconwy) (Con):  My hon. Friend is making a powerful speech on this issue. Does he agree that discussing the lockstep now, after what we heard this morning, is rather immaterial? We heard from the Opposition this morning a rejection not only of the draft Wales Bill but of the main thrust of the Silk report. Surely that should be the issue for debate today, not whether we are in favour of a lockstep. 

Glyn Davies:  I agree with my hon. Friend, but I do not think it is surprising that when the Opposition make a huge change in position and policy, they seek to divert attention from it. They would not want the Welsh media to discuss it. The shadow Secretary of State’s speech this morning was the most negative contribution that I have ever heard from the Opposition on the development of Welsh devolution. As I said in my intervention on the right hon. Member for Dwyfor Meirionnydd this morning, I interpreted it as showing that today the Labour party had established itself in Wales as the anti-devolution party. That is how I genuinely feel it will be seen in future—and rightly so. 

Owen Smith:  The hon. Gentleman is giving a bravura performance, but he protests too much in characterising my speech this morning as being anti-devolution. It was not. It was anti the prospect of Wales’s prosperity being damaged by an ill thought-through proposal from a Tory Government who are more concerned with scoring party political points than with working in the interests of the people of Wales. We are not opposed to Silk, we are opposed to handing income tax powers to Wales that would potentially undermine the prosperity of the Welsh people in the short term and would, in our view, in the long term undermine the glue that holds Britain together and undermine the Union. If he is sanguine about that these days, it is the Tory party that has changed its position, not Labour. 

Glyn Davies:  I thank the hon. Gentleman for repeating the position that he set out this morning. Indeed, when the Secretary of State asked him what he accepted in the Silk commission report, he said, “The borrowing powers” Nothing else; just extra borrowing powers. As far as Labour is concerned, everything else in part 1 of the commission’s report is dead in the water and will not be supported. 

Simon Hart (Carmarthen West and South Pembrokeshire) (Con):  The Welsh Affairs Committee took evidence from Labour politicians in Cardiff, academics who are expert in this field, and pressure groups such as the Federation of Small Businesses. Each one of them painted a very different picture from what the shadow Secretary of State has stated, so will my hon. Friend tell me who is right? 

Glyn Davies:  It comes down to one’s general view. I want to see a National Assembly for Wales with a Welsh Government who are genuinely fiscally accountable to the people of Wales. Business does not look for money to be given; it knows that it has to be taken, and there is a balance. Every Government have that debate. Even Berriew community council, which I chaired, had that debate—it was a vicious debate, and we were talking about only a few pounds. The Welsh Government,

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however, do not have such debates. They have an annual debate about what sort of jockeying can go on to move a little bit of money from one budget head to another so that they can get a majority to carry it through, but it is not a real debate, which is why it does not engage the Welsh people at all. 

There is another point on which I want to comment. I take a different view from some in my party, so I am afraid I will have to concede on the need for a referendum, but I am not a fan of referendums. Very often they are a way of not confronting an issue. If the parties elected—not necessarily all parties—have formed a Government after making a commitment in their manifestos that they will introduce a policy in Wales, that should be sufficient for the Government to carry it through. However, I accept the Silk commission recommendations, and one of those was that there should be a referendum. There is a general expectation, certainly among all the witnesses who came to the Welsh Affairs Committee, that there should be a referendum, so I do not want to push the matter. When the Silk commission’s recommendations have been so damaged and torpedoed by the Labour party—the Welsh Labour party—it seems totally superfluous to argue about other things, as that takes us away from the crucial issue. It might surprise people to learn that we have an anti-devolution, anti-Assembly Opposition here at Westminster. 

2.28 pm 

Chris Evans (Islwyn) (Lab/Co-op):  It is a pleasure, Mr Caton, to serve under your chairmanship. On such a dry subject as the Silk commission proposals, it is clear that there has been a lot of passion and fire, which I was not expecting in this debate. 

At a conference in May 2013, AMs were told by political commentators that they did very little to create any interest because of the structure of their debates. Every day, the Welsh media are dominated by another commission—Silk or the Williams commission—and now we are told the only way in which the Assembly can create jobs to stimulate the economy is for it to have tax-raising powers. Yes, we can say that tax policy stimulates the economy, but we have to be innovative with tax policy. The lockstep means that if we raise income tax by a penny for middle-income earners, the rate for top earners has to go up. Equally, if we cut tax by a penny for middle-income earners, the tax has to come down for top earners. When the Chancellor of the Exchequer decided to readopt Reagonomics at the start of this Parliament and reduced tax for top earners by 5p, I am sure he would not have thought that it made economic sense to reduce it by 5p for everybody else, even though that would have been welcome. 

If we introduce a lockstep, we tie the hands of the Assembly and make tax policy absolutely useless, because we cannot do anything to stimulate the economy if all we can do is move up one tax band. 

Glyn Davies:  If there were no lockstep, would the hon. Gentleman support adding income tax policy to the Assembly’s powers? 

Chris Evans:  I will develop that argument in my speech, but if tax policy is to be devolved, all of it has to be devolved, and the First Minister or the Finance

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Minister must be allowed to set their own tax rates. That is common sense. A lockstep says one thing to the people of Wales: their Assembly Members cannot be trusted with tax policy. That is quite simple. 

Hywel Williams:  Surely any discussion by the hon. Gentleman or others on tax policy is entirely redundant given that, as the shadow Secretary pointed out this morning, the First Minister has been extremely clear, and he does not think income tax-varying powers are a priority for Wales, so why is the hon. Gentleman bothering? 

Chris Evans:  I will address that later in my speech, if the hon. Gentleman gives me time. I think he has read the same article that I read, but if he looks closely, I think the First Minister said that such tax powers would be like saying to someone who was buying a car, “You can have this car, but it only has one gear on it.” I agree about that. There are lockstep tax policies in Scotland, but the taxation powers are not being using. It would also be a very brave Government who wanted to put up income tax when most of our general elections are fought on who will put taxes up and who will not. 

What concerns me more than anything is that although it is very worthy to talk about tax-raising powers and more powers for the Assembly, we are once again debating constitutional issues in this Committee and, to make matters worse, we are talking about a referendum. Wales is becoming famous for the two Rs: rugby and referendums. I had some sympathy with the hon. Member for Montgomeryshire when he said that he did not like referendums—neither do I. As I said about tax-raising powers, referendums tell the people who are electing their Assembly Members that those Members are not trusted to make major decisions, so we have to go back to referendums. 

In the 2011 referendum, people all over Wales were apparently saying that they wanted more powers for the Assembly, but the truth was that the turnout was 35%. The process cost Wales. Just do some number crunching: 2,289,044 were eligible to vote, but only 815,620 did, so the cost per vote cast was £7.22. I am sorry, but for me, that is not money well spent. The truth is that if I knocked on the door of everyone living in Islwyn and tried to explain the consequences of Silk, I would be met with complete indifference. 

However important Committee members think that Silk is, and however important the Welsh media think it is, the average person in Islwyn does not care. If they were asked what that £5.8 million should have been spent on, they could think of a few things: welfare reform, health and education. Since the foundation of the Assembly in 1999, after we first voted on that constitutional package, it has been dominated by constitutional issues and constitutional reform. That is a real problem for the Assembly and it is a real problem for Members of Parliament. 

Jonathan Edwards (Carmarthen East and Dinefwr) (PC):  May I try to summarise the hon. Gentleman’s position: there should not be a lockstep; we should have the full Silk proposals; and Silk should be implemented without a referendum? That is basically my position. 

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Chris Evans:  I shall respond as I do to my favourite three questions: yes, no, and she was my cousin. 

People in constituencies such as mine are experiencing more pressing issues, such as worrying about making ends meet from pay cheque to pay cheque. There is even the absolute madness of the leader of the Conservative and Unionist party in the Welsh Assembly writing to the hon. Member for Monmouth, the Chair of the Welsh Affairs Committee, to suggest that the Welsh Assembly should be changed to the Welsh Parliament. I know that that is a vote winner in some areas, but not where I come from. 

