With this it will be convenient to discuss the following:
‘(1) On receipt of notice of an appropriate resolution of the Assembly, the Secretary of State shall by order amend subsection (1A) so as to vary, in the manner indicated by the terms of such resolution, the means by which Welsh Ministers may borrow money.”.’.
These amendments would enable the National Assembly to change the way money for capital expenditure is borrowed, including the issuance of bonds, without the need for consent by the Treasury or Resolution of the House of Commons.
Amendment 35, in clause 19, page 21, line 31, at end insert—
‘(6) The Secretary of State shall make arrangements for an independent report to be compiled on the issuance of bonds by Welsh Ministers.
(7) The Secretary of State shall lay a copy of the report specified in subsection (6) before each House of Parliament within three months of this Act being passed.’.
The Scotland Act 2012 enables the Secretary of State, by order and consent of HM Treasury, to change how Scottish Ministers can borrow money for capital purposes, for example, allowing the issue of bonds. Clause 19(5) of the Wales Bill contains the same provisions. This amendment seeks clarification on the power to issue bonds.
Amendment 34, in clause 19, page 21, line 38, at end insert—
‘and if that amount is more than the amount for which it is substituted it shall not thereafter be reduced below that higher amount’.
This amendment would ensure that when the Secretary of State raises the borrowing for investment limit, it cannot subsequently be reduced.
Amendment 5, in clause 19, page 21, line 38, at end insert—
‘(3B) The figure mentioned in inserted subsection (3A) shall be recalculated on an annual basis to maintain its value in real terms against inflation.’.
Clause 19 stand part.
Clause 20 stand part.
Amendments 36 and 37 would enable the National Assembly to change the way that money for capital expenditure is borrowed, including the issuing of bonds, without the need for the consent of the Treasury or a resolution of the House of Commons. Amendment 35 seeks clarification on the power to issue bonds. Amendment 34 would ensure that when the Secretary of State raises the borrowing for investment limit, it cannot subsequently be reduced.
First, on the issuance of bonds, subsection 32(5) of the Scotland Act 2012 enables the Secretary of State, by order, to change the manner in which Scottish Ministers can borrow money for capital purposes—for example, to permit borrowing by the issue of bonds. Subsection (5) of the Wales Bill contains the same provisions. This amendment seeks clarification on the power to issue bonds.
Following the Scotland Act 2012, the legislation left the door open for the Secretary of State to enable the Scottish Government to issue bonds in future. The UK Government later launched a consultation on bond issuance and announced in February of this year that Scotland is to get the power to issue bonds. There is only one problem: it will have that power only in 2015. In the meantime, the small matter of the independence referendum in September might intrude.
Scotland aside, I refer Members to the cross-party Commission on Devolution in Wales. Recommendation 19 ends with the words:
“We also believe that the Welsh Government should be able to issue its own bonds.”
Given that local government throughout the British Isles can issue bonds, it is an anomaly that the devolved nation Governments cannot also do so.
The Silk Commission’s first report stated that
“while bonds may be more expensive at present, a possible future scenario where they may be cheaper or more attractive to the Welsh Government cannot be ruled out. We therefore see no reason in principle for preventing the Welsh Government from being able to issue its own bonds in addition to borrowing from the National Loans Fund and other sources such as commercial banks.”
Our amendment calls for greater clarification and seeks to expedite the ability of the Welsh Government to issue bonds. We need movement on this issue to enable the Government of Wales, should they choose to do so, to drive investment in infrastructure, and so improve our economy.
My understanding is that the Treasury would be expected to stand behind those bonds. I readily admit that I am not an expert on this matter, but I understand that that is the case for local government as well.
As I have said, we need movement on this matter to enable the Government of Wales to drive investment in infrastructure, and so improve the economy. Wales should have the same powers as Scotland. The Government parties should be held to their word when they agreed, through their representatives on the Commission on Devolution in Wales, that the Welsh Government should be able to issue bonds.
