Wales Bill - Committee (2nd Day)

– in the House of Lords at 3:07 pm on 7th November 2016.

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Relevant document: 5th Report from the Delegated Powers Committee

Amendment 23

Moved by Lord Wigley

23: After Clause 13, insert the following new Clause—“Apprenticeship levy(1) In Part 4A of the Government of Wales Act 2006, after Chapter 4 insert—“CHAPTER 5Apprenticeship levy116O Apprenticeship levy(1) The Treasury must make separate provision in regulations for apprenticeship levy charged to a person in Wales with a pay bill.(2) The Treasury must lay an annual report before the Assembly and the House of Commons on the amount of apprenticeship levy raised in each tax year from persons in Wales.(3) The Treasury must consult the Assembly before setting a levy allowance or a relevant percentage applicable to persons in Wales.””

Photo of Lord Wigley Lord Wigley Plaid Cymru

My Lords, after that rush of enthusiasm for the Wales Bill, I rise to move Amendment 23, which stands in my name and the name of the noble Lord, Lord Rowlands. It relates to the devolution of the funds generated through the apprenticeship levy. The issue has been raised with me because of the uncertainty experienced by employers based in Wales regarding this matter. The Government’s rather chaotic and haphazard approach to the apprenticeship levy has left all the devolved Administrations scratching their heads. Although the specifics are clear for businesses in England, the way in which businesses and organisations in Wales will be able to access and benefit from the money generated by the levy remains completely opaque.

Of the projected £3 billion in the 2015 Autumn Statement, the Treasury specified that £2.5 billion would be spent exclusively on England while the remaining £500 million would be divided among Wales, Scotland and Northern Ireland. We were told we would have our fair share. Despite the fact that this levy is due to be introduced in April, just five months away, we are left facing more questions than answers on the matter. What is our fair share? Are the receipts going to be Barnettised? What happens if the levy yields less money than projected? Will England’s funding be prioritised at the expense of that which is promised for Wales? The lack of transparency in the Treasury’s funding formula for Wales, Northern Ireland and Scotland is creating practical hurdles for those Governments as they prepare for their own apprenticeship schemes.

Apprenticeships are a devolved matter. So are education and training. Operating at a UK level a levy that is meant to directly fund the devolved function has every potential to cause confusion. I am told that an employer-led institute of apprenticeships is to be set up in April 2017 to advise the Department for Business, Energy and Industrial Strategy on the administration of funding and apprenticeship standards in England. Is this institute specifically for England? If so, where does that leave Wales? Surely a similar institution for each of the devolved areas should have a parallel role in advising the Secretary of State. Are the devolved Governments expected to set up their own bodies analogous to the institute or are they expected to relate directly to an institute whose remit extends only to England?

Online services will apparently be provided to employers in England but will not be available to Welsh employers. Another issue that remains unclear is how the levy will work in relation to companies that have headquarters situated in one country but employ people across the border in the territory of a devolved Administration. Plaid Cymru MPs were given assurances in the other place that the Treasury is working in co-operation with the Welsh Government to determine the implementation of the levy. We are yet to see any development on that front.

The apprenticeship levy status in Wales is reduced to a mere link on the UK Government website directing readers to a nondescript Welsh Government webpage that provides no clarity to those in Wales seeking information. What discussions took place between the UK Government and the Government of Wales before that link was advertised? With apprenticeships and businesses keen to take advantage of the levy in Wales in the immediate future, it is not right that they are left guessing while their English counterparts are able to plan in advance.

The UK Government are introducing legislation that pays no regard to the specific needs of the corresponding system in the devolved Governments. They are England-centric in their planning and implementation and appear to be progressing the matter without any co-ordination with the devolved Governments. More broadly, the patchwork devolution settlement being offered to Wales in the Bill will result in confusion and mismanagement. One solution to this problem, as my amendment today sets out, would be to devolve the apprenticeships levy in its entirety to Wales. This would allow the Welsh Government to administer and control the money raised and to align it with apprenticeship policies. Put simply, it would clarify any doubts over Wales’s fair share of the money raised, and would enable employers and apprenticeships to plan their programmes in a co-ordinated fashion. This is a constructive proposal to address a very real problem. I appeal to noble Lords on all sides to indicate their support for the amendment and I appeal to the Government either to accept it today or to undertake to return on Report with their own amendment to answer these very real difficulties. I beg to move.

Photo of Lord Rowlands Lord Rowlands Labour

My Lords, I declare an interest as honorary president of the National Training Federation for Wales, and in its early years I was one of its advisers. The federation brings together many or most of the training providers that deliver the apprenticeship and skills policies and funding from the Welsh Assembly Government. I am grateful to the noble Lord, Lord Wigley, for tabling this amendment and bringing to our attention the peculiar and now very difficult situation that has arisen as a result of the introduction of the levy.

I say nothing about the merits of the levy. Frankly, it is a fascinating piece of interventionist politics in the labour and employment market. In fact, it reminded me—although I make no direct comparison—of when I was first in the other place in 1966 and a Chancellor of the Exchequer introduced something called the selective employment tax. I am not sure how many Members still remember that or it its fate. It was a novel tax which did not last; I wonder how long this novel levy will last.

The heart of the problem, as the noble Lord, Lord Wigley, pointed out, is that the conception and launch of the apprenticeship levy completely ignored the fact that in three of the four nations of the United Kingdom, the whole policy is devolved. Policy, funding and operation of all forms of training, including apprenticeships, has been devolved. There was no real consultation on how the levy would apply to or could be accommodated within the policies and processes that have developed to deliver apprenticeship and training programmes in Wales, Scotland and Northern Ireland.

I continue to be amazed that there are still corners of Whitehall and the Treasury where people have not realised that devolution has happened. This is an extreme example of just that point. I hope that when the Minister replies he will promise that something like the process that has happened in this case—when a Treasury or a Chancellor decides to do something that may have a profound impact on the policy and processes of the devolved Administrations—will not happen again.

Ever since the announcement of the levy and its operation, there have been attempts to understand how one can accommodate it within the terms, policies and processes that I know have been well developed within the Welsh Government and Welsh Assembly. To go further than the noble Lord, Lord Wigley, we have now reached the bizarre situation where a UK-wide levy may be impossible for any Welsh company or organisation to access. I will explain why in a minute.

Let us remind ourselves where the levy applies. It applies not only to companies but to all public bodies, third-party bodies and organisations with a payroll of more than £3 million. Therefore, the Welsh Government and Welsh health authorities will pay the levy, but I see no means by which they could access it to promote their training. In fact, they do not need to because, as a result of the extremely positive and forward-looking policies of the Welsh Government and Welsh Assembly, we have a system to develop apprenticeships, skills and training in Wales that is working very satisfactorily and requires no levy of any kind. It is therefore unnecessary.

Perhaps the Minister can confirm this, but I gather that in England, it is to be delivered by something called a digital voucher. We have had voucher systems in training levies before, and they have invariably failed. This has all the hallmarks of being an unnecessary bureaucratic nightmare. As a result, as I understand it, the Welsh Government and the Welsh Assembly have decided that they will not take part. They will not implement the digital voucher system. I hope that I have got that right; if not, the Minister can disabuse me. I gather that that is true of the other Administrations as well. So the means by which Welsh companies or organisations could access the levy money—the digital voucher—will not be put in place in Wales or the other devolved Administrations.

The Welsh Assembly and the Welsh Government already have a very well established programme and process. They have identified their priority areas. This has always been a major part of its budget. I think I am right in saying that in the most recent budget, it was agreed that £111 million would fund the whole apprenticeship and skills programmes. Welsh companies and organisations can access those skills and apprenticeship schemes through the process of going through the training provider network that has been created. In other words, there is no room for a levy, as far as I can see. I do not know how it can be inserted into this process. Again, as the noble Lord, Lord Wigley, said, this is so opaque and confused that I am not sure that I have got it right, so I hope the Minister will help us to understand it

As the noble Lord, Lord Wigley, pointed out, there are a lot of cross-border issues. For example, can a company, operating across both borders draw down the English voucher system to be used in Wales? I do not think that it can. So again, I cannot understand how it would be possible for Welsh companies and organisations to tap into the potential resources raised by the levy. Secondly—the noble Lord Wigley’s amendment presses this point—we should have transparency. At present, HMRC, which is the means of collecting it, does not plan to identify the Welsh contribution. It does not intend to identify how much of the levy has been raised in Wales, so I cannot understand how it can be operated.

I hear that somehow the problem will be solved by the Barnett formula. We all know that its sell-by date has long gone. To and use the Barnett formula, which even Lord Barnett disowned some time ago, is preposterous. If it is to be used, how will it be done? How will companies and organisations which pay the levy be able to access it to service Welsh apprenticeships and training, through the Barnett formula, if that is the process planned? How will that happen? I understand that the Barnett formula is not priority- allocated. It is just a general pool, which does not mean that it will go into training or apprenticeships.

I am grateful to the noble Lord, Lord Wigley for introducing this amendment because it has raised very serious issues in an area of policy on development and training on which I want to compliment the Welsh Government and the Welsh Assembly. The Minister will know that. I believe that this levy has added confusion and uncertainty, and sadly is a terrible example of a non-consultation with devolved Administrations on issues that are fundamental to such Administrations.

