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Lord Roberts of Conwy: The noble and learned Lord does not carry much conviction when I look at Clause 41, which is one of those "supplementary

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powers" clauses which enables the assembly to do anything which is calculated to facilitate or is conducive or is incidental to the exercise of any of its functions.

This suggestion that if my amendments were accepted, somehow or other the assembly would be able to do various things but not pay for them is somewhat far-fetched. Nevertheless, I must accept the noble and learned Lord's judgment on this matter and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 210C not moved.]

Clause 87 agreed to.

Clause 88 [Statement of proposed expenditure etc.]:

Lord Dixon-Smith moved Amendment No. 211:

Page 44, line 1, at end insert--
("( ) Where in any year the Assembly proposes to vary the sums received from the Secretary of State relating to local authorities, it may do so only with the prior agreement of the Secretary of State and the local authorities.").

The noble Lord said: Amendment No. 211 standing in my name and that of my noble friend Lord Northesk is an attempt to provide some degree of clarity and certainty in the financial arrangements between the Secretary of State for Wales, the national assembly for Wales and local government.

The matter is not at all straightforward. At present, the financial arrangements for local government are the consequence, if I can call it this, of a bipartite negotiation with the Treasury as a shadowy third party in the background, probably operating a force majeure clause which no one really appreciates but which everyone has to accept exists.

That negotiation is, perforce, very complicated. Mention has already been made of the distribution formula for local government moneys. It is rarely a negotiation which satisfies everyone. I have a strong suspicion that it does not satisfy the Secretary of State for Wales because of the force majeure operated by the Treasury, which is not a party to the negotiation. But now we are about to insert a third party into that negotiation process. The money will go from the Secretary of State for Wales to the assembly, which, as I understand it, has the power to adjust it. Otherwise, it would simply be a post-box and there would be no point in the exercise.

Indeed, part of the purpose of my amendment is to enable the assembly to adjust that sum but also to ensure that it is a negotiated change involving the other two parties rather than, if you like, a power to change the arrangements which have been arrived at in quite a difficult way unilaterally. It is really how we change that negotiating situation from two or three parties to three or four parties that has given rise to the need for my amendment. Without it, we would have a situation where the current negotiations would be meaningless. It seems to me that those negotiations must go on because, in his turn, the Secretary of State has a negotiation going on in parallel with the Treasury to determine his funding which he will then hand back. It is quite a round-about situation.

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However, there is a complicating factor behind that negotiation; namely, that local government has its own tax raising powers. It is possible that the assembly could decide, as a matter of tactics, that it wished to adjust the funding that it receives by giving local government less. That would enable it to spend more elsewhere and, thereby, inadvertently, raise or compel additional taxation on the people of Wales. I am not saying that that is wrong and, similarly, I am not saying that the assembly should not do so. However, what I am saying by way of my amendment is that it should be an open negotiation in which everyone plays a part so that the outcome is agreed. It may not satisfy everyone as regards such outcomes; it will inevitably have to be a compromise and one which may well leave an element of distaste in every participant's mouth.

As I said, my amendment is an attempt to clarify a change in a negotiating pattern so as to try to keep everyone in some degree of agreement--certainly the greatest degree of agreement possible--and, at the same time, give local government the greatest degree of certainty that is possible as to what its funding should be in this new situation. I beg to move.

Lord Roberts of Conwy: I am grateful to my noble friend for explaining the purpose of his amendment and its background so clearly. It has been made abundantly clear that, unlike the Scottish parliament, the Welsh assembly will not have a tax varying power. Indeed, unlike Scotland, no such question was put to the Welsh people in the referendum. Therefore, the assembly will be largely dependent on the grants given to it by the Government under Clause 82.

Nevertheless, the assembly will no doubt have its own priorities for expenditure and may find itself with inadequate resources to meet its proposed commitments. Naturally it will look for possible savings and other means whereby it may raise additional finance. One of the major areas of public expenditure financed by direct grant from the assembly will be local government which takes up about one-third of the Welsh block total of £7 billion. Another third is taken up by health and personal social services where the pressure is for ever more expenditure and where there is very little scope to raise extra revenue while the service remains free at the point of delivery.

Therefore, it would be surprising if the assembly did not consider the possibility of reducing its financial support to local authorities, thus forcing them to raise a higher proportion of their total expenditure from council tax and the business rate. The rate support grant has traditionally covered a higher proportion of the totality of local authority spending in Wales than in England because of the lower rateable values prevailing in Wales. Rate support grant is not hypothecated and its level is determined by the Secretary of State. It will be similarly determined by the assembly.