People simply are not writing to me about Silk or Barnett, and, to top it all off, in the past couple of weeks we have had Williams. I do not want to stray too far from the motion, Mr Caton, but it has been proven time and time again that council revaluations cost money. We must ask ourselves whether this is the best use of public money. In Islwyn, that money could be used for job creation programmes, rather than the reorganisation of councils. 

The decisions that we and the Welsh Assembly make determine whether a family can afford to buy what they want in the supermarkets and whether they can enjoy a meal on the table. When I hold surgeries on Fridays, most people want to talk about the cost of living crisis. Their concern is not about what we want the constitution to be. We need to get back to what Otto von Bismarck, the original iron Chancellor—I know that that title has been claimed by many Chancellors, both Conservative and Labour, over the years—called “realpolitik”. Realpolitik in my constituency is about the frightening cost of living. 

Guto Bebb:  The hon. Gentleman talks about real politics, but surely real politics is people in Wales knowing where to lay the blame when things go wrong in Wales. Is it not a failure of our democracy that people in north Wales blame Westminster rather than Welsh Labour for the failure of their NHS? 

Chris Evans:  I am disappointed in the hon. Gentleman. When I mentioned Otto von Bismarck, I thought we would debate his legacy, but the hon. Gentleman has gone back to politics. To be honest, the reason why people blame the Westminster Government is because of what they see happening. They see the cost of living crisis: the cost of food going up and up; the cost of petrol going up and up; and their being ripped off by energy companies. And then what do they see: a Government doing absolutely nothing. That is why they lay the blame on the Conservatives. 

This seems never ending. We had the Silk commission report we are debating, and now the commission is working on the second part of its remit—the powers of the Welsh Assembly—with a report to be published this spring. I can tell you, Mr Caton, that I can hardly wait. It is keeping me awake at night, just like Christmas when I was a child. 

Hywel Williams:  I am reluctant to interrupt the hon. Gentleman’s flow, but will he consider the alternative explanation? We have what he calls a constitutional obsession and moves to change the Assembly because we did not get things right in the first place. 

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Chris Evans:  To be honest with the hon. Gentleman, the problem with the Welsh Assembly was that we had a referendum that was won on less than 1% of the vote, on a turnout that was not what we expected, and then we rushed into the Assembly elections. At that point, we needed to take a step back to win people over to the Assembly and to ensure that the constitutional settlement was right. I supported the Assembly at the time and I support the Assembly now, but we needed to think about whether there would be problems with way we chose to elect the Assembly. There is still a debate about that 15 years on, so a lot of work is still to be done. 

The one thing we do know is that the Assembly needs borrowing powers—my right hon. Friend the Member for Torfaen touched on this. I know it; the First Minister knows it; everyone in the room knows it. Even the Secretary of State for Wales knows it. We cannot do anything about improving services or providing new ones without extra finance, and that will come only through borrowing. Limited borrowing powers and insufficient funds in the cash reserve mean that vital services will not be replenished in long term, and those services directly impact the lives of my constituents and cause real concern. Now that we have established that fact—I think we have done so today—let us just get on with it. We do not need any commission or referendum; put it in the Wales Bill, and let us have a debate on the Floor of the House and get it done. 

Simon Hart:  Unfortunately, I will have to leave, but I am so fascinated by the hon. Gentleman’s speech that I am going to stay for now. Which borrowing powers and which bits of the Wales Bill is he referring to? What is not being delivered by what is before the House at the moment? He seems to be complaining about something that the Secretary of State is delivering although, I have to say, the hon. Gentleman’s party did not deliver it in all the years when it had the opportunity. 

Chris Evans:  As my hon. Friend the Member for Pontypridd said this morning, this is unfinished business. We know what the problem is, so let us get on with it. 

At the same time, let us once and for all settle the constitutional conundrum, because otherwise we will be back here debating the issue year after year, which will turn more people off and make turnout lower than ever. We have come to the point where we have to draw the line. I apologise to you, Mr Caton, and to Conservative Members because I am going to swear now. The problem we have—I will whisper it—is that we could end up like the European Union—[ Interruption. ] There we are; somebody is leaving already. 

We have seen treaty after treaty while tying ourselves in knots and ripping ourselves apart, as Government Members have done, with little satisfaction. The hon. Member for Ceredigion raises his eyes as if to say that that has nothing to do with him. We have had all that, yet never a settlement. It is always about what is the future and what does the constitution say. Unless we nip this in the bud now, we are moving away from what is most important in Wales: health, education and transportation. 

Whether someone is a councillor, an Assembly Member or a Member of this House, we all have the responsibility to represent people. I can confidently say that we have to start focusing on the issues that concern people.

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I know that people in constituencies such as Islwyn expect outcomes from Government and the Assembly, but they have many questions and they expect answers. I can answer only certain questions. My aim to is to try to aid my constituents in every possible way, but I can do that only when we start talking about the realpolitik that I mentioned, rather than the constitutional nightmare we have found ourselves going through. That should be the aim of the Assembly and this House, but I am constantly disappointed that constitutional reform seems to be the only thing on the agenda, when the people of Islwyn want to focus on the bread and butter issues of health, education and employment. 

2.41 pm 

Mr Mark Williams (Ceredigion) (LD):  It is a privilege to speak under your chairmanship, Mr Caton. We seem to be getting through quite a few Chairs of the Committee: Mr Havard two weeks ago, Mr Owen this morning and now you. It is also a privilege to follow the hon. Member for Islwyn. He used the phrase “nip it in the bud”. The right hon. Member for Dwyfor Meirionnydd talked of “grasping the opportunity”. I do not think that this is a great problem. This is not a constitutional nightmare; it is a huge opportunity, to the credit of our coalition Government. There might be a few issues that the Conservative party needs to reconcile—that is its business. 

This is an opportunity. I welcome the fact that this Government, maybe based on the Calman model under the Labour Government, set up the Silk commission. This Government, after some delay, welcomed the publication of the Silk report and presented a draft Bill before the Welsh Affairs Committee, of which I am a member. I sincerely hope that the Government will speedily put before us a Wales Bill on the basis of the recommendations of Paul Silk and his commissioners. 

We should pay tribute to all the commissioners. My hon. Friend the Member for Brecon and Radnorshire mentioned Sue Essex, replaced by another admirable Labour colleague, Jane Davidson. I wonder about their reaction to some of the comments this morning. I listened to this morning’s debate with sadness. Up until now, we had achieved consensus: the creation of the Silk commission and the participation of the four parties. The right hon. Member for Dwyfor Meirionnydd said that that was not without some compromise by his party. The conclusions of the Silk commission represent a compromise for some of us. 

However, it is sad that we seem to have deviated from the consensus that operated. There was unanimity among all Assembly party leaders in seeing the Silk report as a package. I want to associate myself with that phrase: seeing Silk as a package. That leads me, not in an unhealthy way, to question part of the Government’s response, part of the material that we are looking at in the Welsh Affairs Committee. 

It was refreshing to hear the hon. Member for Islwyn talk about his concerns about the lockstep. I also agree with what he said about referendums, although I come to the same conclusion as my hon. Friend the Member for Montgomeryshire. Wales is suffering from referendum fatigue and I suppose—guilty as charged—my party must share some of the blame for the insistence on referendums. Whether that is the inevitable result of

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compromises in a coalition, that fatigue is a real concern. If parties have clear statements in their manifestos on the direction of travel, we should rest on the verdict given at election time rather than go down the referendum route. The Silk package, however, did talk about having a referendum.

The Silk commission has made a serious attempt to tackle the deficiency in the devolution settlement: notably, the lack of responsibility and accountability. The hon. Member for Pontypridd is right to talk about the Assembly’s legitimacy, because it is elected. No one questions that, but the Silk commission has properly identified not just accountability, but the opportunities of economic incentivisation, empowerment, efficiency, equity and, above all else, responsibility. It is that relationship between people seeing politicians spending money and how that money is raised. 

Wales struggles relative to the rest of the United Kingdom. I do not want to beat out a negative lament—despite this morning—on the economy. We see good signs and we heard the figures on unemployment last week. However, we remain at the bottom of most indices of poverty and deprivation. We need action. Economic incentivisation that stimulates the private sector is critical, because that will create the wealth that will improve our public services. 