Photo of Baroness Gale Baroness Gale Labour 3:15 pm, 7th November 2016

My Lords, we have had a very interesting debate. The noble Lord, Lord Wigley, and my noble friend Lord Rowlands, have spelled out the difficulties of the apprenticeship levy. I believe that the noble Lord, Lord Wigley, is proposing that it should be a Wales apprenticeship levy, devolved to Wales in its entirety, and that it should be collected and administered in Wales. My noble friend Lord Rowlands pointed out quite a lot of the difficulties and the lack of transparency around this issue.

The UK Government have said that the new apprenticeship levy, when it is implemented in April 2017, will apply to all UK employers and that the levy will be charged on those employers with a pay bill of more than £3 million, with a levy set at 0.5% of the pay bill. The Welsh Government have rightly raised concern about the introduction of the levy, and noble Lords have spelled that out today. I understand that the Welsh Government were not consulted about this, and perhaps they should have been before the initial announcement was made, bearing in mind that the apprenticeship levy funding policy is devolved and it will be for the Welsh Government to decide how they use it.

Last year, the Welsh Government consulted extensively on aligning their apprenticeship model to the needs of the economy in Wales and the wider UK. They published consultation responses in July 2015 and, since that time, have delayed publishing their apprenticeship implementation plan, as they want to have the opportunity to properly consider the impact of the UK Government’s proposals for the operation of the apprenticeship levy in England and the associated changes in apprenticeship standard.

We are several months away from the levy being implemented, and there is a lot of confusion and a lack of transparency. Can the Minister ensure that the UK Government will continue to work with the Welsh Government on the implementation of the levy? The Government should ensure that Wales receives a fair share of the revenue raised by it so that it can continue with its very successful apprenticeship programme. At present, it is funded by the Welsh Government with the support of the European Social Fund, which will probably disappear in a few years’ time.

Can we get a much clearer picture than we have at the moment so that there is transparency and the Welsh Government will know how this is going to operate? It seems that they are a bit on hold at the moment, as other noble Lords have pointed out. I am sure that the Minister will be able to clarify the position.

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth The Parliamentary Under-Secretary of State for Communities and Local Government, The Parliamentary Under-Secretary of State for Wales

My Lords, I thank noble Lords who have participated in the debate on the amendment. I thank the noble Lord, Lord Wigley, for moving it.

To fund the step change needed to achieve 3 million apprenticeship starts across the country by 2020 and to improve their quality, the Government are introducing an apprenticeship levy so that spending on apprenticeships will be double the level that it was in 2010-11 in cash terms. I think that that is something that noble Lords across the House will welcome. I recognise that some employers have concerns over the design of the levy. Following the announcement at the summer Budget of 2015, the Government consulted on its design; the consultation that took place during the autumn of that year revealed overwhelming support for the levy to be as simple as possible to operate across the United Kingdom. For this reason, it was decided that the apprenticeship levy would be based on the UK-wide definition of earnings as used for class 1 secondary employer national insurance contributions. Not only is the definition one that employers are familiar with but it is applied consistently to employers wherever they operate within the United Kingdom’s single market and is information they readily have available in their payroll. The definition also avoids considerable practical difficulties that would arise if there were different rates and thresholds of the apprenticeship levy in different parts of the United Kingdom, which appears to be the purpose of this amendment—or at least a consequence of it. However, because the charge is on the employer, it would be necessary to determine how such a system would operate for organisations working across borders or with plants in different parts of the country, such as Toyota. This would create additional and significant administrative burdens for businesses that we believe are best avoided.

That said, I can recognise the points that are being made by the noble Lords, Lord Wigley and Lord Rowlands, and the noble Baroness, Lady Gale. I thank her for her comments. It is certainly the intention for work between the Treasury and the Welsh Government to continue, as she suggested. Policy on apprenticeships is devolved to the Welsh Government; once there has been a discussion on how we ensure that Wales has a fair share of the money, it does not necessarily follow that it will be Barnettised. I rather suspect that it will not, and presumably they will look at the number of employees in different parts of the country. I am not sure that Barnett would present the right answer. But once it has been done, it is a matter for the devolved Governments of Scotland, Northern Ireland and Wales, as to how they operate the apprenticeship policy. They could presumably add more money in if they wanted to, or put in a smaller amount—that is a matter for them.

I have heard the contributions to this debate, and I understand that noble Lords want to ensure that Wales’s corner is being protected; I do too. I will ensure that a note is sent round to noble Lords who have participated in the debate so that they can see the state of play as things stand at the moment.

Photo of Lord Rowlands Lord Rowlands Labour 3:30 pm, 7th November 2016

My understanding is that the way it is going to be delivered in England is through this so-called digital voucher. First, can the Minister confirm that that is the case? Secondly, is it also the case that Wales and other Administrations have all rejected that process? If it is not going to be that, what will the process be by which Welsh companies can claim on the levy?

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth The Parliamentary Under-Secretary of State for Communities and Local Government, The Parliamentary Under-Secretary of State for Wales

The noble Lord is right in the sense that the essence of devolution is that if the policy is devolved to Scotland, Northern Ireland and Wales it is a matter for those Administrations as to how the apprenticeship policy is rolled out. The apprenticeship levy discussion will be happening between the Treasury and the devolved Administrations. I will get noble Lords an update on how that is progressing. It will then be for them to decide how the money is spent. The discussion on how the cake is being divided up will be led by the Treasury with the devolved Administrations. That is my understanding of how it will operate.

Photo of Lord Wigley Lord Wigley Plaid Cymru

My Lords, I will press the Minister further on this. Does he accept that, for the Welsh Government—or, for that matter, the Scottish or Northern Ireland Governments—to roll this out they need to know how much money they are getting; the mechanism for delivering it; the timing of it and the conditions that may be placed on it? It is now over 12 months since this thing was kicked off. Without knowing those details they cannot, with all the good will in the world, meet what is required. Inevitably, companies in Wales are going to be in an inferior position to those in England. Will the Minister also clarify the position of those who are employing people across the border: companies which may be based in England but employing in Wales, or vice versa?

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth The Parliamentary Under-Secretary of State for Communities and Local Government, The Parliamentary Under-Secretary of State for Wales

My Lords, this was precisely the point that I was dealing with. As I said, I will get a note round about how the discussion is going on how the policy will be rolled out in terms of the amount of money that will be given to the devolved Administrations. The discussion will go on at that level on how that is being sorted out. As I understand it, the basis on which the policy is rolled out is that the place of employment will be where the policy applies. If a business is in Wales it will be a matter for the Welsh Government to decide a policy which is relevant to it. All the Administrations will want to bear in mind businesses which are on both sides of the border and ensure that there is some consistency in approach. However, that is a matter for them.

Based on my assurances that I will write to noble Lords on how the discussion is going now and that it is a matter for the devolved Administrations to decide the relevant policy—

Photo of Lord Crickhowell Lord Crickhowell Conservative

My Lords, I am sorry to interrupt. It is, of course, satisfactory that the Minister will write to noble Lords, but this is yet another example of where discussions have been going on for some time since the Bill passed in another place and yet the up-to-date position on them has not been presented to this Committee. Like the noble Lord, Lord Deben, who made the point in an earlier sitting, I do think this is very unsatisfactory. We really should be updated in adequate time on all these discussions and not told that we will be given the information at some stage, perhaps before Report.

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth The Parliamentary Under-Secretary of State for Communities and Local Government, The Parliamentary Under-Secretary of State for Wales

My Lords, I am not quite sure what my noble friend wants me to say, other than that, as I have just said, I will endeavour to ensure that noble Lords will have the information that is being requested ahead of Report. With that, I ask the noble Lords to withdraw the amendment.

Photo of Lord Wigley Lord Wigley Plaid Cymru

My Lords, I am grateful to the noble Lord, Lord Bourne, for his response, but he must be feeling a little uneasy with the quality of the brief that he has been given on this. It is recognised the length and breadth of Wales that this is a totally unsatisfactory position which is causing problems for employers and those employees who are hoping to gain benefit from apprenticeship schemes. It is causing problems for the Welsh Government as they forward plan their budget for the coming year. We are talking of a sum of money that may be, let us say for argument’s sake, in the order of £150 million—a significant sum. Whatever the detail on the way in which these schemes are rolled out in Wales, Scotland or Northern Ireland, none the less, if this is the funding arrangement that has been agreed, there should be transparency. We are now in November, and the budget will be coming in April. It is totally unsatisfactory for the UK Treasury and Government to place the devolved Administrations in this position. Whereas the note that no doubt will be sent round will give the fullest information that the Treasury is willing to make available, it none the less may well not answer the serious questions that have been raised.

I am grateful for the contribution of the noble Lord, Lord Rowlands, with his expert knowledge in this area, and to the noble Lord, Lord Crickhowell, for intervening. We need to know. I realise that it is not the tradition to divide the House in Committee. However, if there is not a satisfactory answer from the Treasury and the Minister, I most certainly intend to come back to this on Report and, at that point, to press it. It is just not acceptable that we in Wales are placed in this position. It is not the fault of the Minister personally, but it is certainly the responsibility of the Government and the Treasury. I hope that between now and Report the Minister will have serious discussions with the Treasury, and that if he in his heart recognises that there is a serious problem here, he himself might choose to come back on this. On that basis, however, I beg leave to withdraw the amendment.

Amendment 23 withdrawn.

