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Wales Bill
[Relevant documents: Fourth Report from the Welsh Affairs Committee, on the Pre-legislative scrutiny of the draft Wales Bill, HC 962, and the Government response, HC 1025.]
Further considered in Committee (Progress reported, 30 April)
[Mr Speaker in the Chair]
Taxation: introductory
Amendment proposed (30 April): 19, page 5, leave out lines 13 and 14.
This amendment and amendment 21 ensure that the overview provision in new section 116A(1) of GOWA 2006 relating to the Assembly power to set a rate of income tax can only come into force, like the other provisions relating to that power, following a yes vote in a referendum.—(Mr Gauke.)
Question again proposed, That the amendment be made.
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Hywel Williams (Arfon) (PC): I beg to move amendment 32, in page 6, line 20, after ‘description’, insert ‘, a tax credit of any description’.
This amendment would allow the Welsh Government, by resolution of the National Assembly for Wales, to introduce new tax credits.
The Chairman of Ways and Means (Mr Lindsay Hoyle): With this it will be convenient to discuss the following:
Amendment 33, in line 32, leave out ‘, each House of Parliament and’.
This amendment would enable the Welsh Government, by resolution of the National Assembly for Wales, to introduce a new tax without the need for approval by resolution of both Houses of Parliament.
Amendment 40, in page 7, line 13, at end insert—
‘(10) In the event that the power to add new devolved taxes under Section 116C, or the power to add new devolved taxes under Section 80B of the Scotland Act 1998 is used, the Chancellor of the Exchequer must undertake a review of the benefits of symmetry in the devolution of taxes between Wales and Scotland.’.
Amendment 7, in clause 14, page 19, line 5, at end add—
‘(3) The Secretary of State shall review the historical volatility of stamp duty land tax revenues in Wales, and place a copy of the review in the Library of the House of Commons.’.
That schedule 2 be the Second schedule to the Bill.
Amendment 8, in clause 17, page 20, line 29, at end add—
‘(3) The Secretary of State shall review the historical volatility of landfill tax revenues in Wales, and place a copy of the review in the Library of the House of Commons.’.
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Amendment 42, in clause 28, page 29, line 34, leave out paragraph (2)(b).
Amendment 43, in line 36, at end insert—
‘( ) Part 2, except the referendum-related provisions and sections 19 and 20, will come into force the day after the Secretary of State has laid a report before each House of Parliament on the further legislative steps needed to move to a model of reserved powers for the National Assembly for Wales; the report must be laid within six months of this Act receiving Royal Assent.’.
Hywel Williams: Recommendation 11 of the cross-party commission on devolution in Wales states that the National Assembly should be given a power to introduce specified taxes and any associated tax credits in Wales. This recommendation was not included in the Bill. That might have been merely an oversight by the Government, although those of us who are a little more sceptical suspect that they deliberately omitted it from the Bill. Whatever may be the case, amendment 32 seeks to align the Wales Bill more closely with the Silk commission recommendations.
We in Plaid Cymru welcome the inclusion of an ability to introduce specified new taxes. We note that the Silk commission recommendation 11 states that the Welsh Government should retain the revenue from these new taxes without a deduction from the block grant. I hope the Government will ensure that that is indeed the case. Perhaps the Minister will confirm that when replying to the debates.
Although the issue of Barnett was not within the remit of the Silk commission or this Bill, it is a closely related issue and I hope we will be able to debate at least some of it when we look at new clauses. It is important not least because Labour, if I correctly understand its position, has said that Barnett reform is a necessary condition before it will support greater financial powers for Wales. That is a significant statement on its part, I think.
The ability to vary income tax and access to potential borrowing for investments that can boost the economy and create jobs in Wales are the central tenets of this Bill, but there are several areas within the Bill that, if fully developed, could bring real benefits to the Welsh economy. That is why, in addition to the ability to introduce new specified taxes, the ability to introduce associated tax credits is so important. Although much careful research and preparation would be needed before introducing a new tax and associated tax credits, and it would be unwise to pre-judge where and when that might be done, at least giving the Welsh Government the ability to do this would give them much more freedom to act and take greater responsibility for developing our economy, which hon. Members on both sides of the House wish to see. We could raise the revenue, where necessary, and provide tax credits in order to stimulate activity or to provide assistance wherever it was felt necessary, be it for individuals, businesses or areas of industry.
The amendment aims to preserve the integrity of the original cross-party Silk recommendations. For Plaid Cymru it makes perfect sense, and I urge hon. Members on both sides of the House to support it. Should we not press the amendment to a vote, or were we to do so and
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it were to fall, Government Members might consider tabling their own similar amendments on Report. Given that the principle of new taxes has been conceded in the Bill and that tax credits could be introduced, we would wish that to be the case.
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We may hear talk later about parity with Scotland, and in the next few months there will be a great deal of intense debate in Wales on that issue. I note therefore that the Scotland Act 2012 provides for the Scottish Government to introduce new taxes or credits. By incorporating the Silk commission’s recommendation on tax credits in the Bill, we seek that ability for Wales now, too. The impact and compatibility of any new tax or tax credits would of course have to be measured and assessed in relation to the Human Rights Act 1998, European Union state aid rules and other directives, but it would be for the Welsh Government, through a resolution of the National Assembly, to decide what use they wanted to make of an innovative new tax.
Mr Mark Harper (Forest of Dean) (Con): I will speak in more detail in my speech about why I do not agree with the hon. Gentleman’s amendment 33, but may I ask him to clarify whether he envisages the definition of a “Welsh taxpayer” for any of these new taxes being the one set out in clause 8, proposed section 116E? That is relevant to my constituents, who might inadvertently be caught by any of these new taxes.
Hywel Williams: The hon. Gentleman raises a point that was made at an earlier time. He has outlined particular difficulties faced by his constituents, with which I have a great deal of sympathy. I might as well concede that this is a probing amendment and I would be interested to hear what he has to say later in the debate. We have a great deal of sympathy with hon. Members across the House who point to the border as a particular problem area; as has been said in the earlier debate, so many of our population live just over the border and vice versa, so I entirely concede that we need to take this issue seriously.
Paragraph 4.6.8 of the Silk commission’s first report states:
“In addition to the use of taxes to achieve policy outcomes in devolved areas, credits can also be applied so that activities are effectively subsidised. While existing tax credits such as the working tax credits (and in future the Universal Tax Credit) should remain UK wide, the Welsh Government should be able to introduce its own credits in relation to devolved taxes and through use of devolved grants and subsidies to promote investment and getting people into work.”
That is a laudable aim and I urge hon. Members on both sides of the House to support us in order to fulfil it.
Amendment 33 would enable the Welsh Government, by a resolution of the National Assembly for Wales, to introduce a new tax without the need for approval by a resolution of both Houses of Parliament. Obviously, Plaid Cymru’s starting position is that Wales should be an independent country and that it should be for the people of Wales, through our own democratic institutions, to decide how its taxes are structured. However, the amendment would simply tidy the process of bringing in the new tax credits should the Welsh Government, through the National Assembly, decide to do so. I need not remind Members who represent Welsh constituencies
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or who are interested in the smooth functioning of democracy of the disastrous bureaucratic and constitutional nightmare that was the legislative competence order system. I was involved in that as a member of the Welsh Affairs Committee. Before the successful 2011 referendum on full primary law-making powers, the Government of Wales Act 2006 provided for further devolution, on paper. The reality, I am afraid, was that it came to resemble a Kafkaesque constitutional quagmire when the powers were to be devolved. The Welsh Affairs Committee, reporting in 2010, stated that requests for extra powers from the Welsh Assembly Government, as it was named then, too often disappeared into the black hole of Whitehall.
Mr Mark Williams (Ceredigion) (LD): We agree that we have, on the one hand, the extreme of the LCO system and, on the other, the reserved powers model, which we will come to later in this group. The hon. Gentleman would, I think, subscribe to the reserved powers model.
Hywel Williams: The hon. Gentleman surmises correctly. The model is clearer, more elegant and more easily understandable, and we will be able to debate it later.
Going back to the LCO process, the hon. Gentleman will recall, as he participated in those long debates on LCOs—
Wayne David (Caerphilly) (Lab): As the world expert on LCOs, I certainly concur with the hon. Gentleman about the cumbersome system. It is far better that legislative powers are solely with the National Assembly for Wales. Does he agree that despite the faults of the legislative competence order, the House succeeded in improving substantially the suggestions that came from the Welsh Government regarding LCOs and what happened to the legislative process afterwards?
Hywel Williams: I certainly do not want to rehearse the discussions and arguments we had on LCOs. LCOs were a curate’s egg—occasionally they went through without touching the sides. I remember chairing the LCO on mental health, which lasted for two sessions. The LCO on the Welsh language took rather longer.
Mr Mark Williams: Will the hon. Gentleman remind the House—I think he did some specialised work on this—of the number of hoops we had to go through to achieve legislative competence orders and of the fact that that did nothing to enhance democracy, which, mercifully, this Bill is seeking to remedy?
Hywel Williams: I thank the hon. Gentleman for that point. The contrast between what I propose now and the LCO system is extreme. I think I counted 27 individual stages, but it might have been 28 or 26—the figure is lost in the mists of time. It was an extremely complicated business. To be fair, Members on both sides of the House made positive contributions. I pay tribute to the hon. Member for Aberavon (Dr Francis), who is not in his place, for his skilled chairmanship. We got a lot through, but it was against the odds.
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There is a danger that matters get lost in process, are ignored by the government machinery and do not progress at good speed. If we repeated the LCO process, we would be repeating a mistake and would unnecessarily create a drag on the smooth functioning of democracy. Surely the Members of the Assembly, through scrutiny, have, in partnership with the Treasury, the ability to carry out the requisite research, impact assessments and consultation. I hope that that ability is there. The need for a lengthy process of resolution in each of the Houses of Parliament when there is so often a strain on time—perhaps not at the moment, but often there is a strain on time—is surely a bar to the swift adoption of the system once the requisite preparatory work has been carried out in Wales. Surely if a matter is devolved, it should be devolved, and devolved fully and without the Government in Westminster seeking to keep their oar stuck in. As with many of our amendments that were considered in Committee last week, we say that it should be for the people of Wales, through their democratically elected institutions and representatives, to decide on the matters that have been devolved without being harried back and forth. The Government have conceded that Wales should have the power to introduce new taxes, and we are arguing for tax credits as well, as did Silk. That should be done without strings being attached that could prove a restriction and impediment.
Finally, let me return to the LCO process, which operated in much the same way as the new tax process is designed to operate. The Assembly used to submit a request for more powers, which was then scrutinised by the Select Committee on Welsh Affairs before its final approval by MPs and peers. There is no proposal in this case of scrutiny by the Welsh Affairs Committee, and one does not have to be a constitutional expert and/or an accountant to see what a tremendous drag and immensely time-consuming process that might be. At the time, the critics of the LCO procedure maintained that it was cumbersome and opaque, and they were proved right. Sir Jon Shortridge, the former head of the civil service in Wales, said that Wales was often seen as “a complication too far” by London. The Welsh Affairs Committee also said that there was “an unacceptable lack of transparency” in the Whitehall clearance process.
All this talk of the Government of Wales Act 2006 and the 2011 referendum reminds me that Westminster always relinquishes its grip on power with a clenched fist. Where it can, it will inevitably introduce roadblocks or constitutional caveats that mean that the power on offer is never fully recognised at first despite the overwhelming majority of people in Wales being in favour of devolving more powers.
For the smooth functioning of democracy and to save Members’ time in this place in the future, I strongly urge hon. Members to support our amendment should it come to a vote and impress on the Government the need to learn from the mistakes of the past and streamline the process of introducing new taxes and tax credits in Wales.
Mr Harper:
It is a pleasure to serve with you in the Chair, Ms Primarolo. After the earlier exchange, I feel left out by not having experienced the pleasures of legislative consent orders. They sound absolutely fascinating and were clearly invented by the hon. Member for Caerphilly (Wayne David) so that he could be the
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self-proclaimed world’s greatest expert in them. I am feeling very left out indeed, but let us return to the matter in hand.
I want to say a little about this group of amendments and new clauses. The hon. Member for Arfon (Hywel Williams) reassured me on one point by saying that he shared my concerns, but I shall talk about that in a moment.
When I read amendment 32, which would allow the Welsh Government to introduce tax credits by resolution of the National Assembly, I wondered whether, as tax credits are an instrument of welfare policy, it would effectively amount to the devolution of that policy. That was perhaps a little unfair, but the hon. Gentleman did go on to talk about universal credit and other areas of welfare policy, suggesting that he would like to see them devolved to the Welsh Government. I do not think I would.
I understand the hon. Gentleman’s view, as he wants an independent Wales and to devolve absolutely everything, but if we devolved every area of tax and spending—welfare spending is, of course, the single largest area of Government expenditure—that would in effect create an independent country. I accept that that is the hon. Gentleman’s ultimate goal, but I suspect that in this Chamber today it is a goal that is not shared by anyone other than his right hon. Friend the Member for Dwyfor Meirionnydd (Mr Llwyd). It certainly is not shared more widely. I would not support it and the hon. Gentleman set out clearly in his opening remarks why this measure on tax credits is a Trojan horse to smuggle through the changes to welfare policy more generally that I, for one, would not want to see introduced.