Amendment 5 is both simple and highly effective and would inflation-proof the borrowing limit in the Bill. We are unsure whether the Government have considered this matter, or whether they intend to put in place any safeguards to protect the amount of borrowing written into the Bill. The £500 million borrowing for investment limit is of course welcome. If the money is used wisely and for targeted investment in infrastructure throughout Wales, it would enable job creation, provide a welcome boost to the Welsh economy and drive up Welsh gross value added so that the economy no longer sits at the bottom of the economic league table of UK nations and regions. However, we are concerned that the value of the £500 million limit, written as it is in the Bill, might be substantially reduced in a relatively short time by inflation. We have tabled Amendment 5 to inflation-proof the value of that amount. I hope that this was a simple oversight by the Government, rather than any calculated move to undermine over time the Welsh Government’s ability to make full use of the powers proposed.
Inflation at present is fairly low by recent standards, but in the space of a few short months it could jump. Some of us here can recall the ferocious problems faced by ordinary people when mortgage rates rose to 15%. As a dire warning, I have safeguarded my own copy of the Mansion House speech by the former Chancellor and Prime Minister when he praised the banking industry to the heavens—just before the heavens fell in. Inflation could jump as a result of international problems and recessions elsewhere in the world, and the value of the amount available through this Bill should not be diminished as a result of such inflation.
The powers available to the Welsh Government as a result of this Bill will not come on stream until 2017 and 2018—after the 2016 Welsh general election. If the past five years have taught us anything, it is that it is foolhardy to predict how the economy will look at the end of that time.
The borrowing for investment limit available in this Bill is the amount recommended by the Silk Commission. It is the integrity of the cross-party commission’s recommendation that this amendment seeks to preserve and safeguard, as well as to ensure that Wales has the full resources available to it to maximise the number of jobs and the prosperity created.
Amendment 34 would ensure that when the Secretary of State raised the borrowing for investment limit, it could not subsequently be reduced. It would therefore provide the Welsh Government with the necessary clarity regarding their borrowing for investment limit, so they could properly plan their investment expenditure. The ability to raise the amount mirrors the Scotland Act 2012 and we therefore welcome it. It should come as a surprise to no one that we believe as a point of principle that the Government of Wales should decide on all matters pertaining to them.
In the long term, we in Plaid Cymru believe that Wales should gain greater freedom to determine its own financial and economic course, and should not be confined and constrained by the decisions and potentially remote economic policies of the Westminster Government. In the meantime, it does not make sense from the point of view of the prudential planning of expenditure for the Westminster Government to be able to reduce the amount available while the Welsh Government are planning investment, simply because they disagree with certain projects or other ways in which money is being spent.
Amendment 34 is important and I hope that as hon. Members discuss it, they will be persuaded to allow a future Welsh Government of whatever colour to plan for responsible borrowing to invest in infrastructure that will bring returns and public goods such as jobs and wider prosperity.
Amendments 36 and 37 would allow the National Assembly to change how money for capital expenditure is borrowed, including through issuing bonds, without the need for the consent of the Treasury or a resolution of the House of Commons. I argued this point in the previous debate and our concerns about delay are very clear.
I want to say a few words about clauses 19 and 20 and the overall powers for current and capital borrowing, but let me first touch on the amendments tabled by Hywel Williams. His answer to my question was my reading of the situation, too: the Treasury would, in effect, stand behind any bonds or other such borrowing. That is why, if he were to press the amendments to a vote, I could not support them. If the Treasury is going to stand behind such borrowing, it must have some control over the level of borrowing entered into.
We talked earlier about linking spending and accountability. If Welsh Ministers are to be able to borrow money, they must be accountable for repaying it from a revenue stream, and must be able to persuade the markets, based on the rate of interest they are paying, that they can do so. Alternatively, if the Treasury is going to stand behind such borrowing, Treasury Ministers and this House of Commons must have some control over the level of it. It might be possible to set a framework, and not every individual piece of borrowing might have to be sanctioned, but the Treasury must be in control of the overall level because otherwise, it is a one-way bet: people can just borrow the money and not have to worry about the rates they are paying if they know that the Treasury will pay it back. I can see why a Treasury Minister could not sign up to a blank cheque such as that, but frankly, I do not see why any Member of this House should, either.
In the previous debate, the shadow Secretary of State said that he was not sure how Ministers had come up with the borrowing figures. I briefly alluded to that issue in my intervention, and it was raised by Mrs James on Second Reading. Clause 19 amends existing borrowing powers, and clause 20 repeals such powers. Changes are made to current borrowing powers and a new section is inserted that deals with the capital requirements.