I turn to landfill tax and stamp duty. True, in terms of revenue, those taxes are not massive generators: they generate £200 million a year, or 0.33% of an overall budget of £50 billion. However, I think we all welcomed the fact that stamp duty land tax could be used to encourage inward investment and business generation, which would provide a much needed boost to the economy. 

I will repeat what I said about the income tax proposals, the lockstep and the referendum. First, I very much welcome the Government’s recognising the case for partial devolution of the income tax system. I was glad that the leader of the Conservative party in the National Assembly used the phrase “a Parliament”, rather than an Assembly. It is an oddity when any Parliament does not have taxpayers. There is the principle that legitimacy will be enhanced by Government not only spending money, but having the capacity to raise money. However, I have concerns about the lockstep. 

Guto Bebb:  I am sure that issues on the lockstep will reflect some of the evidence we heard in the Welsh Affairs Committee. Does my hon. Friend agree that the real issue about the income tax devolution proposals is the widening gap between the Labour party in Westminster and in Cardiff? The Welsh Government’s response to the Select Committee’s work was clear: they were supportive of income tax devolution. Is he as surprised as I am by the apparent rejection of the Welsh Labour party’s view by the Opposition in Westminster? 

Mr Williams:  I am grateful for that intervention. The hon. Member for Arfon, who is no longer in his seat, gave us a good quote this morning from Ms Jane Hutt and the Labour party’s line at that time was clear. I do not say this for political point scoring—we had a lot of that this morning—but in sadness. There was consensus in the National Assembly that that was the way in which

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the devolution project should be advanced, but part of this Committee seems to be heading into a cul-de-sac while others wish to move on. 

Owen Smith:  I want, once more, to remind members of the Committee that they need to keep up with the debate. We can all look back at what the Welsh Labour party submitted as evidence to the Select Committee and see that it did not call for devolution of income tax. Our position on that has not changed. 

Guto Bebb:  On a point of order, Mr Caton. A paper submitted to the Welsh Affairs Committee on 15 January 2014 made it very clear that the Welsh Government were supportive of the devolution of income tax. That is a point of fact, not a point of opinion. 

The Chair:  It is not a point of order, anyway. 

Mr Mark Williams:  My hon. Friend the Member for Aberconwy may be more assiduous in his reading of these papers than I am. The point I wanted to make to the hon. Member for Pontypridd when he did not take my intervention this morning was that we are going to have a Wales Bill and a Second Reading debate. I suspect that some of us will find elements of the Bill challenging. I still want to know which way Labour Members will vote on Second Reading on the basis of this draft Bill that we, as a Select Committee, are investigating. Opposition Members—indeed, everybody—have talked about the need for borrowing powers. There is an issue about scale, and I agree with some of the Opposition’s comments about the scale of borrowing, and that the £500 million figure should be much greater, but when Labour Members balance all the different dimensions of the Bill, will they vote in favour of it? I hope that they will join the other three political parties in voting for it. 

Jonathan Edwards:  The hon. Gentleman is doing an excellent job in highlighting the inconsistencies that exist between the Labour party in the Assembly and the Labour party here in Westminster. Does he further agree with me that for Labour Members to be consistent in terms of the Government’s current proposals in the draft Wales Bill, based on their comments this morning, they would now renege on the way they voted for the Scotland Bill, which gave these powers to Scotland? 

Mr Williams:  I will come on to the Scottish experience later. It strikes me that we are using Scotland as an excuse and that needs to be addressed. 

The Silk commission recommended, of course, that income taxes should be capable of variation independently to create better conditions in Wales. I have been disappointed by some of the responses from colleagues on the Welsh Affairs Committee about why the lockstep needs to be introduced. I still have concerns that one of the mantras being shared with us is, for some reason, that progressivity must remain exclusively at a UK level. 

On the comments of the hon. Member for Carmarthen East and Dinefwr about Scotland: okay, so Scotland has this provision, but has all the valued work that Silk and the commissioners have undertaken been so that we

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can say, “For Wales, read Scotland”? That is nonsense. We need to be confident in a model that is suitable and appropriate for Wales. 

I was struck by the evidence given to the Welsh Affairs Committee by the Federation of Small Businesses in Wales, which told us that it believed that a current or future Welsh Government would be unlikely to use a lockstep model because it does not provide sufficient flexibility in policy decision making. Indeed, the Silk commission stated in its evidence its conclusion that the availability of capacity borrowing powers is contingent on the level of income tax devolution available to the Welsh Government following a successful devolution referendum. The lockstep model is less attractive and would therefore discourage the Welsh Government from pursuing devolution and the additional capital borrowing powers that would accompany it. 

The FSB in Wales concludes that the lockstep model does not enable Governments in Cardiff Bay to address the fundamental challenges facing the economy of Wales. Gerry Holtham reiterated that point in his evidence to the Select Committee, as did Professor Richard Wyn Jones. In the end, I find myself agreeing with the eminent economics professor, Dylan Jones-Evans—[Interruption.] That has caused some merriment on the Conservative Benches. He said that the most important thing is to give a Government, irrespective of what colour it is, the powers to do the job. That to me is what the Silk package is all about. 

Notwithstanding my disappointments, which are a bit like those of my hon. Friend the Member for Montgomeryshire, the Bill still represents a significant step forward in the devolutionary route that we need to take. It is about having grown-up government and it should not be about “nanny knows best”, with the nanny residing somewhere in Westminster. That is why, in its evidence to the Welsh Affairs Committee, my party made clear its preference for having the flexibility of income tax powers. Without it, we would hope to see more inward investment, a lower tax burden on the poorest and a competitive edge for Wales.

I repeat what I said about the referendum and the concerns expressed to the Select Committee by Professor Roger Scully. He said: 

“An income tax referendum turnout could be lower than the 35% who took part in the last referendum on law-making powers… I suspect that frankly this referendum would make the March 2011 referendum look like of triumph of participatory democracy. I would not be at all surprised if you got turnout levels below 25%.” 

It goes back to when the hon. Member for Arfon challenged the hon. Member for Islwyn about whether we got it right in 1997 and whether the question was broad enough to carry the devolution project through. I suspect we did not. I worry that we will come back here with part 2 of Silk with calls for another referendum. When, if we do not get them now, we get tax-varying powers, there will be another referendum further down the line. That is not the way to proceed with devolution. 

Hywel Williams:  I am glad to agree with those views. Does the hon. Gentleman also agree that were we to have a referendum—I hope not—it should be on the Scottish model and a general agreement that the Assembly has various tax-raising powers and then it could just about get on with it without further consultation? 

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Mr Williams:  I very much agree with that. The hon. Gentleman has returned to the Welsh Affairs Committee for the duration of this inquiry. He knows that we will be looking at the generality of the question to carry us forward. 

On borrowing powers, if there has to be a figure in the Bill, the Welsh Liberal Democrats believe it is only fair that we have a figure that is comparable with Scotland. Therefore the figure prescribed by the Government needs to be higher—we are looking at something in the region of £1 billion. I have heard that if it was just on the basis of tax receipts, the figure could be £100 million or £130 million. I guess that £500 million in that climate should be progress. If we are told that we have to replicate Scotland’s income tax policy, it is wholly appropriate that we should aspire to something greater and look to our colleagues in the Wales Office to make that point to the Treasury. As consistency with Scotland is one of the central arguments adopted by the UK Government in all this, they should surely concur. 

The Silk report recommended that Wales should be able to issue its own bonds, but provision for that has not been included in the draft Bill. Other local bodies, such as housing associations, can issue bonds in the UK. Again, the Scotland Act 2012 allows for the UK Government to devolve bond-issuing powers without further primary legislation and so there should be parity. I fear—I hope I am proved wrong—that if we do not have progress on some of these measures, particularly the lockstep, Silk’s serious recommendations will be parked, kicked into the long grass or given ill thought out tag-ons. I do not want that to happen to an important principle such as tax-varying powers. It is ultimately our destiny and we need to respond to that once the Bill is published and we debate these matters. 

