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Treasury Spending: Grants to Devolved Institutions

Part of the debate – in the House of Commons at 5:54 pm on 3rd July 2018.

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Photo of Jonathan Edwards Jonathan Edwards Shadow PC Spokesperson (Treasury), Shadow PC Spokesperson (Transport), Shadow PC Spokesperson (Foreign Intervention), Shadow PC Spokesperson (Business, Energy and Industrial Strategy) 5:54 pm, 3rd July 2018

The hon. Gentleman has brought to mind my recent visit to the United States: in every state there, sales tax is devolved. The argument is clear. If a tax is performing well in the UK context, it would be good to devolve it to Wales.

The Holtham commission recognised the immense benefits of devolving corporation tax in its 2010 report on finances in Wales. It argued that corporation tax devolution could be a critical part of the transformational change that the Welsh economy needs. Corporation tax has been devolved to Northern Ireland, and the Silk commission said in its report that there was no reason why that should not also apply to Wales. Our problem is that whereas Scotland and Northern Ireland have a range of fiscal powers, the Welsh fiscal portfolio is far weaker, which means that Wales is going to be at a competitive disadvantage within the UK.

Long-haul air passenger duty, of course, is another tax that has been devolved to Scotland and Northern Ireland. That means that the competitiveness of our publicly owned airport in Wales is being held back. Bristol airport opposes the devolution of the tax to Wales and that trumps what is in the best interests of the Welsh economy. The Welsh Government, of course, have no say over the ability of Bristol airport to build a second terminal. That will have a devastating effect on Cardiff airport.

Across the British state as a whole, devolved funding arrangements look increasingly asymmetric and ad hoc. There will now be significant differences in the scale and composition of devolved and reserved taxes across each country: how their block grants are determined and adjusted over time, and the borrowing and budget management capacity of each devolved Government. The British state is changing quickly and we will have to have new structures to manage those changes. With Brexit on our doorstep, the case has never been greater for an independent commission, similar to the Australian Commonwealth Grants Commission, to carry out an assessment of relative need, undertake periodic reviews, arbitrate between tax disputes, and collect and publish information on an annual basis about the allocation of finances and funding to the devolved Administrations. We cannot have a situation where the Treasury is judge and jury.

I would like to finish by talking about the UK shared prosperity fund, which has been a major source of income for investment infrastructure in Wales. Convergence funding between 2014 and 2020 is worth £2 billion. Despite it being two years since the referendum result, there is no clarity at all from the British Government on how that fund will work and how funds will be allocated. That will be a major issue for Wales and we will be pressing the British Government on it.

If the British state is to survive post Brexit, it will require radical restructuring and fiscal policy will be a key element in that. The estimates debate is probably not the right time to make those arguments, but I look forward to putting forward suggestions in the months to come.