I hope you will forgive me, Sir Roger, if I mention an excellent document that is, I suspect, on the Table: the “Wales Bill: Financial Empowerment and Accountability”, published by the Government in March. People often criticise Ministers for not showing their workings—the phrase we used in the previous debate—and although I am financially qualified, I do not think that one has to be to be to follow the document’s rather sensible reasoning. It deals with the borrowing powers amended in clause 19 and makes it clear that Welsh Ministers have the power to borrow £500 million—the limit previously set in the Government of Wales Act.
Effectively, that is the limit inherited from the previous Government, and within it, the Treasury has agreed that the Welsh Government can borrow up to £200 million each year. As the document says, the Welsh Government’s powers are being extended to comprise both in-year and “across years” current borrowing. As I read it, that extends the Welsh Government’s flexibility to borrow to deal with their current expenditure. The Bill enables Welsh Ministers to borrow money from the national loans fund, to which the hon. Member for Arfon referred, and to deal with differences in the outturn of taxes and receipts for the devolved taxes by borrowing across a number of years. Such “across years” borrowing must be repaid within four years. The overall limit can be varied both upwards and downwards—but not below the initial £500 million limit—through secondary legislation. The £500 million limit inherited from the previous regime is therefore kept in place.
That seems clear, as are the capital borrowing powers. The two taxes we discussed when considering the previous group of amendments—stamp duty land tax and landfill tax—are being devolved. The Government estimate that the revenue stream, which will support the borrowing, will be about £200 million a year. The capital borrowing powers will come in at the same time as the new devolved taxes: in April 2018.
The statutory capital borrowing limit is also set at £500 million—higher, interestingly, than if it had been set solely with reference to the tax-to-borrowing ratio that applies in Scotland. As I said on Second Reading, this is a more generous regime than the one applying to Scotland. The shadow Secretary of State referred in an earlier debate to keeping a symmetrical arrangement between Wales and Scotland. If we did that, using the same tax-to-borrowing ratio, the Welsh Government would be able to borrow only some £100 million. In Scotland, the capital borrowing limit is just over £2 billion, with about £5 billion of tax revenue. The Government have allowed the Welsh Government to borrow £500 million in advance—I think this information was elicited on Second Reading by my hon. Friend David T. C. Davies, the Chairman of the Welsh Affairs Committee—to enable them to proceed with improvements to the M4, should they choose to do so.
The hon. Gentleman will know, as he has obviously read all these documents extensively, that the documents on the Scotland Act made no reference to the line drawn between the ratio of funds and taxes to be devolved, and the quantum of borrowing. Instead, a direct line was drawn between the capital budget for Scotland and the amount of borrowing. That was the point I was making, so I presume that he, like me, does not understand why a different rationale is being applied in the Wales Bill from that applied in the Scotland Act.
I was listening carefully to the shadow Secretary of State but I did not quite follow him. I set out the Scottish Government’s capital borrowing limit, which is £2.2 billion, and they take responsibility for tax revenues of about £5 billion. The ratio between the two is slightly less than 1:2. If we used the same ratio in Wales, the Welsh Government would have a limit of about £100 million. I accept that the Secretary of State for Wales and colleagues in the Treasury have adopted a more generous approach, but I should have thought that the hon. Gentleman, as a Member of Parliament representing a Welsh constituency and shadow Welsh Secretary, would have welcomed this asymmetry rather than—if I am following his argument—being critical of it.
Does the hon. Gentleman accept that if a similar rationale were employed in this Bill to that which was employed in Scotland, the borrowing limit would be nearer £1.3 billion in total—£130 million a year—reflecting the £1.3 billion capital budget in Wales, which, as I say for the fourth time, was the rationale that was employed in respect of the Scotland Act, not the ratio between the borrowing and the amount of devolved taxation, as has been post hoc used as a justification in this Bill?
I do not follow that argument at all. If I may pick up the point that I was making to the hon. Member for Arfon, the point we were debating on bonds was about repaying the money. If Ministers are going to devolve borrowing powers to Welsh Ministers, it must reflect the revenue that Welsh Ministers have some influence over; otherwise, it would amount to enabling Welsh Ministers to borrow money, effectively, against taxes raised by central Government, and there is no accountability there. We then get back to the problem that we started with: Ministers could borrow to spend, no doubt on projects that they would deem to be popular, but there would be no accountability because the money would be largely repaid not through the taxes that had been devolved to Welsh Ministers, but through taxes controlled by Treasury Ministers, and that would set up a set of perverse incentives.