Clauses 14 to 16 agreed.

Clause 17: Welsh rates of income tax: removal of referendum requirement

Debate on whether Clause 17 should stand part of the Bill.

Photo of Lord Murphy of Torfaen Lord Murphy of Torfaen Labour

My Lords, I beg to move that Clause 17 does not stand part of the Bill and in so doing apologise for the absence of my noble friend Lord Hain, who is unable to be with us today. I am glad to say that my noble friend Lord Kinnock, who has also signed this Motion, is with us this afternoon.

It is just over 20 years ago now that the people of Wales voted in the referendum to establish a Welsh Assembly. It is just over 20 years ago that the people of Scotland voted to establish a Scottish Parliament. It was at that point, two decades ago, that the people of both countries were asked about the nature of the devolution that they wanted. In Wales, income tax was not an issue. In 1997, when the people of Wales voted, as they did, narrowly for an Assembly, it was not to have a system of income tax. On the other hand, the people of Scotland voted in favour not just of a Scottish Parliament but also of powers to vary income tax in that country, even though they have never done that.

The purpose of this probing amendment—and it is a big probe—is to find out why the Government have changed their mind since the previous Wales Bill. That Bill, just a couple of years ago, said that if income tax powers were to be introduced in Wales then the people of Wales would be asked their views. I suppose in a way, we have had a lot of referenda of late, which have caused all sorts of difficulties and problems. Nevertheless, the principle of asking the people of Wales whether they want income tax powers for Wales is no different from what was asked in 1997 of the people of Scotland. Now, however, we have a proposal in this Bill to abolish that question. The people of Wales will not in fact be asked to decide whether they want income tax powers for their Assembly or whether they want the Assembly itself to agree to the principle of income tax raising powers for the Welsh Government and Assembly. I want to find out from the Minister why this change took place and, indeed, what mandate there is for this change to occur.

The second reason why this issue is important is that there is a good, sound economic and financial reason why the people of Wales should not be burdened by an extra income tax. I understand the issues of accountability, and that was the main principle that the Government and others have argued: that there should be this income tax provision. However, given the Minister’s vast experience in this area, I am sure he will understand that Wales is not a wealthy country by comparison with England. Probably thousands more wealthy people live in the county of Surrey than in the whole of Wales. Therefore, the resource base in Wales for income tax is very low indeed, but the burden upon the people would be high were an income tax to be raised in Wales alone.

My noble friend Lord Hain is keen to expostulate that, if income tax is levied at a United Kingdom level, it is properly and fairly distributed among the less wealthy parts of our country. Therefore, Wales benefits from that fair distribution because we are not as wealthy as the south-east of England. That is an important issue to consider when we look at whether income tax should be devolved. Also, if income tax were to be raised in Wales—whatever the levy, be it 2p or 3p in the pound—if all that did was plug a gap because the block grant had been reduced, that, too, would be pointless. If income tax is to be raised, it should be extra and above the block grant allocation—the Barnett formula, flawed as it is—as my noble friend Lord Rowlands indicated.

The third and final reason why the Government should say why this change has been introduced is that they are in the middle of negotiations with the Welsh Government on a fiscal framework for Wales. That is a vital discussion and an important negotiation. If income tax is to be partly devolved to Wales, the onus lies on the Government to ensure that the fiscal framework is so devised that that inequality between Wales and the rest of the United Kingdom is recognised and any block grant or Barnett formula ensures that Wales has a fair deal. For those reasons, I ask the Government to rethink this measure and I shall be interested to hear the Minister’s reply.

Photo of Baroness Humphreys Baroness Humphreys Liberal Democrat Lords Spokesperson (Wales)

My Lords, before contributing to this Clause 17 stand part debate, I apologise to the Committee, and to the Minister in particular, for not having taken part in the debate at Second Reading.

I welcome the Government’s decision to remove the requirement for a referendum before devolving powers over income tax to the National Assembly for Wales. I am afraid that I have to take issue with the noble Lord on the Labour Benches, who still sees the need for a referendum.

Our democratic institution, the National Assembly, commenced 19 years ago and successive Bills have conferred increasing powers on it. The aim of this Bill should surely be to further build that democratic institution by providing it with the powers it needs to do its job. Along with those powers, there must also be a means of providing the Assembly’s electorate with the opportunity to hold the institution to account. For me, these two factors—power and accountability—are the basis of democracy. Providing the Assembly with powers over partial income tax devolution, which brings with it the opportunity for transparency and accountability without holding a referendum, should be a mark of the confidence of this House in the Welsh Government’s ability to carry out their functions. The Bill should be about indicating a clear way ahead for the Assembly to provide the people of Wales with the mature and confident democracy we want and deserve, not about placing further obstacles in the path of their progress.

I am tired of living in a country which has had to hold out the begging bowl to the Treasury to enable it to receive funding via its annual block grant. I am tired of hearing Welsh Ministers blame the UK Government for every shortfall in funding. But, most of all, I am tired of there being no means by which I, as a Welsh elector, am able to hold the Government of my country to account for the way they raise and spend their revenue.

I welcome last year’s devolution of powers over business rates to the Assembly and I look forward to stamp duty land tax and landfill tax being transferred in 2018. The addition of a £1.9 billion share of income tax, partially devolved to the Welsh Government, would form the basis of a system the Welsh electorate could scrutinise and on which they could hold the Government to account.

However, I agree with the noble Lord who spoke about the possible difficulties of devolving powers. In their joint report, the Wales Governance Centre and the Institute for Fiscal Studies urge caution in the choice of funding mechanism we employ and note two material considerations: Wales’s,

“relatively slower rate of population growth”, and,

“the size and distribution of the Welsh tax base”, which is,

“significantly divergent to that of the rest of the UK, with far more lower-income earners”.

These are issues that we should take seriously. The prospect of these two factors having an adverse impact on the funding available to the Welsh Government in future years needs to be fully understood by Members of this House and mitigated against in the fiscal framework now under discussion. I would therefore be grateful if the Minister updated the Committee on the progress of the negotiations on the fiscal framework associated with the Bill. I also seek his assurance that a document will be in the hands of noble Lords before Report, enabling us to come to final decisions on a number of issues based on the evidence in the framework.

Finally, as we debate further amendments in Committee, I will certainly be listening very carefully to the Minister as he seeks to explain the Government’s justification for the inclusion of many reservations to the UK Government. However, on the devolution of income tax powers to the National Assembly without the need for a referendum, I am happy to lend the Government my support.

Photo of Lord Wigley Lord Wigley Plaid Cymru 3:45 pm, 7th November 2016

My Lords, I am grateful for this opportunity to speak on Clause 17, which the noble Lord, Lord Murphy, opposes. On many matters concerning devolution, the noble Lord, Lord Hain, were he here, would accept that we are usually in agreement. I was a great admirer of the way that he succeeded in getting the 2006 Act on to the statute book, notwithstanding its shortcomings.

Tomorrow is election day in the USA. “No taxation without representation” was the phrase coined in 18th-century colonial America. Today, in 21st-century Wales, we have representation but we do not have powers over taxation. We need both.

As the noble Baroness said a moment ago, the devolution of fiscal powers to Wales establishes an intrinsic democratic link between citizens and the policymakers they elect. Devolving income tax means that we can create better Welsh solutions to the challenges faced by Wales, in both the economy and the delivery of public services.

Although I understand the background to the wishes of the noble Lord, Lord Hain, described by the noble Lord, Lord Murphy, for a referendum on income tax powers, I suspect that another referendum is not really what either of them dreams about at night. Indeed, if they do, they probably have nightmares about the use of this ostensibly democratic tool of government. They both know, as I do, how easily a referendum can transpose itself into a verdict on anything but the issue on the ballot paper. It should be used for only the most clear-cut matters, which the electorate clearly understand and know what the consequences would be. It may be fine for deciding locally whether pubs open or close on a Sunday but it is not an appropriate tool for deciding on taxation policy.

From what the noble Lord, Lord Murphy, said, I think he agrees with me on the need for the Assembly to have some tax-varying powers at the appropriate time for reasons that are becoming increasingly apparent. One of the major challenges for the Welsh Government now is to trigger a substantial capital expenditure programme to develop our industrial infrastructure. Plaid Cymru has called for a national infrastructure commission for Wales, which would enable the Welsh Government to borrow up to £7.5 billion over a 10-year period, and we need a tax-raising facility to fund such a programme. It does not have to be income tax—it could be other taxes, which we will discuss later—but income tax should be available for the Welsh Government, in their wisdom, to decide whether or not to use it.

It has been estimated that the servicing cost of that £7.5 billion would amount to £165 million a year, and it is unrealistic to believe that such a sum could be funded from the minor taxes alone. This is why the devolution of income tax is essential. We cannot call for an expenditure programme without accepting the need to fund it. The two go hand in hand and are essential to build a new forward-looking economy for Wales.

Income tax devolution will be the dawn of a new era of accountability for the National Assembly, reflecting the need for a mature public policy to balance the requirement for resources with the practicality of raising them. It is all too easy—and politically far too facile—for politicians of any party to call for greater spending on this or that element of public services without saying how the money is to be raised. It is equally irresponsible for politicians on the right to call for lower taxes without explaining which public services would lose funding. The acceptance of both as obverse sides of the same coin is a reflection of political maturity. Giving tax-varying powers to the Assembly represents another step to it becoming a genuine home of Welsh democracy. For that reason, I support Clause 17 remaining part of the Bill.

