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Grand Committee

Tuesday, 21 January 2014.

3.30 pm

The Deputy Chairman of Committees (Lord Geddes) (Con): My Lords, as is usual on these occasions, I must advise the Grand Committee that if, as I think is likely, there is a Division in the House, the Committee will adjourn for 10 minutes.

Aviation: Regulatory Burden

Question for Short Debate

Asked by Lord Rotherwick

To ask Her Majesty’s Government what steps they intend to take to reduce regulatory burdens relating to general aviation.

Lord Rotherwick (Con): My Lords, I am most grateful to those noble Lords taking part in this debate today and for this timely opportunity to draw to your attention some important developments in UK general aviation. GA involves far more aircraft and perhaps twice as many flights per annum as does commercial air transport. These are small aircraft in the main but there are significant gains in terms of economic and social benefit. If we effectively encourage the GA community there could be far more gains. An appropriate regulatory environment is fundamental to this.

Last year, a particularly successful effort was made in the aviation red tape challenge, the RTC. For reinvigorating and driving through this endeavour, I offer my thanks and congratulations to the work of my right honourable friend the Minister without Portfolio, Grant Shapps, and the chief executive at the UK Civil Aviation Authority, Andrew Haines.

I am a private pilot and have fully declared my interests in aviation. The General Aviation Alliance, of which I am vice-president, is an important grouping of GA voluntary organisations. It represents, particularly, sports recreation aviation, which includes parachuting, hang-gliding, gliding, ballooning, plus sports and recreation flying in light and microlight aircraft and helicopters. The GA Alliance represents some 72,000 members, including the operators of around 60% of the UK’s registered aircraft fleet, and perhaps 70% of the total fleet.

The GA Alliance engages with the Government, the CAA and other bodies on regulatory matters concerning aviation. Last year there was a strong response to the aviation RTC, identifying many instances of unnecessary restrictions of gold-plated regulations. The CAA, as the UK’s national aviation regulator, had the task of processing this input. To give it credit, its response was generally strong and well considered. It consisted of a document entitled CAP 1123, describing a strategy for improvement. One key change is the setting up of a GA unit within the CAA, recognising the interests of that community and how different it is from the airline focus. I welcome this unit. The GA Alliance now looks forward to an early dialogue and consultation on the promised full reform programme for the sports and recreation sector.

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The CAA’s response highlights two guiding principles within a more proportionate, risk-based regulatory regime. I welcome these principles and urge the CAA to hold firmly to them, although I wish to highlight the need to fully evaluate the consequences in consultations with stakeholders.

The CAA’s first principle is to deregulate wherever possible. This contains three aspirations which I strongly support. First, the removal of CAA oversight rule making in areas where the UK has no specific EU obligation. Secondly, identification of areas that could be removed from EASA oversight, primarily those that are nationally based and where previous self-regulation regimes had good safety records—for example, gliding and ballooning. Finally, the CAA wishes to take an evidence and risk-based approach proportionate to the risk appetite of participants. An informed consent concept will move the onus on to participants to demonstrate their awareness of the risks involved in GA activities. To be effective this initiative must reduce opportunities for speculative litigation. At present aviation associations are the targets of litigants seeking damages for unfortunate events that were outside their control.

The CAA’s second principle will maximise delegation of regulatory activities,

“to the extent that industry appetite and competence and resilience are the only constraints”.

The CAA would necessarily retain overall accountability but responsibility for delivery of regulation would be delegated to so-called qualified entities. These might be commercial or they could indeed be the existing GA associations. For example, the Light Aircraft Association—the LAA—of which I am a director, as is my noble friend Lord Goschen, holds an approval to regulate the airworthiness of several thousand aircraft on behalf of the CAA. Interestingly, the CAA charges this association for the privilege of carrying out this work.

I want to see delegation possibilities considered across the entire sports and recreation sector, ranging from CAA oversight through delegated accountability to full delegation where a competent body is available. The GAA’s member associations are mature national bodies with effective governance, run on behalf of their members. They are not commercial organisations and will be concerned by the entry of commercial qualified entries into their sector. Such competitive positioning would inevitably seek to cherry pick the best business opportunities while leaving the less lucrative activities to the associations. This would not promote the social or economic benefits that I referred to. In a worst case scenario, capable voluntary organisations might be damaged to the point of liquidation.

I have expanded on the two principles at some length but CAP 1123 also identifies other general areas raised by the RTC. I found the general tone of the CAA and the Department for Transport helpful and flexible, but I also noted how responses sometimes only reiterate the current approach. In two key areas, further change is needed. First, CAA fees and charges are annually brought before its influential Finance Advisory Committee, which has long been dominated by commercial interests. CAP 1123 merely reiterates this status quo without an apparent intent to promote

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fair stakeholder representation. Better pre-discussion with GA and a wider consideration of CAA costs and their proportionate allocation are essential.

Secondly, I must mention airspace, the allocation of which is a key CAA function. The ever expanding UK controlled airspace is a major concern because it increasingly excludes light aircraft from large areas of our country. Sadly, there is not the time today to discuss the details of this complex issue.

Finally, I should mention implementation. The CAA’s response is strong on announcement and intent but, for real success, it also needs outstanding implementation, including consultation with stakeholders. Currently there is a mechanism—the challenge panel—involving GA experts selected to help the Department for Transport and the CAA to move forward. Timescales for this process are short, and I am concerned that it may run out of time before enough has been achieved.

All parties need clarity on the likely “steady state” shape of regulation in 12 to 18 months’ time. This is essential, as much work will be required from organisations using volunteer resources. Partnership mechanisms must now be established to achieve effective and sustainable change. A dynamic and expanding GA sector can nurture new opportunities and jobs across the country, from a reinvigorated flight training industry, through aircraft manufacturing, to the many professions and industries needed to support thousands of light aircraft.

Overregulation has been one of the main problems faced by general aviation in the UK. It is good that this is now being vigorously addressed. This is a once-in-a-lifetime opportunity; we cannot allow it to fail.

3.40 pm

The Earl of Liverpool (Con): My Lords, I thank my noble friend Lord Rotherwick for giving us the opportunity to discuss this important red tape challenge and the reduction in regulatory burdens on general aviation. From listening to his speech, I can say that it is quite obvious that he knows a great deal more than I do about all the ins and outs of the regulatory burdens.

I have an interest to declare in that I am a private pilot, both fixed wing and rotary. I got the bug after my first lesson on 4 June 1966, and I have enjoyed every moment in the air since. I am also a member of the Air Squadron. There is an old saying in aviation that there are old pilots and bold pilots, but not many old, bold pilots, so I consider myself very lucky and fortunate to be able to take part in this debate today. My noble friend Lord Rotherwick will certainly remember that in the late 1990s we were both part of an Air Squadron wing which took about 12 light aircraft across Europe to the north-east border of Pakistan and back again. Flying over the Himalayas and through the mountain passes was a wonderful experience, not without a few hairy moments, but we all got back safely. The only reason I dare to mention this to your Lordships is that I was flying a Piper Aztec called “Red Tape”. It is one of life’s strange, happy coincidences that I can be here to congratulate the Government and the CAA on their commitment to reduce red tape in civil aviation.

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General aviation is worth about £1.4 billion to the UK economy and supports around 50,000 jobs. As a result of the red tape challenge which the Government have initiated, a number of areas have been identified where existing regulations are unduly onerous, as my noble friend has stated. This problem is being addressed with vigour and commitment. I shall quote from a press release, which is slightly old now as it is from 6 November 2013. The chair of the CAA Dame Deirdre Hutton said:

“We are absolutely committed to improving the way we regulate GA. We have made a start, for instance deregulating in some areas and delegating responsibilities in others. But there is much more we can do. The new, dedicated GA Unit is a formal recognition that GA needs a different and less onerous regulatory regime to commercial air transport. It will ensure we understand better the impact of our regulation on the sector, that we are as transparent and efficient as possible in how we go about it, and that we identify opportunities to reduce burdens and costs wherever we can”.

The general aviation sector can ask for no more than that, so we look forward to the unit coming into being in, I think, April. All I can say is that as a pilot I have never encountered an undue amount of red tape in aviation, but I have only been at the controls of aircraft and have not actually had to run a business involved in that sector.

I shall close with one thought. Flying has its own challenges. To deregulate too much would certainly be a mistake. I am really thinking in terms of pilots who have medicals. I am now at the age where I have to have a medical every year. The regulation that I go through and the tests that I am required to undergo, including an ECG every year, are the kinds of things that should not be foregone in the stampede to reduce red tape. Therefore, I welcome the moves that are taking place and we look forward to the general aviation unit being set up this year.