If the Welsh Government are to be given borrowing powers, they should reflect the revenue stream that those Ministers are in control of. If Owen Smith is arguing for more borrowing powers, therefore, he would obviously want to devolve some more taxes to go along with them; otherwise, it is just Welsh Ministers writing cheques on UK taxpayers, which ultimately the Treasury has to stand behind.
As I was saying before I gave way to the hon. Gentleman, my understanding was that the increase in the capital borrowing limit was intended specifically to allow the Welsh Government, in advance of the devolution of an element of income tax, to proceed with improvements to the M4, which I remember from Second Reading would be welcomed by my hon. Friends the Members for Monmouth (David T. C. Davies) and for Vale of Glamorgan (Alun Cairns). I am sure that although Jessica Morden is being very inscrutable, she would welcome such improvements. Oh no, she is shaking her head—she does not welcome improvements to the M4. That will be news to her constituents; I thought she did.
The Bill also contains a power that enables the UK Government to vary—have I provoked the hon. Lady? No, I have not. It enables the UK Government to vary the overall limit both upwards and downwards. A joint process is in place between the two Governments to ensure a level of convergence. That seems sensible. That limit will be set at a level that the UK Government consider appropriate, based on an assessment of economic and fiscal circumstances and the impact of inflation. Amendment 5 has been tabled by Plaid Cymru. Paragraph 91 of the note that the Government have produced states that, among the things the two Governments will consider when looking at the borrowing limit will be the impact of inflation on the real value of the limit. Given that both Governments will be participating in this collaborative process, that should mean that the limit can be kept at a real-terms level. I hope the hon. Member for Arfon will welcome that.
The final area is the independent revenue stream over which the Government have control. I argued earlier that borrowing must be related to the level of income.
The Government’s note explains comprehensively how the current borrowing and capital borrowing powers, which are set out clearly in clauses 19 and 20, were arrived at. I think I have set out clearly why I would not support the amendments tabled by Plaid Cymru on the ability to issue bonds, and the ability to keep borrowing levels at real-terms levels is covered in the Government document. I am happy to support clauses 19 and 20 but not the amendments in the group.
We very much welcome borrowing powers for the Welsh Government, as those will help them progress with investment in vital infrastructure projects and foster growth in the Welsh economy. Borrowing powers may also prove useful in enabling match funding to take advantage of European funds.
The Silk commission argued strongly that Welsh Government should have
“the capacity to borrow for capital investment on a prudent basis subject to limits agreed with HM Treasury”.
These powers are all the more badly needed as the capital budget for Wales has been cut by one third by the current Government.
The Bill allows the Welsh Government to borrow up to £125 million per year up to a limit of £500 million, but we still question the way in which the Government have determined the £500 million limit. Ministers have said that that figure is generous, and that, according to the powers that Wales is being given, the limit should actually be £100 million. However, contrary to the position in Wales, such capital borrowing in both Scotland and Northern Ireland is not linked to the devolution of taxation powers. Northern Ireland has no revenue-raising powers but still has access to borrowing.
The Scotland Act permits Scottish Ministers to borrow 10% of the Scottish capital budget in any year to fund additional capital projects. That would be approximately £230 million in 2014-15; and they may borrow up to £2.2 billion in total. Based on the Welsh annual capital budget of around £1.4 billion, this same formula would grant the Welsh Government borrowing powers of £140 million annually and a ceiling higher than £l billion.
We do not feel that Ministers have offered sufficient explanation as to why they have decided to use a different formula for Wales from that used for Scotland. That has resulted in a lack of symmetry with Scotland, and means that Wales will have inferior borrowing powers. Why not £1.3 billion, as the Welsh Government’s Finance Minister Jane Hutt has suggested?
We should also remember that Wales has relatively little exposure to private finance initiative debts when compared with Scotland, as was pointed out by the Silk commission. Logically, that means that a more generous settlement could be considered. Instead, Wales is being short-changed by the Government. We are being offered less as the total amount of borrowing, and we have to wait for the devolution of minor taxes to access it. We are also calling for the Government to look at increasing the borrowing limit over time.