Photo of Lord Morgan Lord Morgan Labour

My Lords, I had not intended to intervene in this debate but I should like to make two points. First, I am not persuaded, after what we have experienced in the past few months, that referendums are a source of clear, unambiguous decision. They are disastrous. We have seen that in connection with larger matters than Wales. To have a referendum on the deeply technical issue of the relationships of finance between local and central authorities—a very complicated matter—would resolve into the popular papers of the Welsh press, such as we have, debating whether it would mean income tax going up or down. The idea that fiscal principles would be subject to deep and profound scrutiny is not credible. We have had quite enough referendums as a substitute for democratic decision. They are a bogus form of democracy for the reasons we have seen and I would not want one for this.

Apart from a referendum being an unsatisfactory source of clarity and wisdom, as has been said by other noble Lords, it is an imperative of devolution that the Welsh Government should have some fiscal powers. The Scottish Government have had them since 1997, although they have not used them, and that is perhaps significant for whether the Welsh Government would use them. We do not know.

A devolved democracy that depends on handouts from somewhere else inevitably provokes complaints—as it has done in the history of Wales for decades; Westminster never offers or does enough—and will produce unsatisfactory responses. On the references to the American Revolution, the reverse of what was said is profoundly true: if you do not have tax powers or the ability to raise your own revenue, you are not really a democracy because you are in a position of subservience. The whole history of Welsh devolution and other parts of the Bill show—in spite of the excellent intentions of the Minister and others on the Conservative side—that Wales has been treated in an inferior sense. Its status has not matched that of Scotland or Northern Ireland. That is riddled throughout the Bill, nullifying its good and noble purposes. So it is with regard to taxation.

It has been said that we should wait until things sort themselves out and the Barnett formula is removed. Let us wait. It is a temporary stop-gap, as we were correctly told by the noble Baroness. Lord Barnett himself explained what a very bad idea it was, because it was designed to plug what was thought a short-term problem in, I think, 1978, when the distinguished noble Lord, Lord Morris of Aberavon, who is sitting in front of me, was in Cabinet—if I am wrong he can contradict me. Like other stop-gaps, it has survived the decades. It looks remarkably healthy for a stop-gap. A proposal to wait until the Barnett formula is resolved is a way to put off a decision completely. I very much hope we will not have a referendum and that we will bring to further completion the process of democracy in Wales.

Photo of Lord Crickhowell Lord Crickhowell Conservative

My Lords, I find myself agreeing with the noble Lord, Lord Morgan, on the subject of referendums and, indeed, with the noble Lord, Lord Wigley. I hope Clause 17 will stay part of the Bill. It would be particularly unfortunate to remove it when, as I pointed out at earlier stages, we still do not know what the financial arrangements will be. My noble friend has helpfully pointed out that we hope to know more about that before Report. In all the circumstances, it seems an extraordinary proposal that we should remove Clause 17. I hope very much, for the reasons given by the noble Lords, Lord Wigley and Lord Morgan, that it stays as it is.

Photo of Baroness Randerson Baroness Randerson Liberal Democrat Lords Spokesperson (Transport)

My Lords, the powers on income tax are one of the most important aspects of the Bill. As the Minister knows better than I, the Silk report recommended a referendum as a compromise on income tax. There were those members of the commission who were very keen for the Welsh Government to have those powers and those who were not keen at all. The compromise position was that they should have the powers, but only after a referendum. I am sure the Minister will correct me if I am wrong—otherwise, I am equally sure, he will remain discreetly silent on the issue.

However, the devolution story has moved on a very long way since that recommendation. We have had the Scottish referendum, the St David’s Day agreement, and, as the noble Lord, Lord Murphy, reminded us, the previous Wales Act, which I took through this place. So a referendum requirement is well out of kilter with the times. Forgive me: along with several other noble Lords who have already expressed their views, I am a little out of love with referenda. They do not always answer the question on the ballot paper.

I also remind the noble Lord, Lord Murphy, that powers over income tax could possibly mean that income tax could go down as well as up, or that the Welsh Government could choose to do as the Scottish Government have done for nearly 20 years: to have that power but not to vary the rate of income tax. But there are many reasons associated with the principle of powers over income tax that make it essential that the Welsh Government are given those powers.

There are reasons associated with certainty and transparency. The Welsh Government have evolved from being a purely executive body within the Assembly to being a full legislative body. As those powers have developed, they have lacked the right to levy taxes generally. Gradually, in the previous Wales Act, they were given some of those powers. Clause 17 would increase them.

Along with many noble Lords here, I hope that the Assembly will exercise the power that the Bill gives it to call itself by whatever name it wants and will choose to call itself the Welsh Parliament. I very much want a Welsh Parliament—but a Parliament has to have tax-raising powers alongside its executive and legislative powers.

In the next group of amendments, we will look at greater borrowing powers. In life, in order to borrow money, one has to have a way of paying it back. It is therefore only logical that the Welsh Government and the Assembly are given the power to vary income tax. It is essential that the Welsh Government stop shying away from responsibility for their income and from full-blown power and control over its activities. We have to come to the day when the Welsh Government no longer blame the UK Government for everything.

Photo of Lord Kinnock Lord Kinnock Labour 4:00 pm, 7th November 2016

My Lords, in a tiny way this is a historic occasion: it is the first time in my recall that I diverge ever so slightly from the view of my noble friend Lord Morgan, and it is on the issue of the relevance and applicability of referendums. It is clear from what several noble Lords have said that bruises are borne as a result of the fact that we in this country having recently been through a referendum—indeed, I have not only bruises but scars to show for the experience. Nevertheless, the reality is that in a parliamentary democracy referendums are justifiable when there is a proposal to change the way in which we are governed.

That was the basis for the justification of the 23 June referendum, just as it was for those of us who campaigned for a referendum on entry to the European Communities and those of us who campaigned for referendums on Scottish and Welsh devolution back in 1979 and greeted with satisfaction the proposal in the 1990s that referendums should determine whether a Welsh Assembly and a Scottish Parliament were introduced. The same joy stirred our hearts when we saw an enacted proposal for referendums to determine whether major conurbations in England should have elected mayors. I use these references only to demonstrate the realism and the relevance of using referendums when there is a proposal to change the way in which a democracy or part of a democracy is governed.

Such is the case if there is a proposal to offer to the Welsh Assembly the power to levy income tax. That would profoundly change the way in which Wales was governed. It is on that basis that there is a straightforward justification for a referendum on such a fundamental constitutional and economic decision that has immense social, commercial and personal implications for every family, every community, every business and every employee in the whole of Wales.

Left at that, it could be dismissed as an academic, almost arcane argument—but it is not. It is much more prosaic than that. I join with my noble friends in objecting to the removal of the undertaking to give a referendum on the issue of the introduction of income tax-raising powers for the Welsh Assembly. That undertaking was not only given by several political parties representative of and represented in Wales, it was the subject of statute. It remains the subject of statute unless and until this Bill is enacted. For many years—indeed, decades—most political parties offered to the people of Wales the utter reassurance that they would have the final determining word on whether the elected Welsh Assembly is to have the power to levy income tax. Clause 17 should be removed from the Bill to ensure the continuity and integrity of those previous, voluntarily offered undertakings to the people of Wales.

There is a further consideration: we have a model to consider. It has been referred to already. It is, of course, the fact that the Scottish Parliament, from its inception, has had the power to vary income taxation in Scotland and has never seriously considered—let alone debated or proposed—in any formal manner such a variation. Why is that? Because of the utter unacceptability and impracticality of such an idea, even for a substantially devolved institution in a unitary state. I will certainly give way in a moment but will just finish this particular reference. The proposal that the Welsh Assembly should have this additional power in the absolutely certain and cynical knowledge that it would not be exercised is like offering me a car with the capacity to travel at 200 miles per hour and I buy it in the knowledge that the speed limit in the United Kingdom is 70 miles per hour.

Photo of Lord Hope of Craighead Lord Hope of Craighead Convenor of the Crossbench Peers

It might be helpful to recollect that when the referendum on devolution took place in Scotland, there were two questions. One was on the principle of devolution but the other was whether a devolved Assembly, as it was called in those days, should have tax-varying powers. That was separated out in the case of Wales but in Scotland, where I was, we had a vote on both at the same time. On exactly the point that the noble Lord was making, we had the democratic decision with a substantial majority that the Assembly, as it was then called, should have tax-varying powers. We got it all achieved in one.

Photo of Lord Kinnock Lord Kinnock Labour

I am grateful to the noble and learned Lord. At the time, I almost rejoiced in the full implementation of the long-standing Labour Party policy—developed under my leadership, as it happens, on the basis of continued representation from my comrades in Scotland—that a specific opportunity should be given to the people of Scotland to decide on that issue. Equally, and with substantial force, there were representations from Wales that that offer should not be made. Influences, parties and opinions in Wales suggested that that should not be the case. But their views were set aside—while undoubtedly being recognised and respected, as is our manner in Wales—and the issue was never put, and it never generated the merest scintilla of a spasm of objection.