I commend the Government’s record on devolution. I look forward to the Wales Bill. My frustration, if it is anything, is that we are taking tentative steps when we should be taking strides forward. I want grown-up government. Some have used the word “maturity”. The tools must be available to our Ministers in Cardiff. In addition, we must remember the well known adage that time and tide wait for no man. This will happen. We are moving remorselessly in a devolutionary direction. My party has campaigned for this for many years. We need the foresight to map that out, preferably without all these referendums, as we move forward. 

To sum up from a Liberal Democrat perspective, I quote from our former party leader Jo Grimond, who famously—at least in Liberal Democrat circles—said:

“I do not like the word devolution as it has come to be called. It implies that power rests at Westminster, from which centre some may be graciously devolved. I would rather begin by assuming that power should rest with the people who entrust it to their representatives to discharge the essential task of government.” 

He said that way back in the 1950s. He continued: 

“Once we accept that the Scots and the Welsh are nations”— 

and we have done— 

“we must accord them parliaments which have all the normal powers of government”— 

with emphasis on the “normal” powers of government— 

“except for those that they delegate to the UK Government or the EEC.” 

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That points to something that the right hon. Member for Dwyfor Meirionnydd spoke about: the reserved powers model of government. That is something we should also aspire to. 

3 pm 

Mr David Hanson (Delyn) (Lab):  It is a pleasure to serve under your chairmanship, Mr Caton. If I may, and much to my surprise, I will add a few words to the debate. I have been spurred into discussion following the course of the debate this morning to put on record some of the legitimate concerns of my constituents, which reflect the part of the world that I represent in north Wales. 

Let me say at the outset that I support devolution. I can remember a time when I had a cup of tea with the hon. Member for Montgomeryshire in the House of Lords, in roughly 1995 or 1996, when he chaired the Development Board for Rural Wales as a quangocrat. At that time, people such as Sir Geoffrey Inkin, who had stood against Michael Foot, were running industrial policy in Wales. Michael Griffiths, a very well-known local Conservative in my part of the world, had eight days a week-worth of commitments sitting on quangos in the quangocracy that we had at that particular point in time. Three Ministers were running the Welsh Office, none of whom, at one particular point in time, had a constituency in Wales. I supported devolution because there was an argument to try to democratise the work of the Welsh Office. 

Glyn Davies:  You could not get rid of me. 

Mr Hanson:  Well, there is an argument from the hon. Gentleman that we could perhaps extend at another date. 

The important point is that support for devolution was about getting local input, local electoral accountability and local democracy for what was effectively run by and large by quangos appointed from Westminster by Ministers who—for a large part of the time in which I was active in politics—represented seats outside of Wales, and who, let us not forget, managed a block grant given to them as part of general taxation without any local tax-raising powers. I supported devolution, and I voted for the proposal in the referendum. My right hon. Friend the Member for Torfaen and I are the only two members of the Committee—and you, Mr Caton—who voted for the Government of Wales Bill in 1998. 

I will therefore not take any lessons about devolution and the need for it. However, we need to take a deep breath and look at the points that have been made by my hon. Friend the Member for Pontypridd which have been reflected across the board in Committee. While I accept that the aggregates levy, stamp duty and the landfill tax are useful additions, and while I thank Paul Silk and his team for that work, I will have been a Member of Parliament for 22 years in April, and this morning, I struggled to think of one single occasion on which anybody has said to me, “Please devolve tax-raising powers on income tax to the Welsh Assembly” in any way, shape or form. If I have done a constituent a disservice—somebody may have written me one or two letters or spoken to me in the street—I will take that comment back, but I cannot genuinely recall such an occasion. 

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Stephen Crabb:  The right hon. Gentleman talks about his support for the initiative on devolution on the basis of its bringing more local input into Welsh decision making and Welsh governance. He has not mentioned, however, that since that initial referendum, there has been another referendum, in which, by a majority of two to one, the people of Wales voted for a full law-making democratic body in Cardiff. Can the right hon. Gentleman think of any other full law-making body in the world that does not have significant fiscal powers? 

Mr Hanson:  Northern Ireland, where my right hon. Friend the Member for Torfaen and I served as Ministers, is one within the devolution settlement. I am sure there are others that I will be able to reflect on in due course. Belfast has full law-making powers and a major budget to determine, but it does not have tax-raising powers, as my right hon. Friend said. 

I am not saying that we will never rule out the devolution of income tax-varying powers or that I will never vote for it in a referendum, but let us pause for thought and consider some of the key implications. I cannot speak for other constituencies, but why is there no demand for the measure in mine? It is probably because many of my constituents work in Vauxhall Ellesmere Port, the banking sector in Chester, Cheshire West and Chester council, and police forces in Shropshire, Merseyside and Cheshire. They work across the border, and they know that the economy in my part of the world goes east-west, not north-south, and does not look to many other parts of Wales. Many of my constituents work in Wales side by side with people who live in the Wirral, Merseyside, Chester, Cheshire or Shrewsbury. Many of the senior officials in my local council live in north Shropshire and commute to my county hall in Mold. The movement is cross-border. 

Why does that matter? It is simple to make a tax code change if tax-raising powers are devolved, but we need to look at the consequences. In my constituency, two Airbus workers could do the same job in the same factory, produce the same goods and contribute the same amount of wealth to the United Kingdom, but have different tax rates depending on where they lived. They could be up or down, depending on whether they lived in England or Wales. 

Does that matter? As my hon. Friend the Member for Pontypridd said, we need to look at unintended consequences. Depending on the level of up and down, there could be housing pressures. In the constituency of my hon. Friend the Member for Alyn and Deeside, there is a street, one side of which is in England and the other side—no further away than the hon. Member for Montgomeryshire is from me in this Committee Room—is in Wales. There will be consequences for house price movements, business movements and individual pay packages. 

Jonathan Edwards:  Surely the same applies if one of the Airbus workers lives in the Wrexham county borough council area and the other lives in Flintshire, which has a different rate of council tax. 

Mr Hanson:  That is indeed a factor. However, this goes to the heart of the argument that I wish to make, along with my hon. Friend the Member for Pontypridd.

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Income tax is part of the glue that cements British society, and I will tell the hon. Member for Carmarthen East and Dinefwr why. [ Interruption. ] Let me move on to services. 

A third of my constituents were born in Chester, at the Countess of Chester hospital. Many of my constituents use public services in England. The railway service from Crewe to my area, which is part-devolved, is partly funded by general taxation and partly funded by block grant support from the Welsh Assembly. If I travel by train from my town in Flint to the Welsh Assembly, I go through Shrewsbury, Church Stretton and Herefordshire, but the line and potentially the ticket are subsidised by the Welsh Assembly. The division of taxation between the Welsh Assembly and the UK Government is a complex issue. 

It would be no different if I represented an English constituency. I am pleased that the hon. Member for Shrewsbury and Atcham is here, and that the hon. Member for Hereford and South Herefordshire (Jesse Norman) has raised this issue. Sometimes people in Shrewsbury, Herefordshire, north Shropshire and Oswestry have to rely on a doctor in Wales for their services. Sometimes they use public services such as libraries in Wales. With the disaggregation of income tax, that is paid for out of income tax, generally through the block grant in Wales or in England. The proposal before us is to have a differential rate of tax that could be higher in England or in Wales, depending on where we are. That creates complexities that deserve full and frank consideration. 

Cardiff airport is owned by the Welsh Assembly—good luck to it. None of my constituents ever fly from Cardiff airport, as it is 170 miles away. My local airports are Liverpool and Manchester. Again, if the block grant element is taken and taxation is raised, the resulting complexities need to be thought through. There are complexities in a differential rate of tax in my part of the world, where I can open my bedroom window in Wales and see the two Liverpool cathedrals, and where I can travel by train to Chester in England in 10 minutes. I can drive in my car and be in England in five minutes. Those complexities need to be thought when we consider the economic impact of differential tax rates either side of the border. 

Glyn Davies:  I am listening with great interest to the right hon. Gentleman. Those are very much the arguments that I would have used before the 1999 vote. There are complexities and they warrant discussion. What does he think of his own Front-Bench speakers virtually ruling out income tax without any discussion? There will not be any discussion because it has virtually been ruled out. 