The implementation date for the new borrowing powers is 2018. However, before that the Welsh Government will be able to use more limited borrowing powers to proceed with improvements to ease congestion on the
M4, one of the main arteries giving lifeblood to the Welsh economy, not just in Cardiff but along the whole of the M4 corridor and onwards into west Wales.
Capital investment in Wales is critical to boosting the economy, delivering jobs and growth. We have seen the impact of investment by the Welsh Government—in my area, for example, there has been investment in the breast cancer unit at Prince Philip hospital, which provides patients from across west Wales with a very prompt and efficient service in state-of-the-art surroundings. We have seen investment in schools; many ageing buildings have been replaced with excellent facilities to foster learning and provide for additional support for families. During a time of economic downturn, Welsh Government building and refurbishment schemes have also provided valuable apprenticeship and training opportunities when there have been few on offer in the private sector.
The investment made to dual the railway line on the Loughor bridge, which will make possible more frequent and efficient services to west Wales, has also been very much welcomed. Today the Welsh Finance Minister announced the much-needed improvement to the Heads of the Valleys road, the A465. That is an example of the innovative ways in which the Welsh Government are accessing funds—in this case, through securing £300 million from institutional investment.
I have previously raised the issue of bonds, both in the Welsh Grand Committee and in our scrutiny of the draft Bill in the Welsh Affairs Committee. I now note that in the Command Paper, the Government confirm:
“The Wales Bill also enables the UK Government to change the sources of borrowing available to the Welsh Government without primary legislation, for example if it was decided that the Welsh Government should be able to issue bonds. The Government has recently judged that” issuing bonds
“is consistent with the Scottish Government’s financial powers and responsibilities set out in the Scotland Act 2012. It is willing to consider further whether this might be appropriate alongside the package of financial powers initially being devolved by the Wales Bill.”
Has further consideration been given, and have the Government, therefore, come to the same judgment as they have for Scotland? We would like to see the statement in the Command Paper result in a reality that gives the Welsh Government the same treatment as the Scottish Government in respect of bonds. On that note, and in reiterating the importance of borrowing to the Welsh Government, I conclude my remarks.
I want to sound a note of caution. I support the intentions of the Bill and I respect the case that has been made for the amendments, but those amendments could be seen as seeking almost limitless borrowing powers. As my hon. Friend Mr Harper observed, borrowing powers need to be related to the amount of money that can be raised and to repayment. As we learned from the financial crisis of 2008-09, when financial matters seem to be positive, changes can occur. Limits must therefore be set and a sensible approach adopted to borrowing across the whole of the United Kingdom, and particularly in respect of any institution that has a relatively limited capacity to raise its own funds, given that some of the Opposition parties do not seek to develop innovative and effective ways of using the extended powers granted by the Bill to raise funds by tax competition.
The £500 million capital borrowing limit set in the Bill, supported and approved by the Treasury, is sensible, amounting to £125 million a year. I want to bring an element of reality to the debate. Much of the focus has been on the need to improve the M4 motorway around Newport.
I am grateful to my hon. Friend for making that point. It is obvious where Plaid Cymru stands on the matter. Hywel Williams made his case. I disagreed with it, but it is a respectable case which stands with the party’s politics in general. It seems inconsistent to make strong criticisms of an element of the Bill but not to table amendments seeking to improve the Bill or to make it more relevant, in accordance with the Opposition’s argument.
The priority that has given rise to much of the debate about the need for greater capital spend in Wales is the need for improvement of the M4 around Newport. I pay tribute to the Chancellor and his efforts to encourage the Welsh Government to look positively at the need to improve that link. Many Members have spoken of the need for better infrastructure in and out of south Wales.
I remind the Committee that there was a commitment to such improvement pre-1997, by the then Secretary of State for Wales, my right hon. Friend
My hon. Friend makes an important point in relation to the proposed improvements to the M4. It should be noted that when the Bill was announced, the Secretary of State made it clear that this borrowing power should be for the M4 and also the A55. The Welsh Labour Government in Cardiff keep talking about the M4 and forgetting about the A55 and the needs of north Wales.
I, too, stake a claim to represent north Wales. On a point of clarification, the present Foreign Secretary was in post in Wales in 1997, before devolution. Now there is a £15 billion block, but that is to deal with health, transport and myriad other things which the old Welsh Office—not the Wales Office—did not have to deal with.