Almost on the contrary, at that time in the 1990s and at this time in the second decade of the 21st century, there was and is no evident support among the public for the idea of income tax-raising or income tax-varying powers to be allocated to the Welsh Assembly. In this era, when all of us, if we have any sense at all, must be aware of the feeling of distance that exists between the general electorate and those who are elected to govern them, we should be sensitive to the idea that when there is no measurable support for a proposition that is as significant as the varying of taxation powers, and yet the recognised elected authority and the Executive go ahead and grant that power, on the best day it will be greeted as an irrelevance. On a less good day, it will be greeted with cynical dismissal.

Photo of Lord Crickhowell Lord Crickhowell Conservative

The noble Lord said that it was a great constitutional change and dismissed the argument advanced—I thought very convincingly—by his noble friend Lord Morgan about the unsuitability of the question to be put in a referendum. However, will not the Welsh Government, or parties in the Welsh Assembly, have to put before the electorate the proposal in their manifesto that they will introduce or intend to introduce or change taxation? If they do so, will they not afterwards face the judgment of the Welsh electorate if the electorate disagree with what they have done and the way they have done it? Surely, therefore, we have a constitutional arrangement that allows the Welsh electorate to make their judgment both before and after a general election.

Photo of Lord Kinnock Lord Kinnock Labour

I agree with the noble Lord. Certainly we have not only a constitutional but an electoral arrangement, which is of at least equal relevance. We speak of course in 2016, the year in which—indeed, just a few months after—an election of a new Assembly took place in Wales. I do not recall any proposition from any party—outside Plaid Cymru, which has been entirely and honourably consistent in its proposals—that said, “If you elect us, we will work to ensure that the United Kingdom, in a change of legislation, will allocate to us the power to vary income taxation in Wales”. I know that that is a political point, but it is worth taking into account. On this central issue of accountability, I noted what the noble Lord, Lord Wigley, said when he advanced the idea that the allocation of powers to the Welsh Assembly to levy and vary income tax would enrich accountability in Wales. I say to him, and in part I respond to the noble Lord, Lord Crickhowell, that accountability must relate not to abstract, desirable, mooted, arguable or deluded powers, but to exercisable powers. What we see in Scotland is a myth of accountability. When they have the power to vary taxation, as they have had for the best part of 20 years, and have not even begun to consider the implementation of such powers I simply do not see how accountability—the central principle of democracy—is enhanced by having a power but never exercising it, and never daring to exercise it. Where is the enhancement of accountability there?

Photo of Lord Hope of Craighead Lord Hope of Craighead Convenor of the Crossbench Peers 4:15 pm, 7th November 2016

Perhaps I might correct the noble Lord on a point of slight detail. The Scottish National Party, which is the governing party in Scotland, has made it clear that it intends not to follow the Chancellor of the Exchequer in England on the level at which the 40% tax rate comes in. I think that the proposal in England, and indeed in Wales for the moment, is that there should be a rise of that level at which 40% becomes payable. The Scottish Government have said that they are not prepared to go along with that, so for the Scots the level will remain as it is at present. I grant the noble Lord that this is under a different power which has been given in a later enactment but to say that there is no desire by the governing party to make changes is a little excessive, with great respect.

Photo of Lord Kinnock Lord Kinnock Labour

I accept the point entirely. I can respond to it only by saying that I await, without bating my breath, for the implementation of this proposition. I can see the attractiveness of it, especially to a party which is self-confessedly populist and has gained great strength by means of offering simple answers to complex questions. That has served that party well for several years—astoundingly well. I await that exercise of the variation under the supplementary powers granted to them and on that occasion, I will withdraw all speculation about Scottish inclinations to vary taxation powers.

Photo of Lord Wigley Lord Wigley Plaid Cymru

The noble Lord very kindly talked of our consistency on these matters; I also respect his consistency on them from 1979 onwards. Can I press him on the point that he made about exercisable powers? The next bank of amendments will talk about a new exercisable power to have a capital investment fund. Without some ability to vary taxation, how does the noble Lord square that circle or does he not support the demand for a greater capital expenditure fund?

Photo of Lord Kinnock Lord Kinnock Labour

I say to the noble Lord, Lord Wigley, who I respect greatly, that it would be—without oversimplifying this—on the same basis as borrowings are undertaken now. He will know of the generous and immensely useful support given to a variety of projects in Wales by the European Investment Bank. Nobody has required the allocation of tax-varying or tax-raising powers to the Welsh Assembly to enable that support. Since there is also a guaranteed income for the Welsh Assembly—inadequate and stunted by the application of the Barnett formula, as he and I would agree—but nevertheless significant, as he and I would agree, nobody lending money for major capital investment projects in Wales, within reasonable limits and according to the required fiscal disciplines, should worry about it because they will be guaranteed a return on their investment. It is not necessary to add to the obligations of the Welsh Assembly to facilitate that—within limited confines, as I say. I will give him an example, which I will pluck out of the air.

If, for instance, a sensible proposal was made for establishing a link between Rhoose international airport and the main train line from London to Swansea, I would certainly support it, or, indeed a spur road from the M4 or even a direct road from the A48 into Rhoose airport in order to enhance the attractiveness of this major infrastructure advantage, substantially, and rightly, supported by the Welsh Government. There is no reason why a guarantee of return on the investment should not be made by the imposition of a small toll on the road or the railway line. It is not unprecedented across continental Europe. If we want to know how successful such arrangements can be, the noble Lord only has to look that the second Severn crossing. A huge capital sum, vastly in excess of anything that would be needed to link Rhoose airport, has been paid off with in, in my view, excessive and unfair impositions—I am speaking of the degree, not the principle. The same thing could be done elsewhere. I am not advocating it; I am simply saying that there is a variety of ways of guaranteeing a reasonable return on long-term capital investment without requiring the allocation of fund raising through income tax-raising powers for the Welsh Assembly.

If this removal of a requirement for a referendum is to have a real justification, it has to have evident support from people across Wales. They have expressed no significant demand for, or preference for, the further allocation of such a power to the Welsh Assembly. The maxim employed earlier by the noble Lord, Lord Wigley, which was coined by a Welshman at the time of the American Revolution, “No taxation without representation”, bears an addition in this century. It is: “No further allocated powers of taxation without at least consultation, without at least deliberation, without at least endorsement and, finally, without at least agreement”. That brings us back to the referendum because where there is an absence of demand for this change in the way in which the people of Wales are governed, there has to be a supreme additional justification for allocating a power that is not only not demanded but that we have every reason to assume would not be exercised, a power that would not lend itself to extra accountability or enhance transparency or enrich democracy. I wait to hear from the Minister a justification of the dismantling of the undertakings previously given by all parties and enacted for a referendum as a prerequisite of the allocation of income tax-raising powers to the Welsh Assembly.

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat Shadow Attorney General

My Lords, I wonder whether I can assist the noble Lord, Lord Kinnock, in his final question by telling your Lordships about my brother-in-law, who is Welsh, but who has lived in Aberdeenshire since the 1970s. In 1979, like the noble Lord, Lord Kinnock, he was wholly against devolution to Scotland. In 1998, he had not changed his mind, unlike the noble Lord, Lord Kinnock, and in the referendum he voted no to devolution to Scotland, but yes to tax-raising powers if a Parliament should be formed. At the time, we thought this was slightly odd. But what he was saying was that you should not have a parliament unless it is accountable—fully accountable. That is the point.

A lot of water has flowed under the bridge since the Welsh Assembly was constituted, and the Labour Party has, one way or the other, exercised power in Cardiff since its inception—it still does. The purpose of a proper Government is to raise taxes and to spend them, and to be accountable to the people from whom they raise those taxes as to how they handle their money. It is a perfectly simple proposition, but for the last 20 years, we have heard from the Labour Government in Cardiff that if they are incapable of providing adequate services in Wales—for example, in the health service or in education—it is because they do not have enough money sent to them from Westminster.

It does not require a referendum now. The reason why a referendum was provided for in the last Bill and why it appeared to be a good idea was that we were following the Scottish practice of 1998. But we moved on; devolution has moved on. We were tired, as my noble friend Lady Humphreys said, of the excuse that we are failing as a Government because Westminster does not give us enough money. It is time that income tax is devolved to Wales and that proper accountability should occur.

Photo of Lord Howarth of Newport Lord Howarth of Newport Labour

My Lords, I will briefly emphasise a point strongly implied by my noble friend Lord Kinnock but perhaps not yet made fully explicit in this debate, which is that there is an issue here about trust between people and their politicians. As has been noted, the Labour Party, the Conservative Party and others have promised a referendum on this question of income tax-varying powers over many years. Indeed, if I am not mistaken, it was a manifesto pledge by the Conservative Party at the last general election, and we need to look at that question of whether it is acceptable and politically prudent for a Government to slide away from a manifesto commitment that was so very clearly made.

I understand, and in large measure agree with, the point made by my noble friend Lord Morgan about the unsuitability of the referendum as a device for resolving technical and complex political issues. I also accept what has been said about income tax-varying powers being a mark of the maturity of the Welsh Assembly, which may call itself a Welsh Parliament. It is desirable in principle that a parliament should have those powers and be held accountable to the people on whom it would propose to levy income tax. It is perhaps desirable that these powers should be created, but one must also recognise that if the people of Wales are asked in a referendum whether they favour the introduction of powers that they would anticipate will be used to raise income tax, they might well say no. Taxable capacity in Wales is decidedly limited, and people on the whole do not vote for higher taxes. But none the less, if they have been offered the opportunity to make that choice for themselves, it may well be rash and improper to take that choice away from them.