Mr Hanson:  The hon. Gentleman will not find me divided from those on my Front Bench with regard to today’s discussions. He will find that there are common points made by my hon. Friend the Member for Pontypridd that are worthy of consideration. Those points are extremely important, not just in terms of service delivery and pay levels. There are consequences that have not been thought through, such as impact on houses, businesses and all sorts of things. 

My hon. Friend the Member for Pontypridd rightly pointed to the fact that the Government had looked at independent studies on aggregates, stamp and landfill

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taxes but had not done detailed work on income tax via the Treasury. That is worthy of consideration, particularly as the demand is not there in my constituency. Even when the Silk commission came to my constituency and we had a meeting in Flint library, I was the only person there for the first 25 minutes, with nobody else coming through the door. There is no demand for that level of issue. Let us explore it, but there are serious issues. 

Stephen Crabb:  The right hon. Gentleman makes some important points, as he always does. Can he not see that, by saying that we need to take account of the complexities and tread carefully in our first venture into the devolution of income tax in Wales, his arguments support what we are proposing, which is the lockstep? That preserves the progressive structure of UK tax rates within a Welsh context. That is supported by his arguments about treading carefully around complexities. 

Mr Hanson:  We will look at that. I am not sure that the lockstep is a concept that is easily understood by our constituents, or that it would be reflected in policy, or whether it is just a way of ensuring that we do not increase taxes for richer people or reduce them for poorer ones. 

Owen Smith:  My right hon. Friend is making an excellent speech. I am sure he would agree that the point about lockstep is that, although it might mitigate to some extent the dangers of tax competition, it does not preclude them entirely. There would still be the basic situation that he describes of differential rates on either side of the border. If the Government were serious about this, and not just scoring party political points, as they have done again this afternoon, they would have done the work. 

Mr Hanson:  I agree. My hon. Friend has made valuable points. He said earlier today that 48% of the Welsh population live within 25 miles of the English border, and 10% of the English population live within 25 miles on the other side—6.3 million people in total. 

Hywel Williams:  I do not quite understand why income tax should be singled out in the right hon. Gentleman’s speech when there are other fundamental services such as health services, which have already been referred to. I remember that his Government brought in regional pay, and pay is even more fundamental than income tax. With regional pay, court workers working in Mold were paid differently from workers in Chester, for example. 

Mr Hanson:  I opposed that at the time. It was only in court services, and we supported a national minimum wage. The hon. Gentleman can lob a few stones, but I believe that income tax is a glue that cements our society together. If the Welsh Assembly levies a lower rate of income tax in Wales, yet my constituents still use the Countess of Chester hospital, is that genuinely fair? Is it a viable, long-term proposal for people in my constituency to use the Chester hospital if they pay a lower level of income tax in Wales? 

Guto Bebb:  I hear what the right hon. Gentleman says about income tax, but if Opposition Members have such concerns, how do they explain the position of the

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Welsh Labour Government in Cardiff, which provided papers to the Welsh Affairs Committee in support of income tax devolution? 

Mr Hanson:  I am a Front Bencher; I speak on immigration matters. I have not discussed income tax devolution with my hon. Friend the Member for Pontypridd to inform his view on what he said today, and I have not discussed the matter with any other Member who is here today. I am entitled to have a view as a Member of Parliament for my area. I am also entitled to say to my friends in the Assembly that they are entitled to their view. We are part of a debate, and it is reasonable to raise these issues in this forum. 

Guto Bebb:  The point I am making is very simple. Is the right hon. Gentleman saying that the Welsh Government had not taken into account complexities such as he mentions before submitting a paper to the Welsh Affairs Committee in support of devolving income tax? 

Mr Hanson:  The Welsh Government are entitled to their view. I have not criticised—[ Interruption. ] Perhaps the hon. Gentleman would like to listen, having intervened. A Member of Parliament speaks on behalf of his constituents and says what they would want him or her to say. I am raising issues that I think my constituents would want me to raise, irrespective of the Labour party in Wales, or even, dare I say it, my hon. Friend the Member for Pontypridd. As a fellow Front Bencher, I would not speak against my hon. Friend’s point of view; I would speak to him privately about it. I have spoken today because he happens to reflect the view that I share as a Member of Parliament. It is perfectly reasonable to put our concerns on the record. I do not rule anything out for the future, but there are serious, complex issues in divorcing tax rates in England and Wales. 

Owen Smith:  I want to put on record the contrast between the—dare I say—feeble attempts by the hon. Member for Aberconwy to paint the position as being one of variance between me and Carwyn Jones, the First Minister of Wales, and the remarks made this morning in respect of my speech: 

“Owen Smith is echoing comments made by the first minister and he is right to say that this...is a trap being laid by the Tories.”  

Mr Hanson:  I am grateful to my hon. Friend for clarifying that point. I will move on, because I am conscious of the time. The relevant point is what happens to the block grant if the tax rate goes down or up. How does the block grant relate to any tax-raising power that is made—[ Interruption. ]  

The Chair:  Order. Will Members cease making comments from a sedentary position? 

Mr Hanson:  I am grateful, Mr Caton. If, for example, a future Welsh Government of whichever hue chose to raise taxes in Wales and brought in a differential tax rate that was higher than in England, I doubt whether a Westminster Government would review the amount of

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grant it gave, although that would be possible. However, if a Welsh Assembly reduced taxation and said, “Thank you very much—we will take less taxation,” would a Westminster Government say, “If you are willing to reduce taxation, why don’t we?”? 

I cannot see any breaks or guarantees in the proposal on what would happen to the block grant in the event of a dynamic change in the tax rate in Wales—whether up or down. That needs to be considered and, at the very least, boxed off. I want to see some form of commitment that says that if the Assembly were to be exercise the power to change the income tax rate, that would have no impact on the Westminster Government’s decision on the block grant level over a period of time. 

General taxation is the glue that cements our society, and it will not have escaped anyone’s notice that Wales has not been the richest part of the United Kingdom over many years. Part of the reason for that is that the work and assets created by people in Wales often find their way to England rather than being kept in Wales to develop the services, quality of life and health of the people of Wales. Companies have been known to transfer wealth to England by having factories and management there, and part of the way in which we have rebalanced that over many years has been through progressive taxation. To be frank, that ensures that the people of Surrey pay for hospital services in the valleys of Wales and north Wales, and for the other services required on a United Kingdom basis. I worry tremendously, therefore, that the impact on the block grant—whether we have a Barnett formula or not—will be detrimental to the people of Wales. 

Those are my thoughts. Although I could be convinced, I remain sceptical about the changes to income tax based on geography, experience and the fact that no one has ever asked me to devolve that power. The people of Wales want to remain part of the United Kingdom and feel that they are part of a tax-raising base that shares the wealth of this society. People want to ensure that, with Cheshire and north Wales next to each other, there is parity, because we depend on each other economically. To divide us with a tax rate in such an area of economic growth would be detrimental to the people I represent and to British society as a whole. 

3.22 pm 

Hywel Williams:  The Welsh Grand Committee is not always the cockpit of Welsh politics that we fondly imagine, or a mini Assembly, as a journalist who was here this morning put it in a tweet. Despite the best efforts of the fourth estate, we do not always rivet the attention of Welsh people. Unsurprisingly, they are more interested in family life, making a living in hard times, paying the bills and the result of the match on Saturday—the bread-and-butter issues that are important to right hon. and hon. Members on both sides of the Committee. However, everyone in Wales should be aware, or be made aware, that this morning, Labour, through the hon. Member for Pontypridd, revealed its true colours as the anti-devolution party—the gloves came off. 

On income tax sharing, it is just the hon. Member for Pontypridd and his friends—and presumably a few eccentrics and a dog in True Wales—who have come out against that. I listened carefully to him this morning, and I think he said that the First Minister has been extremely clear that he did not ask for tax-varying

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powers. The Welsh Affairs Committee took evidence from the First Minister in Cardiff, and I did not get that impression. I might be entirely wrong, and I will try to consult the record, but other members of that Committee are here. It might be wise for us to write to its Chair, who could then contact the First Minister for some elucidation on what his evidence was a few weeks ago and whether he has been persuaded otherwise. 