Amendment 33, also tabled by the hon. Member for Arfon and his colleagues—I am glad to see the right hon. Member for Dwyfor Meirionnydd in his place—concerns a new tax. I asked the hon. Gentleman a question about a matter of concern to me. I said on Second Reading and on the first day in Committee that I was content with the definition of a Welsh taxpayer as set out in the Bill, but this proposal fills me with concern for two reasons. First, it does not say anything about whether the definition of a Welsh taxpayer would remain the same, and I set out in earlier debates my concerns about companies in my constituency employing residents of both England and Wales and the increased complexity. I raised that with the Exchequer Secretary to the Treasury, who was able to reassure me that Her Majesty’s Revenue and Customs would be able to look at such things when it reports both to this House and to the Assembly.
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Secondly, I am concerned about allowing the Welsh Government to introduce new taxes because those taxes, even if they are levied on Welsh taxpayers only, might have economic effects on both individuals and businesses based in my constituency in England, who have no democratic control over Assembly Members or over the Welsh Government. That is why I am keen to see the retention of both Treasury control and the role of the House of Commons, one of whose historic functions is controlling tax and spending. Those are checks and balances that I think the hon. Member for Arfon wanted to remove. For those reasons, I do not support those amendments either.
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One amendment caught my eye—amendment 40, in the name of the shadow Secretary of State. In the event of these devolved taxes being used, it would place a duty on the Chancellor of the Exchequer to undertake a review of the benefits of symmetry in the devolution of taxes between Wales and Scotland. Both on Second Reading and on the first day in Committee, the shadow Secretary of State set out some concerns about how tax competition might affect Wales adversely by comparison with Scotland. But if I were going to ask the Chancellor to conduct such a review, I would also want the review to cover the impact on Northern Ireland and on England.
I am reasonably relaxed about tax competition, as I said in previous debates, and I support the devolving of tax to the Welsh Assembly and to the Welsh Assembly Government, because I think if a Government and an Assembly have the ability to spend money, it is more democratically sensible if they also have the power to raise it. From a Conservative party perspective, I believe that ensuring that people who spend money are also accountable for raising it is absolutely in our political interest because it makes people think not just about things they want and things they would like to have, but about the cost of them, and how to raise the taxes, and the economic impact of raising taxes.
I suppose, therefore, that if I were urging the shadow Secretary of State to do anything—not that my urging him to do anything will have the slightest effect on his amendment; probably the reverse—such a review would look at the impact not only on Wales and Scotland, but on Northern Ireland and on England, particularly on parts of England that are close to Wales. The hon. Member for Arfon correctly noted that a significant proportion of the population of Wales live close to the England-Wales border and many people commute either side of it for leisure and business purposes and to access public services; and a significant number of people in England who live in those border regions do likewise. That was a sensible point and I am pleased that he accepted that we will have to think more about the impact on those border areas.
Owen Smith (Pontypridd) (Lab): The hon. Gentleman is making an interesting contribution. I agree about the need to consider the impact in other parts of Britain, including Northern Ireland, of asymmetry in taxation. He says he is sanguine about the prospect of these powers being exercised in Wales, but would he be sanguine about lower taxes for higher rate taxpayers potentially attracting to Wales higher rate taxpayers who contribute to the local economy of the Forest of Dean?
Mr Harper: I have a couple of responses. First, because I was present for our interesting debate on the first day of Committee, I know that the so-called lockstep provisions in the Bill mean—this is my understanding; I am sure the Exchequer Secretary will correct me if I am wrong—that it would be impossible to reduce the higher rate of taxation without also reducing the other rates in lockstep.
I would be delighted if taxes generally were reduced. Government raise too much money and spend too much of people’s money, and I am very pleased that in his recent Budget the Chancellor was able to increase the personal allowance again to allow my constituents to keep more of their money. I think they generally
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spend it better than even the Exchequer Secretary can spend it. I want my constituents to keep more of their money and keep his grubby mitts off it, but of course we have challenges to deal with, such as the deficit that we inherited, so increasing those tax cuts will not be possible. Cutting taxes generally would be helpful, and if cutting taxes in Wales meant that we saw lower taxes across the United Kingdom, that would be an entirely welcome prospect.
Owen Smith: Cutting taxes in Wales would not necessarily lead to lower taxes across the whole of the UK. The hon. Government is right about the lockstep provisions being designed to mitigate the effect of cutting taxes only for the wealthiest. However, if taxes were cut, as the Secretary of State has said he wants to do, for taxpayers in Wales, would that not be a potential disbenefit to the hon. Gentleman’s part of the world, should people move in order to avail themselves of those lower tax rates in Wales?
Mr Harper: No. That would create pressure on the Chancellor to make sure that tax rates were lowered. I am grateful to note that the hon. Gentleman appears to have become a convert to lower taxes and that will lead to an interesting conversation with members of his shadow team, who appear to be wedded to higher taxes. Creating an incentive to put downward pressure on taxation not just in Wales but across the United Kingdom would be welcome. There are many pressures from interest groups and from individuals campaigning for Government to spend more money. We all know that there is no such thing as Government money; there is only money belonging to taxpayers. It is either money belonging to taxpayers today that we relieve them of or, if we borrow money, we relieve future taxpayers of money. Lower taxes mean that people keep more of their own money. I am very content with that. I just want to make sure that it works properly.
On the point about higher rate tax, I had an entire debate in Westminster Hall on this to make it clear that I thought the priority for the Treasury when cutting taxes was to focus on those on median incomes—those in the middle. That is why I welcomed the changes to the personal allowance in the Budget, which in the context of the changes that we have made over the past four years deliver more of the benefit to those on middle and lower incomes than those at the higher end. My priority is focusing on those on middle incomes.
David T. C. Davies (Monmouth) (Con): My hon. Friend is making a logical case to give the Assembly powers over taxes, but is not the reality that the Assembly will not behave in a logical fashion? Rather than cutting taxes, as he presumes and as even the hon. Member for Pontypridd (Owen Smith) seems to be suggesting, the Assembly will ratchet up taxes at all levels, and my hon. Friend will benefit enormously because many talented and wealthy people in Wales will cross the border, go and live in his constituency and pay their taxes there, leaving us bereft of the money that we could be spending on public services.
Mr Harper:
I am grateful for the intervention from my hon. Friend, who chairs the Welsh Affairs Committee. He has put me in two minds. I am not sure whether to
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welcome his pessimism about the way he thinks the Welsh Assembly Government and the Welsh Assembly will behave, and look forward to the incredible opportunities that he sets out. If the Welsh Government do not learn from history and if they think it sensible to raise taxes, whether landfill taxes, stamp duty land tax or income tax, the flipside of the proposal from the hon. Member for Pontypridd (Owen Smith) is that rather than attracting people to go and work and live in Wales, the effect may be the one that my hon. Friend suggests.
If any businesses currently located in Wales want to relocate to the Forest of Dean, they will be made incredibly welcome. I will personally talk to the local council to smooth their way, and if residents want to come and live in the Forest of Dean, they will find a very good quality of life. If they want to pay their taxes in England, I certainly will not stop them. It seems that I can have it both ways. If the Welsh Assembly behaves in the way my hon. Friend fears, it will be good for my constituency. But to be serious for a moment, he puts his finger on it: he worries about the impact on Wales. I trust to some extent the good sense of voters in Wales.
By not devolving the tax powers that are set out clearly in the clauses that we are debating today, one of the problems is that the Welsh Assembly Government have to worry only about spending money, not about raising it, which leads to the consequences that my hon. Friend sets out. The Welsh Assembly Government do not have to think carefully about the price to be paid. If politicians’ minds are focused on the price to be paid, whether it is individuals choosing to leave Wales or entrepreneurs choosing either not to set up their businesses in Wales or to move existing businesses to more hospitable parts of the United Kingdom, that will concentrate minds well, even if the Government there are not of that mind to start off with. It may also create political opportunities for parties that do behave in such a way to make inroads in the Welsh Assembly elections and in parliamentary elections to this House.
Owen Smith: The hon. Gentleman is being generous with his time, even if he is slightly misrepresenting what I said earlier. The proposal to cut taxes in Wales rested on the prospect of a Conservative Government, led by his Front-Bench spokesmen’s colleagues in Wales. As he is talking about inward investment and business investment, would he like to take this opportunity to congratulate the Welsh Government on a 244% increase in foreign direct investment into Wales, higher than in any other part of Britain?
Mr Harper: I always congratulate people on bringing investment into the United Kingdom. I am sure that the Welsh Government work hard to do that. But I am also sure that those businesses are mindful of the competitive corporation tax regime created by my right hon. Friend the Chancellor, which has provided a good base in the United Kingdom from which to do business. That competitive corporation tax regime does not just benefit companies in England; it also benefits companies in Wales, Scotland and Northern Ireland. That competitive tax regime is one that we want to see go further.
Alun Cairns (Vale of Glamorgan) (Con):
I cannot let the shadow Secretary of State for Wales get away with championing the success of inward investment and
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talking in percentage terms. We need to recognise the low base and the Welsh Government’s poor performance in recent years in attracting inward investment. Clearly, any growth needs to be recognised, but we also need to recognise the failure over the last decade, which compares significantly with the previous record.
The Second Deputy Chairman of Ways and Means (Dawn Primarolo): Order. We are now going just a touch wide of the amendments, which are specifically about new powers and the process for them. The hon. Member for Forest of Dean (Mr Harper) is also ranging quite widely, so I would be grateful if he addressed the amendments.
Mr Harper: I will not dwell at any length on my hon. Friend’s point, but it is always interesting to get that perception of the facts on the record, which is slightly different from that set out by the shadow Secretary of State.
The Minister will doubtless talk about new clause 20 —this probably comes back to the amendment tabled by the hon. Member for Arfon—which limits the ability that otherwise might be there for the Welsh Government to interfere with how HMRC operates, and how they use their powers, unless it is specifically for devolved taxes. I am pleased that it contains the condition that the Treasury has to consent to the provision. I think that this is the response to the concern I raised in my question to the hon. Gentleman on amendment 33, which is that even if the tax falls directly on Welsh taxpayers, there may be effects that range more widely, either on businesses located in England, or businesses that hire people from Wales. The Treasury having to consent to that enables a UK-wide perspective to be applied, allowing Members of this House who represent English constituencies that will be impacted by the tax to have a democratically accountable mechanism for speaking to Treasury Ministers, raising those concerns on behalf of their constituents, and allowing the Treasury to take them into account. I am pleased that that Treasury backstop provision remains there and I would not want to see it removed.
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My final point is on clause 14 and stamp duty land tax, which I referred to on Second Reading. The Bill does not define what is meant by “land in Wales”. We had a slightly amusing knockabout on that on Second Reading, but there was a serious point underlying it. I made the point then that I wanted to ensure that “land in Wales” was not defined using postcodes, which are not very accurate when determining which country particular residences are in, and that we use a definitive mapping system instead.
Will the Minister also touch on what will happen to estates or properties that straddle the England-Wales border? I understand from the Library’s excellent briefing paper that a number of farms have land on both sides of the border and that the value of that land would be apportioned, with stamp duty land tax being paid for one part of it to the Treasury and for the other part to the Welsh Government. I wonder how that would work. What sort of mechanism will be put in place and how straightforward will it be for my constituents?
Mr Elfyn Llwyd (Dwyfor Meirionnydd) (PC):
The hon. Gentleman might be worrying too much about something that is fairly straightforward. In fact, just
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outside Chester there is a pub that has one bar in Wales and one in England, and it seems to be doing rather well.
Mr Harper: I do not doubt that businesses can operate in that way. What I do not want to see is businesses that today are operating perfectly happily, attracting customers from both sides of the border, finding that the Government’s intervention will impose a complicated regime. We all know the refrain, “I’m from Whitehall and I’m here to help you”—I assume that “I’m from Cardiff Bay and I’m here to help you” is greeted with the same warm delight in Wales. If they happen to have land on both sides of what is currently not a border, as far as they are concerned, I do not want them suddenly to be faced with a complicated taxation regime that will require them to hire expensive accountants to deal with it.
My plea to the Minister is therefore this: recognising that we would have to deal with that land in different ways, can we ensure that whatever administrative system is put in place is as straightforward as possible, and not just for HMRC, but for my constituents and those in the constituency of my hon. Friend the Member for Monmouth (David T. C. Davies) who might operate on both sides of the border?
Notwithstanding my concerns about some of the amendments that have been tabled, I generally welcome the devolution of these taxation powers to the Welsh Assembly, because I think that democratic institutions that spend money also ought to raise it.
Owen Smith: It is a pleasure to serve under your chairmanship, Ms Primarolo. I rise to speak to amendment 40 to clause 6, which stands in my name and that of my hon. Friend the Member for Llanelli (Nia Griffith); amendments 7 and 8 to clauses 14 and 17 respectively, which deal with minor taxes; and amendment 43 to clause 28, which relates to reserved powers. It is also worth bearing in mind the amendment to clause 28 that we tabled last week, on what we described as the fair funding lock, which is relevant to that part of my remarks today.
All these amendments relate to the theme of stability and symmetry. Our contention is that although devolution has, for all sorts of reasons—historical, political appetite and timing—developed in an asymmetrical fashion across the UK, which has often been desirable and necessary, on both sides of the House we recognise that it is potentially undesirable for that degree of asymmetry to continue in future. It is undesirable because with it has come a certain instability in our devolution settlement. It is not a pressing problem of instability that has in any way threatened the existence of the UK, until recent months and years, but it is increasingly problematic. That instability and asymmetry has traditionally been exploited by nationalists in Wales and Scotland in good faith and with good intentions, from their perspective, but has led them to ratchet up demands for new and varied powers in Wales and Scotland, setting one part of Britain against another in seeking to extract benefit from their objectives of independence for Wales and Scotland through asymmetry of the settlement.
