PARLIAMENTARY DEBATES HOUSE OF COMMONS OFFICIAL REPORT

Welsh Grand Committee

SILK COMMISSION

Wednesday 5 February 2014 (Afternoon)

CONTENTS Silk Commission Resumption of general debate.

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The Committee consisted of the following Members:

Chairs: †MARTIN CATON,ALBERT OWEN

† Bebb, Guto (Aberconwy) (Con) Irranca-Davies, Huw (Ogmore) (Lab) Brennan, Kevin (Cardiff West) (Lab) James, Mrs Siân C. (Swansea East) (Lab) Bryant, Chris (Rhondda) (Lab) † Jones, Mr David (Secretary of State for Wales) Buckland, Mr Robert (South Swindon) (Con) † Jones, Susan Elan (Clwyd South) (Lab) Cairns, Alun (Vale of Glamorgan) (Con) † Kawczynski, Daniel (Shrewsbury and Atcham) Clwyd, Ann (Cynon Valley) (Lab) (Con) † Crabb, Stephen (Parliamentary Under-Secretary of Llwyd, Mr Elfyn (Dwyfor Meirionnydd) (PC) State for Wales) Lucas, Ian (Wrexham) (Lab) David, Wayne (Caerphilly) (Lab) † Moon, Mrs Madeleine (Bridgend) (Lab) Davies, David T. C. (Monmouth) (Con) † Morden, Jessica (Newport East) (Lab) Davies, Geraint (Swansea West) (Lab/Co-op) Morris, David (Morecambe and Lunesdale) (Con) † Davies, Glyn (Montgomeryshire) (Con) Mosley, Stephen (City of Chester) (Con) † Doughty, Stephen (Cardiff South and Penarth) † Murphy, Paul (Torfaen) (Lab) (Lab/Co-op) Newmark, Mr Brooks (Braintree) (Con) † Edwards, Jonathan (Carmarthen East and Dinefwr) Ruane, Chris (Vale of Clwyd) (Lab) (PC) Smith, Nick (Blaenau Gwent) (Lab) † Evans, Chris (Islwyn) (Lab/Co-op) † Smith, Owen (Pontypridd) (Lab) Evans, Jonathan (Cardiff North) (Con) † Tami, Mark (Alyn and Deeside) (Lab) Flynn, Paul (Newport West) (Lab) † Williams, Hywel (Arfon) (PC) Francis, Dr Hywel (Aberavon) (Lab) † Williams, Mr Mark (Ceredigion) (LD) † Griffith, Nia (Llanelli) (Lab) † Williams, Roger (Brecon and Radnorshire) (LD) Hain, Mr Peter (Neath) (Lab) Willott, Jenny (Cardiff Central) (LD) † Hanson, Mr David (Delyn) (Lab) † Hart, Simon (Carmarthen West and South Neil Caulfield, Fergus Reid, Committee Clerks Pembrokeshire) (Con) Havard, Mr Dai (Merthyr Tydfil and Rhymney) (Lab) † attended the Committee 37 Welsh Grand CommitteeHOUSE OF COMMONS Silk Commission 38