Guto Bebb:  I agree entirely with the hon. Gentleman that the position of the Welsh Government needs to be clarified. However, I refer him to the written evidence supplied by the Welsh Government on 14 January, which categorically states that they are in favour of income tax devolution, subject to a referendum. 

Hywel Williams:  I thank the hon. Gentleman for that point. It echoes the quote that I gave the Committee this morning from Jane Hutt, which I will refer to later on. The position seems to have changed. 

Owen Smith:  The hon. Member for Aberconwy has made that point three or more times. The position of Welsh Labour has not changed at all. From the beginning, we have said that we are not asking for income tax-varying powers. We do not think they are a priority for Wales, and we said that once Silk had reported, the only way in which we could ever look at income tax-varying powers would be if they were subject to a triple lock: are good for Wales? Will they be good in the long term for the whole of the UK? Are the people of Wales content with them at a referendum? That has not changed. What I did today was expand on concerns about unintended consequence, which the Government and Plaid Cymru are not considering adequately. 

Hywel Williams:  I am grateful for that clear explanation. I will look at the record. 

Guto Bebb:  On clause 8 in the draft Wales Bill, “Welsh rate of income tax”, the written response to the Welsh Affairs Committee from the First Minister of Wales was: 

“Agree that income tax should be devolved to Wales, subject to a referendum (see clauses 10-12) and to resolution of the fair funding issue”. 

I accept that, but the shadow Secretary of State opposed the concept of income tax varying. That is a significant change. In view of the fact that the Welsh First Minister has apparently supported his view this morning, we now know who the leader of the Welsh Labour party is. 

Hywel Williams:  I thank the hon. Gentleman for that rather lengthy intervention, which was entirely in order, Mr Caton, as otherwise you would have interrupted him. Perhaps I can back up what he said with a further quote from Jane Hutt, the Finance Minister in Cardiff. She said: 

“I’m very pleased that the UK Government has published its draft Wales Bill today. This represents an important milestone on the journey towards a better financial settlement for Wales… I also believe that the UK Government should have adopted the model of income tax devolution that was set out by the Holtham and Silk Commissions. However, there is no doubt that taken as a whole this represents a very positive package of reforms.” 

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Whether that is the case is another matter. I thought that the position was entirely clear. 

I say to the hon. Member for Pontypridd that the Welsh Affairs Committee will have to satisfy itself about the Labour party’s position. We have heard reference to minor tiffs in the Conservative party about the matter, and I will refer to those in a moment. I was unaware that there was such a split, although I am sure the hon. Gentleman will spring to his feet to assure me that there are no splits in the Labour party on this matter. What I had thought of saying—perhaps I should say it—was that it seems to me that it is the hon. Member for Pontypridd against everybody else in Wales. It is the hon. Gentleman against the Holtham commission, the Silk commission, the Tories, the Liberal Democrats, me, and all those people in Wales who have expressed an opinion in opinion polls. [ Interruption. ] The TUC can be added to that list. Now the hon. Gentleman is even against his own colleague, Jane Hutt, the Finance Minister. 

The Secretary of State, as I said a moment ago, has not been entirely free from a little local difficulty with his own troops. I do not want to intrude on private grief, but as we heard from my right hon. Friend the Member for Dwyfor Meirionnydd this morning, the proceedings of the Welsh Affairs Committee on 30 January have just been made public. In evidence on that day Mr Andrew R. T. Davies, the leader of the Conservative group in the Assembly, said that he was against lockstep. Later the Secretary of State said: 

“I think that the view that Mr Davies is enunciating is very much a personal view of his own. It certainly does not represent the policy of the…Assembly Group” 

and does not 

“represent the policy of HM Government.” 

I listened to it again at lunchtime on my computer—that is how I spend my time, and it is very sad indeed. His comments led to a letter to the Chair of the Welsh Affairs Committee from the Tory Assembly group rebutting the contention. I would like to take advantage of this opportunity to say that I was under the impression that the Conservative group had written to the Secretary of State, but I understand that it was the Chair of the Welsh Affairs Committee to whom it wrote. I misled myself, and I hope I have not misled hon. and right hon. Members, including my right hon. Friend the Member for Dwyfor Meirionnydd this morning. Members who followed Prime Minister’s Question Time today will have heard the Prime Minister confirm the Secretary of State’s position, while studiously avoiding mentioning Mr A. R. T. Davies. ARTD will no doubt now be known as HWCBM—“He who cannot be mentioned.” 

Irrespective of the Conservatives’ minor domestic tiff, the hon. Member for Pontypridd excelled in the internecine stakes this morning. He fulfilled the alleged purpose for which the Welsh Grand was set up all those years ago, because for once a Welsh Grand debate clarified an issue in Welsh politics. Labour Members want the borrowing powers, and I agree with them entirely, but they do not seem to want the tax responsibility. They want devolution, but only the subsidiary and dependent element. Echoing St Augustine, they want to be pure, but not just yet. 

We in Plaid Cymru are not against caution. We are a cautious party, having existed for 85 years in a fiercely contested political space. The adage that perhaps guides us is, “When you share a cage with a tiger, you tread softly.” That is what we have done. 

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Owen Smith:  Grrrrrrrr! 

Hywel Williams:  There we are. Conclusive proof. 

We live in difficult times and we are mindful of the dire state of our economy. As was said this morning, the economy is in a difficult state; we have a low tax take and high social commitments. We are mindful of the temptation for the Government here—any Government, be it Tory, coalition or Labour—to tell the Assembly, “You’ve had your lot. Use your tax powers if you want more.” For us, the solution is not to duck the question of tax-sharing powers but to grasp it, and for that matter, to grasp more. We must grasp reform of how Wales is funded. We in Plaid have long campaigned for Barnett reform, or “fair funding”, as it is now called. I readily concede and welcome the fact that the right hon. Members for Torfaen and for Neath and others have taken steps following a change in their views on this matter in 2009. 

There was general agreement in 2012 that Wales is underfunded. I accept all that, but I call on parties in Wales—all parties, in fact—to commit to fair funding in their next Westminster manifesto and call on whoever will be Secretary of State to make the reform of Barnett his or her priority. Otherwise—I will finish on the point I made this morning—£300 million, or even £400 million, will continue to be lost to Wales each and every year. It will be £600 million or £800 million in two years; £900 million in three years; and £1.2 billion in 4 years. It will be irrevocably lost to our people. No Member here or in the Assembly should have a moment’s rest while that continues. 

3.34 pm 

Nia Griffith (Llanelli) (Lab):  We have had a lively and wide-ranging debate. Hon. and right hon. Members have raised many contentious issues and pertinent questions. Some of those questions remain unanswered, so perhaps we could focus on one or two of them in the winding-up speeches. First, however, I would like to refer to one or two of the comments made by other members of the Committee. 

The leader of Plaid Cymru highlighted the divisions between the Conservatives in the Assembly and the Secretary of State here. He also stressed the importance of borrowing and said that that was why he would support income tax-varying powers. His colleague, the hon. Member for Arfon, stressed the need for fair funding. The leader of Plaid Cymru also spoke about prioritising investment in a south Wales metro and in north Wales infrastructure. He implied that there was rather less enthusiasm for the M4. 

The hon. Member for Ceredigion saw the Bill as a huge opportunity and questioned why progressivity should remain at UK level. He questioned the inclusion of the lockstep and he had concerns about turnout in a referendum and about borrowing and the lack of opportunity for the Welsh Government to raise bonds. 

The hon. Member for Montgomeryshire gave us a magnificent confession that he had been anti-devolution, but had a Damascus moment after the referendum and became an enthusiastic convert. He is looking forward to the Minister’s response on the question of what happens to the block grant—perhaps the Minister would like to clarify that in some detail. 

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My hon. Friend the Member for Islwyn said that it was very easy for us to become obsessed with constitutional issues and forget what the people of Wales really wanted to know about and the concerns that they had. My right hon. Friend the Member for Torfaen explained some very pertinent points, which I shall come to, together with the points by my right hon. Friend the Member for Delyn. Turning first to the subject of borrowing powers, which were broadly welcomed across the Floor, there are provisions in the draft Bill which relate to both current and capital account borrowing. The limit for current account borrowing, which is to cover temporary shortfalls in tax receipts, will be £500 million. The limit for capital borrowing for investment projects will also be £500 million, making a total of £1 billion. However, it is the capital investment projects that we are questioning. 