3.45 pm

Lord Bradshaw (LD): My Lords, I thank the noble Lord, Lord Rotherwick, for having introduced this subject. I am not involved in general aviation but I welcome the Government’s commitment to the general aviation sector and the positive steps that have been taken, particularly with the help of my old friend and colleague, Andrew Haines, with whom I worked for many years. He was a career railwayman. I do not know whether that has any implications but he certainly seems to have started off very well.

One thing that I should like to take up is whether the panel is proposing to meet with the Home Office, in particular, to discuss the issues that the general aviation sector has experienced with the UK Border Force. I have some experience of dealing with the UK Border Force in international affairs. Quite frankly, it is very, very difficult to deal with. It is very unyielding and very inflexible, and I should be interested to know how any progress is being made. General aviation shares the property of being the route by which undesirable people or undesirable subjects can get into this country. In particular, I should like to hear whether there is any progress at all in that area.

The noble Earl, Lord Liverpool, covered my other question when he mentioned the need for well qualified people to fly planes, and he assured us that he himself

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is indeed well qualified. I look forward to the recommendations that are likely to be made by the panel. I hope that they will be adopted and will pass whatever legislative rules they have to pass in the not-too-distant future.

3.47 pm

Viscount Goschen (Con): My Lords, I, too, congratulate my noble friend Lord Rotherwick on bringing forward this short debate today. There cannot be anyone better qualified in Parliament to discuss the concerns of general aviation. It may not be broadly known that not only is my noble friend a pilot, a board member of the LAA and a vice-president of the General Aviation Alliance but he also builds aeroplanes with his bare hands and then flies them to the ends of the earth. This is adventurous stuff, and we are very lucky to have his wise counsel and guidance this afternoon.

I make a short declaration. I have a UK private pilot’s licence and I operate a vintage aircraft that comes under the Light Aircraft Association permit to fly regime. About a hundred years ago, I had some responsibility for aviation policy in the UK, and I am very pleased to see that considerable progress has been made on the issues that we were grappling with in the mid-1990s.

It is a privilege to be able to fly in the UK and internationally. We talk of the privileges of our licence, and I think that the general aviation community is always aware of that fact. It is a very law-abiding community. The initiative that we have been talking about this afternoon is really about aligning regulation with the safety-critical issues that the GA faces and making sure that there is a proper match.

The CAA has been criticised in the past by the GA community for taking perhaps a too heavy-handed and too costly approach to issues such as airfield regulation. However, the initiative that we are discussing today represents a profound change in approach. While we recognise that the detail of general aviation is of interest to some noble Lords, a real success story in terms of a deregulation initiative—a partnership between the industry, participants, the Department for Transport, the CAA and other areas of government—is really to be highly commended.

All those who have participated and who take an interest in this sphere will feel that real progress has been made, and this is a good news story. We can always guarantee that it will get very little promotion and broader discussion because it is a good news story rather than a bad news story. But the Government say that they are committed to deregulation—Governments have said that for a long time—and will actually bring forward sensible, carefully and clearly thought through proposals that demonstrate that, and they are to be commended. Mr Haines at the CAA is to be commended, too, and the LAA itself, which is a major player in this environment, also needs to take some of the credit. There are lessons to be learnt more broadly, way outside of aviation, for areas where the burden of regulation can be carefully considered and stepped back from in certain areas where there is no loss to safety.

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It is well worth reading the documents produced by the Government and the CAA. I shall read a short quote from the foreword to the government document, which says:

“Regulation often appears too prescriptive, impractical and inappropriate for the general aviation sector … Safety regulation should therefore impose the minimum necessary burden and empower individuals to make responsible decisions … The package of measures we have agreed will overhaul the GA regulatory framework, moving it from a prescriptive, bureaucratic regime to a light-touch, proportionate system”.

That is a major change, and I believe that it represents major progress.

The CAA’s initiative of bringing forward its own specialist GA unit is an important one. I was drawn to one sentence that features in Mr Haines’s introduction to the CAA’s document. At the end of the third paragraph, he says that it wants to,

“help create a vibrant and dynamic GA sector in the UK”,

and that it will,

“work with other Government Departments to identify the potential for funding to develop new technology”.

I believe that that represents a significant change as well, in that it takes the CAA’s declared remit more into the promotion of general aviation than the mere observing and regulating of it.

There is also a commitment in the CAA’s document to use the legal process as a “last resort”. I welcome that approach as well. It must be sensible in a detailed technical environment such as this to use regulation when it is really required but in other cases pursue the guiding principles that have been established. Principle one is to deregulate wherever possible. This means that there should be removal of CAA oversight where not required, and that we should,

“identify what within the GA sector might be removed from EASA oversight”—

that is, European oversight—as well as easing,

“the definition of ‘commercial activity’”.

The second guiding principle is to maximise delegations, which have worked very well in the past with the LAA and the BMAA, and I believe will continue to do so.

In the final analysis, this is an ongoing process. It is not a one-off deregulation report saying, “Let’s get on with it”. The Government have set up the CAA and its own panel to prompt it to continue and keep the pressure on, examining everything that comes forward. There is a significant European aspect to this with EASA; it is a highly complex field. We do not have time to talk about it today.

I conclude with genuine congratulations to all those who have been involved. I hope that we can learn broader lessons for regulation in other spheres.

3.55 pm

Lord Berkeley (Lab): My Lords, I am very grateful to noble Lords for allowing me to speak briefly in the gap. I am not a pilot, but I was interested to hear three pilots speaking about their experiences. I remember when the noble Viscount was a Minister for air and shipping. He reported to the House one day that he had flown over a tanker that had hit a rock in

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Milford Haven and had saved the day by finding a Chinese takeaway cook who could translate between English, which everyone was using, and Chinese for the tug outside. I did not know that he was flying his own plane. That is terribly impressive.

My interest in this is that I go to the Isles of Scilly quite often. In the winter, the only transport is a small plane that usually goes from St Mary’s to a grass runway at Land’s End, except when it is waterlogged, which it has been for the past month. Costs are high—£70 to £80 for a single fare—so it difficult for people who live on the islands, and I am grateful to the Minister for agreeing to have a meeting later this week with some representatives where I hope we can discuss this. I have tabled a few Questions on this. I was very pleased to hear that Bristows will do the medevac service—evacuation to the mainland of people who need urgent medical treatment—after the RAF hands over emergency rescue. That is really good news, and I am grateful for that.

Less good is the problem of taking blood samples to the mainland. I asked a Question more than a year ago about whether the Government would facilitate granting a licence for Skybus to carry these samples to the mainland for testing. The answer came back that they would when an application was received, which was fair. A year later, it has still not happened, so I tabled a Question asking whether an application had been received and, if so, what was the answer. I am not looking for an answer from the Minister today. My question is more fundamental: why do you need a licence at all to carry blood samples between the Isles of Scilly and the mainland, or anywhere else, for testing in a hospital? Why does doing so need a licence? They are not going to blow up or anything. You can put them in a sealed bag and they would be quite happy, but there we are.

Finally, I went to the Scillies just before the new year; I had a bit of a difficult journey, so I did a blog on it which produced quite a few responses, including one from the chairman of the Isles of Scilly Steamship Company that runs the service inviting me to meet him, which I did. We did not necessarily agree on customer service, but what he told me about costs was very interesting. He said that a third of the cost of the short, very frequent service, which does not make a big profit, went towards regulation, a third fuel and a third airport charges. That probably justifies the charges, but do they have to be so high? A third of the cost being regulatory seems an awful lot. As for airport charges, Newquay is renowned for having high charges because it likes to call itself an international airport, so it has to cope with the odd international flight with enormous numbers of staff, I believe, for security.

I hope that the Government and the CAA can look at the total charges because if that is correct—and I have no reason to suppose that it is not—an £80 single fare to get home to the Scillies if you live there or to go to the hospital or visit friends seems a bit high, and that is the only way you can get there in winter. If the regulatory cost could come down a little, it would be a great help.

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3.59 pm

Lord Davies of Oldham (Lab): My Lords, I am grateful to all noble Lords who have spoken in this debate and to the noble Lord, Lord Rotherwick, for introducing it in his usual considered terms. He indicated the scale of general aviation and the number of flights; it is an important part of the sporting and recreational interests of the nation and a crucial part of the aviation industry as a whole.