from Brussels there would be £1 billion less from London. Welsh Grand Committee There might have been a couple of things around the edges that would have been beneficial, but that was the Wednesday 5 February 2014 essence of it. It was not worth going to Brussels to get the extra money unless it was genuinely extra. The same applies to this argument about income tax. Unless we (Afternoon) can genuinely raise money with income tax, we should not burden people with having to go to a referendum to deal with that issue without knowing that they are [MARTIN CATON in the Chair] going to get more money in their coffers. If I were an Assembly Member, I would argue that if Silk Commission I could raise the income tax by a penny in Wales and that could bring in £250,000—my hon. Friend the Member 2pm for Pontypridd gave us some figures this morning—that Question again proposed, £250,000 could go specifically to cancer care or whatever That the Committee has considered the matter of the Government it might be. We would ring-fence it so that people would Response to Part 1 of the Commission on Devolution in Wales. know where their money was going. Those arguments pale to nothing if they are only about whether we can The Secretary of State for Wales (Mr David Jones): tinker a bit with the rates, and whether in years to come On a point of order, Mr Caton. I apologise to you and some extra money might come into the coffers from the Committee, because I obviously hoped to be here people who earn a bit more. It is simply not worth it. this afternoon, but as you probably heard at Prime I turn to a point on which I agree with the Government. Minister’s Questions there is to be a meeting of Cobra There is all-party support in the Committee on the issue at 2.15 pm, led by the Prime Minister, and I am requested of borrowing. I do not know why the Government of to attend. I hope that you and the rest of the Committee whom I was a member did not address it earlier. Perhaps will accept my apologies for having to leave. it was too early in the devolution process. Certainly no Government, particularly one at Welsh level, can manage The Chair: Thank you for that information, Secretary business properly without a borrowing function. This of State. I call Paul Murphy. morning, my hon. Friend referred to the great discrepancy between Scotland’s and Northern Ireland’s ability to borrow. The figure in the Bill of £500 million for capital Paul Murphy (Torfaen) (Lab): We all understand spending has no relationship to the borrowing ability the Secretary of State’s position. I have reached my of Scotland or Northern Ireland. For the life of me, I 65th birthday and find it incredibly cold in here. Perhaps cannot understand it, unless my bête noir, the Treasury, we could raise the heating, not necessarily through the has put down an arbitrary figure. speeches that we make, but through mechanical agency. I referred this morning to the Government’s proposals Northern Ireland, for which I was finance Minister on income tax in Wales. I repeat that I do not think they for two years, is half the size of Wales in every sense, but are worth a referendum. Referendums cost a great deal is able to borrow up to five times as much as we will be of money and are normally held to deal with great able to under the Bill, and it does not have the income weighty matters of state. When there is a proposal that streams from income tax that the Government are talks about locksteps, when the detail of the draft Bill is proposing for Wales. The devolution of minor taxes— utterly confusing and confused, and when it would not landfill tax, stamp duty and business rates—is good raise a single penny extra for the people of Wales, that news for Wales because they will give us an income makes it very hard to explain to people why they have stream, but it is right that the Assembly is able to vary to go out on a wet and cold Thursday night to vote in them according to the needs of the Welsh people. In favour of it. essence, £500 million simply is not enough. It is almost That takes me back a few years to 1999-2000, the first hardly worth it; it is the price of six flats in Mayfair. It is time I was Secretary of State for Wales, and we were ludicrous that Wales, with a population of 3.5 million dealing with the issue of objective 1 funding from the and a budget of £15 billion, will be able to borrow only European Union. Members of an advanced age will £500 million. Hon. Members may say, “Ah, but Northern recall that in those days the issue was not the fact that Ireland spends more money proportionally.” However, we had won objective 1 funding, which was a great that money is linked, first, to a large security budget, accolade for the Welsh people, but rather whether the and secondly, to the almost fictitious devolution of money that came from Brussels was going to be genuinely social security, which is effectively the same as Britain’s additional to the money being received from the then but is cosmetically run by the Northern Ireland Assembly. Labour Government in London. The Under-Secretary and his boss will have to go The argument raged. The Treasury officials, over-cautious back to the Treasury to argue the case, but the Treasury as they always are, were advising the then Chancellor, has got bigger fish to fry. It has got bigger things to my right hon. Friend the Member for Kirkcaldy and worry about than whether Wales can borrow £500 million Cowdenbeath (Mr Brown), that it would be impossible or £1 billion. It is nothing to the Treasury. It has to break the precedent, that the world would collapse become fixated by its obsession with precedents. The on top of them if they suddenly agreed that the objective reality is that there should be equality among the borrowing 1 funding would be on top of the funding that came functions of Wales, Scotland and Northern Ireland. from the block grant. For months they held that line, There is not, and that should be righted. There are saying that if, for the sake of argument, we got £1 billion battles to be fought. 39 Welsh Grand Committee5 FEBRUARY 2014 Silk Commission 40