While we very much welcome these powers in order to make progress with investment in infrastructure projects—powers which are all the more badly needed as the capital budget for Wales has been cut by one-third by the Conservative-Lib Dem Government—a number of Members have asked why there is a ceiling of £500 million. We understand that borrowing powers will be extended to Wales in three stages. The initial borrowing, as agreed in intergovernmental talks last year, will be available to help with the financing of the M4, but we still do not know the exact amount that is be accorded there. The second stage involves borrowing powers that are linked to the devolution of the minor taxes—landfill tax and stamp duty. The draft Bill says that the limit will be £500 million for capital projects, and £500 million for current spending. However, we heard today that it is not clear how the Government decided that £500 million borrowing limit for capital projects. As hon. Members have pointed out, including my right hon. Friend the Member for Torfaen, it seems that Wales is being singled out for capital borrowing to be linked to the devolution of tax-raising powers. 

Wales Office Ministers say that the extent of borrowing powers will depend on the tax powers that Wales holds. In other words, in the first instance, when minor taxes are devolved, it will be £500 million, but this will increase to £1 billion if income tax powers are devolved. Ministers have also claimed that £500 million is generous, and that, according to the powers that Wales is being given, the limit should actually be £100 million. However, contrary to the position in Wales, such capital borrowing in both Scotland and Northern Ireland, as has been firmly pointed out by my right hon. Friend the Member for Torfaen, is not linked in this way. Scotland’s borrowing powers are linked to its capital budget: the total limit is 10% of the capital budget each year. Northern Ireland has no revenue-raising powers, but it still has access to borrowing. 

Ministers have set the figure for Wales at £500 million, even with the devolution of minor taxes. Why not £1.3 billion, as the Welsh Government’s Finance Minister has suggested? We should also remember that Wales has relatively little exposure to private finance initiative debts compared to Scotland, as was pointed out by the Silk commission. Logically, that means that a more generous settlement could be considered. Instead, Wales is being short-changed by the Tories. We are being offered less as the total amount of borrowing, and we have to wait for the devolution of minor taxes to access

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it. Further borrowing powers are only on offer when income tax is devolved, thus building in yet another obstacle and delay. 

On the issue of bonds, which were mentioned by several Members, the Silk report recommended that Wales should be able to issue its own bonds. This provision has not been included in the draft Bill. A provision was included in the 2012 Scotland Act, so is there not a case for including a similar provision in the draft Bill, so that such a power would not require further primary legislation? It seems like a missed opportunity, as there are publicly funded bodies that can issue bonds. 

If Wales is to have its own powers to raise taxes, it is absolutely vital that we have a firm base on which to build. In other words, if we are talking about devolving income tax powers to Wales we must get the issue of fair funding resolved first. That theme has been echoed by many Members. The First Minister made it clear when he gave evidence to the Welsh Affairs Committee that he would 

“not be supportive of income tax devolution without the issue of fair funding being addressed first. The base has to be firm before we could build upon it.” 

He went on to say: 

“Until that underfunding is addressed, I would certainly be most reluctant to look at income tax devolution, because it would simply lock in that underfunding. Why?” 

Jonathan Edwards:  Will the hon. Lady give way? 

Nia Griffith:  No. 

The First Minister continued: 

“I suspect that, with the devolution of some income tax powers, whenever the issue of fair funding would be raised in the future, the answer would simply be ,‘You've got powers to raise money yourselves; get on and do it’.” 

We can clearly see a trap being laid. The Government have cut the Welsh budget by £1.6 billion over the course of this Parliament, not to mention the fact that the Treasury has sucked millions out of the Welsh economy through other fiscal measures such as cutting tax credits and raising VAT, which hit the poorest areas of Wales hardest. 

It would be disastrous, as the First Minister says, to lock in that underfunding, so that every time the Welsh Government raised the question of fair funding, they would be told to go and raise their own funds; in other words, to impose additional taxes in order to make up the shortfall. That would completely undermine any discussions on fair funding. 

I remind the Committee that the Silk commission recommended that income tax powers should only be devolved once funding was agreed between both Governments. That clearly has not yet been done. 

Hywel Williams:  Will the hon. Lady therefore commit any future Labour Government to put reform of the funding formula at the top of the agenda? I did ask that of the First Minister in Cardiff and he refused to give me an answer. 

Nia Griffith:  The Barnett formula served us well until the end of the Labour Government’s term in office. At that point, my right hon. Friend the Member for Neath

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put in the funding floor as a manifesto commitment. That is exactly the way we will proceed. We will look at where we are now and what needs to go into the next manifesto. We have done that before, so we are perfectly capable of doing it again. 

If I may continue for a couple of minutes before I hand over to the Minister, Mr Caton? My right hon. Friend the Member for Delyn explained clearly the reality for people living in border areas. He pointed out that many people cross the border on a regular basis from home to work or to access services, and that nearly half of the Welsh population live within 25 miles of the English border, with 10% of the English population living within 25 miles on the other side. That is 6.3 million people in total. That contrasts sharply with Scotland, where very few people live near the border. 

As the draft Bill proposes the devolution of income tax, with the power to vary it by up to 10%, there should be a proper impact assessment of the consequences of tax competition arising from different rates of income tax on the two sides of the border. It is all very well to say that we have had different rates of council tax, but we know that people have been entreated to buy homes by being told there is a lower rate of council tax across the border. That has happened in areas outside our big cities where some of the counties have had a lower council tax. There will obviously be an impact on jobs and people. However, until a proper impact assessment has been carried out we just do not know exactly what that impact might be. 

There seems to have been very little Treasury analysis of the impact of differential income tax rates on either side of the Welsh border, so we really do not know what having different levels would mean. A lot more work needs to be done on that, before we can be in a position to scrutinise the Bill properly. We cannot make decisions without a proper impact assessment. 

In complete contrast, before the publication of their response, the Government had a consultation on stamp duty that looked at cross-border impacts. Why has that not been done for income tax? I will not repeat many of the points made by my right hon. Friend the Member for Delyn, but there are serious considerations to be taken into account on what would be the effects across the border. That would not simply be for the big businesses that no doubt have the technology to do their payroll, but for the ordinary person in the street who may have a job on the other side of the border. Those are the impacts that need to be looked at, not to mention the impact on inward investment. I will now allow the Minister time to answer some of the questions that I have asked. 

3.44 pm 

Stephen Crabb:  It is a pleasure to serve once again under your chairmanship, Mr Caton, and always a pleasure to follow the hon. Member for Llanelli. 

This afternoon we have had an interesting, focused debate in the best traditions of the Committee. It is right that we have taken time to consider this historic set of issues, because I think that the report from the Silk commission is an historic piece of work. I put on record my tribute and thanks to the members of the Silk commission for their work. We should also put on record that the commission’s membership included those nominated from all the political parties in Wales to be

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part of its work and to feed into it. From the comments we heard this morning, particularly from Welsh Labour Members, they are so hasty in their retreat from the Silk work that one would not think that any member of the Welsh Labour movement was involved in the work of the Silk commission, but indeed they were. 

Today’s debate is significant, because it represents the day on which the Labour party sought to ditch Silk. Taking the lead from the hon. Member for Pontypridd, his colleagues launched a wholesale assault on the Silk proposals. To remind ourselves of some of the language used this morning, we heard that the Silk recommendations were a Trojan horse, the hon. Member for Pontypridd described them as a Tory trap and the right hon. Member for Neath described the Silk devolution of tax proposals as manic. Labour Members were queuing up to trash the Silk recommendations, which we had all been led to believe had been welcomed unanimously by all parties in Wales. 