The noble Lord mentioned the Minister without Portfolio, Grant Shapps. I feel that his ministerial position should be extended slightly and I will describe the necessity for that in my remaining remarks. The noble Lord told us how much the right honourable gentleman had backed the changes to the legislation that were being effected and how, not surprisingly as a Minister, he was very much in favour of them. He does, however, fly from a private airfield near to where I live and where he is in some dispute with the local authority about prospective planning permission with regard to buildings on the airfield. That issue is unresolved—it is due to be resolved in due course—and I do not mind the Minister commenting on it as long as he declares an interest. I wish he had declared an interest that he is a flier from a private airfield. It matters even more when I can attest to the fact that it is his aircraft that causes me to miss my putt on the sixth hole of the local golf course on some weekend mornings. So Grant Shapps and I have a little in common on these issues.

The noble Lord, Lord Rotherwick, made the case for the reduction of regulations to the minimum, but the minimum consistent with safety. The noble Earl, Lord Liverpool, mentioned medical tests. It is obviously a great danger if people fly when they are not fit enough to do so. It is dangerous enough if they drive cars on the highway when unfit to do so, but when flying an aircraft it is infinitely more serious. I hope the Minister can reassure us that all the necessary medical requirements are met, particularly against the background where medicine changes in its perspective. I remember being lobbied a few years by a group which was seeking to bring to the Government’s attention the illness of apnoea and the problem of people falling asleep while in control of a motor vehicle—not through excessive activity or a shortage of sleep the night before, but through the development of an illness. That has to be taken seriously in regard to motoring and I hope it is taken equally seriously in regard to aircraft.

There has in recent weeks been great concern about people who, even though they are qualified to drive and feel they are inherently safe drivers, have what is vulgarly called “the jumps”, where they suddenly realise they had lost a moment of concentration and then recovered it. We do not know how many accidents are caused by such a phenomenon, but certainly there are enough for us to be acutely aware of it. We must make sure that we keep a close watch on the development of illnesses of this kind and on the general level of fitness to drive—and whatever applies to fitness to drive must surely apply to fitness to fly.

The point I particularly wanted to pick up on was touched upon by the noble Lord, Lord Bradshaw, but almost in passing. It concerns the relationship

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between civil aviation and the Home Office and the control of our borders and space. I am much more concerned than the noble Lord, Lord Bradshaw, who seemed to indicate that the Home Office and the border agency were not too oppressive in their dealings with such flights. Far from being oppressive, from this side of the House it looks as though the border agency has no idea of what is going on with regard to flights. As we all know, there is a large number of aircraft in this sector—the noble Lord, Lord Rotherwick, referred to this—and a plethora of airfields, at least 520, where aircraft can be landed, but the border agency tells us that it has no idea what is happening with regard to these airports. What is going on? If there is concern about the security of our borders—and my goodness me, the Government have drawn attention to this in recent months with increased anxiety—to have a sector which the border agency says is completely unchecked and in which there is no question of it knowing the number of flights or passengers, who lands and who lands where, is an extraordinary position as far as our overall security is concerned when we are all conscious of the fact that we need to protect ourselves effectively.

It may be said that these regulations have nothing to do with it. If it is not these regulations, will the Minister explain which regulations are being used to tighten up this position? There could certainly be anxieties about the way in which general aviation flights contribute to the problem. We expect the Government to know about the nature of these flights, who is on them and who comes into the country. Otherwise all the checks which are continually drummed up for our ports, at huge inconvenience to passengers going through security who have to wait for hours on occasion, can be completely disregarded by anybody who can get in a private aircraft and arrive at a private airfield. This is something that needs attention. Although the Minister may be sorely tempted to say that regulations do not address the security issue, I do not think we can have a debate about general aviation without her addressing this position.

4.06 pm

The Minister of State, Department for Transport (Baroness Kramer) (LD): My Lords, I am delighted to address this Question for Short Debate which my noble friend Lord Rotherwick has introduced on reducing the regulatory burdens on general aviation. I am grateful to the noble Lord for securing the opportunity for this debate to take place. I am aware of his interest and great expertise which far exceeds mine, so I am delighted that he and other noble Lords with experience have spoken in this debate. This is a useful opportunity to update noble Lords on the work which is currently taking place and to address some of the key issues that have been raised today.

Noble Lords may be surprised by the number of activities covered by the general aviation industry, including maintenance and pilot training, gliding and ballooning, as well as the operation of small aircraft for leisure or business purposes. The sector covers a wide spectrum of aircraft types and activities, ranging from paragliders and microlights to business jets. There

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are around 20,000 civilian aircraft registered in the UK, of which 95% are engaged in what can be described as general aviation activities.

The value of the GA sector and its contribution to the UK economy should not be underestimated. The 2006 strategic review of general aviation, carried out by the CAA, estimated the UK’s GA industry to be worth approximately £1.4 billion in 2005. This highlights the important economic contribution which is made by the GA sector. The sector currently supports around 50,000 jobs in the UK and has a strong track record of providing high value-added employment opportunities across a range of areas and supply chains.

I am sure that noble Lords are aware of the Government’s deregulatory red tape challenge because it has been so well addressed in this debate. In 2012, all existing aviation regulations were scrutinised, but at the start of 2013, the Minister without Portfolio, Grant Shapps, proposed that a further red tape challenge should be undertaken, specific to GA issues. I am sure that Grant Shapps and Andrew Haines will appreciate the warm comments by the noble Lord, Lord Rotherwick, on what they have achieved, which were echoed by the noble Earl, Lord Liverpool, the noble Viscount, Lord Goschen, and the noble Lord, Lord Bradshaw.

In this context, I assure the noble Earl, Lord Liverpool, and the noble Viscount, Lord Goschen, who raised the issue, that the red tape challenge is being handled in a most judicious way. The concern that they raised about medicals is an area that will certainly be reviewed by the GA panel to see whether there are more proportionate ways of delivering the process of providing and maintaining licences. However, it will be done only with an understanding of the importance of the robustness and safety required. When the panel reports, Ministers will consider very carefully any recommendations in this area and will discuss them in great detail with the CAA.

The GA red tape challenge received nearly 500 responses —three times as many as any other theme to date. The responses identified many areas where improvements are needed and highlighted the need for a change in the approach to regulating GA. In response to this, a substantial programme of reform has recently been launched with the aim of helping to support a vibrant UK GA sector.

The Civil Aviation Authority, the independent regulator, has recognised the need to create a culture change in its regulation of the GA sector. It has incorporated the findings of the GA red tape challenge into its own internal review to produce a comprehensive GA reform programme. This will support a programme of deregulation and self-regulation for the GA sector, remove complexity, look to deregulate and delegate where possible and, where not, consider how to allow the GA sector to take on more responsibility and accountability for its own safety where possible and appropriate.

As part of that programme, the CAA announced the setting up of the specialist unit—which, again, has been widely praised in this debate—dedicated to GA issues. I can confirm that it will indeed be operational from April this year. This recognises that the GA requires different, less onerous regulation compared

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with that for commercial air transport and it demonstrates the CAA’s commitment to addressing GA issues. It will provide effective and proportionate regulation which supports and encourages the growth of the GA sector. As others have mentioned, Andrew Haines, the chief executive of the CAA, and his team are very committed to making the unit a success.

I assure noble Lords that the CAA will work closely with the GA community as regulations are developed, providing opportunities for the sector to challenge those regulations when it believes that they are unduly burdensome. For example—to take up a point that has been raised—there will be far greater scrutiny of the CAA’s fees and charges in order to provide greater transparency. On the issue of onerous fees, the CAA is committed to reducing the charges that it places on the industry, and it has agreed to work to reduce fees and charges by 3% in real terms by 2015-16. It must also report on issues such as efficiency.

The noble Lord raised a number of specific issues, most of which have already been explored by the CAA. They include informed consent, which would allow members of the public to pay for flights which are not designed to meet the same requirements and standards as a commercial carrier. However, it must be stressed that the CAA will consider this alongside other initiatives intended to bring proportionate oversight to address the safety risks associated with aviation activities.

The noble Lord, Lord Rotherwick, is right: the CAA is looking at options for delegating certain functions to industry associations, and he named a number of them. They are well placed to deliver regulatory oversight in a manner proportionate to the needs of the sector. However—and he may be slightly disappointed when I say this—the CAA will seek to introduce market access opportunities for suitable qualified entities because it believes that in some areas where there are no existing arrangements, this will help to provide those new and required opportunities.

The CAA welcomes the GA sector’s involvement in agreeing its charging schemes, as I mentioned earlier, and it recognises some of the concerns expressed about the fees and charges. As a result, it is proposing to establish a GA sub-group of its Finance Advisory Committee specifically to take on the issue of fees to ensure that they are proportionate as well as transparent.