The Parliamentary Under-Secretary of State for Wales 2.10 pm (Stephen Crabb) rose— Glyn Davies (Montgomeryshire) (Con): The issue is particularly important to me, because for eight years I Paul Murphy: I am not going to fight a battle with the served as a Member of the National Assembly and was Under-Secretary. I am quite happy to give way to him. involved in the governance of Wales, and for four years I have served here. That gives me a broad perspective on whereweare. Stephen Crabb: As ever, the right hon. Gentleman is making a good speech. He makes the point that there Today we are considering the Government’s response needs to be equality among the component parts of the to part 1 of the Silk commission’s report, but generally UK. Several times he referred to Northern Ireland the way in which Wales is governed is also part of the providing a benchmark against which to assess our debate. Perhaps I should give some context on the proposals for borrowing powers in Wales. However, as I thought processes that have led me to believe what I am sure he knows from his vast, distinguished experience believe now. of Northern Ireland, the functions of the Northern In 1999 we had a referendum on whether there should Ireland Assembly are quite different in scope from be a National Assembly at all. I was not in favour, and those of the Welsh Government. In particular, the Northern I tried to persuade the people of Montgomeryshire Ireland Assembly has the power to collect the equivalent not to vote for the Assembly, as it did not seem that a of council tax, business rates and other taxes, which in rational institution was being offered. I did not think England and Wales are the responsibility of local authorities. that it would have the powers to be a proper governing He is not comparing like with like. body; I just thought it would be a new administrative body without much point. That was my view then, but as soon as Wales voted yes, I took a completely different Paul Murphy: I understand that. This morning—the view. It was obvious immediately after the vote that we Under-Secretary can read my speech when he gets the would have a National Assembly for Wales and that, for opportunity, as I am sure he will on a dark Friday it to be a realistic body, it should have law-making and night—I talked about the fact that the business rate in tax-raising powers. I served on various bodies—community Northern Ireland is dealt with centrally by the Northern councils and district councils—and they all had tax-raising Ireland Assembly; I varied it when I was the finance powers. To have a governing institution without such Minister. But that argument is not sufficient to account powers or fiscal accountability seemed nonsensical. for the huge gap between Wales and Northern Ireland, which gets more than £2 billion and has half the population of Wales. It may account for some of it, but not all of Paul Murphy: The hon. Gentleman makes a valid it; it is about the Treasury again. The Treasury has a point. A local authority has a revenue-raising function, serious job to do, but I am not sure that it understands in that it can adjust council tax up or down or leave it devolution and how important it is that we have entered the same. That, however, does not affect the grant that a new political world. comes from the Welsh Government. Council tax is unaffected by the Welsh grant, which remains stable, so I used to meet the Chancellor of the Exchequer once what comes in from the council tax is over and above or twice a year, as all territorial Secretaries of State do, what comes from central Government. That will not to deal with the Budget, the autumn statement and necessarily be the case in the future. other issues. Lots of Whitehall Departments share the Treasury’s belief, and the job of the Wales Office is to disabuse them of it. We must ensure that they are aware Glyn Davies: I thank the right hon. Gentleman, but that we are in a different world and that devolution when I was the chairman of a district council finance has brought a different type of government to the committee, we had a fixed sum from the then Welsh governance of 10 million of our people. That has not Office, acting on behalf of the Government. The biggest been accepted. Although there are technical issues that debate of the year in the council, by a long way, was on have to be addressed, the politics is such that half a the level at which we set the rate. We would speak for billion pounds, in relative terms, is too little. That is probably four hours, arguing bitterly about an increase a criticism; nevertheless, I applaud the thrust of the Bill, of 1%, because the councillors had accountability to the which is that borrowing powers will be given to the rate payers. If they put it up by 2p, there would be an Welsh Government. The First Minister and all parties outcry in the local newspapers. There was therefore in Cardiff agree with that. pressure on the councillors to keep that rate down. We look forward to debate on the Bill on the Floor of the House, whenever it comes. We will discuss other Paul Murphy: Of course, and I understand that. I was issues that we will not be allowed to touch on today, once a chairman of a finance committee in Wales, too, such as the size of the Assembly, the length of the term, but I knew that if I put up the council tax by a penny, dual representation and so on. Those are all important, that would not automatically mean that I would lose but central to any Government institution is how it gets from the block grant. That could happen in this case. its money. Finally, I make the plea that we must have a resolution Glyn Davies: I do not accept that. I want to come to of the Barnett formula and the block grant, because the income tax later on, but there is a principle here, and relationship between that and anything raised by way of that is not the case. If the Welsh Government used their revenue will be critical to the future well-being of our power to raise or lower income tax, that would not people. Ultimately, whether decisions are made by MPs affect the block grant. It would be a decision to raise or or AMs, what matters is the services that people receive, lower rates within their 10%. It would not affect the particularly at times such as this. block grant. Transferring money from one institution 41 Welsh Grand CommitteeHOUSE OF COMMONS Silk Commission 42