My noble friend's amendment would simply require the assembly to secure the agreement of the Secretary of State and the local authorities before it varied the sums payable. That is very much in tune with the spirit of partnership between the assembly and local authorities that later clauses in the Bill seek to encourage. Local authority spending and the rate of council tax have been

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restrained in the past by central government control, coupled with rate capping. The business rate has also been constrained by central government.

As the Secretary of State's functions in relation to local government are being transferred to the assembly, it looks as if the rate capping restriction on local authorities will come to an end. Indeed, as late as February of this year, the Secretary of State said:

    "Certainly, I want to get away from the capping regime. I think that it is unhealthy ... as a Government we are opposed to the crude and universal system of capping".--[Official Report, Commons, 11/2/98; cols. 385-387.]

If the assembly were to reduce the rate support grant, local authorities could make up the shortfall by raising council tax rates. Of course, if rate capping were to be abolished, they could raise council tax rates anyway, and probably would.

If the business rate were to return to local control and cease to be uniform, I fear that, as in the past when that situation prevailed, local businesses would bear the brunt of increased local authority spending. They would be discouraged from investing in and providing local employment.

If those things were to happen, one assumes that they would not go unnoticed by the Treasury. In the other place my colleagues tabled a new clause to stop the assembly forcing local authorities to raise their council tax without Treasury approval. However, as I said earlier, the Treasury's attitude towards the assembly appears to be one of withdrawal from the detailed supervision and concentration on the main spending allocations. An increase in council taxes would mean an increase in the general level of taxation in Wales and might breach the principle of Exchequer control over such matters.

The key points that I have made were very well put by Robert Hazell of the Constitution Unit of the School of Public Policy at University College London in his commentary on the Welsh White Paper, issued in September of last year. He said:

    "If the Assembly's budget is squeezed, it could in turn squeeze revenue support grant to local authorities, and rely on their capacity to increase levels of council tax to make up the difference".

He goes on to explain that further. He says,

    "The only other variable source of revenue would be non-domestic rates. If these were returned to local authority control--as local government has demanded--there would be a greater capacity for the Welsh Assembly to precept because local authorities would have a stronger revenue base".

He then makes the following interesting point:

    "As with law making powers, the real issue behind revenue-raising power is one of autonomy ... if the principal purpose behind devolution is the more efficient administration of policies determined by central government, then it is appropriate for the Welsh Assembly to continue to be funded entirely through block funding. But if the Assembly is to have responsibility for making real choices about the level and nature of public spending in Wales it will need power to raise some of its own revenue. Without such power the Assembly will have no fiscal accountability to the Welsh people".

I detected no strong demand during the referendum campaign for the assembly to have tax-raising powers or the fiscal accountability that goes with it. Nevertheless, it would seem to be an imminent possibility, although it seems strange in a country that requires fiscal support from central government rather than additional burdens

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placed on its people. My noble friend's minimal safeguards would appear to be the minimum necessary to keep the assembly's spending plans in check. Some of us would argue that primary legislation should be required before that kind of back-door taxation is allowed.

7.30 p.m.

Lord Elis-Thomas: The Opposition are yet again falling into this trap of seeking to give devolutionary powers and take them away. Let us introduce some realpolitik into this issue. Let us imagine a governing party or a governing coalition in the national assembly facing election at the end of the first four-year term on the same day as local government elections are held. In year three there will begin to be flexibility. Clearly there will be no flexibility up until year three because the current Welsh Office budget applies until then. As I said, flexibility begins to emerge in year three. As regards negotiations between the national assembly--which will take over from the Secretary of State responsibility for local government funding--and local government surely the various parties that will sit in the national assembly will tell the secretary for local government and environment and the members of the assembly subject committee on local government, "For goodness sake, make sure that you have a good settlement because remember we all face election next year". That is what fiscal accountability is all about. There will be fiscal accountability as regards the Welsh electorate.

Of course the noble Lord, Lord Roberts of Conwy, can argue--he has been involved in discussions with Welsh local authorities--that this is back-door tax raising and an indirect taxation power, but surely devolution is all about granting the block, and the distribution of the block for local government, to the assembly and leaving the assembly to determine the interrelation between local government spending and its own spending, given that that all happens in the full light of day of a political process. That is what it is all about.

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