In recent months, another party has joined them in seeking to divide some parts of Britain from others and to separate people in one country of Britain from those in another for party political gain and ideology. That is
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the Conservative party, which has recently become a zealous if late convert to the cause of tax devolution and competition, and sees an ideological and legitimate benefit for a party that believes in low taxation, the Laffer curve and the logic behind the comments by the hon. Member for Forest of Dean (Mr Harper). It thinks that, from a relatively low political base in Wales, it has the potential to expand its presence by arguing that it is a low-taxation party in Wales.
I was intrigued to hear how sanguine the hon. Member for Forest of Dean is about the prospect of his constituents enjoying higher tax rates than those on the Welsh side of the border in the unlikely event of a Conservative Government in Wales. I am not sure that his constituents would be as sanguine as he is about the difference of a few yards making a 10% difference, potentially, in the tax rate enjoyed by them, compared with their neighbours.
Guto Bebb (Aberconwy) (Con): I suspect that my hon. Friend the Member for Forest of Dean (Mr Harper) was relaxed because he had read the hon. Gentleman’s speech at the Llandudno conference in which he said that the 4,000 taxpayers in Wales who are currently paying the 45% rate should be paying a 50% rate.
Owen Smith: I will happily restate for the record our view that we ought to have a fair rate of taxation in Britain. That is why we have pledged that the next Labour Government will reintroduce a 50p rate in Wales and throughout the UK. Our proposal is directly relevant to the amendment, which is about symmetry between the powers enjoyed in Wales and in Scotland—
Owen Smith: I will give way in a moment, if the hon. Gentleman will calm down. I will finish my point and then the Floor will be his.
We want to future-proof the legislation so that, in the event of a Labour Government in Britain—we have already pledged in Scotland to take forward the Scottish devolution proposals and to extend the amount of income tax that can be devolved and the powers relating to that tax—the Chancellor would be forced to consider the benefits of symmetry and extending it throughout the UK.
Guto Bebb: Was the hon. Gentleman not rabble-rousing in his speech at Llandudno when he made it clear that a Labour Government in Wales would have the right to increase the tax rate to 50%? If he is concerned about tax competition, surely a 50% rate in Wales and a 45% rate in the rest of the UK would be problematic for the Welsh economy.
Owen Smith:
I am not sure I was rabble-rousing. I would never describe the representatives of the Welsh Labour party as a rabble, although they may have been roused by my speech, and I trust they were. It is fair to say that they were reported as having been roused by my speech and I thank the hon. Gentleman for drawing that to the Committee’s attention. I am happy to repeat the view I expressed in that speech: that our worry is that the Conservative party has an established track record of cutting taxes for the wealthiest people, not
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just in Wales but throughout the UK, and is increasingly happy to support them and to act on their behalf. In the event of the Labour party winning the trust of people across Britain and winning the next election, we would like a Welsh Government to give the Welsh people, through their Assembly, the ability to deliver a progressive rate of taxation in Wales in keeping with the progressive values of the Welsh people. There is nothing wrong with that.
Mr Harper: I want to come back to the hon. Gentleman’s point about whether I would be relaxed about delivering a lower rate of tax. Depending on whether there would then be a reduction in revenues, and that had some consequences, I would have no problem with a lower rate of tax. One of the things my constituents find annoying about the current settlement is that they see money being spent without there being any connection with its having to be raised; it all just comes from the centre. I think that if the taxing and the spending are connected, constituents will be relaxed about it. Given what the hon. Gentleman said, if a Labour Government remain in Wales there is clearly no prospect of lower taxes in any event.
Owen Smith: I do not accept the premise of the hon. Gentleman’s remarks. Taxpayers in Wales elect a National Assembly that has a democratic mandate to exercise its powers in respect of taxation, just as his Government do currently. I have never accepted the argument that the only way to give accountability to the National Assembly is through its having powers to raise taxes as well as spend them. I accept that intellectually there is a clear line to be drawn between taxation and representation, and that an increased level of financial accountability is afforded if taxes are being raised as well as spent. That is why we do not oppose that aspect of the Bill. Let me be clear, though, that Labour does not favour—as do, clearly, the hon. Gentleman and his hon. Friends on the Treasury Bench—tax competition within Britain. We are believers in the Union and in the ability to pool risk and share rewards across Britain. That fundamental belief is undermined, in my view and that of the Opposition, by tax competition that would see lower rates set in Wales compared with those in England, Scotland or Northern Ireland.
We are sanguine about supporting these tax powers, given the correlation the Government have drawn with borrowing, which we think absolutely vital. We are equally sanguine about the fact that Wales—given that Scotland has already moved on to this perspective as a result of the Scotland Act 2012, passed by this Government—ought to enjoy similar powers. However, we will not go on to say that we need to cut taxes in Wales to undercut England, because we do not believe in Wales undercutting the English.
Mr Harper: Is there not a point about symmetry? The hon. Gentleman seems to be saying that the three parts of the UK with devolved Administrations need to move together in terms of the powers they have and the decisions they make. Surely the logic of devolution, particularly in the way that his party delivered it, was that there was a different settlement in those three parts of the UK. I accept that avoiding asymmetry might be a desirable outcome, but is it not a bit late for him to take that view, given the three different types of devolution that his party delivered in government?
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Owen Smith: That is precisely what I said in my opening remarks. We have a tradition of asymmetry that results from history and the relative degree of appetite for these powers in Wales, Scotland and Northern Ireland at the point at which we introduced them. Given that the Conservative and Unionist party is increasingly exploiting that asymmetry for narrow party political ends and risking tax competition within Britain, we worry that we need to move towards a more symmetrical system. In truth, that is what this Bill does. It puts Wales and Scotland on a more symmetrical footing in respect of taxation policy. It puts Wales on precisely the same footing that Scotland will be on after 2016. We support that. Our amendment says that if Scotland were to go further, as it would be likely to do under a Labour Government, we would afford people in Wales the ability to move to a similar position.
Guto Bebb: I think the hon. Gentleman is either confused or has been misreported. The speech he made in Llandudno specifically stated that Wales would have the power independently to reinstate the 50% tax rate. If he is concerned about tax competition, then surely he can see that a 50% tax rate in Wales—whereas it is 45% over the border, 45 minutes from my constituency—would create a disadvantage for Welsh taxpayers.
Owen Smith: I have not been misrepresented or misreported—that is precisely what I said and in no way, shape or form is it confused. It is a reflection of our abiding concern that the Tory party seeks to cut taxes for the wealthiest people in Wales. That is not a progressive tax system and it does not reflect the views and values of the people of Wales. Therefore, if we were in power in Westminster and Scotland took on greater tax powers, we would afford the Welsh people a similar opportunity.
5.15 pm
The Exchequer Secretary to the Treasury (Mr David Gauke): The hon. Gentleman said a moment ago that he did not believe that Wales should undercut England. In other words, he does not believe that Wales should have a lower level of income tax than England. Does he also believe that Wales should not have a higher level of income tax than England?
Owen Smith: No. That is why I said what I said and why we have tabled amendment 40. In the event of further cuts by a Tory Government to the taxes of the wealthiest people in Wales and England, we would afford the Welsh people the ability to set a more progressive rate and to reintroduce the 50p rate in Wales, just as we propose to do across the rest of the UK.
We are, of course, discussing a hypothetical point to an extent, because in the event of there being a Labour Government in Westminster—which is the only way Wales would enjoy these additional powers, unless the Secretary of State intends to amend the Bill—we would reintroduce the 50p rate right across the UK. The issue would then be a moot point in Wales.
Mr Gauke:
This might be a hypothetical point, but it is interesting and revealing that, while the shadow Secretary of State is ruling out ever using income tax powers in Wales to reduce taxes, he is certainly not ruling out
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using them to increase taxes. As he is well aware, under the powers in the Bill, if he increased taxes at the additional rate, he would also increase the basic rate.
Owen Smith: Indeed. That should come as no surprise to anyone. The Exchequer Secretary, in his rather tortuous remarks, is attempting to put words into my mouth. I said in my speech in Llandudno—I say it again today—that in the event of a Labour Government in Westminster, we would afford the Welsh people the ability to put up the top rate of tax and reinstate the 50p rate in Wales. That is very simple.
Simon Kirby (Brighton, Kemptown) (Con) rose—
Owen Smith: I will give way in a moment. We are not talking about increasing the basic rate or the top rate; we are talking about increasing the additional rate of tax. [Interruption.] No, it is called the additional rate.
Mr Gauke: You mean the higher rate.
Owen Smith: From a sedentary position, the Exchequer Secretary draws a distinction between the higher rate and the top rate. I fully accept that what I mean is the higher rate, by which I mean the 40% rate, as opposed to the additional rate of 45%.
Wayne David: Does my hon. Friend agree that the essential point is that, although we have asymmetrical devolution in the United Kingdom—there is a great deal of variation between the devolution settlements in Scotland, Wales and Northern Ireland—we still have one British economy? Having variation is one thing, but having huge divergence is something else altogether.
Owen Smith: The essential point we are making is that we, unlike the Conservative party, are not in favour of tax competition. We are not in favour of one part of the UK undercutting another, but the Secretary of State and the Tory party are. It is very simple.
Simon Hart (Carmarthen West and South Pembrokeshire) (Con): Leaving aside the escape route that the hon. Gentleman has prepared for himself with his hypothetical point, is he not recommending tax competition?
Owen Smith: No, I am not recommending tax competition. If the hon. Gentleman would like a further tutorial later, I will happily give him one on tax policy or anything else he likes.
None of the changes would of course come into effect unless what Labour has referred to as the triple lock is met. First, as the Bill lays out, we would need certainty that Wales was not worse off. We still have serious questions about whether Wales would be worse off—versus the Barnett formula and the block grant that we currently enjoy—if tax powers are taken. Secondly, we would need to be absolutely certain that there was fair funding for Wales, hence our fair funding lock. We are not talking about it today, but we did so briefly during the first day in Committee. For the changes to apply, Welsh Ministers would need to be satisfied that funding arrangements were fair before they triggered a referendum on exercising the powers. Thirdly, we would of course need such a referendum. As I said earlier, if
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the powers were exercised, they would be designed to mitigate the dangers of further Tory tax cuts for the wealthiest.
Amendments 7 and 8 on minor taxes and their volatility are probing amendments, unlike amendment 40, which we will push to a vote. Fundamentally, we broadly support the provisions—we certainly support the borrowing associated with the devolution of such powers and taxes to Wales—but we have significant concerns about how the powers will work, about the volume of these taxes and about how the Government have drawn a causal link between the devolution of these taxes and borrowing powers. The hon. Member for Forest of Dean raised other questions about the workability of the taxes and the manner in which they would be deployed.
On the connection drawn between powers and borrowing, I said on Second Reading and on previous occasions that the Government have yet to explain why they arrived at a rationale for associating powers with borrowing that is different from the one used in the Scotland Act. The Exchequer Secretary will know that the Scotland Act drew a connection between the capital budget for Scotland in respect of borrowing and the amount of borrowing allowed each year. The overall capital budget for Scotland is £2.3 billion, so borrowing of £220 million per year is allowed up to that ceiling. Why this Bill draws a different line between these taxes and the amount of borrowing has never been explained, and we remain convinced that the figure was just plucked out of thin air. If the Minister wanted to explain where the figure of £500 million came from and the basis from which it was derived, we would be very grateful.
As an indication of how the amount of money is significant—we support it—but perhaps not enough, Jane Hutt, the Minister for Finance, has announced only today an important package of funding on infrastructure, including £220 million for a new specialist cancer hospital at Velindre. I am sure all hon. Members welcome that, but it is a measure of how little £500 million buys these days. It is therefore incumbent on the Government to explain how they arrived at that figure.
We understand that the Government have made provision in the Bill such that the amount of money will not go down, even in the event of a reduction in the amount of taxes taken by the Welsh Assembly—that is guarded against—but the Minister will know that stamp duty and landfill taxes are especially volatile. In particular, stamp duty land tax is extraordinarily volatile year on year. For example, in Wales during the past five years it has been between £55 million and £130 million. Indeed, that difference of 60% occurred in just one year.
Mr Harper: On the capital borrowing level of £500 million—I think the hon. Gentleman was asking how the Government had arrived at that figure—I may be wrong, but I believe I touched on this on Second Reading. In the “Wales Bill: Financial Empowerment and Accountability” document, there is a quite extensive section on how the Government arrived at that figure. It was partly through allowing the Welsh Assembly Government to proceed with improvements to the M4. Is the hon. Gentleman seeking further details on that, because I thought the document was quite comprehensive?
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Owen Smith: The point I was making—I hesitate to repeat it—was that there is a clear rationale in the Scotland Act 2012: a percentage of the overall capital budget for Scotland could be drawn down every year up to a maximum that was equal to the amount of the capital budget. The difference for Wales is that we have a direct line drawn with respect to the amount of taxes. We heard the Government describe it on Second Reading as relatively generous, because the overall amount of landfill tax and stamp duty land tax is around £200 million a year on average and the amount of borrowing is £500 million, so it could be seen as a 2:1 benefit for Wales. However, as I say, a different justification was used for Scotland, and it has never been clear from where that £500 million figure was derived. I suspect that the £500 million was a read-across from the £500 million previously enjoyed by the Welsh Development Agency, but if the Minister would like to tell us otherwise, we would be grateful.