[Glyn Davies] party. However, today the Opposition have pretty well completely torpedoed part 1 of the Silk commission to the other obviously would affect the block grant, recommendations, because the most important aspect because it would clearly reduce the amount of money of that was devolution of income tax. If that is not that travels by block grant, but that is just a straightforward going to go ahead, Silk 1 looks dead in the water, way of establishing financial accountability and tax-raising completely torpedoed by what seems to me to be the powers for the Welsh Government. changed position of the Opposition.

Owen Smith (Pontypridd) (Lab): Perhaps the Minister Roger Williams (Brecon and Radnorshire) (LD): The will clarify this later, but I think that the hon. Gentleman hon. Gentleman will have served in the Welsh Assembly misunderstands what is proposed, which is precisely with Sue Essex and Jane Davidson, and I am sure he what my right hon. Friend the Member for Torfaen will agree that they must have been very disappointed says. Any additional moneys raised through putting up by the words of the shadow Secretary of State for Wales a Welsh rate in Wales would be netted off the block today. grant and indexed against any increase in the revenues provided to Wales compared with England. That is what Silk proposed and what the Conservative-led coalition Glyn Davies: I thank the hon. Gentleman for that has accepted in the Bill, so the situation is precisely as comment. I was genuinely surprised by the tone of the my right hon. Friend describes. Opposition today on this issue. It was clearly an orchestrated tone, because several Members took the same view. The Glyn Davies: I simply do not accept that interpretation. Trojan horse started it, and there were other comments. I, too, look forward to the Minister’s response when It is pretty clear that there has been a discussion about he is clarifying the matter for the shadow Secretary of it. I am not sure whether all Opposition Members have State. agreed. [Interruption.] That, too, is an interesting comment. I want to go back to where I was before I was derailed There has clearly been discussion in the Conservative a little—the context of the matter. In the mid-1990s, we party, and there will be more. It is right that there moved to give law-making powers to the new institution, should be. We should discuss various aspects of how and every party was of the view that it had to have some the Silk recommendations will go forward. That is the financial accountability. As a lot of people giving evidence serious, adult way to progress, not to dismiss completely to the Welsh Affairs Committee said, when there is the main thrust of the report and torpedo it. Perhaps I anything that might be deemed favourable, the Welsh should not have used the word “discussion”; I would Assembly Government say to the Welsh people, “Aren’t like to have been a fly on the wall when the matter was we wonderful?” When anything is unfavourable, they discussed, because the Labour party’s orchestrated view blame the Westminster Government for not giving them is clearly that it wants to torpedo Silk at this early stage. enough money. We have to get to a position where there I cannot see how Silk can possibly recover from the is a debate within the National Assembly for Wales blow that has been dealt it today. about balancing off the amount of money it raises against the amount of money it spends. To my mind, Hywel Williams (Arfon) (PC): For clarity, will the that is crucial. hon. Gentleman tell the Committee what he thinks of At one stage, I was the finance spokesman for the the lockstep proposal? Is there unity on the Government Conservative party in the National Assembly. We had Benches on that matter? a budget annually, although I would not use the term “budget”. I always used the term “spending plan”, because it was not raising any money. It was a straightforward Glyn Davies: There are issues to consider relating to spending plan, and to my mind it was dealt with pretty income tax. I will come to that issue now—I was going quickly. The first year, it was potentially a budget and to come to it later. To me, that is the key part of the Silk there was a big debate, but it has become much more commission’s recommendations. I know that there has relaxed and casual, because does not raise any money. It been debate, and I have said publicly that I would have is not really a contentious issue. preferred there not to be a lockstep. However, I still I believe, and I thought all parties agreed, that we think that giving the Assembly the power to levy income need to move to a position of financial accountability tax without a lockstep is a big step forward. What I for the National Assembly. That is one of the two would then have done—we could still do it—was to reasons why the Silk commission was established. ensure that if the referendum went forward there was a The first was to deliver fiscal accountability to the degree of flexibility in the question. That might have Assembly and the second was extend more powers. I enabled us to return to the issue at a later date without a thought that there was a measure of consensus and referendum. That is the proper way to make an important agreement about that. When we dealt with the matter in change in how we govern Wales. the Select Committee, there seemed to be a fair measure Within each party there will be different views, and of consensus. there is nothing wrong with that if one has been open Clearly, there are going to be areas for discussion. and public—I do not see why we should hide those The right hon. Member for Torfaen mentioned the views. It is a matter on which there will be debate. Some Barnett formula. I can perfectly well see, and the Silk people in my party might agree with my view; others commission recommended, that that issue needed to be will not. In the end, we will come to a compromise and addressed. There are issues that we need to talk about agree the Bill as it goes forward—that is, if it goes as we move forward, but that is part of the debate and forward, as today’s events have made it extremely doubtful discussion, and there will be different views within each that it will in any meaningful way. 43 Welsh Grand Committee5 FEBRUARY 2014 Silk Commission 44