I am grateful to the right hon. Gentleman for making that point, but we will have to disagree. The Welsh Office at the time had exactly those responsibilities for transport, health and education. In the first Government of Wales Bill, the powers that the Welsh Assembly inherited were the same powers as had been held by the Welsh Office, which subsequently became the Wales Office. Additional powers have subsequently been granted, but they have been minuscule in proportion to the additional funding that has been provided. Out of a much smaller Barnett block grant, there was ambition for major capital projects. That ambition has gone.
I suspect I know why the right hon. Gentleman is a little bit uncomfortable. It is worth running through some of the history of the improvements that are needed in the M4 corridor. The then Secretary of State, my right hon. Friend
The Chancellor has pointed out on several occasions the need for improvement. He named the project in statements and in the Budget on one occasion to provide encouragement to the Welsh Government to improve this vital artery into south Wales.
The hon. Gentleman’s argument would have more force were it not for the fact that only today in the Welsh Assembly the Minister for Finance, Jane Hutt, announced £1 billion-worth of further spending on infrastructure, several hundred million pounds on the Heads of the Valleys road, and £200 million on a new cancer hospital at Velindre that will no doubt benefit the hon. Gentleman’s constituents. Far be it from me to suggest that he might be out of date and no longer keeping up with matters in the Assembly, but that would appear to be the case.
Not at all. I welcome those announcements. I wish there had been an announcement about improvement to the infrastructure in my constituency, and I wish there was to be improvement to the main infrastructure coming into Wales along the M4 corridor, but today’s announcements are obviously positive. However, we need to underline the delays that take place on that artery, that investment is essential and that borrowing powers need to be granted. Improvement should have taken place well before now. The original commitment was made pre-1997 but the Labour Administration cancelled it and the Welsh-led Labour Administration have not built it since. We should consider the delays, the accident records, the damage to the south Wales economy, and the hauliers based in my constituency who have had to set up on the Avonmouth side of the border because of the lack of investment and ambition over the past 15 years on the part of the Welsh Labour Administration.
The changes to the capital budget are nowhere near the cuts that the last Labour Chancellor proposed to make leading up to the Budget. We need to compare like with like, and we need to consider the financial circumstances at the time. One of my early points was that limitless borrowing powers simply cannot be granted because of the changes in circumstances that take place. The point has already been made that if we are asking the Treasury to stand behind the debt that is being taken on by the Welsh Government, the Treasury obviously needs to be able to support that and a sensible limit needs to be provided. The capital sum of £500 million is sensible, certainly in the first instance, but we need to be pragmatic about that over time.
Finally, the Administration’s infrastructure commitments, particularly the electrification of the Great Western main line, demonstrate the priority placed by the Government on the east-west link along south Wales, which has not been forthcoming since the M4 was cancelled all that time ago.
If I was an independent observer listening to the previous two Conservative Members’ contributions to the debate, I would wonder whether they wanted borrowing at all. Alun Cairns seemed to be very lukewarm on the issue, and questioned whether all this should really come out of the revenue budget. My hon. Friend Wayne David made it perfectly clear: 33% of the capital budget has been cut. There is no question in my view, or in the view of probably all the parties represented in the Assembly, including the hon. Gentleman’s party, but that there is a need for capital spending on infrastructure in Wales, including hospitals, schools and all the rest of it. The hon. Gentleman seems to have a lukewarm attitude towards it.
I will give way in a second because I want to refer to what Mr Harper said. He did not really like the idea of what he termed “popular” capital projects. He gave the impression that the Welsh Government would go round Wales seeking out the most popular issues with which to woo the electorate. That is a complete load of baloney. There is a consensus among Assembly Members about what they want: the M4 relief road is one and the A55 is another, but there are others too, including the Velindre and other hospitals. I absolutely welcome the clause. The Government have done well in introducing it. The Labour Government should have done it. I was Secretary of State for five years and we should have done it then, but things move on and the Government have done the right thing, although I question the mechanics of it.
I want to set the record straight. I am merely sounding a note of caution over limitless borrowing powers. The figure of £500 million is sensible and pragmatic, and it needs the Treasury’s support. After the recent financial crisis, we need to recognise the risks of unlimited borrowing.