Another specific area of concern is the availability of airspace for GA operators. The community often takes the view that this has been reduced as controlled airspace has grown to favour commercial aircraft. Actually, the opposite may often be the reality. For example, between 2010 and March 2012 the total volume of controlled airspace within the UK was reduced by 214 cubic nautical miles. The CAA is aware of these concerns and ensures that its airspace change process is public and that all decisions made are fully explained. A principal benefit envisaged within the future airspace strategy is the potential to capitalise on the improved performance characteristics of modern commercial aircraft, which will allow other airspace users, including GA, to benefit from the airspace volumes released beneath them.

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The GA challenge panel is an important element. It is independent and includes representatives from the GA industry. The panel is providing a “critical friend” function to the CAA and will work with the regulator to challenge its GA reform programme, challenging the CAA to be consistent, transparent and innovative in its approach to GA regulation and supporting the CAA as it strives to deliver genuine change in its approach to GA regulation.

The panel is considering projects which have the potential to promote growth within GA and opportunities for further reducing the regulatory burdens on the sector. It is also considering options for simplifying existing European safety requirements, an issue discussed in the debate, and assessing the progress being made to bring about a culture change within the CAA. The challenge panel will report directly to Ministers Grant Shapps, Robert Goodwill and Mark Harper in the Home Office in April, with an interim report due before then in late January. The panel’s existence will be short term, but the role it is performing and the report it will produce will provide a platform for improving the regulation of the GA sector.

An increasing number of the regulations which impact on GA ultimately derive from the European Aviation Safety Agency. The Government and the CAA have been proactive in lobbying for reform and fully support the EASA road map for general aviation, which came about as a result of the GA sector sharing its concerns about the proportionality of its rules. The EASA has recognised that much of its regulation has been overly burdensome and the road map proposes a series of reforms and changes in approach.

We welcome the fact that the European Commission has accepted the UK's recommendation that an evaluation of the application of commercial aviation safety requirements to general aviation should be included in the rolling regulatory fitness and performance programme. We will continue to work with the European Commission to ensure that this evaluation is both rigorous and evidence-based. Recent announcements such as securing the EU’s agreement to allow the UK to continue issuing the instrument meteorological conditions rating for pilots until April 2019 are encouraging and demonstrate EASA’s willingness to reconsider its regulatory policy in relation to GA. The Government also welcome the CAA’s commitment to eliminating gold-plating of EU regulations and Ministers are due to meet with the EASA next week.

On the serious issues concerning the border agency, I say to the noble Lords, Lord Davies of Oldham and Lord Bradshaw, that the GA challenge panel is meeting with the border agency, hopefully next week. I understand that the issues have been raised and that consideration will be given to whether they are onerous or appropriate. There is a mechanism for taking the issues forward.

The noble Lord, Lord Davies, raised the question of airfield planning. Planning issues are always contentious but, luckily, they tend to be local issues.

I shall be meeting the noble Lord, Lord Bradshaw, on the Isles of Scilly and I thank him for giving me a heads up on many of the issues he will wish to address in that meeting. However, there is not time for me to deal with them now.

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The noble Viscount, Lord Goschen, asked about innovation. There is innovation grant funding for GA and the DfT is currently working with the GA challenge panel to identify suitable projects.

There is movement on all fronts. I thank all noble Lords who are present. My time is up. I am not sure that I will be able to take the noble Lord’s question.

Lord Berkeley: Could I remind the Minister that I am Lord Berkeley, not Lord Bradshaw? I think she got us muddled up.

Baroness Kramer: I consider it an insult to neither noble Lord that I might have confused them for a brief moment. I certainly know who they are, and both are remarkable in the area of transport.

4.19 pm

Sitting suspended.

Wales: Silk Report

Question for Short Debate

4.30 pm

Asked by Lord Bourne of Aberystwyth

To ask Her Majesty’s Government what assessment they have made of the opportunities for Wales resulting from the recommendations of Part One of the Silk Report.

The Deputy Chairman of Committees (Lord Geddes) (Con): The Grand Committee is again adjourned for 10 minutes.

Sitting suspended for a Division in the House.

4.40 pm

Lord Bourne of Aberystwyth (Con): My Lords, in opening this debate, I declare my interest as a member of the Silk commission, an unremunerated commissioner, as all the commissioners are. The work on Part 2 is soon to end. It is hard to conceive of life without the Silk commission; like taxes and motorway cones, it seems that it has always been there.

I am sure that your Lordships will agree that it is fitting that I say a few words about the late, much-loved and much-lamented Lord Roberts of Conwy. This is the first Welsh debate in your Lordships’ House since his very sad death. For more than 30 years, Wyn gave massive public service to our country—to the United Kingdom and to Wales. He fought hard and successfully for Welsh interests, and he is missed here as he is, of course, massively, in Wales. That is a considerable epitaph. On a personal note, I shall miss his wise advice, encouragement and assistance as well as his impish humour and happy demeanour. His life was a fulfilled one. Our thoughts are very much with Enid and his family.

As we debate the opportunities afforded to Wales by Part 1 of the Silk report and the Government’s response to it in the draft Wales Bill, which encompasses key aspects of the Government’s response as well as other matters, it is being debated in another place.

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I am pleased at that because I believe that it is important that the current momentum is not lost. It was rightly said in Shakespeare’s “Julius Caesar”:

“There is a tide in the affairs of men

Which, taken at the flood, leads on to fortune;

Omitted, all the voyage of their life

Is bound in shallows and in miseries.

On such a full sea are we now afloat;

And we must take the current when it serves,

Or lose our ventures”.

I believe that that sums up the position that we are in at the moment.

I mentioned at the outside that the Silk commission, which has been on the Silk road, so to speak, for more than two years, under the able chairmanship of Paul Silk, is considering Part 2. I do not propose to say anything about that because it would be premature, but it is now 14 months since we presented the report on Part 1. Each of the four main political parties in Wales—that is, the Welsh Conservatives, Welsh Labour, the Welsh Liberal Democrats and Plaid Cymru—has had representatives on the commission throughout its work and it also has independent members. Agreement on the Part 1 report was unanimous, and I am sure that in all honesty there was no real difficulty in achieving that unanimity. It is important that we keep that very much in mind as we go forward.

I turn to our recommendations. Consistent with the recommendations of Part 1, the Government have come down in favour of devolving landfill tax and stamp duty land tax to Wales. Admittedly, they are not massive taxes in terms of revenue, but it was very much consistent with what we recommended. Those taxes, particular the latter, could be used to make it more attractive to business to be formed in Wales. The Wales-England border, unlike the Scotland-England border, is very porous, and the opportunity to attract business and jobs into Wales should be a priority. Stamp duty land tax could be used to attract business as well as business men and women into Wales, which would provide a much-needed boost for the Welsh economy, which has been slipping in relative terms against England. It is key to raising economic standards in Wales as well as Welsh public services because the revenue that is generated could help with those services as well. I do not believe that there is a serious politician in Wales across all the parties who does not believe that expanding the private sector should be a priority; most would probably agree that it should be the number one priority because it generates the wealth that is needed to improve public services.

We also recommended the transfer of power over the aggregates levy and some limited power over long-haul flights in relation to air passenger duty. In that case, the Government have not taken heed of our recommendations, although we recognised in our report that there were issues of competition law and state aid and that the position in Europe might cause difficulty. Are these matters now under constant review so that if the position in Europe demonstrates that they could be devolved to Wales without any legal difficulty, they would accordingly be devolved?

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In addition, the Government have recognised the case for devolution of 25% of the income tax system so that, even if there is no change in the rate from Westminster, the tax rate would have to be set in Wales, consistent with the tax rate from Westminster. Once again, that tax system could and should be used to encourage business and create wealth and jobs in Wales, and funding flowing from that would once again help our public services.

The commission recommended that income tax rates should be capable of variation independently, just as Gerry Holtham recommended in a report to the Welsh Government. We thought that that was the right way forward and would mean that it would be possible to create better economic conditions in Wales because of the possibility of varying the rates independently. That has not happened, and so far I have had no satisfactory explanation of why it has been rejected. There is, of course, a lock-step in Scotland and it may be that the other side of the Scottish referendum—where I hope for a no vote, which I am sure most, but perhaps not quite all, of us fervently hope for and passionately want—that will be revised. Perhaps the Minister will respond on this.