The alternative will be that this legislature will impose on Wales an income tax-varying power for the Welsh Assembly. It has been assumed in this debate that that power to raise income tax would be most unlikely to be used in the foreseeable future. But I do not entirely share that confidence, because we have no long-term fiscal framework and no settlement. The Barnett formula has not been reformed, and I agree with those who have said that to wait to move on this until that formula is fully and satisfactorily reformed is to wait for ever. It is not beyond the bounds of possibility that, after 2020, we could see a future Government of the UK reducing the block grant for Wales—indeed, if the Government have their way in this Bill, we will see borrowing powers for Wales very severely curtailed—and in those circumstances Wales would need to increase the proceeds of income tax and to use those powers.

We should come clean to the people of Wales. They should be offered a package. They need to know what the future fiscal framework will be. We need to see the reform of Barnett, and to see the structures of funding and transfer payments across the UK clarified and in place. We need to know what the scope for borrowing will be, taking into account the possibility that interest rates will be higher and that it may not be at all easy to service that borrowing. In that context, the people of Wales should be allowed to take the decision about whether or not they wish to be made subject to an income tax-varying power exercised by their own legislature within Wales.

Photo of Baroness Morgan of Ely Baroness Morgan of Ely Shadow Spokesperson (Wales) 4:30 pm, 7th November 2016

My Lords, I was 12 in 1979 when we had the first referendum on whether we wanted devolution to come to Wales, and I have had a little taster this afternoon of what it must have been like during that campaign. But we have had a different result from that in 1979; the Assembly has been established for 19 years and it is maturing and developing.

I thank my noble friends Lord Murphy and Lord Hain for tabling this amendment because this issue is worthy of debate. I am afraid the people of Wales were told when we established the Assembly that we would put the issue of income tax-varying powers to them in a referendum. We have heard today what a risky business referenda are; I concur—I also have the scars from the recent referendum—and, let me tell you, I am no longer a fan of referendums.

It is worth repeating the question asked by my noble friend Lord Murphy: what has changed since the last Bill that the noble Baroness, Lady Randerson, brought through the House, and what is the difference between that Bill and this one? What has made the Government change their mind on this issue? It is worth drawing attention to the fact that Wales is not a rich country. My understanding is that only about 6,000 people in Wales pay the highest rate of income tax, those who earn over £150,000, while only one in 16 pay the 40p higher rate of income tax. We are not talking about people that it is easy to tax, so it is worth remembering and understanding that this is not going to be a power that is easily exercisable.

However, I beg to differ with my colleagues on this issue, because times have changed. As the noble Baroness, Lady Randerson, said, the Assembly has moved a long way during those 19 years. On top of that, we have the issue of austerity. The IFS said recently that, by 2020, there will have been an 11% cut since 2010 in funding coming to Wales. That is hitting some of the poorest members of our society. Austerity is hitting not only our revenue budgets but our capital budgets. It is all very well to talk about borrowing money from the European Investment Bank, but we do not even know whether we will be able to access that kind of funding in future.

Why do I support the amendment? I support the amendment because, at this difficult time, borrowing against this income stream will be essential if we want to invest in our infrastructure in Wales. There is demand for better infrastructure. People want improvements in Wales. That demand is there. However, it is important to understand—we will come to this in the next amendment—

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth The Parliamentary Under-Secretary of State for Communities and Local Government, The Parliamentary Under-Secretary of State for Wales

I am grateful to the noble Baroness for giving way. I do not think that she is speaking in favour of the amendment; she might want to clarify that.

Photo of Baroness Morgan of Ely Baroness Morgan of Ely Shadow Spokesperson (Wales)

I am not speaking in favour of the amendment because of the next amendment. We need an increase in the borrowing powers because of the funding stream and the devolution of taxation. That is critical to investment in Wales.

We know that the Welsh Government and the UK Government have an understanding and that there will be an agreement on the fiscal framework before we enter the next phase of the Bill. It is important that, in that fiscal framework, we have an offset to the block grant in return for that tax revenue. We need to see how that offset will interact with the Barnett formula, and we need the funding floor to be made permanent. It is critical that we should not accept a situation where Wales will be materially worse off as a consequence of devolving taxation. That would not be good for the people of Wales.

We expect the Minister to negotiate that with the Finance Minister in the Assembly, but can he can assure us that that fiscal framework will be resolved before we have an understanding? We will come in the next amendment to the amount that may be borrowed, but can he assure us that we will be able to have an increase in borrowing powers as a result of the fiscal autonomy that will be coming to Wales.

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth The Parliamentary Under-Secretary of State for Communities and Local Government, The Parliamentary Under-Secretary of State for Wales

My Lords, I thank noble Lords who have participated in this debate. For the sake of clarity—I correct myself as well—this is a clause stand part debate rather than a debate on an amendment to Clause 17.

I thank the noble Lords, Lord Murphy and Lord Kinnock, for moving and speaking to the Motion that the clause do not stand part. I disagree with their intent. As the noble Lord, Lord Murphy, said, we have been here for nearly 20 years since the first successful referendum in 1997. Circumstances massively changed in that time, as the noble Baroness, Lady Morgan of Ely, said.

Let me try to deal with some of the points. Circumstances have changed since the Silk commission’s first report. The noble Lord, Lord Wigley, has been consistent on this topic, as has the noble Lord, Lord Kinnock. I confess that I have not. I am more like the brother-in-law of the noble Lord, Lord Thomas of Gresford: I have changed my mind on some of these issues. I should set that out first. In the Silk commission, all four parties recognised the need for income tax powers for the National Assembly for Wales. If it was to become a full legislature in the proper sense, it was accepted that it needed income tax powers. Some noble Lords have used the phrase as if it meant all income tax powers; of course, it does not; some income tax powers remain with the United Kingdom. We should make clear that this is not transferring all income tax powers; it is transferring some. It is a significant change, I agree, but the suggestion made by the noble Lord, Lord Kinnock, for example, that it is a fundamental, apocalyptic change to the way things happen but that it will not be exercised is somewhat inconsistent. It cannot be both apocalyptic and not be used.

I very much hope that it will be used. We cannot necessarily draw conclusions from what has been happening in Scotland. I hope that the National Assembly for Wales will be more imaginative. I was there for 12 years, and there was evidence of a lot of free thinking on many issues, not least in this area, so I do not accept that the power will not be used. We must realise that it is a limited power; it is not transferring all income tax powers to Wales.

I agree with the points made by the noble Baroness, Lady Humphreys, and the noble Lords, Lord Wigley, Lord Crickhowell and Lord Morgan, about circumstances having changed, that perhaps we make use of referendums too freely, and that they are not always appropriate. I feel that if we were to insist on a referendum, it is arguable that we would be holding Wales back. In some quarters—I certainly exempt the noble Lord, Lord Kinnock from this—it is being put forward as a means of trying to defeat the proposal or slow things down. We would not be doing Wales a great service if we did that. This is a power for a purpose, as was identified by the Silk commission. It is bringing in accountability. It is making what I hope becomes the Welsh Parliament, in name as well as reality, a real Parliament with this element of tax-raising power on income tax.

Photo of Lord Kinnock Lord Kinnock Labour

I asked the noble Lord for justification of the change in the law that would be implied by the enactment of the Bill, and he seems to suggest that times have changed and that the Silk commission has made recommendations. Does he believe that times have changed enough to give the Welsh people a real appetite for their Assembly to have the power to impose income tax additions? Does he think the Silk commission was really so conscious of the true economic condition of Wales and the distribution of incomes, referred to by my noble friend Lady Morgan, that it would permit a change that altered the law, removed the requirement for a pre-income tax allocation referendum and justified the introduction of new law? I do not think times have changed that much.

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth The Parliamentary Under-Secretary of State for Communities and Local Government, The Parliamentary Under-Secretary of State for Wales

My Lords, I disagree with the noble Lord on this point. I remember the same argument being put forward when we had the 2011 referendum. People were saying that it would not pass and that opinions had not changed in Wales. I remember people on my own side arguing that it would be defeated in all parts of Wales, up and down the country. That did not happen. It was won decisively in every local authority bar one—Monmouthshire, where it was marginally defeated. Do I think that circumstances have changed so that we do not need a referendum? Yes, I do. The noble Baroness speaking for the Labour Party thinks similarly, as do the other political parties. There is probably one political party that does not think that—UKIP—but I disagree with it. Opinion has changed and we would be doing Wales a massive disservice by having a referendum that I do not believe is necessary in the changed circumstances of devolution in 2016.

Photo of Lord Kinnock Lord Kinnock Labour

Does the noble Lord recognise that to justify his contention about the movement of opinion in Wales, he referred to the 2011 referendum? Does he not consider that that makes my point for me?

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth The Parliamentary Under-Secretary of State for Communities and Local Government, The Parliamentary Under-Secretary of State for Wales

No, it does not. Rather the reverse, it showed that opinion in Wales had changed much more than people thought. The noble Lord put a fair question to me: whether I thought that opinion had changed in Wales such that we did not need a referendum. I hope I have given a very fair answer. It is a truthful one—I think opinion in Wales has changed to that degree.