Landfill tax is less volatile than stamp duty land tax, but in 2009-10 its yield fell by £100 million across the UK and by several million pounds in Wales. The whole point about landfill tax is that it is designed to reduce. As the amount of recycling done by local authorities in particular increases, the revenue from landfill tax will reduce; it is a disincentivising tax. It strikes me as particularly curious to attach a direct line between that particular tax and stamp duty, given its volatility, and the amount of borrowing, given that the Government now concede that the amount required by Wales is significant.
On the complexity of these taxes, I thought that the right hon. Member for Dwyfor Meirionnydd (Mr Llwyd) provided an interesting example of the pub in Chester, which has one bar in one country and another bar in the other. Having sampled the warm welcome of hostelries in Chester, I know that that is an excellent pub doing extremely well, but if the landlord came to sell it, how exactly would the Treasury decide which room was in which country and in which country the relative rate of stamp duty land tax or whatever tax it is in a devolved Administration or devolved setting in Wales would be paid?
There are no estimates of the number of houses in Wales in similar circumstances. Many properties are on one side of the border, but the land attached to them, included when the house is sold, is on the other side of the border. Our view is that the Treasury ought to have done a little more homework on just how many properties will be affected and what the relative degree of difficulty would be in implementation. I see the Exchequer Secretary shaking his head. We know that businesses were consulted on the potential complexities of different rates of income tax, but to my knowledge, no analysis has been undertaken by the Treasury in respect of stamp duty land tax or landfill tax, which I think is a bit remiss on the Treasury’s part.
Amendment 43 on reserved powers simply calls on the Secretary of State to issue a report
“on the further legislative steps needed to move to a model of reserved powers for the National Assembly for Wales”.
The hon. Member for Aberconwy (Guto Bebb), who is no longer in his place, referred to the conference in Llandudno that was addressed by my right hon. Friend the Member for Doncaster North (Edward Miliband),
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who made a further announcement about our intention to move to a symmetrical model of devolution as between Wales and Scotland.
In effect, that would mean that powers would be assumed to be devolved to the Welsh Assembly unless they were specifically reserved to the UK Parliament. That would hold many benefits for Wales. In particular, it would stop a Conservative Secretary of State, such as the one that we have currently, continually referring Welsh legislation to the Supreme Court. On three occasions, the Secretary of State has either sought to refer or succeeded in referring legislation to the Supreme Court, at a cost of about £150,000 a time. We do not know precisely how much it has cost. The Exchequer Secretary must know, so it would be good if he told us.
5.30 pm
Our point is that there has been a party political attempt by the Secretary of State to stop the Welsh Government taking forward legislation that they feel would be in the interests of people in Wales and, in particular, working people in Wales. An example is the action that he took in respect of the Agricultural Wages Board. The Conservatives were so determined to cut wages for low-paid agricultural workers that he took the Welsh Assembly to the Supreme Court. We await the ruling. We are fearful that it could deal a further significant blow to some of the lowest paid agricultural workers in Wales.
Mr Harper: The Secretary of State will no doubt correct me if I am wrong, but it seems to me that all he is doing in referring matters to the Supreme Court is ensuring that the legislative balance between this place and the Welsh Assembly is upheld, and that the legislation that sets out that balance is not trespassed upon. To follow the hon. Gentleman’s logic, he is presumably saying that if, God forbid, he were ever Secretary of State and the Welsh Assembly Government tried to move the devolution settlement unilaterally, he would simply acquiesce and not defend the rights of this place or the primary legislation that it has passed.
Owen Smith: That was the justification that the Secretary of State used at the time and he would no doubt use it again today. Our view and the view of many people in Wales is that what he did in respect of the Agricultural Wages Board was a party political attempt to tie the hands of the Welsh Assembly by arguing that it was employment legislation and not legislation that related to agriculture, which is devolved to Wales. Many of the learned counsel who offered their opinions on the matter backed the view of the National Assembly for Wales. We will wait to see what the ruling is. My point is simply that a shift from the conferred powers model to a reserved powers model would militate against such apparent confusion on the part of the Secretary of State and ensure that we had greater clarity about where the line lies between the powers of this House and the powers of the National Assembly.
Mr Mark Williams: I concur with much of what the hon. Gentleman has said about reserved powers. However, does he agree that the issue is less about party politics than about the clarity in the devolved settlement? That is why some parties are committed to having the reserved powers model in our manifestos. That is the conclusion that most people have reached after Silk II.
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Owen Smith: Indeed; the hon. Gentleman’s party and my party are committed to having that in our manifestos. We see significant benefits in putting Wales in a symmetrical position to Scotland in respect of powers and in tying the hands of future Conservative Secretaries of State who might employ the same argument to tie the hands of the Welsh Assembly Government.
Mr Williams: Will the hon. Gentleman concede that Silk II found that the issue was about the clarity in the devolution settlement, rather than about party political motives and posturing?
Owen Smith: Absolutely; Silk said precisely that. I am saying today for the clarity of the Committee that we believe that the current Government employed the argument for party political purposes. They attempted to stop the Welsh Government doing what they wanted to do, which was to maintain the Agricultural Wages Board for Wales. That would have had significant benefits for some of the lowest paid workers in Wales. On that basis, I believe we can say firmly that Wales would be better off if we moved to a reserved powers model, with the greater clarity and additional safeguards that it would bring.
Finally, Madam Chair—[Interruption.] I beg your pardon, Sir Roger; I did not see you slip into the Chair, but it is a great pleasure to serve under your chairmanship once more. On the background to these clauses, we did not have much chance to discuss the so-called fair funding lock. The ability of the Welsh Labour Ministers in Cardiff Bay to determine whether they think the funding settlement for Wales is fair and adequate, in advance of their moving to adopt any of the powers of income tax—or any of the other taxes—is an important test. I hope that the Government will rise to that challenge at some point in the future.
Wayne David: I rise to support amendment 7. I recognise that it is a probing amendment, but it is nevertheless important to discuss the volatility of stamp duty land tax revenues in Wales. I will also speak to amendment 43 and the need to move to a reserved powers model for the National Assembly for Wales. I am aware that those two issues are not really related, but both are in this group of amendments, and in my view both are extremely important.
As the Silk report states, stamp duty land tax is a “relatively volatile tax”. Indeed, as the director of CBI Wales said only last year, SDLT raised about £210 million in Wales in 2007, but only £115 million in 2008-09. That is a relatively small amount, accounting for about 2% of the Welsh block grant, but a variation from £115 million to £210 million in two years is not insignificant. As Silk himself stated, the devolution of stamp duty land tax could pose potential risks for the Welsh budget.
Let me be clear: I am in favour of the devolution of stamp duty land tax, but I would like reassurance from the Minister about precisely how that volatility will be managed. The essential point is that devolving SDLT has consequences for the block grant, which would be reduced by the amount of SDLT collected in Wales. I would like a fuller and clearer explanation from the Minister about exactly how the block grant offset will be determined. Will borrowed resources be used to meet any shortfall when the receipts from land tax are less
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than expected? Does the Minister agree with the Silk report that the value of the deduction should be decided between the UK and Welsh Governments, and not by the UK Government unilaterally? I suggest that the deduction should take into account the volatility of the tax and the forecast revenue in Wales. I would therefore like specific reassurances from the Minister that these admittedly esoteric but nevertheless extremely important issues will be clearly addressed, so that we know precisely what we have before us.
My second point is about whether we move from a conferred powers model of devolution for Wales to a reserved powers model. In my view, there is no perfect model of devolution. In Northern Ireland and Scotland there is a reserved powers model, but—let us be honest—those models have their problems. We will all have heard about Scotland and Antarctica. For those who are not au fait with that problem, there was an issue of whether Antarctica was included in the devolution model for Scotland. It was not on the reserved powers list, and therefore the assumption was that it was devolved to Scotland in issuing licences and permits for people to operate in Antarctica when they were based in Scotland. Of course, that was an oversight by drafters, and it was put right retrospectively. I simply cite that example to show that there is no perfect model of devolution. We can cite other difficulties that arose when Scotland adopted the reserved powers model, but the fact that no model is perfect does not mean that a reserved powers model for Wales would not be a huge step forward. It would be a huge step forward, because we have heard—very eloquently—from the shadow Secretary of State about numerous examples of issues that have been taken to the Supreme Court by the Wales Office. At root, the problem is a lack of clarity, which would not exist if we had more clearly defined the reserved powers model.
We are all concerned about the Conservative party’s determination to prevent the Welsh Government from introducing measures to protect Welsh agriculture workers, and the case for moving to a reserved powers model has been well put by the UK’s Changing Union project. Under the title “The benefits of a ‘Reserved powers’ model of devolution”, it said:
“A ‘Reserved powers’ model of devolution would benefit Wales and the UK as a whole. A ‘Reserved powers’ model would provide much greater clarity about the legislative powers of the National Assembly for Wales. This will benefit civil society organisations, politicians, civil servants and the general public—in short the democratic process as a whole. A ‘Reserved powers’ model would place the relationship between Cardiff and London on a more stable, adult footing and help reduce the number of unnecessary disputes”—
which have been alluded to already in this debate—
“between the two levels of government. A ‘Reserved powers’ model of devolution for Wales would place Welsh devolution on the same footing as devolution for Scotland and Northern Ireland making it far more likely the UK will be able to develop more effective mechanisms to manage intergovernmental relations between central government and the devolved territories.”
That is an effective summation of the strong case for moving to a reserved powers model. I emphasise that there is no ideal model of devolution. Inevitably, devolution is a dynamic, but if we had this model, it would be far better than what we have at the moment.
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Mr Mark Williams: Would the hon. Gentleman add to that list the availability of maximum flexibility in the future? We had the Government of Wales Act 1998, the Government of Wales Act 2006 and we now have this Bill. This piecemeal, step-by-step approach to what some of us would like to see—home rule in a federal Britain—is going on and on, but a reserved powers model would give us greater opportunities for flexibility.
Wayne David: Home rule, of course, was championed by Keir Hardie, who was the first Labour Member of Parliament, representing Merthyr and Aberdare. Home rule is very important and we must look at mechanisms to enhance that principle and take it forward. A reserved powers model would provide flexibility, but it would also provide greater coherence, stability and clarity. On those principles, it is superior to what we have at the moment, but—as I have said—there is no such thing as perfect devolution. Whatever the nature of the devolution settlement, we will always need to discuss, debate and even argue about some issues. On balance, however, I think a reserved powers model would be the right choice.
Do the Government recognise that a cross-party consensus is emerging in Wales that a reserved powers model would be superior to what we have at the moment? I ask the Conservative Minister not to dig his heels in on this, but to recognise that there is a constitutional consensus and that it means something. It is one of the essential underpinnings of a progressive view on devolution. For goodness’ sake, do not give the impression that his opposition to a reserved powers model is all about trying to prevent what we would see as progressive measures to protect agriculture workers in Wales. He is genuinely concerned about constitutional stability and flexibility, as has been said, and about achieving something approaching a cross-party consensus on the way forward for devolution. That is why the amendment is very important indeed. In some ways, it takes us beyond the parameters of the Bill, but nevertheless, if the House were to support it, it would give an important indication of how we all see devolution moving forward. It is therefore very important that we support the second amendment, amendment 43 to clause 28.
5.45 pm
Mr Gauke: It is a great pleasure to serve under your chairmanship, Sir Roger, and to respond to the debate.
Part 2 of the Bill introduces a provision to devolve taxes to the Welsh Assembly. Clause 6 introduces a new part 4 to the Government of Wales Act 2006 and confers the required competence on the Assembly to legislate on devolved taxes, including their collection and management. Clause 6 also allows for further taxes to be devolved to the Assembly via an Order in Council and makes it clear that officials working in any body set up by the Assembly to administer the devolved taxes can be designated as civil servants if the Assembly so chooses. This applies whether the body only collects and manages devolved taxes, or is additionally responsible for the existing devolved subject of local government finance, including council tax and business rates.
Clause 7 makes amendments to the commissioners for revenue and customs Acts to allow Her Majesty’s Revenue and Customs to administer devolved taxes on behalf of the Assembly. The clause also amends HMRC’s
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information powers to allow it to share information with the Welsh Government in relation to devolved taxes.
Clauses 14 to 16 and schedule 2 provide for a devolved tax to replace stamp duty land tax on land transactions in Wales, in line with the recommendation of the Silk commission. Clauses 17 and 18 provide for a devolved tax to replace the existing tax on disposals of waste to landfill sites in Wales, again as recommended by the Silk commission.
Let me address Government amendment 20. In devolving tax powers, our intention is that the Assembly should have a free hand in choosing how it wants its devolved taxes to be administered and by whom. We do, however, recognise that HMRC has many years—indeed, if one includes its predecessor organisations many centuries—of experience in administering taxes within the UK, so we want the Assembly to be able to use HMRC’s services for these purposes if it wishes to do so. The proposed legislation in clause 7 provides for this.
As set out in the Command Paper, though, we believe that this should be on the basis of mutual agreement. The Assembly should not be compelled to use HMRC to administer its devolved taxes, but neither should the commissioners for HMRC be compelled to take on this role. At present, the 2006 Act would allow an Act of the Assembly to modify an existing function of HMRC or confer a new function on HMRC without the consent of the UK Government.