In their response to Silk Part 1, the Government acknowledged borrowing powers for Wales. That is extremely important but, apart from the limited power that has already been conceded in advance of any progress on income tax and other taxation powers, some power has now been given for the much-needed M4 relief road to improve the M4. I am sure that most people here recognise that as a priority. I tuned into Radio Wales this morning to find, as one does nearly every morning, that there was a hold-up in the Brynglas tunnel, which is a priority. However, there are other things that need doing, and they can be done only with the extended borrowing powers consequent upon having income tax as well as the other smaller taxes so that money can be invested in improvements in infrastructure, whether rail or road, in north, mid and south Wales and in things such as dualling the A40, which is certainly much needed.

Some of that borrowing can be consequent on the smaller taxes—landfill tax, stamp duty land tax and air passenger duty, if that does come, and so on—but the great bulk will be dependent on income tax being devolved. We recognise that in the report. It is what we called for, so it is no different from the plea we made to the Government and is consistent with what happens in Scotland. Borrowing is dependent on taxation powers, but it would be a much-needed boost to the Welsh economy and Welsh infrastructure.

I shall take up one issue that we saw as important for Wales: the Barnett formula. We recognised that change in the Barnett formula should go hand-in-hand with progress on taxation and borrowing and that there should be no hold-up on taxation and borrowing. It would be a big mistake for Wales if we parked this until there was a done deal on Barnett. There has clearly been some progress on Barnett. This problem has been with us for a long while and, in all honestly, we have made more progress in the past three years than we did in the previous 20 years on getting the

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Barnett formula looked at. Is the Minister in a position to tell us where we are on that and what progress is being made on the Barnett formula?

Under this Government and this Prime Minister and with Danny Alexander, Cheryl Gillan and David Jones we have delivered important opportunities for Wales that complete, or go some way to completing, the jigsaw for what is in reality a Parliament. However, a Parliament without taxpayers looks rather a strange sort of Parliament, and I do not think there is anywhere else in the world where that is the case. This is a necessary move, and I hope that we can all move forward together on it. We did not get everything we wanted in Silk Part 1, but we largely did, and now we must move forward.

4.49 pm

Lord Anderson of Swansea (Lab): My Lords, I congratulate the noble Lord, Lord Bourne, on his initiative and on spelling out the details of the settlement on the basis of Northern Ireland, where there is an air passenger duty. I am not sure why in Wales we are likely to have problems with Europe in a way that Northern Ireland does not, but perhaps the Minister can ultimately spell that out.

As we welcome the noble Lord, Lord Bourne, to this House, we mourn the loss of Wyn Roberts, our very distinguished and beloved colleague Lord Roberts of Conwy. I am personally grateful to the noble Lord, Lord Bourne, for having given me a lot of help as vice-principal of what is now one of my local universities when I was a mere constituency MP. I was musing that I have known Members of the Committee—the noble Lords, Lord Wigley and Lord Elystan-Morgan—for almost 50 years. Certainly I have known the noble Baroness, Lady Randerson, for 30 years, and I knew the father of my noble friend Lady Morgan. One could go on detailing the incestuous nature of Welsh politics.

If we are an overgrown village, that perhaps brings with it difficulties and temptations. If we have this capital-raising power around expenditure, there is a danger within the village of not looking strategically but of looking at penny packets in which everyone has a share. I am pleased that at least we all agree that the big priority now should be Brynglas in Newport and the M4, even though it is still some distance from Swansea.

Samuel Gompers, the great trade union leader in the United States, was once asked, “What does American labour want?”. He answered, “More”. I suppose that if we were to ask the Welsh people what they want, they would say, “More”. Of course, if there is also greater responsibility and accountability, that is a bonus, but what we in Wales really want is more as we are at the bottom of most of the indices of poverty and deprivation, and there are wide regional differences even within Wales. Scotland benefits most from the Barnett formula—and it is unrealistic to expect any change before the referendum—and we in Wales appear to benefit least. I guess that we could lose out on capital expenditure depending on how the block grant is adjusted.

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It is worth recalling that Wales has suffered losses in terms of major capital expenditure projects. That would have happened even if the Silk commission recommendations had been put fully into effect. To give brief examples of that, there was expenditure of £9 billion on the Olympic legacy, including a diversion of the National Lottery fund, part of which would have come to Wales. However, in spite of the claims of the noble Lord, Lord Coe, and the delivery committee that the benefits would be spread throughout the UK, 83% of the value of the contracts went to London, the south-east and the east of England, while Wales was at the bottom of the table with 0.01% of the value of the contracts. Has the Wales Office asked for compensation for what we did not receive when it had been promised to us? There will be massive expenditure on HS2. Of course, we welcome the electrification of the rail line to Swansea by 2017, but can we plausibly claim that Wales is benefiting from this vast public expenditure? Finally, I mention the Severn Bridge toll, which now costs £6.40 for cars. As I was driving over on Friday, it occurred to me that this is really a major tax on Wales and a disincentive to investment, and it is far more relevant to us than many of these proposals. Obviously the toll cannot be abolished overnight but, in my judgment, it should be reduced in a staged process.

That said, Silk makes a serious effort to tackle the major deficiency in the devolution settlement—that is, the lack of responsibility and accountability at Cardiff Bay. That will of course have major repercussions for the Welsh Government, and there should be a serious effort to ensure that we have the expertise in finance at Cardiff which is presumably now lacking.

I have already mentioned the linkage between the borrowing and tax powers. The latter depends on the referendum and, if the referendum is unsuccessful, we are left with only the minimal changes—the small beer—which has been mentioned by the noble Lord. Perhaps we need a cross-party consensus and agreement to avoid the referendum, otherwise there could be a major obstacle.

On taxation, clearly we have noted the evidence of Gerald Holtham to the Welsh Affairs Committee last week. In his view, devolving part of income tax, subject to the referendum trigger, is likely to remain a dead letter. The only people likely to vote for higher taxes are those who pay no taxes at all. That was in the ICM poll for Silk. Perhaps the most important finding of the poll was that:

“The Welsh public would prefer fiscal transfers from the rest of the UK than higher taxes in Wales”.

The First Minister has stressed also the point about fairness in Wales.

Nevertheless, perhaps like Gerald Holtham I have been too pessimistic. If the tax-raising and borrowing powers are agreed, that will raise opportunities for a new approach and go some way towards resolving the dilemma of accountability. This is an important new phase—a stage in the devolution process.

4.56 pm

Lord Thomas of Gresford (LD): My Lords, I echo what has been said about Wyn Roberts. I spoke for the Liberal Democrats and he for the Conservatives when

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the devolution Bill went through in 1998 to 1999. He was not a party man, he was a Welshman, and he did much to deal with the choleric contributions of some of his colleagues on that Bill. We travelled down together occasionally from north Wales and shared a taxi. I was pupil to his brother, Eifion Roberts. I have had a close connection with him and I shall miss him. I send our respects to Enid, his wife.

This week, the coroner for north-east Wales, John Gittins, held an inquest into the death of Mr Fred Pring of Mynydd Isa, near Mold. Last March, he was suffering from severe chest pains and feeling ill when his wife telephoned 999 and requested help at one o’clock in the morning. There was no response. She made four phone calls, the last at ten to two to tell them that he had died. The reason, it appears, was that the five ambulances on call were outside the Maelor general hospital in Wrexham waiting to unload patients who were already on board. One had been there for more than five hours and another for an hour and a half. At the weekend, Mr Carwyn Jones, the First Minister, told the BBC that Wales was far behind England in accident and emergency response times because we were more honest about our statistics and that he wanted to change the targets.

Today we hear that all routine planned surgery across north Wales this week has been postponed due to “increased pressure”. Emergency operations are to be carried out at Abergele. This affects Wrexham, Ysbyty Gwynedd and Glan Clwyd. The NHS, said the First Minister on Sunday on the BBC, is open to improvement. We also hear today that the Welsh Health Minister has announced the closure of neonatal services at Withybush hospital.

Six of the 22 local authorities in Wales are under special measures with regard to education. When the PISA results were published last month, they showed Wales the worst country in the United Kingdom. I need not repeat the statistics because your Lordships will be well aware of them.

The Labour Government in Wales are a total disaster, and you wonder how they get away with it. On the economy, we learned last month from the latest figures on GVA, the measure of value of goods and services produced in the nations and regions in the UK, that Wales is the bottom of the pile. This month in my home area of Wrexham, Kellogg’s have announced 140 job losses; last month, Sharp announced that 250 permanent jobs and 365 agency staff were to go; and 230 workers have lost their jobs at the First Milk cheese-packing plant in Marchwiel.