The debate has centred on several areas of controversy, so I hope that I can offer some enlightenment as opposed to adding to the confusion. The first key area is the lockstep, and we have heard differing views about its merits. The Silk commission recommended variable income tax bands if a proportion of income tax is devolved to Wales. In our response, we have proposed a lockstep structure, which recognises some of the concerns that the right hon. Member for Delyn raised about this first venture into fiscal devolution. We need to take account of such issues, and by necessity some caution must be exercised. I recognise the level of impatience and ambition on the part of some members of the Committee, and of some of my colleagues down in Cardiff, to do something different and perhaps more radical. Given this major step forward that we are taking on fiscal devolution, however, it is right that we take account, particularly here in Westminster, of overall UK conditions. It is right that we should look at the merits of preserving the progressive structure of UK tax rates, if and when a proportion of income tax is devolved to Wales. We will include such measures in the Bill. 

There was significant discussion and disagreement about what will happen to the Welsh block grant, if and when devolution of taxation takes place. The right hon. Member for Delyn asked for some clarification, and there was a pointed disagreement between the hon. Member for Pontypridd and my hon. Friend the Member for Montgomeryshire. We were asked to decide whether the hon. Member for Pontypridd is correct in his assessment that any increase in tax revenue achieved by the Welsh Government as a result of devolution of income tax will be netted off the block grant. He is wrong— 

Glyn Davies:  I knew he was wrong. 

Stephen Crabb:  In fairness, he is not wrong on everything, but on this issue he and other members of the Committee are incorrect. If I make a mistake in my interpretation, I promise to write to Members with absolute clarification. 

Following a referendum decision to devolve a portion of income tax to Wales, that 10p portion of Welsh income tax will be netted off the block grant, and any subsequent increases in tax revenue can be achieved by the Welsh Government in different ways. They can

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achieve it through changing tax bands, which might lead to increases in tax take, or through pulling other economic levers to achieve growth, which leads to more and better-paid jobs, which also increases income tax take, or through unlocking extra borrowing powers, which devolution of that portion of income tax will achieve. None of that will affect the overall level of the block grant.

Nia Griffith:  Will the Minister explain exactly what he means by changing the banding of tax? Does he mean that people would come into a different band of tax at a different income level, because it sounds like that is what he said? While in theory I fully understand that there is the block grant and the 10p to fiddle about with at the top, what is to stop a future UK Tory Government cutting the block grant? 

Stephen Crabb:  We are building it into the legislation and the commitments that we are making that that is not going to happen. I know what the hon. Lady is trying to achieve by sowing seeds of greater confusion in the Committee. She knows exactly what I meant in my remarks about tax bands because I took a moment to explain and defend the lockstep structure of devolved income tax in Wales. So, no, the block grant will not be changed by the Westminster UK Government in relation to changes in the tax take achieved by the Welsh Government. Where the block grant will change is in relation to its being indexed against increases or decreases in the overall UK tax base. 

Owen Smith:  I am not sure that the Minister is right about this. Will he clarify whether, if the Welsh Assembly Government chose to reduce all the rates by tuppence, so that they were 43p, 38p and 18p in Wales, that would be netted off the block grant or would Wales get lower taxes and exactly the same amount of block grant? 

Stephen Crabb:  There are two questions there. In answer to the first one, no it will not be netted off. What will be netted off is the initial block of devolved taxation following a referendum decision to devolve that 10p chunk of Welsh income tax. That is what gets netted off. With the hon. Gentleman’s hypothetical example of taking 2p off all the bands, we do not know what will happen to the overall tax take and that is the risk that the Welsh Government will bear. Those of our political persuasion and philosophy on this side of the Committee believe that lower rates of income tax and of taxation generally foster entrepreneurialism and growth and that that is what Wales needs more of. 

Owen Smith:  I do not want to take up too much time, but this is a crucial point. I fully understand the notion of no detriment and the fact that, at the point at which devolution occurs, the baseline would be that year’s block grant, but the Minister’s point about indexation is that in subsequent years, in the event of there being a 5p difference in all the rates in Wales, the block grant would be amended, on an indexed basis, and that therefore there would be reductions. Otherwise, there would be no incentive for the Welsh Government to do anything other than keep reducing the rates and have free money. 

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Stephen Crabb:  With respect, the hon. Gentleman is wrong again. The indexation is against the overall UK tax base, which provides some protection for the Welsh Government. I am being as clear as I possibly can be, but I will write to Committee members to be absolutely clear. I expect more questions to be raised when the Bill reaches the Floor of the House, but I am trying to be as helpful as I can to the Committee this afternoon. 

On borrowing, what came across loud and clear from Opposition Members was an appetite for the Welsh Government to get borrowing. With our chastening experience with borrowing in this country over the past eight years, we know that we need to tread carefully. The £500 million that is written into the legislation is a good starting point for the Welsh Government as a borrowing level. Much has been made today of comparisons with Northern Ireland and Scotland and there are of course similarities and crucial differences between all the Administrations. We have to be clear that borrowing needs to get repaid. The hon. Member for Llanelli in her remarks did not once make the link between the need for independent revenue streams to support the level of borrowing. She did not mention the fact that the Scottish Government’s borrowing level is commensurate with the devolved taxes that they already have, which supports their ability to repay borrowing. Does she wish to intervene? 

Nia Griffith:  indicated dissent.  

Hywel Williams:  Perhaps I will. The Minister will concede, however, that the level of borrowing that the Welsh Government have undertaken in respect of PFI schemes is miserly compared with that undertaken in England and in Scotland and therefore, the gearing of commitments in Wales is that much lower. 

Stephen Crabb:  I have heard that argument given an airing and it has featured in the discussions, unsurprisingly, between Welsh Government Ministers and our colleagues in the Treasury. We have arrived at a level of £500 million, which is a healthy starting point. Of course, should the people of Wales vote for devolution of a portion of income tax, that unlocks a whole new chunk of borrowing capacity, so that is the starting point. We should not get bogged down in thinking that £500 million is the final limit. 

There was a question about why we are not giving the Welsh Government the power to issue bonds. Well, go back and read the Silk report. One of the points it makes is that the cheapest route for the Welsh Government to borrow will be through the national loans fund. Although we are not closing off the option for the Welsh Government to benefit from bond financing in the future, we believe that the cheapest, most efficient way to fund debt for the Welsh Government will be through the national loans fund. 

Nia Griffith:  That is precisely the point. It is about including something in the Bill that prevents us from

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having to go back to primary legislation, as was done in the Scotland Bill. Could it not have been thought of? 

Stephen Crabb:  My understanding, and I am very happy to correct myself if I am wrong, is that there will be no requirement to go back to primary legislation. The Wales Bill will have that flexibility in it, should that be necessary. 

We had a discussion about the merits of referendums and various views were expressed. There was a consensus among four or five Committee members that people in Wales are suffering from referendum fatigue, and they questioned whether we need to go through the expense and effort of a referendum on devolving a portion of income tax. I believe that that is necessary. The people of Scotland were given the decision, in principle, on whether they wanted to do that, right at the start of their devolution project. This is a fundamental step forward—a change in the devolution settlement—and I think that the people of Wales should be given that say as well. 

Jonathan Edwards:  Of course, the principle of fiscal autonomy was conceded with the minor taxes. Therefore, there is no principle to debate on the referendum. The Government are already conceding it in the Bill that they will introduce in due course. The Silk part 2 process will finish soon. Are we looking at two referendums in a matter of years? 

Stephen Crabb:  I am not able to give the hon. Gentleman a full answer on that right now. To reiterate, I believe that this is a significant step forward. I draw a distinction between devolving minor taxes and devolving 10p-worth of income tax—which could be in excess of £2 billion of value—to the Welsh Government. There is a fundamental difference there and the people of Wales should be given the option to vote in principle on that. 

We have had a good and lively debate. I am sure that we can all agree that the issue is important and merits further discussion. For too long, Wales has lagged behind the rest of the UK. This Government believe that the devolution of tax and borrowing powers will provide an opportunity for the Welsh Government to do more to help change this, grow the Welsh economy and generate jobs. 

I will end by quoting the leader of Plaid Cymru, who quoted the hon. Member for Nottingham North (Mr Allen), the Labour Member who appeared before the Welsh Affairs Committee only the other day and said that this represents a step in the right direction. 

Question put and agreed to.  

Resolved,  

That the Committee has considered the matter of the Government Response to Part 1 of the Commission on Devolution in Wales. 

3.59 pm 

Committee adjourned.  

Prepared 6th February 2014