Amendment 20, therefore, amends parts 2 and 3 of schedule 7 to the 2006 Act to make it clear that the Assembly can only confer functions on HMRC and, once conferred, modify those functions if they relate to a devolved tax and the Treasury consents to it. The amendment ensures that the Assembly has the option of using HMRC to administer its devolved taxes, but puts appropriate safeguards in place for the UK Government in recognition of the vital role HMRC plays in collecting tax throughout the UK. I therefore hope that hon. Members will support the amendment.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC): Will the Minister give us any idea of how long he expects the process of seeking the Treasury’s consent to take, and how long it will be before the Welsh Government can use whatever powers it decides to confer?
Mr Gauke: All I can say at this stage is that we would consider any such request in good faith. We want to work in a constructive manner, and I believe that the UK Government have a record of doing that when dealing with the Welsh Government. Our amendment certainly does not constitute an attempt to delay matters. The Assembly has the option of using HMRC, but it is not compelled to do so. We think it reasonable, if the Welsh Government wish to use HMRC, for its commissioners and the UK Government to make a proper assessment of the overall impact on the UK.
Jonathan Evans (Cardiff North) (Con): I hear what my hon. Friend says about the use of HMRC, but I think that my constituents would be keen to know whether the tax office in Llanishen in Cardiff in my constituency is likely to be the location where its work is done.
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Mr Gauke: I am sure that my hon. Friend is right. As I have said, our intention is to work constructively. It will be for the Assembly to choose whether to make use of HMRC’s expertise, which is obviously considerable, but should it wish to do so, I think it reasonable for the UK Government to reserve the right to ensure that no demands are placed on HMRC that could disrupt the important work that it does throughout the United Kingdom, including in Wales.
Amendment 40, tabled by the hon. Member for Pontypridd (Owen Smith), seeks to place a duty on the Chancellor of the Exchequer to review
“the benefits of symmetry in the devolution of taxes between Wales and Scotland”
whenever a tax is devolved to either. It requires the Government to assess whether a tax that is being devolved to Wales should also be devolved to Scotland, and vice versa. I understand the intention of the amendment, but it fails to take into account the fact that key principles of tax devolution already exist. The UK Government have adhered to those principles, and we would expect future Governments to do so. They state that any changes should be evidence-based, and should be considered in a UK context. An assessment of the UK context would include an assessment of whether symmetry with the other devolved Administrations was desirable.
The amendment seeks to impose an unnecessary statutory basis on a process that the Government would undertake as a matter of course when considering the case for devolving further taxes to either Scotland or Wales. It could, indeed, lengthen the process of devolving new taxes in the future by placing a superfluous statutory requirement on the Government. I do not believe that it is necessary, or would improve the procedure for adding new taxes that is set out in the Bill. It may well be that the hon. Gentleman simply wants to probe Ministers to establish whether this or a future Government would take the issue of symmetry into account, but I do not find the argument for a statutory basis persuasive.
Owen Smith: We are indeed keen to ensure that the Chancellor has a statutory obligation to consider the benefits of symmetry across the piece on a statutory footing, but let me take up the Minister’s reference to the need for an evidence base to support taxation policy. Does he agree that it would have been wise of the Treasury to undertake some form of detailed behavioural analysis of the impact of tax competition in respect of income tax, or indeed any analysis of the impact that stamp duty land tax or landfill tax might have on behaviour?
Mr Gauke: I shall deal with stamp duty land tax and landfill tax later in my speech. As for income tax, I am tempted to explain to the hon. Gentleman yet again about the lockstep attributes of our reforms. He has expressed concern about tax competition, but it seems to me from his earlier remarks that he does not believe in it, and that, if he had a chance to seek greater tax competitiveness for any part of the United Kingdom, including Wales, he would not do so. Indeed, he seems to be advocating a policy of “tax uncompetitiveness” for Wales. However, I must not detain the Committee too long on that subject.
Wayne David: Will the Minister give way?
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Mr Gauke: I will, but I want to make some progress.
Wayne David: I realise that the Minister wants to make progress, and I know that he has rejected the suggestion that there should be an analysis of what might happen as a consequence of the Bill, but it would be helpful to have a clear articulation of the Government’s position on tax competition. Does he want tax competition, yes or no?
Mr Gauke: What we want is greater devolution in terms of income tax. When we debated the subject last week, I explained in some detail why we thought that it was a good thing, primarily because it would increase the accountability of the Welsh Government to the Welsh people, which I would expect Members in all parts of the Committee to want.
Amendments 32 and 33 were tabled by members of Plaid Cymru. Clause 6 introduces an important new power to devolve further tax powers to the Assembly via an Order in Council. The power has a broad scope, and can apply to brand-new taxes and to existing UK-wide taxes. The clause sets out the process for making such an order, which would need to be approved by both the House of Commons and the other place, as well as by the Assembly. Amendment 33 would remove Parliament from the process, so that the order would need to be passed only by the Assembly.
We recognise that it is important to give the Assembly and the Welsh Government the economic levers that are needed to generate growth in the Welsh economy, including the ability to introduce new taxes. We also recognise that—although this would depend on the proposal under consideration—if we are to proceed in a timely manner, it would be advantageous to be able to devolve further taxes without requiring primary legislation. However, a balance needs to be struck. Tax devolution should not be at the expense of reducing the overall tax receipts or competitiveness of the United Kingdom as a whole.
That last point is particularly important. As we stated in the Command Paper that accompanied the Bill, we would assess any proposals for further tax devolution against a number of criteria. For example, we would consider whether any new tax would affect the UK’s wider economic policy, impose disproportionate burdens on businesses or individuals, or create new tax avoidance opportunities. In short, the criteria would ensure that any new tax would not be to the detriment of the UK as a whole.
It is important for the devolution of further tax powers to take place in the constructive and collaborative manner that led to the Bill. It is therefore right for the resulting legislative process similarly to involve both the Assembly and Parliament, so that the proposal can be considered from the perspectives of both Wales and the wider UK. It would not be right for either to be able to legislate to devolve further taxes without the agreement of the other.
Owen Smith: I am grateful to the Minister for giving way to me for the second time. He said a moment ago that the Treasury would be concerned if any reductions in taxes in Wales led to reduced receipts for the Exchequer. Does he not agree with the Secretary of State that a Conservative Government in Wales should cut taxes, or does he think that that would necessarily always lead to higher receipts?
6 May 2014 : Column 64
Mr Gauke: That is a matter for the devolved Administration, but the design of the income tax powers is such that we believe that we are striking the right balance.
Amendment 32 seeks to extend the power to tax credits. I know there was a little debate earlier as to whether this was about extending powers over the social security system as such, which is not the intention behind amendment 32. That was made clear by the hon. Member for Arfon (Hywel Williams).
6 pm
It is worth pointing out that in devolving complete control of taxes relating to land transactions and disposals to landfill, we are giving the Assembly the ability to introduce tax reliefs or tax credits in relation to these devolved taxes. As Members will be aware, the landfill communities fund is an important part of the UK landfill tax system. Under this scheme landfill site operators can contribute a percentage of their landfill liability to be used on projects that will bring about significant environmental benefits. They can then reclaim 90% of this contribution as a tax credit, and I can confirm that it would be within the scope of the Assembly’s devolved tax powers to introduce a similar tax credit scheme in Wales if desired, which I am sure Members would welcome.
Turning to stamp duty land tax in clauses 14 to 16 and schedule 2, clause 14 adds a new section 116L to the Government of Wales Act 2006 which provides that a tax on Welsh land transactions is a devolved tax; in other words, it empowers the Assembly to legislate for the new tax. The clause defines a Welsh land transaction in similar terms to the definition of a chargeable transaction for SDLT purposes. In practice in most cases the new tax will apply to an acquisition of a freehold or leasehold interest in land in Wales. The term “land” here includes buildings erected on the land. Where a transaction includes land that sits astride the England-Wales border, the new tax can only be charged on the part of the land that is in Wales. In these relatively rare cases, the principle is that the transaction is to be treated as two separate transactions, one involving the land in England and the other the land in Wales. The transaction involving the land in England will be subject to SDLT. The Assembly will be able to legislate the new tax as soon as this clause comes into force. However, the tax cannot be charged on any transaction to which SDLT applies. This means the new tax will come into force when SDLT is disapplied in Wales under the provisions of clause 15.
Clause 15 amends the main SDLT legislation at part 4 of the Finance Act 2003 to exclude land in Wales from the definition of a chargeable interest in land for SDLT purposes. The clause also introduces schedule 2 to this Bill, which makes consequential amendments to SDLT legislation. The clause takes effect for transactions where the effective date for SDLT purposes, which in most cases is the date on which the purchase contract is completed, is on or after a date to be prescribed by Treasury order. We intend to set that date in consultation with the Welsh Government to ensure that arrangements for the devolved tax are in place. Subject to this proviso, we expect the date to be 1 April 2018.
Once the devolved tax on land transactions is introduced, clause 16 provides for the supply of information about Welsh land transactions to HMRC. This information is
6 May 2014 : Column 65
currently supplied by means of the SDLT return. The information is needed to allow HMRC to undertake compliance work in respect of taxes such as capital gains tax and corporation tax, which are not devolved, and to support the activities of the Valuation Office Agency.
Amendment 7 tabled by the official Opposition requires the Government to review the historical volatility of SDLT revenues in Wales, a point also made by the hon. Member for Caerphilly (Wayne David). It is true that SDLT is one of the more volatile taxes, but it is ultimately for the Welsh Government to consider whether they want to review the volatility of SDLT in Wales in order to inform their design work. It is also the case that alongside the devolution of tax powers in the Wales Bill, the Government are providing the Welsh Government with new tools to manage tax volatility, specifically a cash reserve and extended current borrowing powers.
Clauses 17 and 18 provide for a devolved tax to replace the existing tax on disposals of waste to landfill sites in Wales, as recommended by the Silk commission. Clause 17 provides for the new devolved tax, which will mean that the Welsh Government and Assembly will have full control over the design and administration of a Welsh landfill tax. Again, similarly to taxation on land transactions, the clause will come into effect two months after the Bill receives Royal Assent. This will allow the Assembly to legislate for the devolved tax and, subject to that legislation, the Welsh Government to make the necessary administrative arrangements. The devolved tax cannot apply to a disposal if the disposal is made before the date at which the existing UK landfill tax is disapplied in Wales, as provided in clause 18.
Similarly to the official Opposition’s amendment 7, their amendment 8 requires the Government to review the volatility of landfill tax in Wales. I would make similar arguments in that it is a matter for the Welsh Government whether they wish to do so.
Finally, amendments 42 and 43 seek to postpone the commencement of part 2 of this Bill, apart from the referendum provisions and clauses 19 and 20 in relation to borrowing powers, until the Secretary of State has laid a report before both Houses of Parliament setting out the steps needed to move to a reserved powers model of devolution. The report would need to be laid within six months of the Bill’s enactment.
Through these amendments, Opposition Members are seeking to connect directly the commencement of the parts of this Bill that would devolve tax-raising powers to the Assembly to one of the most far-reaching of the Silk commission’s part 2 recommendations. A move to a reserved powers model would be a fundamental change to the devolution settlement in Wales. It should be a matter for party manifestos at the next elections, as the Silk commission itself recognised. As such, I believe there is nothing to be gained by requiring the Government to report to Parliament on the legislative steps needed to move to a reserved powers model. There is certainly no justification for delaying the devolution of SDLT and landfill tax and withholding the transfer of power to the Assembly over its budgetary procedures until such a report is laid.
I fear that this is an attempt by the Labour party to delay the devolution of fiscal powers to Wales—anything to thwart the need for truly accountable decision-making in Cardiff bay, and anything to avoid the Welsh Government
6 May 2014 : Column 66
having to take responsibility for their actions. This Government, in contrast, are committed to devolving the tax and borrowing powers in this Bill as soon as possible. I invite hon. Members opposite to consider the full implications of their amendments, and to withdraw them.
Hywel Williams: I will seek leave to withdraw the amendment standing in my name and those of my party colleagues, but I would like to make a few brief points.
In response to the hon. Member for Forest of Dean (Mr Harper), who suggested our views on tax credits and devolution might be the thin end of the wedge in devolving universal tax credits, I should say that I was quoting from the Silk report that while existing tax credits, such as working tax credits and, in future, universal tax credits, should remain UK-wide, the Welsh Government should be able to introduce their own credits in relation to devolved taxes. That was the point I was making.
The other point I would make is this: the hon. Member for Pontypridd (Owen Smith) said Barnett would not be discussed. There will, I hope, be a debate on new clause 1, which is specifically about that issue.
Finally, we in Plaid Cymru see amendment 40 for what it is, which is an attempt to delay, and we will be voting against it. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment proposed: 40, page 7, line 13, at end insert—
‘(10) In the event that the power to add new devolved taxes under Section 116C, or the power to add new devolved taxes under Section 80B of the Scotland Act 1998 is used, the Chancellor of the Exchequer must undertake a review of the benefits of symmetry in the devolution of taxes between Wales and Scotland.’.—(Owen Smith.)
Question put, That the amendment be made.
The Committee divided: Ayes 216, Noes 280.