When Wyn Roberts, other noble Lords who are in this Room and I campaigned for devolution in 1979 under the leadership of the noble Lord, Lord Elystan-Morgan, and again in 1998, we expected that a Welsh Government would successfully lead the way. In the major fields which were devolved to the Welsh Assembly, Labour-led Governments for the past 14 years have failed. I will never forget one Labour parliamentary candidate who once said to me that I was too concerned as a Liberal about the voters: “Don’t worry about them”, he said. “We don’t worry about them. They’ll vote for us whatever we do”.

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It is not surprising therefore that the Labour Government are seeking to avoid accountability. At the moment, they are refusing to hold a referendum which would implement the proposed income tax changes under Silk. “We must reform the Barnett formula first,” says Mr Carwyn Jones. I have looked up a speech I made in this House in 2001, in which I said that it is essential that a needs-based formula be devised, taking into account factors such as deprivation, population sparsity and the local environment. We campaigned as Liberals, and I know that Plaid Cymru campaigned for changes to the Barnett formula over the same period. While the Labour Government were in the heyday of their power, the noble Lord, Lord Barnett, expressed his embarrassment at having his name linked to the formula. The Labour Government did absolutely nothing. In putting it forward as a precondition, Mr Carwyn Jones can wait for ever before there will be changes.

We Liberal Democrats would have preferred to have had the flexibility of income tax powers without the Scottish lock-step model. Wales is not Scotland. The Silk report pointed out in appendix F that the latest transborder travel-to-work figures are at their highest in north-east Wales, with 34,500 people travelling from Flintshire and Wrexham into England to work and 16,000 travelling in the opposite direction each day. I can appreciate the Government’s view that the temptation to live in the country with the lowest tax rate might cause some upheavals in Wales that it would not cause in Scotland. Nevertheless, I regret that that flexibility has not occurred.

However, sharing the income tax base between Westminster and Cardiff Bay will significantly enhance the accountability of the National Assembly and the Welsh Government. Income tax contributes the greatest proportion of tax revenue in Wales and will provide a relatively stable revenue stream. Stamp duty, if properly used, could help to lower the cost of developing and buying houses, and we would hope that control over business rates would encourage business investment. In our submission to the Silk commission we asked for borrowing powers equivalent to those of the Scottish Parliament, specifically 10% of the capital budget, and we hope that that is what we will ultimately obtain.

These additional funds of capital and revenue must be wisely spent, and the record of Labour Government in Wales is so poor that a further priority must be to make sure—to adopt the analogy used by the noble Lord, Lord Anderson—that the village has a new head man and a governing council as soon as possible. I am sure we can get cross-party consensus on that.

5.03 pm

Lord Elystan-Morgan (CB): My Lords, I join the tributes so genuinely and deservedly paid to our late friend Wyn Roberts. I, too, congratulate the noble Lord, Lord Bourne of Aberystwyth. How sweet the name of Aberystwyth sounds when it is not in the context of disaster from the sea. I am very grateful to him for having raised this matter.

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The Silk commission was asked to report on two matters, as we remember. The first was the fiscal elements and how they could be reviewed and improved upon. The second was on non-fiscal matters and how greater powers could be deployed to the Welsh Assembly. It puzzled me, and still puzzles me, why they were in that order. Surely the first thing to do is to decide what functions a Government have and the second is how they pay for those functions. Be that as it may.

Perhaps I may digress for a few moments and speak not of Silk 1 but of Silk 2. In so doing, I project my remarks to the noble Lord, Lord Bourne, who, I know, will assiduously and religiously report on these matters to his colleagues in Silk. First, what is in a name? The answer is: a great deal when you are dealing with constitutional status. It may very well be that the term “Assembly” was in no way inappropriate when that body was set up in 1998, but nowadays I think that it is a misnomer. Following the referendum of 2011, we are three-quarters of the way to being a full home-rule Parliament. I accept the point made by the noble Lord, Lord Thomas of Gresford, that the residium may very well keep us back from that full status in the field of fiscal responsibility, but that is another matter. Certainly, by now it would be right and proper for Wales, as a legislating body, to have a parliament in exactly the same way as Scotland has.

Secondly, the challenges facing that body are immense. I believe and am confident that in Cardiff Bay there are people of spirit, ability, vision and determination, but it will be a very difficult task for that body within a few short years—that is all that it has—to build up the expertise that this House has had in the review and survey of legislation over many centuries. It will not be done overnight. It also means building up a cadre of civil servants with the expertise and, indeed, the distinguished qualifications for such a massive task.

However, above all there is the question of Members. We have 60 Members. The Richard report, which after all did not envisage a body as authoritative as this, talked of something much more modest and recommended 80. It seems that the minimum that we can do with is something of the order of 100. Let us call it 120 as that makes it very simple—it exactly doubles the representation in each constituency. One can argue as to which should be first past the post and how others should be elected, but that is not the issue for the moment. Without that, there is no possibility at all of development for the Welsh body in Cardiff Bay. If you want it to fail, all you have to do is nothing.

The third matter is one that I and many of us here have raised at various times—that is, the bulk transfer of authority to Wales, subject to specific exceptions, in the same way as is the case with Northern Ireland and Scotland. A Welsh lawyer, be he a solicitor or a barrister, has to chase through a labyrinth of hundreds of small matters to find out exactly what has or has not been transferred. In order to save Welsh lawyers from constitutional neurosis, there is an overwhelming case for such a transfer.

Lastly is the question of income tax variation. I respectfully disagree, not for the first time and no doubt in life, with the noble Lord, Lord Thomas of Gresford. If the Welsh people opt for these powers,

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with Barnett in its unreconstructed form we will be doing our nation a very great disservice. Why is that? At the moment, we lose something of the order of £350 million to £400 million each year on the Barnett formula. That is accepted. Nobody will stand up and say that it must be justified and kept. Mrs Gillan, our Secretary of State, said its time was up and everybody agrees, yet Her Majesty’s Government, twin-headed as they are, said, “We know that you are being cheated out of these monies year in and year out, but we are perfectly content to maintain that system”. That is entirely wrong. Therefore, Barnett has to be put right before we can contemplate a referendum.

5.10 pm

Lord Wigley (PC): My Lords, I join noble Lords in mourning the loss of the late Wyn, Lord Roberts, of whom I had an earlier opportunity to speak in the Chamber. I very much thank the noble Lord, Lord Bourne, for facilitating this short debate and also pay tribute to his work on the Silk commission and that of other commissioners, including Plaid Cymru’s Dr Eurfyl ap Gwilym and, particularly, Paul Silk himself.

I am sure that the noble Lord, Lord Bourne, would agree that among the most remarkable aspects of the Silk commission was that, first, unlike Scotland, it was drawn up with terms of reference to which all four parties in Wales signed up and, secondly, its first report secured the support of all commission members. I am sure that the noble Lord would confirm that such agreement was achieved by some give and take and that the report was presented as a balanced package, not one to be cherry-picked. I regret very much that the Government, driven as they are by the Scottish agenda, could not accept the package in its entirety.

I regret that for two substantive reasons. First, by insisting on a lock-step on income tax, the Government denied the Assembly the significant degree of policy flexibility it might have otherwise enjoyed, and with it the possibility of creating a far-reaching investment programme that could stimulate the Welsh economy. Goodness knows that we need that. Business rate flexibility and stamp duty land tax are certainly worth having but are not in themselves enough. Secondly, by acting in this way, the UK Government have let the Welsh Prime Minister off the hook. Carwyn Jones has waxed eloquent this week on how the Tories and their Lib Dem backers squandered the opportunity provided by Silk. It has been enough of an excuse for Mr Jones to step away from a referendum, for what is the point of having a referendum on income tax powers that are unusable?

Had the Silk report been adopted in its entirety, with all the parties represented on the commission on board, it would have been impossible for Labour or any other party to wriggle out of having a referendum. A yes vote could have been secured again, as happened in the 2011 referendum when all four parties were united. I pay tribute to the noble Lord, Lord Bourne, in that context. That yes vote would have started making Wales’s Government truly answerable to the people of Wales in having to justify their expenditure and stewardship of Welsh taxpayers’ money. I cannot understand the Government taking this course of

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action which at one stroke negates everything they purport to advocate in terms of democratic answerability in Wales. Has Alex Salmond’s shadow really got them on the run to that extent?