Arguments were put on various issues in relation to this, not least in the area of borrowing. I agree again that, to have significant borrowing powers, there has to be a separate stream of revenue. This would present a separate stream of revenue, and even if the income tax rates were retained exactly as they are in England, it would give that separate rate of revenue. So, there is that as well. I know that we are coming on to a subsequent amendment on this issue. In view of the fact that I do not believe that this change is necessary and the strength of opinion from noble Lords around the Chamber, I urge the noble Lord to withdraw the amendment.

Photo of Lord Crickhowell Lord Crickhowell Conservative

On a point of detail, it was suggested that there was a Welsh Conservative manifesto commitment. I have taken the trouble during the debate to read the Welsh Conservative manifesto, which I confess I had never read before, and there is no such commitment.

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth The Parliamentary Under-Secretary of State for Communities and Local Government, The Parliamentary Under-Secretary of State for Wales

My Lords, I am most grateful for that clarification. I do not think I had read it either. It is always useful to hear these things from someone who speaks with authority, and I thank my noble friend very much. Of course, I am not urging noble Lords to withdraw the amendment; I am just urging that the clause stand part of the Bill.

Photo of Lord Murphy of Torfaen Lord Murphy of Torfaen Labour

Obviously, I shall not oppose the clause standing part, but I shall make two points in response to the debate. First, I have never felt particularly deprived as a Welsh taxpayer and citizen by not having extra income tax for Wales. In the 30 years that I represented a Welsh constituency, not a single representation was made to me about this issue. In the five years when I was Secretary of State for Wales, not one Welsh Minister ever made representations to me about the need for income tax. However, the issue is not about the need for income tax—it is about the need for a referendum. That is what this resolution is about.

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat Shadow Attorney General 4:45 pm, 7th November 2016

The noble Lord seems to think that this is about additional income tax but we are talking about tax-varying powers. They could go up or down or they could stay the same, but they would give a separate stream to the income of the Welsh Assembly, which would assist in borrowing. What disappoints me in the Minister’s reply is not to hear some idea of the fiscal framework. I wonder whether the Welsh Government have ever put forward a variation on the Barnett formula. We all oppose the Barnett formula in one way or another, but I have never heard the Welsh Government suggest an alternative way in which to raise money, other than the Barnett formula. Can the Minister say something about the broader picture?

Photo of Lord Murphy of Torfaen Lord Murphy of Torfaen Labour

I had not quite finished my remarks—I thought the noble Lord was intervening on me. The issue is about the principle of a referendum. Right from 1997, the people of Wales agreed on a devolution settlement. In 1979, my noble friend Lord Kinnock and I disagreed with the idea of a Welsh Assembly. Twenty years later, we agreed with it—and, as the Minister himself said, in 2011 there was a referendum to change that settlement. I approved of it, I agreed with it and I supported it. That gave legitimacy to the change, because at the end of the day the people of Wales agreed.

I suspect there has been a change in the past 18 months because, after all, this is about a change in the current law. It is not about introducing something but about abolishing something: the right of the people of Wales to have a referendum on income tax. My guess is that it has nothing to do with the spread of devolution or the other issues to which the Minister referred; it is about their thinking that they would not win it. But the principle of the referendum would give it that legitimacy. Indeed, if the Government and others thought it would be hugely popular, what is wrong with a referendum on it? If we had one on the powers, we can have one on income tax. The Minister has not explained why the Government have changed their mind about the principle of a referendum in under two years. That is a pretty rapid change, and there must be other reasons lying behind the Government’s views. At the end of the day, if the people of Wales want income tax variation—and, by the way, it is not extra money. I reject that idea; I do not think for one second that any income tax powers will produce a penny more for the people of Wales, because the block grant will be reduced. That imposition has been put on a country that is poorer than England. Having said all that, I shall not push this to a vote this evening.

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat Shadow Attorney General

In Committee, I think I am entitled to speak as many times as I wish. I apologise to the noble Lord, Lord Murphy, for interrupting him in full flow, but I still look to the Minister to give us some idea at this stage of how he sees it. What is the future fiscal framework? What does he have in mind? Will it be a deduction from the block grant, as the noble Lord, Lord Murphy, suggests, or will it not?

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth The Parliamentary Under-Secretary of State for Communities and Local Government, The Parliamentary Under-Secretary of State for Wales

My Lords, I am very happy to supply the information that I gave previously at Second Reading, when I said that I would update noble Lords, before Report, on the progress of the fiscal negotiations that are going on between the Welsh and United Kingdom Governments. As I indicated then, the discussions are progressing well. The ministerial Joint Exchequer Committee has met twice and, according to reports I have had from both the Welsh and UK Governments, it is going well. I am not all over the detail; it would be unwise to be so until they are nearer to a conclusion. There will obviously be a reduction in the block grant because 10p income tax will be raised at the Welsh level. So the discussion is about exactly how we do what is right for Wales and for the United Kingdom within that context. It is good news that progress is being made.

Photo of Lord Wigley Lord Wigley Plaid Cymru

I will press the Minister for clarification. Of course, if 10p is transferred over there will be a netting off, but if there is an increase of 1p in income tax there would not be a reduction in the block grant because of that.

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth The Parliamentary Under-Secretary of State for Communities and Local Government, The Parliamentary Under-Secretary of State for Wales

That is absolutely right. The National Assembly for Wales doing something imaginative to raise income will be to the benefit of the Assembly and of Wales. That is the whole point of what is going on. I take issue with the noble Lord, Lord Murphy, in suggesting that there is something sinister in the change of heart here. Other parties have had this change of heart; it is a recognition that we do not need a referendum. I suspect that many of the people urging it are hoping to delay things—I exempt the noble Lord from this—or, indeed, defeat it. That should not be the aim. The aim should be to do what is right for Wales. I strongly and sincerely believe that if we were to have a referendum, it would be carried.

Photo of Lord Kinnock Lord Kinnock Labour

On the issue of taxation levied on the people of Wales, will the Minister spend a moment explaining the logic, or lack of it, of a fiscal regime that has ensured, as he will acknowledge from his own experience, huge reductions in the public resources available to local authorities throughout Wales, with awkward consequences for some services and tragic ones for others? These include adult social care and post-16 educational opportunity. Where is the rationality in imposing such a fiscal regime nationally—for purposes I disagree with, but nevertheless that is the law of the land—and simultaneously introducing legislation that would, without a referendum, or further ado, allocate to the Welsh Assembly the power to vary, including raising, income taxes?

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth The Parliamentary Under-Secretary of State for Communities and Local Government, The Parliamentary Under-Secretary of State for Wales

My Lords, we are being taken in a direction completely off the particular provision in the Bill. As I made clear before, this is a power which, as the noble Lord has just indicated, would enable the National Assembly for Wales to vary income tax up or down, or to ensure that it stays the same if that is what it wants to do. I myself dislike the word “imposing” on the National Assembly or people of Wales. Discussions are going on between the Finance Minister and his team in the National Assembly for Wales—for whom I have the greatest respect—and the Chief Secretary to the Treasury and his officials. I believe that an agreement will be reached. If it is not, we do not get the legislation, because the LCM will only come forward if an agreement is reached to the satisfaction of the National Assembly for Wales, and presumably the Welsh Government as part of that. That will carry things through. I do not see that the local government position is anything to do with this.

Clause 17 agreed.

Amendment 24

Moved by Baroness Morgan of Ely

24: After Clause 17, insert the following new Clause—“Lending for capital expenditure(1) In section 122A of the Government of Wales Act 2006 (lending for capital expenditure), in subsections (1) and (3), for “£500 million” substitute “£2 billion”.(2) In section 161(2) of the Government of Wales Act 2006 (commencement), after “120(3) and (7)” insert —“section 122A(1) and (3),”.”

Photo of Baroness Morgan of Ely Baroness Morgan of Ely Shadow Spokesperson (Wales)

My Lords, to me this is one of the key clauses in the whole Bill. I have made no secret of my lack of enthusiasm for the way the Bill has been written, but we are now living in very difficult financial times. The IFS has claimed that there will be a 3.2% cut, in real terms, in the Welsh budget over the next three years. We have little confidence that the UK Government are going to make up the losses that Wales will face as a result of Brexit. The IFS has said that if they do not make up the losses, that will lead to a doubling of those cuts if EU aid is not replaced after Brexit. I am aware that there has been a promise until 2020, but nothing beyond that.

The devolution of tax powers through the Wales Act 2014 will also enable the Welsh Government to borrow in order to invest in capital infrastructure. That will benefit the economy and communities across Wales. The current level of capital borrowing permitted to the Welsh Government is £500 million. That is based on the devolution of two fairly minor taxes: stamp duty land tax and landfill tax. In the Command Paper published alongside the Wales Bill in March 2014, the UK Government committed to reviewing the level of capital borrowing available to Wales if income tax is partially devolved. This Wales Bill will result in the transfer of an additional £2 billion in tax revenue to the Welsh Government, and so will significantly increase the size of the independent revenue stream available to the Welsh Government. In line with the commitment given in 2014, the Bill provides an opportunity to give Welsh Ministers a more meaningful degree of borrowing power to reflect the significant increase in devolved tax revenues under their control.