Division No. 261]
[
6.8 pm
AYES
Abbott, Ms Diane
Abrahams, Debbie
Alexander, Heidi
Ali, Rushanara
Allen, Mr Graham
Ashworth, Jonathan
Austin, Ian
Bailey, Mr Adrian
Bain, Mr William
Balls, rh Ed
Banks, Gordon
Barron, rh Kevin
Bayley, Hugh
Beckett, rh Margaret
Begg, Dame Anne
Benn, rh Hilary
Benton, Mr Joe
Berger, Luciana
Betts, Mr Clive
Blackman-Woods, Roberta
Blears, rh Hazel
Blenkinsop, Tom
Blomfield, Paul
Bradshaw, rh Mr Ben
Brennan, Kevin
Brown, rh Mr Gordon
Brown, Lyn
Brown, rh Mr Nicholas
Brown, Mr Russell
Buck, Ms Karen
Burden, Richard
Burnham, rh Andy
Byrne, rh Mr Liam
Campbell, rh Mr Alan
Caton, Martin
Champion, Sarah
Chapman, Jenny
Clark, Katy
Clarke, rh Mr Tom
Clwyd, rh Ann
Coffey, Ann
Connarty, Michael
Cooper, Rosie
Cooper, rh Yvette
Corbyn, Jeremy
Creagh, Mary
Creasy, Stella
Cruddas, Jon
Cryer, John
Cunningham, Alex
Cunningham, Mr Jim
Cunningham, Sir Tony
Curran, Margaret
Dakin, Nic
Danczuk, Simon
David, Wayne
Davidson, Mr Ian
Davies, Geraint
De Piero, Gloria
Dobbin, Jim
Docherty, Thomas
Donohoe, Mr Brian H.
Doran, Mr Frank
Dowd, Jim
Doyle, Gemma
Dugher, Michael
Durkan, Mark
Eagle, Ms Angela
Eagle, Maria
Efford, Clive
Elliott, Julie
Ellman, Mrs Louise
Engel, Natascha
Esterson, Bill
Evans, Chris
Farrelly, Paul
Field, rh Mr Frank
Fitzpatrick, Jim
Flello, Robert
Flint, rh Caroline
Flynn, Paul
Fovargue, Yvonne
Francis, Dr Hywel
Gapes, Mike
Gardiner, Barry
Gilmore, Sheila
Glass, Pat
Glindon, Mrs Mary
Godsiff, Mr Roger
Goodman, Helen
Greatrex, Tom
Green, Kate
Greenwood, Lilian
Griffith, Nia
Hain, rh Mr Peter
Hamilton, Mr David
Hanson, rh Mr David
Harris, Mr Tom
Havard, Mr Dai
Healey, rh John
Hepburn, Mr Stephen
Heyes, David
Hilling, Julie
Hodge, rh Margaret
Hodgson, Mrs Sharon
Hoey, Kate
Hopkins, Kelvin
Howarth, rh Mr George
Jamieson, Cathy
Jarvis, Dan
Johnson, rh Alan
Johnson, Diana
Jones, Graham
Jones, Mr Kevan
Kane, Mike
Kaufman, rh Sir Gerald
Keeley, Barbara
Kendall, Liz
Khan, rh Sadiq
Lammy, rh Mr David
Lavery, Ian
Leslie, Chris
Lewell-Buck, Mrs Emma
Lewis, Mr Ivan
Love, Mr Andrew
Lucas, Caroline
Lucas, Ian
Mactaggart, Fiona
Mahmood, Shabana
Malhotra, Seema
Mann, John
Marsden, Mr Gordon
McCabe, Steve
McCann, Mr Michael
McCarthy, Kerry
McClymont, Gregg
McDonald, Andy
McDonnell, John
McFadden, rh Mr Pat
McGovern, Alison
McGovern, Jim
McGuire, rh Mrs Anne
McKechin, Ann
McKenzie, Mr Iain
McKinnell, Catherine
Meacher, rh Mr Michael
Meale, Sir Alan
Mearns, Ian
Miller, Andrew
Mitchell, Austin
Moon, Mrs Madeleine
Morden, Jessica
Morrice, Graeme
(Livingston)
Morris, Grahame M.
(Easington)
Mudie, Mr George
Munn, Meg
Murphy, rh Mr Jim
Murphy, rh Paul
Murray, Ian
Nandy, Lisa
Nash, Pamela
O'Donnell, Fiona
Onwurah, Chi
Osborne, Sandra
Owen, Albert
Pearce, Teresa
Perkins, Toby
Pound, Stephen
Powell, Lucy
Qureshi, Yasmin
Raynsford, rh Mr Nick
Reed, Mr Steve
Reeves, Rachel
Reynolds, Emma
Reynolds, Jonathan
Ritchie, Ms Margaret
Robertson, John
Robinson, Mr Geoffrey
Rotheram, Steve
Roy, Lindsay
Ruane, Chris
Ruddock, rh Dame Joan
Sawford, Andy
Seabeck, Alison
Sharma, Mr Virendra
Sheerman, Mr Barry
Shuker, Gavin
Skinner, Mr Dennis
Slaughter, Mr Andy
Smith, Angela
Smith, Nick
Smith, Owen
Spellar, rh Mr John
Straw, rh Mr Jack
Stringer, Graham
Stuart, Ms Gisela
Sutcliffe, Mr Gerry
Tami, Mark
Timms, rh Stephen
Turner, Karl
Twigg, Derek
Twigg, Stephen
Umunna, Mr Chuka
Vaz, rh Keith
Vaz, Valerie
Walley, Joan
Watts, Mr Dave
Whitehead, Dr Alan
Williamson, Chris
Wilson, Phil
Winnick, Mr David
Winterton, rh Ms Rosie
Woodcock, John
Woodward, rh Mr Shaun
Wright, David
Wright, Mr Iain
Tellers for the Ayes:
Susan Elan Jones
and
Stephen Doughty
NOES
Adams, Nigel
Afriyie, Adam
Aldous, Peter
Amess, Mr David
Andrew, Stuart
Arbuthnot, rh Mr James
Bacon, Mr Richard
Baker, Steve
Barclay, Stephen
Barker, rh Gregory
Barwell, Gavin
Bebb, Guto
Bellingham, Mr Henry
Benyon, Richard
Beresford, Sir Paul
Berry, Jake
Bingham, Andrew
Birtwistle, Gordon
Blackman, Bob
Blunt, Crispin
Boles, Nick
Bottomley, Sir Peter
Brady, Mr Graham
Brake, rh Tom
Brazier, Mr Julian
Brine, Steve
Brokenshire, James
Brooke, Annette
Browne, Mr Jeremy
Bruce, Fiona
Bruce, rh Sir Malcolm
Buckland, Mr Robert
Burns, Conor
Burns, rh Mr Simon
Burrowes, Mr David
Burstow, rh Paul
Burt, rh Alistair
Burt, Lorely
Byles, Dan
Cable, rh Vince
Cairns, Alun
Campbell, rh Sir Menzies
Carmichael, rh Mr Alistair
Carmichael, Neil
Clappison, Mr James
Clifton-Brown, Geoffrey
Coffey, Dr Thérèse
Collins, Damian
Colvile, Oliver
Crabb, Stephen
Crouch, Tracey
Davies, David T. C.
(Monmouth)
Davies, Glyn
Davies, Philip
Davis, rh Mr David
Dinenage, Caroline
Djanogly, Mr Jonathan
Donaldson, rh Mr Jeffrey M.
Dorrell, rh Mr Stephen
Dorries, Nadine
Doyle-Price, Jackie
Drax, Richard
Duncan, rh Mr Alan
Duncan Smith, rh Mr Iain
Dunne, Mr Philip
Edwards, Jonathan
Ellis, Michael
Ellison, Jane
Ellwood, Mr Tobias
Elphicke, Charlie
Evans, Jonathan
Evans, Mr Nigel
Evennett, Mr David
Fabricant, Michael
Farron, Tim
Field, Mark
Foster, rh Mr Don
Francois, rh Mr Mark
Freeman, George
Freer, Mike
Fuller, Richard
Garnier, Sir Edward
Garnier, Mark
Gauke, Mr David
Gibb, Mr Nick
Gilbert, Stephen
Gillan, rh Mrs Cheryl
Glen, John
Goldsmith, Zac
Goodwill, Mr Robert
Grant, Mrs Helen
Gray, Mr James
Grayling, rh Chris
Greening, rh Justine
Grieve, rh Mr Dominic
Griffiths, Andrew
Gummer, Ben
Gyimah, Mr Sam
Hames, Duncan
Hands, rh Greg
Harper, Mr Mark
Harrington, Richard
Harris, Rebecca
Hart, Simon
Haselhurst, rh Sir Alan
Hayes, rh Mr John
Heald, Oliver
Heath, Mr David
Heaton-Harris, Chris
Hemming, John
Henderson, Gordon
Hendry, Charles
Herbert, rh Nick
Hermon, Lady
Hinds, Damian
Hoban, Mr Mark
Hollobone, Mr Philip
Hopkins, Kris
Horwood, Martin
Howarth, Sir Gerald
Howell, John
Hughes, rh Simon
Hunt, rh Mr Jeremy
Hunter, Mark
Huppert, Dr Julian
Hurd, Mr Nick
Jackson, Mr Stewart
James, Margot
Javid, rh Sajid
Jenkin, Mr Bernard
Johnson, Gareth
Johnson, Joseph
Jones, Andrew
Jones, rh Mr David
Jones, Mr Marcus
Kawczynski, Daniel
Kirby, Simon
Kwarteng, Kwasi
Lamb, Norman
Lancaster, Mark
Lansley, rh Mr Andrew
Latham, Pauline
Laws, rh Mr David
Leadsom, Andrea
Lee, Dr Phillip
Lefroy, Jeremy
Leigh, Sir Edward
Leslie, Charlotte
Letwin, rh Mr Oliver
Lewis, Brandon
Lewis, Dr Julian
Liddell-Grainger, Mr Ian
Lidington, rh Mr David
Lilley, rh Mr Peter
Lloyd, Stephen
Llwyd, rh Mr Elfyn
Lopresti, Jack
Loughton, Tim
Luff, Sir Peter
Lumley, Karen
Macleod, Mary
Main, Mrs Anne
Maynard, Paul
McCartney, Jason
McCartney, Karl
McIntosh, Miss Anne
McLoughlin, rh Mr Patrick
McPartland, Stephen
McVey, rh Esther
Metcalfe, Stephen
Miller, rh Maria
Mills, Nigel
Milton, Anne
Mitchell, rh Mr Andrew
Moore, rh Michael
Mordaunt, Penny
Morgan, Nicky
Morris, Anne Marie
Morris, David
Morris, James
Mosley, Stephen
Mowat, David
Mulholland, Greg
Munt, Tessa
Murray, Sheryll
Neill, Robert
Newmark, Mr Brooks
Newton, Sarah
Nokes, Caroline
Norman, Jesse
O'Brien, rh Mr Stephen
Offord, Dr Matthew
Ollerenshaw, Eric
Opperman, Guy
Paice, rh Sir James
Parish, Neil
Patel, Priti
Pawsey, Mark
Penning, rh Mike
Penrose, John
Percy, Andrew
Phillips, Stephen
Pincher, Christopher
Poulter, Dr Daniel
Prisk, Mr Mark
Pritchard, Mark
Pugh, John
Raab, Mr Dominic
Randall, rh Sir John
Redwood, rh Mr John
Rees-Mogg, Jacob
Reid, Mr Alan
Robathan, rh Mr Andrew
Robertson, rh Hugh
Robertson, Mr Laurence
Rogerson, Dan
Rosindell, Andrew
Ruffley, Mr David
Russell, Sir Bob
Rutley, David
Sanders, Mr Adrian
Sandys, Laura
Scott, Mr Lee
Selous, Andrew
Shannon, Jim
Shapps, rh Grant
Sharma, Alok
Shelbrooke, Alec
Shepherd, Sir Richard
Simpson, Mr Keith
Smith, Chloe
Smith, Julian
Smith, Sir Robert
Soames, rh Nicholas
Spelman, rh Mrs Caroline
Stanley, rh Sir John
Stephenson, Andrew
Stevenson, John
Stewart, Bob
Stewart, Iain
Streeter, Mr Gary
Stride, Mel
Stuart, Mr Graham
Stunell, rh Sir Andrew
Sturdy, Julian
Swales, Ian
Swayne, rh Mr Desmond
Swire, rh Mr Hugo
Syms, Mr Robert
Tapsell, rh Sir Peter
Teather, Sarah
Tomlinson, Justin
Tredinnick, David
Turner, Mr Andrew
Tyrie, Mr Andrew
Vickers, Martin
Villiers, rh Mrs Theresa
Walker, Mr Charles
Ward, Mr David
Watkinson, Dame Angela
Weatherley, Mike
Webb, Steve
Wharton, James
Wheeler, Heather
White, Chris
Whittaker, Craig
Whittingdale, Mr John
Wiggin, Bill
Williams, Hywel
Williams, Mr Mark
Williams, Stephen
Williamson, Gavin
Willott, Jenny
Wilson, Mr Rob
Wollaston, Dr Sarah
Wright, Jeremy
Wright, Simon
Yeo, Mr Tim
Young, rh Sir George
Zahawi, Nadhim
Tellers for the Noes:
Harriett Baldwin
and
Amber Rudd
Question accordingly negatived.