I also respectfully disagree with the noble Lord, Lord Thomas of Gresford, and do not join him in talking Wales down in terms of the National Health Service. Goodness knows that there are people working hard enough and with great commitment in the health service in Wales, and they deserve our thanks. Of course, some bad decisions have been made by the Welsh Government, as by the Westminster Government. The noble Lord quoted a highly unfortunate situation in the NHS in Wales this week. One of the worst blind alleys that the Assembly pursued with regard to the health service was the creation of 22 local health boards, but I suspect that the noble Lord’s party supported it in doing that. The truth is that Barnett underfunding deprived the Assembly of some £5 billion since its establishment, and health and education in Wales have been underfunded as a result.

Lord Thomas of Gresford: I am sorry to take up the noble Lord’s time, but is that not the point? As soon as the NHS and education are under attack, what do they blame? It is the Barnett formula for failing to provide funds. We need accountability in this.

Lord Wigley: Of course we need accountability. That is why we do not need the lock-step, so that we get the tax linked in. I agree with the noble Lord on that. The fact is that if there was adequate funding, we would not have had some of the cutbacks that have been necessary in the health service in Wales.

The questions I wish to put to the Minister are these. First, could an income tax-sharing model be adopted before reform of the Barnett formula? Secondly, will the borrowing powers set out in the draft Bill include the old WDA borrowing powers, or is that a separate amount? Thirdly, is the M4 relief road dependent on getting these borrowing powers? Fourthly, how much of the £500 million borrowing limit will be available before a referendum? Fifthly, does the revenue stream from the minor taxes—the land tax and the aggregate levy—constitute enough to support the £500 million borrowing capacity? Lastly, the draft measure says that a yes vote in a referendum would allow the Secretary of State to raise the borrowing limit, but raise it by how much?

If I may put one key question to the Labour Front Bench, as Carwyn Jones has said that he will not hold a referendum until the Barnett formula has been replaced or radically amended, will the Labour Party give a copper-bottomed commitment that if it forms the next Government at Westminster after the 2015 election, it will reform or scrap Barnett as a matter of urgency?

5.15 pm

Baroness Humphreys (LD): My Lords, I, too, join in the tributes to Lord Roberts of Conwy and add my thanks to the noble Lord, Lord Bourne, for initiating this debate.

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At the outset, I pay tribute to my colleagues in the National Assembly for Wales who called for, and supported, the establishment of a commission to examine the need for a different financial structure for Wales, one which would bring more accountability and responsibility to the Welsh Government. My Westminster colleagues also fought for the inclusion of the commission as part of the coalition agreement. I am grateful for their readiness to listen to Welsh concerns and their desire to move the devolution process forward. We all, I am sure, await the opportunity to debate further the devolution settlement in general when we receive the second part of the Silk commission’s report.

The Silk commission’s report provides us with an historic opportunity to increase the accountability of the Welsh Government, making them accountable for their policies and making them responsible for raising some of the money they spend. I was pleased to see the UK Government’s offer of devolving income tax on the same basis as that legislated for in the Scotland Act 2012. While not the preferred method of many for devolving income tax, I welcome this as a major step forward in the devolution settlement for Wales. However, I have some sympathy with the commission’s recommendation against the lock-step system. One cannot help but wonder how many more opportunities would have been open to Wales had it been given the freedom to vary the basic, higher and additional rates of tax independently.

The devolution of stamp duty, as other noble Lords have said, provides the National Assembly with the opportunity to address the acute housing crisis in Wales by helping to lower the cost of developing and buying houses in Wales. Greater control over business rates will allow the Welsh Government to deliver a more coherent reform of those rates and will, I hope, give the National Assembly an additional tool to encourage business. I certainly look forward to seeing, for instance, which measures the Ministers in Cardiff Bay will employ to help those smaller businesses on our high streets which sometimes struggle against crippling overheads.

I must admit that when I read the announcement of the granting of borrowing powers to the National Assembly, I uttered a silent “Thank goodness”. This now addresses an historic and, in some eyes, offensive inequality where other public institutions, including community councils in Wales, are able to borrow yet the Assembly is not. My own small town council, for example, with an annual budget of less than £40,000 a year, has the right to borrow, yet our national Government and the National Assembly have been unable to secure capital funding for projects, including the much needed major improvement of the M4 in south Wales. I am also pleased to see that the Chief Secretary to the Treasury has announced that the UK Government will provide early access to borrowing powers for the Welsh Government to enable schemes such as the M4 improvement to take place. I look forward to taking my place in the queue to make the case for further investment in the road building and improvement programme in north Wales and seeing the advantages to local economies and road safety which should follow.

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These new borrowing powers do not apply just to roads. I certainly welcome them as a way to provide the Welsh Government with more scope to stimulate the economy with investment in other capital expenditure projects. The Silk commission report and the draft Wales Bill which emanates from it must not be seen as merely dealing with taxes, borrowing and financial matters. They are a unique opportunity to shape democracy in Wales. We must ensure that the Welsh and UK Governments take this opportunity and do not let progress pass them by.

Liberal Democrats have long supported a federal system as part of our vision for the UK’s constitutional future, and we believe that the United Kingdom is slowly moving towards a federal state. However, in the early stages of devolution, its constitutional and financial systems had not been developed sufficiently to compensate for these changes. The Silk commission and the draft Wales Bill present politicians across the UK with a unique opportunity to strengthen the framework as far as Wales is concerned. Our support for devolution and federalism has been coupled with a belief that additional responsibility must be accompanied by additional accountability and additional capacity to deliver. That is why we have regularly supported reforms to increase the responsibility that Welsh Ministers have over the money they spend, but also to ensure that they have the right legal and financial powers to deliver a wide range of solutions.

I realise that I have come to the end of my time. The challenge that the Welsh Government face in education and health services needs to be addressed.

5.22 pm

Baroness Morgan of Ely (Lab): My Lords, I thank the noble Lord, Lord Bourne, for introducing this discussion and congratulate him on his first debate in this place. I associate myself with his generous tribute to Lord Roberts. It is wholly appropriate for the noble Lord, Lord Bourne, to introduce a debate on a report in which his contribution and extensive experience as a former Assembly Member was instrumental. Regardless of how dramatic his damascene conversion was to the cause of the Assembly following his election to that place, no one in Wales would now question his absolute commitment to the cause of devolution. It is a shame that that cannot be said of everyone in his party, but we will watch with interest to see how he votes in some key passages of the Wales Bill.

While I am in a generous mood, I also pay tribute to the noble Baroness, Lady Randerson, and her commitment to devolution. It is good that there is at least one expert Minister in the Wales Office who has a thorough understanding of what is going on.

Part 1 of the Silk report represents real positive opportunities for Wales and the wider United Kingdom. First and fundamentally, it creates the opportunity to address Wales’s anomalous situation among its international comparators in that at the moment the Welsh Government have responsibility for spending but not for taxation. Control of the so-called minor taxes—stamp duty, landfill tax and so on—which Silk advocated can now, if legislation is passed, be used

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to lever associated borrowing powers to the Welsh Government, which are essential in our current circumstances.

Children across the country today are in the unenviable position of growing up during a time when the Tory Government are removing funding from public projects on a vast scale. Just over two weeks ago, the Conservative Chancellor announced a further £12 billion welfare cut, which will be delivered in 2014-15. This is on top of the array of cuts to public services which have already been implemented.

For the people of Wales, the situation is worse. According to the Holtham commission, Wales is already underfunded through the Barnett formula to the tune of more than £300 million per year. It was good to see the Government accept the Barnett floor, but what the Government give with one hand, they take with another and Wales’s budget will be £1.7 billion lower in real terms by 2015 than it was five years ago. That money would have gone a very long way towards addressing some of the problems in the NHS.

The Labour Party fought for the power and accountability of a Welsh Government which would allow us the opportunity to represent the needs of the people of Wales and to fight for a fairer and better deal for each of them. Let us not forget that the strong growth in Wales which was experienced prior to the banking crisis was based on Labour’s record of investment in Wales under devolution and while Labour was in power in Westminster. This growth came to a juddering halt in 2008 in the face of the worldwide economic crisis, and the economy is still struggling to reach that former position. It is only by looking at the economic concerns of the people of Wales, struggling with the cost-of-living crisis, energy prices, childcare, expensive homes and transport costs that we begin to understand that tinkering with the funding formula for Wales will do little to change the country’s economic outlook. Ultimately, we need significant growth in the economy and, as the noble Lord, Lord Bourne, suggested, a larger, responsible private sector. This would help alleviate many of those issues.

Silk recommends revisiting the current funding formula for Wales—Barnett—before transferring income tax-varying powers. To answer the question of the noble Lord, Lord Wigley, I would go further and suggest that a fair funding formula for every nation and region needs to be put on the political agenda.