The Silk commission, of which the noble Lord, Lord Bourne, was a member, recommended that the Welsh Government’s capital borrowing limit should be at least proportionate to the limit agreed for Scotland, taking into consideration the relative lack of exposure to PFI in Wales. With comparable devolved tax powers, the UK Government agreed a capital borrowing limit of £2.2 billion in the Scotland Act 2012. In line with the recommendation from the Silk commission, a capital borrowing limit of £2 billion would therefore be proportionate to that agreed for the Scottish Government, after taking into account the Welsh Government’s lower exposure to PFI. The UK Government’s position that a limit of £500 million is appropriate, as set out in the Government of Wales Act, is contradictory to the approach taken for the Scottish Government in the Scotland Act. At a time when there are significant economic uncertainties, the ability to bring forward additional capital investment would provide a much needed economic stimulus to Wales. With a capital borrowing limit of £2 billion, the Welsh Government would have the fiscal tools available to support the level of investment needed in Wales.

The Welsh Government and Assembly are anxious to grow up, but it is as if the UK Government still want to treat them like children, telling them how much money they can spend and that they are allowed to borrow only if they tell “daddy” what they are going to spend the money on. An increase in the Welsh Government’s borrowing capacity is absolutely critical, and I for one would find it very difficult to support the Bill without that increase. We understand that this will form part of the discussions on the financial framework, but we strongly recommend that both the Welsh Government and the UK Government come to an agreement on this critical area. I ask the Minister to give a commitment that there will be a revision of the amount that is currently in the Government of Wales Act.

Photo of Lord Wigley Lord Wigley Plaid Cymru

My Lords, I will speak briefly to Amendment 24 moved by the noble Baroness, Lady Morgan of Ely, which seeks to raise the limit on capital expenditure lending from £500 million to £2 billion. We touched on this issue in our debate on the previous group of amendments.

In the economic climate we find ourselves today, with further uncertainties ahead of us, it is more necessary than ever to have available to the Welsh Government a facility to boost jobs and stimulate growth by way of capital investment—in particular, in capital expenditure on infrastructure projects. Many expect the Chancellor to reflect that sentiment in his Autumn Statement later this month. The Bill imposes on capital borrowing the disappointing limit of only £500 million, which is not enough even to pay for the Welsh Government’s M4 relief road scheme—unless they were to adopt a more sensible route than that currently being advocated.

My party colleagues and I may disagree with the Welsh Government’s opinions on how to use capital borrowing, but we do agree that the National Assembly, as the body closest to the people of Wales, not Westminster, should decide how this money is spent.

As Plaid Cymru Leader Leanne Wood set out earlier this year, following the UK’s regrettable decision to leave the European Union, the £500 million limit on capital borrowing powers is much too restrictive. The deal, made almost four years ago, on this element of the Bill does not reflect the new economic context in which we find ourselves. We currently have historically low interests rates and we need to mitigate the impact on jobs and wages of any economic shock brought about by Brexit. Perhaps most critically, we have productivity levels that show no sign of improving. For this to change, most economists believe that we need a major increase in infrastructure investment.

I alluded in earlier debates to Plaid Cymru’s £7.5 billion national infrastructure commission for Wales proposals as a comprehensive and expansive strategy for investing in the infrastructure of Wales. I urge the Minister to read it. Schools, hospitals and vital transport links could all be developed through an effective use of capital borrowing. Therefore, although we would like to see no limit at all on the capital borrowing powers for Wales—that would be a responsibility for a responsible Welsh Government—or, if not that, a substantially higher one, this amendment is a step in the right direction and for that reason I support it.

Photo of Lord Crickhowell Lord Crickhowell Conservative 5:00 pm, 7th November 2016

My Lords, I am not sure that I know what the upper limit should be. However, I sympathise with the view of the noble Baroness who moved the amendment that the present limit seems on the low side. The Treasury has published a very useful paper setting out the allocations in England, Wales and Scotland. The noble Baroness referred to the comparison with Scotland. I would like to know the logic behind the Government’s views in setting this limit and the differences that appear in that Treasury paper. I will withhold my judgment until I have heard the case advanced by the Government.

Photo of Baroness Randerson Baroness Randerson Liberal Democrat Lords Spokesperson (Transport)

My Lords, undoubtedly £500 million is an anachronistic figure. As has been said several times this afternoon, devolution has moved on, and time has moved on. However, I draw noble Lords’ attention to another aspect of the Silk recommendations—namely, the fact that the report said that the borrowing limit should be subject to review at each spending review. Therefore, it is my view that, rather than putting a bald figure in the legislation, we need not just a figure but a mechanism in law which requires the regular review of that figure. Further, the Explanatory Notes should at the very least give some kind of rationale for how the figure was arrived at as the appropriate figure. I ask the Minister to address that issue in his reply.

Having said that, the key point is that borrowed money has to be paid back out of future spending—so the more the Welsh Government borrow, the more they eat into their spending capability in future years. I am rather cautious about this figure of £2 billion, because the Scottish Government have a right to borrow £2.2 billion. Therefore, to balance this properly, we need to look in great detail at other borrowing obligations that the Welsh and Scottish Governments have.

Given that the Bill clears the way for income tax powers, it is obvious to me that the £500 million figure needs to be looked at—but we need more clarity on the figure that is there and a proper mechanism for future revision.

Photo of Lord Howarth of Newport Lord Howarth of Newport Labour

My Lords, the figure of £500 million, set as the limit for borrowing by the Welsh Government, is so small as to be well inside the margin of error in any computation of UK Government borrowing. Will the Minister say what £500 million is as a percentage of the UK Government’s present borrowing requirement? To set the figure so low is contemptuous of Wales. With the powers to vary income tax devolved, the Welsh Government will have the capacity to service a higher level of borrowing, even if interest rates rise. I agree with those who have said that it seems very odd to fix a figure in legislation. Will the Minister also explain why that fixed figure of £500 million is in the Bill? I think that the Government should be more generous towards the people of Wales and allow them the opportunity to invest as they need for the future of the economy of Wales.

Photo of Lord Berkeley of Knighton Lord Berkeley of Knighton Crossbench

My Lords, if EU investment in south Wales suffers, as some of us fear it might, we could find ourselves with some very dire unemployment problems. Therefore, we will need every penny possible to reinvest in that area.

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth The Parliamentary Under-Secretary of State for Communities and Local Government, The Parliamentary Under-Secretary of State for Wales

My Lords, I thank the noble Lords who have participated in the debate on Amendment 24, and I thank the noble Baroness, Lady Morgan of Ely, for moving it.

The amendment seeks to quadruple the Welsh Government’s capital borrowing limit set in the Wales Act 2014 from £500 million to £2 billion. As the noble Baroness is of course aware, borrowing falls within the scope of the funding discussions between the United Kingdom Government and the Welsh Government that are proceeding alongside the Bill. As we know, the Bill cannot proceed without the legislative consent Motion, which is dependent on those discussions being successful.

I refer noble Lords to the communiqué published following the Joint Exchequer Committee meeting in September. The two Governments discussed the rationale for the existing capital borrowing arrangements and agreed to consider changing them. Therefore, I can give the noble Baroness the undertaking that she seeks, and I think it is consistent with what I said in the previous debate. It is unthinkable that the matter would not be raised. However, I think she will understand that I cannot give a specific figure. Indeed, the comments of the noble Baroness, Lady Randerson, perhaps indicate that we do not want to constrain the figure in case the discussions lead to it going higher than that. I have given noble Lords an undertaking, which I will repeat: ahead of Report I will give a summary of where we are on the fiscal discussions, which are going well—including, as I understand it, in this area.

As noble Lords have indicated, there are two key considerations in relation to the borrowing limit. The first is ensuring that borrowing is affordable for the Welsh Government. Of course, the transfer of the taxation powers that we have just been looking at will certainly help in that regard, as will the smaller taxes that have already been transferred. The second is ensuring that borrowing is appropriate within the funding arrangements for the United Kingdom as a whole. I am sure that those two points are being borne in mind during the discussions—which, as I said, seem to be going well.

In relation to Welsh Government affordability, as I have indicated, we need to ensure that the Welsh Government have sufficient independent revenues to manage their borrowing costs. As I said, the new taxation powers that are being carried forward by the Bill will help in that regard. In relation to the wider United Kingdom funding arrangements, it is important to recognise that, within any given fiscal position, additional Welsh Government borrowing will mean less spending in the rest of the UK, including in relation to some of the issues funded for Wales from United Kingdom taxation.

Those are the issues being looked at, and I can give two undertakings: first, we will not get the legislation without the LCM; and, secondly, I repeat the undertaking that I gave at Second Reading—I appreciate that not all noble Lords were here for that—to give a summary of where we are so that noble Lords will be aware of it ahead of Report.

I understand the points that are being made and I think all noble Lords who have spoken—the noble Lord, Lord Wigley, my noble friend Lord Crickhowell, and the noble Lords, Lord Howarth and Lord Berkeley—recognise the need for these powers in order that the Welsh Government can borrow. Of course, it is then for the Welsh Government to decide how they borrow and how they spend the money—that is within their devolved competence.

Given the undertakings I have given, I ask the noble Baroness to withdraw her amendment.

Photo of Baroness Morgan of Ely Baroness Morgan of Ely Shadow Spokesperson (Wales)

I thank the noble Lord for those undertakings. I was particularly pleased to hear that the amount could even go above £2 billion. We will certainly underline and take note of that. I beg leave to withdraw the amendment.

Amendment 24 withdrawn.

House resumed. Committee to begin again not before 5.55 pm.