6 May 2014 : Column 67
6 May 2014 : Column 68
6 May 2014 : Column 69
6 May 2014 : Column 70
Clause 6, as amended, ordered to stand part of the Bill.
Amendments relating to the Commissioners for Revenue and Customs
Amendment made: 20, page 8, line 20, at end insert—
‘( ) In Schedule 7 to GOWA 2006 (legislative competence to make Acts of the Assembly)—
(a) in Part 2 (general restrictions), after paragraph 4, insert—
4A A provision of an Act of the Assembly cannot—
(a) remove or modify, or confer power by subordinate legislation, to remove or modify, any function of Her Majesty’s Revenue and Customs, or
(b) confer or impose, or confer power by subordinate legislation to confer or impose, any function on Her Majesty’s Revenue and Customs.”;
(b) in Part 3 (exceptions from Part 2), after paragraph 7, insert—
“Her Majesty’s Revenue and Customs
7A (1) Part 2 does not prevent a provision of an Act of the Assembly—
(a) removing or modifying, or conferring power by subordinate legislation to remove or modify, any function of Her Majesty’s Revenue and Customs, or
(b) conferring or imposing, or conferring power by subordinate legislation to confer or impose, any function on Her Majesty’s Revenue and Customs,
if the following conditions are met.
(a) that the function relates to a devolved tax, and
(b) that the Treasury consent to the provision.”’.(MrDavidJones
This amendment prevents an Act of the Assembly removing or modifying functions of, or conferring or imposing functions on, Her Majesty’s Revenue and Customs unless the functions relate to devolved taxes. In that case the consent of the Treasury is also required.
—
.)
Clause 7, as amended, ordered to stand part of the Bill.
Clauses 14 and 15 ordered to stand part of the Bill.
Clauses 16 and 18 ordered to stand part of the Bill.
6 May 2014 : Column 71
Borrowing by the Welsh Ministers
Hywel Williams: I beg to move amendment 36, page 21, line 18, leave out ‘, with the approval of the Treasury,’.
The Temporary Chair (Sir Roger Gale): With this it will be convenient to discuss the following:
Amendment 37, page 21, leave out lines 26 to 31 and insert—
‘(1) On receipt of notice of an appropriate resolution of the Assembly, the Secretary of State shall by order amend subsection (1A) so as to vary, in the manner indicated by the terms of such resolution, the means by which Welsh Ministers may borrow money.”.’.
These amendments would enable the National Assembly to change the way money for capital expenditure is borrowed, including the issuance of bonds, without the need for consent by the Treasury or Resolution of the House of Commons.
Amendment 35, page 21, line 31, at end insert—
‘(6) The Secretary of State shall make arrangements for an independent report to be compiled on the issuance of bonds by Welsh Ministers.
(7) The Secretary of State shall lay a copy of the report specified in subsection (6) before each House of Parliament within three months of this Act being passed.’.
The Scotland Act 2012 enables the Secretary of State, by order and consent of HM Treasury, to change how Scottish Ministers can borrow money for capital purposes, for example, allowing the issue of bonds. Clause 19(5) of the Wales Bill contains the same provisions. This amendment seeks clarification on the power to issue bonds.
Amendment 34, page 21, line 38, at end insert—
‘and if that amount is more than the amount for which it is substituted it shall not thereafter be reduced below that higher amount’.
This amendment would ensure that when the Secretary of State raises the borrowing for investment limit, it cannot subsequently be reduced.
Amendment 5, page 21, line 38, at end insert—
‘(3B) The figure mentioned in inserted subsection (3A) shall be recalculated on an annual basis to maintain its value in real terms against inflation.’.
Hywel Williams: Amendments 36 and 37 would enable the National Assembly to change the way that money for capital expenditure is borrowed, including the issuing of bonds, without the need for the consent of the Treasury or a resolution of the House of Commons. Amendment 35 seeks clarification on the power to issue bonds. Amendment 34 would ensure that when the Secretary of State raises the borrowing for investment limit, it cannot subsequently be reduced.
First, on the issuance of bonds, subsection 32(5) of the Scotland Act 2012 enables the Secretary of State, by order, to change the manner in which Scottish Ministers can borrow money for capital purposes—for example, to permit borrowing by the issue of bonds. Subsection (5)
6 May 2014 : Column 72
of the Wales Bill contains the same provisions. This amendment seeks clarification on the power to issue bonds.
Following the Scotland Act 2012, the legislation left the door open for the Secretary of State to enable the Scottish Government to issue bonds in future. The UK Government later launched a consultation on bond issuance and announced in February of this year that Scotland is to get the power to issue bonds. There is only one problem: it will have that power only in 2015. In the meantime, the small matter of the independence referendum in September might intrude.
Scotland aside, I refer Members to the cross-party Commission on Devolution in Wales. Recommendation 19 ends with the words:
“We also believe that the Welsh Government should be able to issue its own bonds.”
Given that local government throughout the British Isles can issue bonds, it is an anomaly that the devolved nation Governments cannot also do so.
The Silk Commission’s first report stated that
“while bonds may be more expensive at present, a possible future scenario where they may be cheaper or more attractive to the Welsh Government cannot be ruled out. We therefore see no reason in principle for preventing the Welsh Government from being able to issue its own bonds in addition to borrowing from the National Loans Fund and other sources such as commercial banks.”
Our amendment calls for greater clarification and seeks to expedite the ability of the Welsh Government to issue bonds. We need movement on this issue to enable the Government of Wales, should they choose to do so, to drive investment in infrastructure, and so improve our economy.
Mr Harper: If, under the hon. Gentleman’s proposals, the Welsh Government were to issue their own bonds, would the Treasury stand behind guaranteeing the repayment of those bonds, or would that fall to the Welsh Assembly Government?
Hywel Williams: My understanding is that the Treasury would be expected to stand behind those bonds. I readily admit that I am not an expert on this matter, but I understand that that is the case for local government as well.
As I have said, we need movement on this matter to enable the Government of Wales to drive investment in infrastructure, and so improve the economy. Wales should have the same powers as Scotland. The Government parties should be held to their word: they agreed, through their representatives on the Commission on Devolution in Wales, that the Welsh Government should be able to issue bonds.
Amendment 5 is both simple and highly effective and would inflation-proof the borrowing limit in the Bill. We are unsure whether the Government have considered this matter, or whether they intend to put in place any safeguards to protect the amount of borrowing written into the Bill. The £500 million borrowing for investment limit is of course welcome. If the money is used wisely and for targeted investment in infrastructure throughout Wales, it would enable job creation, provide a welcome boost to the Welsh economy and drive up Welsh gross value added so that the economy no longer sits at the bottom of the economic league table of UK nations
6 May 2014 : Column 73
and regions. However, we are concerned that the value of the £500 million limit, written as it is in the Bill, might be substantially reduced in a relatively short time by inflation. We have tabled amendment 5 to inflation-proof the value of that amount. I hope that this was a simple oversight by the Government, rather than any calculated move to undermine over time the Welsh Government’s ability to make full use of the powers proposed.
Inflation at present is fairly low by recent standards, but in the space of a few short months it could jump. Some of us here can recall the ferocious problems faced by ordinary people when mortgage rates rose to 15%. As a dire warning, I have safeguarded my own copy of the Mansion House speech by the former Chancellor and Prime Minister when he praised the banking industry to the heavens—just before the heavens fell in. Inflation could jump as a result of international problems and recessions elsewhere in the world, and the value of the amount available through this Bill should not be diminished as a result of such inflation.
The powers available to the Welsh Government as a result of this Bill will not come on stream until 2017 and 2018—after the 2016 Welsh general election. If the past five years have taught us anything, it is that it is foolhardy to predict how the economy will look at the end of that time.
The borrowing for investment limit available in this Bill is the amount recommended by the Silk Commission. It is the integrity of the cross-party commission’s recommendation that this amendment seeks to preserve and safeguard, as well as to ensure that Wales has the full resources available to it to maximise the number of jobs and the prosperity created.
6.30 pm
Amendment 34 would ensure that when the Secretary of State raised the borrowing for investment limit, it could not subsequently be reduced. It would therefore provide the Welsh Government with the necessary clarity regarding their borrowing for investment limit, so they could properly plan their investment expenditure. The ability to raise the amount mirrors the Scotland Act 2012 and we therefore welcome it. It should come as a surprise to no one that we believe as a point of principle that the Government of Wales should decide on all matters pertaining to them.
In the long term, we in Plaid Cymru believe that Wales should gain greater freedom to determine its own financial and economic course, and should not be confined and constrained by the decisions and potentially remote economic policies of the Westminster Government. In the meantime, it does not make sense from the point of view of the prudential planning of expenditure for the Westminster Government to be able to reduce the amount available while the Welsh Government are planning investment, simply because they disagree with certain projects or other ways in which money is being spent.
Amendment 34 is important and I hope that as hon. Members discuss it, they will be persuaded to allow a future Welsh Government of whatever colour to plan for responsible borrowing to invest in infrastructure that will bring returns and public goods such as jobs and wider prosperity.
Amendments 36 and 37 would allow the National Assembly to change how money for capital expenditure is borrowed, including through issuing bonds, without
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the need for the consent of the Treasury or a resolution of the House of Commons. I argued this point in the previous debate and our concerns about delay are very clear.
Mr Harper: I want to say a few words about clauses 19 and 20 and the overall powers for current and capital borrowing, but let me first touch on the amendments tabled by the hon. Member for Arfon (Hywel Williams). His answer to my question was my reading of the situation, too: the Treasury would, in effect, stand behind any bonds or other such borrowing. That is why, if he were to press the amendments to a vote, I could not support them. If the Treasury is going to stand behind such borrowing, it must have some control over the level of borrowing entered into.
We talked earlier about linking spending and accountability. If Welsh Ministers are to be able to borrow money, they must be accountable for repaying it from a revenue stream, and must be able to persuade the markets, based on the rate of interest they are paying, that they can do so. Alternatively, if the Treasury is going to stand behind such borrowing, Treasury Ministers and this House of Commons must have some control over the level of it. It might be possible to set a framework, and not every individual piece of borrowing might have to be sanctioned, but the Treasury must be in control of the overall level because otherwise, it is a one-way bet: people can just borrow the money and not have to worry about the rates they are paying if they know that the Treasury will pay it back. I can see why a Treasury Minister could not sign up to a blank cheque such as that, but frankly, I do not see why any Member of this House should, either.
In the previous debate, the shadow Secretary of State said that he was not sure how Ministers had come up with the borrowing figures. I briefly alluded to that issue in my intervention, and it was raised by the hon. Member for Swansea East (Mrs James) on Second Reading. Clause 19 amends existing borrowing powers, and clause 20 repeals such powers. Changes are made to current borrowing powers and a new section is inserted that deals with the capital requirements.
I hope you will forgive me, Sir Roger, if I mention an excellent document that is, I suspect, on the Table: the “Wales Bill: Financial Empowerment and Accountability”, published by the Government in March. People often criticise Ministers for not showing their workings—the phrase we used in the previous debate—and although I am financially qualified, I do not think that one has to be to be able to follow the document’s rather sensible reasoning. It deals with the borrowing powers amended in clause 19 and makes it clear that Welsh Ministers have the power to borrow £500 million—the limit previously set in the Government of Wales Act.
Effectively, that is the limit inherited from the previous Government, and within it, the Treasury has agreed that the Welsh Government can borrow up to £200 million each year. As the document says, the Welsh Government’s powers are being extended to comprise both in-year and “across years” current borrowing. As I read it, that extends the Welsh Government’s flexibility to borrow to deal with their current expenditure. The Bill enables Welsh Ministers to borrow money from the national loans fund, to which the hon. Member for Arfon referred, and to deal with differences in the outturn of taxes and receipts for the devolved taxes by borrowing across a
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number of years. Such “across years” borrowing must be repaid within four years. The overall limit can be varied both upwards and downwards—but not below the initial £500 million limit—through secondary legislation. The £500 million limit inherited from the previous regime is therefore kept in place.
That seems clear, as are the capital borrowing powers. The two taxes we discussed when considering the previous group of amendments—stamp duty land tax and landfill tax—are being devolved. The Government estimate that the revenue stream, which will support the borrowing, will be about £200 million a year. The capital borrowing powers will come in at the same time as the new devolved taxes: in April 2018.
The statutory capital borrowing limit is also set at £500 million—higher, interestingly, than if it had been set solely with reference to the tax-to-borrowing ratio that applies in Scotland. As I said on Second Reading, this is a more generous regime than the one applying to Scotland. The shadow Secretary of State referred in an earlier debate to keeping a symmetrical arrangement between Wales and Scotland. If we did that, using the same tax-to-borrowing ratio, the Welsh Government would be able to borrow only some £100 million. In Scotland, the capital borrowing limit is just over £2 billion, with about £5 billion of tax revenue. The Government have allowed the Welsh Government to borrow £500 million in advance—I think this information was elicited on Second Reading by my hon. Friend the Member for Monmouth (David T. C. Davies), the Chairman of the Welsh Affairs Committee—to enable them to proceed with improvements to the M4, should they choose to do so.
Owen Smith: The hon. Gentleman will know, as he has obviously read all these documents extensively, that the documents on the Scotland Act made no reference to the line drawn between the ratio of funds and taxes to be devolved, and the quantum of borrowing. Instead, a direct line was drawn between the capital budget for Scotland and the amount of borrowing. That was the point I was making, so I presume that he, like me, does not understand why a different rationale is being applied in the Wales Bill from that applied in the Scotland Act.