I agree with the hon. Gentleman on that, but I still direct the independent observer, from wherever he or she may come, to the beginning of his speech where he spoke about the benefits of dealing with these things, which
I would not have intervened but for the right hon. Gentleman’s accusation that I was lukewarm. I made it quite clear that I very much support clauses 19 and 20 and capital borrowing powers being devolved. I was objecting to the idea that they could be unlimited. That is why I argued against the amendments tabled by Plaid Cymru Members. I argued that there should be a role for the Treasury and this House in making sure that those measures were limited, but I absolutely welcome them and I will support them in the event of a Division this evening.
That is good to hear.
I come back to the issue of how this has been calculated. I was Finance Minister in Northern Ireland, where there is a stream of income from the rates. The household and the business rates go to the Northern Ireland Executive. But I do not believe that the way in which the borrowing powers were calculated for the Northern Ireland Executive were based on the fact that they had an income from rates. I certainly do not believe that the Scotland Act, which allowed Scottish Ministers to borrow 10% of the Scottish capital budget in order to fund additional capital projects, had anything at all to do with funding streams. I am not saying that funding streams are unimportant, but why should Scotland and Northern Ireland have separate calculations in order to determine what they can have, while Wales has to go by a different methodology? That is wrong. It is unfair. There should be fairness and equality in determining the capital budgets for Wales, Scotland and Northern Ireland.
The reason is probably that these things were done over a period of years in different ways. But it is not done with any consistency based on revenue streams. I wish that the Government could rethink that. Amendments have not been tabled because the Opposition support the issue of borrowing. The First Minister and other Ministers in Wales have been saying for at least two to three years now that to have borrowing and to increase their capital spending was the single most important thing they wanted. We welcome that, but we question the method by which the £500 million has been arrived at.
It is a pleasure to respond to the debate, and I thank all right hon. and hon. Members for their contributions. Clause 19 amends the Government of Wales Act 2006 to extend existing borrowing powers in relation to current spending and give Welsh Ministers new capital borrowing powers, and clause 20 repeals the existing borrowing powers that the Welsh Government inherited from the Welsh Development Agency.
Amendments 5 and 34 relate to the capital borrowing limit set in clause 19. Through the Bill, Welsh Ministers will be given new capital borrowing powers that will enable them to borrow up to £500 million. A non-legislative annual limit of £125 million has also been agreed with the Welsh Government. The Government have been consistently clear that borrowing powers must be commensurate with the level of independent revenue that is available to support the costs of borrowing, and a capital borrowing limit of £500 million is substantial relative to the tax powers that are initially being devolved. As hon. Members have already pointed out, if the same ratio between revenue and the borrowing limit had applied in Wales as in Scotland, the overall capital borrowing limit for Wales would have been closer to £100 million. The limit has been increased to £500 million to enable the Welsh Government to start improvements to the M4, should they choose to do so, in advance of a referendum on income tax devolution, and I hope that that flexibility will have the support of Members on both sides of the House. The Government recognise that the £500 million will not be appropriate for ever, but we believe that the arrangements we are implementing provide a more robust mechanism for reviewing and changing the limit than would be the case under the amendments. Specifically, the Command Paper published alongside the Wales Bill sets out the review process that we will undertake at each spending review, and the Bill makes provision for the limit to be changed through secondary legislation.
The UK and Welsh Governments have previously agreed a joint process to review convergence between Welsh and English funding at each spending review. That process will now be extended to ensure that the capital borrowing limit remains appropriate.
The Command Paper committed to consider not only the impact of inflation, but the economic and fiscal circumstances at the time of each spending review and the size of the independent revenue stream available to the Welsh Government. That means we will be considering a much broader range of factors than proposed by amendment 5. For example, if an element of income tax is devolved in Wales, applying the same ratio as in Scotland could suggest an increased limit for Welsh Ministers of around £1 billion.
Following the joint review process, the Bill contains the power for the UK Government to set out a new limit through secondary legislation. Although we have legislated that the limit cannot be reduced below £500 million, legislating that the limit can only be increased in future is not the right answer and could have unintended consequences. For example, consider the scenario in which the UK and Welsh Governments agree that the borrowing limit should be increased substantially. Under our proposals, the limit could be increased accordingly and, if necessary, reduced in future if fiscal conditions deteriorate.