Guto Bebb (Aberconwy) (Con): My hon. Friend is however, do not have such debates. They have an annual making a powerful speech on this issue. Does he agree debate about what sort of jockeying can go on to move that discussing the lockstep now, after what we heard a little bit of money from one budget head to another so this morning, is rather immaterial? We heard from the that they can get a majority to carry it through, but it is Opposition this morning a rejection not only of the not a real debate, which is why it does not engage the draft Wales Bill but of the main thrust of the Silk Welsh people at all. report. Surely that should be the issue for debate today, There is another point on which I want to comment. I not whether we are in favour of a lockstep. take a different view from some in my party, so I am afraid I will have to concede on the need for a referendum, Glyn Davies: I agree with my hon. Friend, but I do but I am not a fan of referendums. Very often they are a not think it is surprising that when the Opposition way of not confronting an issue. If the parties elected—not make a huge change in position and policy, they seek to necessarily all parties—have formed a Government after divert attention from it. They would not want the Welsh making a commitment in their manifestos that they will media to discuss it. The shadow Secretary of State’s introduce a policy in Wales, that should be sufficient for speech this morning was the most negative contribution the Government to carry it through. However, I accept that I have ever heard from the Opposition on the the Silk commission recommendations, and one of those development of Welsh devolution. As I said in my was that there should be a referendum. There is a intervention on the right hon. Member for Dwyfor general expectation, certainly among all the witnesses Meirionnydd this morning, I interpreted it as showing who came to the Welsh Affairs Committee, that there that today the Labour party had established itself in should be a referendum, so I do not want to push the Wales as the anti-devolution party. That is how I genuinely matter. When the Silk commission’s recommendations feel it will be seen in future—and rightly so. have been so damaged and torpedoed by the Labour party—the Welsh Labour party—it seems totally Owen Smith: The hon. Gentleman is giving a bravura superfluous to argue about other things, as that takes us performance, but he protests too much in characterising away from the crucial issue. It might surprise people to my speech this morning as being anti-devolution. It was learn that we have an anti-devolution, anti-Assembly not. It was anti the prospect of Wales’s prosperity being Opposition here at Westminster. damaged by an ill thought-through proposal from a Tory Government who are more concerned with scoring 2.28 pm party political points than with working in the interests Chris Evans (Islwyn) (Lab/Co-op): It is a pleasure, of the people of Wales. We are not opposed to Silk, we Mr Caton, to serve under your chairmanship. On such a are opposed to handing income tax powers to Wales dry subject as the Silk commission proposals, it is clear that would potentially undermine the prosperity of the that there has been a lot of passion and fire, which I was Welsh people in the short term and would, in our view, not expecting in this debate. in the long term undermine the glue that holds Britain together and undermine the Union. If he is sanguine At a conference in May 2013, AMs were told by about that these days, it is the Tory party that has political commentators that they did very little to create changed its position, not Labour. any interest because of the structure of their debates. Every day, the Welsh media are dominated by another commission—Silk or the Williams commission—and Glyn Davies: I thank the hon. Gentleman for repeating now we are told the only way in which the Assembly can the position that he set out this morning. Indeed, when create jobs to stimulate the economy is for it to have the Secretary of State asked him what he accepted in tax-raising powers. Yes, we can say that tax policy the Silk commission report, he said, “The borrowing stimulates the economy, but we have to be innovative powers” Nothing else; just extra borrowing powers. As with tax policy. The lockstep means that if we raise far as Labour is concerned, everything else in part 1 of income tax by a penny for middle-income earners, the the commission’s report is dead in the water and will not rate for top earners has to go up. Equally, if we cut tax be supported. by a penny for middle-income earners, the tax has to come down for top earners. When the Chancellor of the Simon Hart (Carmarthen Westand South Pembrokeshire) Exchequer decided to readopt Reagonomics at the start (Con): The Welsh Affairs Committee took evidence of this Parliament and reduced tax for top earners by from Labour politicians in Cardiff, academics who are 5p, I am sure he would not have thought that it made expert in this field, and pressure groups such as the economic sense to reduce it by 5p for everybody else, Federation of Small Businesses. Each one of them even though that would have been welcome. painted a very different picture from what the shadow If we introduce a lockstep, we tie the hands of the Secretary of State has stated, so will my hon. Friend tell Assembly and make tax policy absolutely useless, because me who is right? we cannot do anything to stimulate the economy if all we can do is move up one tax band. Glyn Davies: It comes down to one’s general view. I want to see a National Assembly for Wales with a Welsh Glyn Davies: If there were no lockstep, would the Government who are genuinely fiscally accountable to hon. Gentleman support adding income tax policy to the people of Wales. Business does not look for money the Assembly’s powers? to be given; it knows that it has to be taken, and there is a balance. Every Government have that debate. Even Berriew community council, which I chaired, had that Chris Evans: I will develop that argument in my debate—it was a vicious debate, and we were talking speech, but if tax policy is to be devolved, all of it has to about only a few pounds. The Welsh Government, be devolved, and the First Minister or the Finance 45 Welsh Grand CommitteeHOUSE OF COMMONS Silk Commission 46