Mr Harper: I was listening carefully to the shadow Secretary of State but I did not quite follow him. I set out the Scottish Government’s capital borrowing limit, which is £2.2 billion, and they take responsibility for tax revenues of about £5 billion. The ratio between the two is slightly less than 1:2. If we used the same ratio in Wales, the Welsh Government would have a limit of about £100 million. I accept that the Secretary of State for Wales and colleagues in the Treasury have adopted a more generous approach, but I should have thought that the hon. Gentleman, as a Member of Parliament representing a Welsh constituency and as shadow Welsh Secretary, would welcome this asymmetry rather than—if I am following his argument—being critical of it.
Owen Smith:
Does the hon. Gentleman accept that if a similar rationale were employed in this Bill to that which was employed in Scotland, the borrowing limit would be nearer £1.3 billion in total—£130 million a year—reflecting the £1.3 billion capital budget in Wales,
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which, as I say for the fourth time, was the rationale that was employed in respect of the Scotland Act, not the ratio between the borrowing and the amount of devolved taxation, as has been post hoc used as a justification in this Bill?
Mr Harper: I do not follow that argument at all. If I may pick up the point that I was making to the hon. Member for Arfon, the point we were debating on bonds was about repaying the money. If Ministers are going to devolve borrowing power to Welsh Ministers, it must reflect the revenue that Welsh Ministers have some influence over; otherwise, it would amount to enabling Welsh Ministers to borrow money, effectively, against taxes raised by central Government, and there is no accountability there. We then get back to the problem that we started with: Ministers could borrow to spend, no doubt on projects that they would deem to be popular, but there would be no accountability because the money would be largely repaid not through the taxes that had been devolved to Welsh Ministers, but through taxes controlled by Treasury Ministers, and that would set up perverse incentives.
If the Welsh Government are to be given borrowing powers, they should reflect the revenue stream that those Ministers are in control of. If the hon. Member for Pontypridd (Owen Smith) is arguing for more borrowing powers, therefore, he would obviously want to devolve some more taxes to go along with them; otherwise, it is just Welsh Ministers writing cheques on UK taxpayers, which ultimately the Treasury has to stand behind.
As I was saying before I gave way to the hon. Gentleman, my understanding was that the increase in the capital borrowing limit was intended specifically to allow the Welsh Government, in advance of the devolution of an element of income tax, to proceed with improvements to the M4, which I remember from Second Reading would be welcomed by my hon. Friends the Members for Monmouth (David T. C. Davies) and for Vale of Glamorgan (Alun Cairns). I am sure that although the hon. Member for Newport East (Jessica Morden) is being very inscrutable, she would welcome such improvements. Oh no, she is shaking her head—she does not welcome improvements to the M4. That will be news to her constituents; I thought she did.
The Bill also contains a power that enables the UK Government to vary—have I provoked the hon. Lady? No, I have not. It enables the UK Government to vary the overall limit both upwards and downwards. A joint process is in place between the two Governments to ensure a level of convergence. That seems sensible. That limit will be set at a level that the UK Government consider appropriate, based on an assessment of economic and fiscal circumstances and the impact of inflation. Amendment 5 has been tabled by Plaid Cymru. Paragraph 91 of the note that the Government have produced states that among the things the two Governments will consider when looking at the borrowing limit will be the impact of inflation on the real value of the limit. Given that both Governments will be participating in this collaborative process, that should mean that the limit can be kept at a real-terms level. I hope the hon. Member for Arfon will welcome that.
The final area is the independent revenue stream over which the Government have control. I argued earlier that borrowing must be related to the level of income.
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The Government’s note explains comprehensively how the current borrowing and capital borrowing powers, which are set out clearly in clauses 19 and 20, were arrived at. I think I have set out clearly why I would not support the amendments tabled by Plaid Cymru on the ability to issue bonds, and the ability to keep borrowing levels at real-terms levels is covered in the Government document. I am happy to support clauses 19 and 20 but not the amendments in the group.
Nia Griffith (Llanelli) (Lab): We very much welcome borrowing powers for the Welsh Government, as they will help them progress with investment in vital infrastructure projects and foster growth in the Welsh economy. Borrowing powers may also prove useful in enabling match funding to take advantage of European funds.
The Silk commission argued strongly that the Welsh Government should have
“the capacity to borrow for capital investment on a prudent basis subject to limits agreed with HM Treasury”.
These powers are all the more badly needed as the capital budget for Wales has been cut by one third by the current Government.
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The Bill allows the Welsh Government to borrow up to £125 million per year up to a limit of £500 million, but we still question the way in which the Government have determined the £500 million limit. Ministers have said that that figure 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 is not linked to the devolution of taxation powers. Northern Ireland has no revenue-raising powers but still has access to borrowing.
The Scotland Act permits Scottish Ministers to borrow 10% of the Scottish capital budget in any year to fund additional capital projects. That would be approximately £230 million in 2014-15; and they may borrow up to £2.2 billion in total. Based on the Welsh annual capital budget of around £1.4 billion, this same formula would grant the Welsh Government borrowing powers of £140 million annually and a ceiling higher than £l billion.
We do not feel that Ministers have offered sufficient explanation as to why they have decided to use a different formula for Wales from that used for Scotland. That has resulted in a lack of symmetry with Scotland, and means that Wales will have inferior borrowing powers. Why not £1.3 billion, as the Welsh Government’s Finance Minister Jane Hutt has suggested?
We should also remember that Wales has relatively little exposure to private finance initiative debts when compared with 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 Government. We are being offered less as the total amount of borrowing, and we have to wait for the devolution of minor taxes to access it. We are also calling for the Government to look at increasing the borrowing limit over time.
The implementation date for the new borrowing powers is 2018. However, before that the Welsh Government will be able to use more limited borrowing powers to proceed with improvements to ease congestion on the
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M4, one of the main arteries giving lifeblood to the Welsh economy, not just in Cardiff but along the whole of the M4 corridor and onwards into west Wales.
Capital investment in Wales is critical to boosting the economy, delivering jobs and growth. We have seen the impact of investment by the Welsh Government—in my area, for example, there has been investment in the breast cancer unit at Prince Philip hospital, which provides patients from across west Wales with a very prompt and efficient service in state-of-the-art surroundings. We have seen investment in schools: many ageing buildings have been replaced with excellent facilities to foster learning and provide for additional support for families. During a time of economic downturn, Welsh Government building and refurbishment schemes have also provided valuable apprenticeship and training opportunities when there have been few on offer in the private sector.
The investment made to dual the railway line on the Loughor bridge, which will make possible more frequent and efficient services to west Wales, has also been very much welcomed. Today the Welsh Finance Minister announced the much needed improvement to the Heads of the Valleys road, the A465. That is an example of the innovative ways in which the Welsh Government are accessing funds—in this case, through securing £300 million from institutional investment.
I have previously raised the issue of bonds, both in the Welsh Grand Committee and in our scrutiny of the draft Bill in the Welsh Affairs Committee. I now note that in the Command Paper, the Government confirm:
“The Wales Bill also enables the UK Government to change the sources of borrowing available to the Welsh Government without primary legislation, for example if it was decided that the Welsh Government should be able to issue bonds. The Government has recently judged that”
“is consistent with the Scottish Government’s financial powers and responsibilities set out in the Scotland Act 2012. It is willing to consider further whether this might be appropriate alongside the package of financial powers initially being devolved by the Wales Bill.”
Has further consideration been given, and have the Government, therefore, come to the same judgment as they have for Scotland? We would like to see the statement in the Command Paper result in a reality that gives the Welsh Government the same treatment as the Scottish Government in respect of bonds. On that note, and in reiterating the importance of borrowing to the Welsh Government, I conclude my remarks.
Alun Cairns: I want to sound a note of caution. I support the intentions of the Bill and I respect the case that has been made for the amendments, but those amendments could be seen as seeking almost limitless borrowing powers. As my hon. Friend the Member for Forest of Dean (Mr Harper) observed, borrowing powers need to be related to the amount of money that can be raised and to repayment. As we learned from the financial crisis of 2008-09, even when financial matters seem to be positive, changes can occur. Limits must therefore be set and a sensible approach adopted to borrowing across the whole of the United Kingdom, and particularly in respect of any institution that has a relatively limited capacity to raise its own funds, given that some of the Opposition parties do not seek to develop innovative and effective ways of using the extended powers granted by the Bill to raise funds by tax competition.
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The £500 million capital borrowing limit set in the Bill, supported and approved by the Treasury, is sensible, amounting to £125 million a year. I want to bring an element of reality to the debate. Much of the focus has been on the need to improve the M4 motorway around Newport.
Mr Harper: Given that the £500 million capital limit is in the Bill, and given the strong case made by the official Opposition, it perplexes me that they have not tabled any amendments to change that capital limit, which they spoke so strongly against.
Alun Cairns: I am grateful to my hon. Friend for making that point. It is obvious where Plaid Cymru stands on the matter. The hon. Member for Arfon (Hywel Williams) made his case. I disagreed with it, but it is a respectable case which stands with the party’s politics in general. It seems inconsistent to make strong criticisms of an element of the Bill but not to table amendments seeking to improve the Bill or to make it more relevant, according to the Opposition’s argument.
The priority that has given rise to much of the debate about the need for greater capital spend in Wales is the need for improvement of the M4 around Newport. I pay tribute to the Chancellor and his efforts to encourage the Welsh Government to look positively at the need to improve that link. Many Members have spoken of the need for better infrastructure in and out of south Wales.
I remind the Committee that there was a commitment to such improvement pre-1997, by the then Secretary of State for Wales, my right hon. Friend the Member for Richmond (Yorks) (Mr Hague). That was to be funded entirely out of the Barnett block. The Barnett block at that time was £7 billion. It has now grown to about £15 billion. The shadow Welsh Secretary argues that Welsh projects cannot be funded without a significant increase in capital borrowing for such projects. Pre-devolution, without borrowing powers, those projects were to be funded out of the Barnett block as it was.
Guto Bebb: My hon. Friend makes an important point in relation to the proposed improvements to the M4. It should be noted that when the Bill was announced, the Secretary of State made it clear that this borrowing power should be for the M4 and also the A55. The Welsh Labour Government in Cardiff keep talking about the M4 and forgetting about the A55 and the needs of north Wales.
Alun Cairns: I am grateful to my hon. Friend for making that point. As a strong champion of north Wales he, along with the Secretary of State, will always ensure that improvements to the A55 are considered at the highest level.
Mr Llwyd: I, too, stake a claim to represent north Wales. On a point of clarification, the present Foreign Secretary was in post in Wales in 1997, before devolution. Now there is a £15 billion block, but that is to deal with health, transport and myriad other things which the old Welsh Office—not the Wales Office—did not have to deal with.
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Alun Cairns: I am grateful to the right hon. Gentleman for making that point, but we will have to disagree. The Welsh Office at the time had exactly those responsibilities for transport, health and education. In the first Government of Wales Bill, the powers that the Welsh Assembly inherited were the same powers as had been held by the Welsh Office, which subsequently became the Wales Office. Additional powers have subsequently been granted, but they have been minuscule in proportion to the additional funding that has been provided. Out of a much smaller Barnett block grant, there was ambition for major capital projects. That ambition has gone.
I suspect I know why the right hon. Gentleman is a little bit uncomfortable. It is worth running through some of the history of the improvements that are needed in the M4 corridor. The then Secretary of State, my right hon. Friend the Member for Richmond (Yorks), committed to building that road. It was the right hon. Member for Neath (Mr Hain) who cancelled it after the 1997 general election. It was later proposed by the coalition Administration in Cardiff Bay—the coalition between Labour and Plaid Cymru—and the Transport Minister who cancelled it and who said that the Administration could not fund it was Ieuan Wyn Jones, the Plaid Cymru Assembly Member for Anglesey. That demonstrates the priority that the relevant parties have assigned to that much needed infrastructure improvement.
The Chancellor has pointed out on several occasions the need for improvement. He named the project in statements and in the Budget on one occasion to provide encouragement to the Welsh Government to improve this vital artery into south Wales.
Owen Smith: The hon. Gentleman’s argument would have more force were it not for the fact that only today in the Welsh Assembly the Minister for Finance, Jane Hutt, announced £1 billion-worth of further spending on infrastructure, several hundred million pounds on the Heads of the Valleys road, and £200 million on a new cancer hospital at Velindre that will no doubt benefit the hon. Gentleman’s constituents. Far be it from me to suggest that he might be out of date and no longer keeping up with matters in the Assembly, but that would appear to be the case.
Alun Cairns: Not at all. I welcome those announcements. I wish there had been an announcement about improvement to the infrastructure in my constituency, and I wish there was to be improvement to the main infrastructure coming into Wales along the M4 corridor, but today’s announcements are obviously positive. However, we need to underline the delays that take place on that artery, that investment is essential and that borrowing powers need to be granted. Improvement should have taken place well before now. The original commitment was made pre-1997 but the Labour Administration cancelled it and the Welsh-led Labour Administration have not built it since. We should consider the delays, the accident records, the damage to the south Wales economy, and the hauliers based in my constituency who have had to set up on the Avonmouth side of the border because of the lack of investment and ambition over the past 15 years on the part of the Welsh Labour Administration.
Wayne David: Does the hon. Gentleman not accept that borrowing powers are vital because the Welsh Government’s capital budget has been cut by one third because of central Government cuts?