The problem with amendment 34 is that it would act as a disincentive for future UK Governments to agree to increase the limit when fiscal conditions allow, because they would know that the limit could never subsequently be reduced. The UK Government would understandably be cautious about ever increasing it. We do not think that that is the best outcome for Wales, as it might result in unintended consequences.
The Bill provides a capital borrowing limit of £500 million, robust arrangements for jointly considering the limit with the Welsh Government and the appropriate flexibility for changing the limit in future. I hope that the whole Committee can agree with that approach and urge right hon. and hon. Members not to press amendments 5 and 34.
Amendments 35 to 37 cover the sources of borrowing available to Welsh Ministers to fund capital investment and the related powers and responsibilities that should be devolved. As a result of the Bill, Welsh Ministers will be able to borrow from the national loans fund or from banks to fund additional capital investment. The national loans fund is almost certainly the cheapest way for them to borrow, while borrowing from banks provides flexibility.
However, in the Command Paper published alongside the Bill, the Government explained that if a case for Welsh bonds was made, we are willing to consider it. That remains our position. But it is right that the UK Parliament retains the competence over the sources of borrowing available to the Welsh Government so that the UK Government can properly execute their macro-economic responsibilities. For example, it should be for the UK Parliament, rather than the Welsh Assembly, to decide whether it is appropriate for there to be another entrant into the sterling bonds market. As is consistent with that, although we are providing Welsh Ministers with these important new borrowing powers, it is right that the Treasury retains sufficient control over aggregate levels of public borrowing. I hope that this further explanation of our position will allow hon. Members not to press their amendments.
Let me explain the changes we are making in relation to current borrowing. Welsh Ministers can already borrow for in-year cash management purposes. That enables them to borrow up to £500 million from the national loans fund to manage the flow of funding in and out of the Welsh Consolidated Fund while maintaining a working balance. Clause 19 extends those powers by additionally allowing Welsh Ministers to borrow across years to deal with differences between the full-year forecast and out-turn receipts for devolved taxes. A non-legislative limit of £200 million a year has been agreed with the Welsh Government, within the continuing £500 million overall limit.
That extension in the current borrowing powers provides the Welsh Government with an important tool to help manage the volatility of tax revenues and forecast error. Alongside that, they will also be able to pay surplus tax revenues into a cash reserve, which can subsequently be drawn upon when future revenues are lower than forecast. They will therefore have two new tools to manage their new tax powers. That further justifies our views about volatility—this relates to our discussion earlier this afternoon—particularly in relation to stamp duty land tax, which are very much matters for the Welsh Assembly and Government to address.
Clause 20 repeals the existing borrowing powers that the Welsh Government inherited from the Welsh Development Agency when it was abolished in 2006. As I have just explained, when clause 19 is implemented it will give the Welsh Government extended current borrowing powers and new capital borrowing powers. The purpose of clause 20 is therefore to repeal the existing, more limited, borrowing powers inherited from the Welsh Development Agency. As set out in the Command Paper, we intend to repeal the existing power at the point at which the new borrowing powers are implemented.
In advance of that, the UK Government have agreed that Welsh Ministers can use their existing borrowing powers to begin improvements to the M4, should they choose to proceed with that project. Any amounts borrowed by the Welsh Government for that purpose will count towards the overall £500 million limit, as we are effectively giving Welsh Ministers early access to their new powers. With that explanation, I urge Plaid Cymru Members not to press their amendments and to support clauses 19 and 20 as they stand.
I am grateful to the Minister for his response on amendment 5 and the point about inflation. However, I think that amendment 35 makes a very reasonable call for an independent report to be compiled on the issuance of bonds and laid before Parliament within three months of the Bill being passed, which would be an aid to all concerned. Therefore, I beg to ask leave to withdraw amendment 36, but I will press amendment 35 to a vote.
Amendment, by leave, withdrawn.
Amendment proposed: 35, page 21, line 31, at end insert—
The Scotland Act 2012 enables the Secretary of State, by order and consent of HM Treasury, to change how Scottish Ministers can borrow money for capital purposes, for example, allowing the issue of bonds. Clause 19(5) of the Wales Bill contains the same provisions. This amendment seeks clarification on the power to issue bonds.