Silk was clear on the income tax proposals for Wales and opposed the lock-step nature of what the coalition Government are now proposing. Economic experts and the First Minister suggest that the lock-step approach means that income tax power is rendered virtually unusable. Interestingly, even the Tory leader in the Assembly disagrees with the Secretary of State on the issue of lock step. The key thing to avoid is any race to the bottom across the UK on income tax rates; that would be damaging for every nation. It is interesting to the hear the Secretary of State suggest time and again that we could cut income tax rates in Wales, without any suggestion of how we would make up the shortfall in the public sector cuts which would be necessary to fund any such reduction.

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I acknowledge that the Government have taken up the vast majority of the recommendations of Silk, which presents Wales with an opportunity to borrow against future income. This means that we can see increased investment in essential infrastructure projects in Wales. However, can the Minister inform the Committee of the process by which the £500 million level of capital borrowing was arrived at? Can she confirm on the record that this is comparable to Scotland’s borrowing powers? Does it take into account Wales’s relative lack of exposure to PFI debts?

I look forward to seeing the findings of Silk part 2. We certainly will not lose sight of the broader economic challenges which Wales and the rest of the UK are currently experiencing, and acknowledge that piecemeal concessions to the Welsh Government will do little to bring the economic prosperity that is so necessary for our poorest communities in Wales.

5.30 pm

The Parliamentary Under-Secretary of State, Wales Office (Baroness Randerson) (LD): I thank all noble Lords who have participated in this debate. I start by joining the noble Lord, Lord Bourne, and others, in the tributes to Lord Roberts of Conwy. I had known him over many years, and he provided me with an inspirational example in the way that he fulfilled his role in the Wales Office. In particular, his love of the Welsh language ensured that changes were made at the time that have strengthened the language and its position in society.

I thank the noble Lord, Lord Bourne, for securing the debate today on the very important opportunities for Wales presented by the recommendations made by the Silk commission in its Part 1 report. I also paid tribute to the hard work of the Silk commission that went into the report, and I note the important role that the noble Lord played in that process. I have listened carefully to noble Lords in the Chamber and I am pleased that the Government’s response to the Silk commission’s recommendations has been broadly welcomed by several noble Lords, as has the draft Wales Bill, which, we must remember, implements the vast majority of its key recommendations, and which is currently undergoing pre-legislative scrutiny in the other place.

The Government believe that the devolution of tax and borrowing powers should be used to help to generate jobs and growth in the Welsh economy; to give Wales a competitive edge; and to make Wales a more prosperous place. Our response to the Silk commission and the powers we will transfer to Cardiff Bay, take forward these principles. The Welsh economy has lagged behind other parts of the UK for far too long—a point made by the noble Lord, Lord Anderson—and we intend to give the Welsh Government and the National Assembly for Wales the tools to change that.

Just as importantly, implementing the Silk commission’s recommendations will also make the devolved institutions in Wales more accountable to the people who elect them. We fully agree with the commission’s key recommendation: that the funding model of a block grant and some devolved taxes best meets sound principles for funding the Welsh Government, and that part of

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their budget should be funded from devolved taxation under their control. Since devolution, the Assembly and the Welsh Government have been accountable only for how they spend taxpayers’ money—a point made by the noble Baroness, Lady Humphreys. They will now become more accountable for how they raise it.

The Government demonstrated our commitment to these reforms by publishing the draft Wales Bill before the Christmas recess, only one month after we announced our response to the Silk 1 recommendations. We wanted pre-legislative scrutiny of this important legislation to take place in this Session of Parliament, and I am pleased to say that the Welsh Affairs Select Committee already has that scrutiny well under way. Subject to successful parliamentary passage of the legislation, I hope the new tax and borrowing powers to be devolved well before the next Assembly elections in May 2016.

I want an early referendum called as soon as possible after the legislation is passed, and I will be campaigning for a yes vote. I hope that the First Minister will be joining me.

In response to the points made about the ability to vary income tax in each band by the noble Lords, Lord Bourne and Lord Wigley, and the noble Baroness, Lady Humphreys, among others, we believe that the so-called lock-step system of income tax devolution that we have set out in the draft Wales Bill is the right system for Wales. The system applies in Scotland and was agreed with the Scottish Government, with a single devolved rate for all bands. We believe that it would work equally well in Wales. It delivers on two key principles that underpin the Government’s approach to devolving income tax. It ensures that the UK maintains a progressive tax system. As the noble Baroness, Lady Morgan, said just now, it prevents a damaging race to the bottom on higher-rate taxes, one where the tax rate increases as the income of an individual increases.

The income tax structure is a key mechanism to redistribute wealth across the whole of the UK, which is why we believe it is properly set at a UK level. That point was made clearly and firmly by the Calman commission in respect of its recommendations on Scotland. That point transcends both Scotland and Wales and applies to both countries. The lock step ensures that the gap between income tax rate is consistent across the UK; that devolved government works comfortably within the parameters of the UK; and that fiscal devolution does not benefit one part of the UK at the expense of another. This could occur if the Welsh Government were to set substantially lower rates for higher and additional taxpayers without having to change the basic rate.

Devolving income tax would give the Welsh Government a crucial lever that they could use to reduce taxes across the board in Wales to put money back into the pockets of people in Wales who are working hard and deserve to hold on to more of the money that they have earned. It will create new incentives for growth and jobs and rekindle the spirit of entrepreneurialism. If the people of Wales decide in a referendum in favour of income tax devolution, the

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Welsh Government would become responsible for almost half of the income tax generated in Wales, making it more accountable while giving them flexibility over levels of tax and spending. An important issue is, crucially, that devolution of income tax would give the Welsh Government access to a significantly larger revenue stream to finance borrowing. So it is far from being a power that cannot be used.

Even if the Welsh Government decided not to vary income tax rates, it would still provide a base for borrowing as well as a base for accountability. However, as the noble Lord, Lord Anderson, pointed out, you have to win the referendum first. I am surprised that the noble Lord can envisage only a situation where the Welsh Government would wish to increase tax if income tax were to be devolved. Under the Government’s proposal it would be just as feasible for the Welsh Government to reduce rates of income tax—for example, by half a pence or one pence in the pound. The noble Lord and the noble Baroness, Lady Morgan, both reflect the view, which is all too prevalent in the Labour Party, that taxes could only be altered by increasing them and not by decreasing them.

Lord Wigley: My Lords, the Minister has mentioned three times now the wish, which she clearly reflects, to reduce income tax and reduce the revenue the Assembly would have. What services is she going to cut to facilitate that?

Baroness Randerson: The noble Lord does not take account of the well known economic mechanism that reduced taxes create more money in people’s pockets, which stimulates the economy, which in turn causes more taxation to be collected. That is a basic point of economics that the Government are pressing.

Much time has been devoted to income tax, but we should not forget stamp duty land tax, which was referred to by the noble Lord, Lord Thomas, which will give us a chance to reshape the housing market in Wales in a way which is much more appropriate for Wales.

Further, we must not overlook business rates. The full devolution of business rates can be implemented almost immediately and without legislation, a crucial point which will enable the Welsh Government to get on with stimulating, for example, the establishment of new SMEs.

The noble Lord, Lord Bourne, asked about the future of the aggregates levy proposal. We have promised that we will review that once the situation in Europe is clear. On air passenger duty, we are not convinced that this will do any more than shift passengers from one airport to another. The situation in Northern Ireland is different: it is the only part of the UK that has a land border with another European country. That is the key difference.

Several noble Lords referred to Barnett reform, including the noble Lords, Lord Elystan-Morgan, Lord Bourne and Lord Thomas. The issue of fair funding is set out in the following way. The arrangements that we agreed with the Welsh Government, set out in our joint statement in October 2012, established a process

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to review the relative levels of funding for Wales and England in advance of each spending review. That process worked well at the spending review last year. It provides a firm basis for the devolution of income tax, should that be the outcome of the referendum. Convergence is not occurring at this moment; indeed, divergence is occurring, and funding levels are well within the parameters recommended as fair in the Holtham commission’s report, contrary to what the noble Baroness, Lady Morgan, said. If convergence is forecast to resume, we have committed to discuss it with the Welsh Government and to address it in a fair and affordable manner.

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I thank noble Lords for their contributions. This Government have delivered for Wales on devolution and will go on doing so. Devolved Governments will be fairer and more accountable and will be able to create a stronger Welsh economy as a result of these proposals. It will be a giant step forward in the development of devolution. This Government are ambitious for Wales and are planning to give the Welsh Government the tools to do the job to stimulate the economy. It is up to the Welsh Government to use those tools effectively.

Committee adjourned at 5.41 pm.