[Chris Evans] Chris Evans: I shall respond as I do to my favourite three questions: yes, no, and she was my cousin. Minister must be allowed to set their own tax rates. People in constituencies such as mine are experiencing That is common sense. A lockstep says one thing to the more pressing issues, such as worrying about making people of Wales: their Assembly Members cannot be ends meet from pay cheque to pay cheque. There is even trusted with tax policy. That is quite simple. the absolute madness of the leader of the Conservative and Unionist party in the Welsh Assembly writing to Hywel Williams: Surely any discussion by the hon. the hon. Member for Monmouth, the Chair of the Gentleman or others on tax policy is entirely redundant Welsh Affairs Committee, to suggest that the Welsh given that, as the shadow Secretary pointed out this Assembly should be changed to the Welsh Parliament. I morning, the First Minister has been extremely clear, know that that is a vote winner in some areas, but not and he does not think income tax-varying powers are a where I come from. priority for Wales, so why is the hon. Gentleman bothering? People simply are not writing to me about Silk or Barnett, and, to top it all off, in the past couple of weeks we have had Williams. I do not want to stray too Chris Evans: I will address that later in my speech, if far from the motion, Mr Caton, but it has been proven the hon. Gentleman gives me time. I think he has read time and time again that council revaluations cost money. the same article that I read, but if he looks closely, I We must ask ourselves whether this is the best use of think the First Minister said that such tax powers public money. In Islwyn, that money could be used for would be like saying to someone who was buying a car, job creation programmes, rather than the reorganisation “You can have this car, but it only has one gear on it.” I of councils. agree about that. There are lockstep tax policies in Scotland, but the taxation powers are not being using. The decisions that we and the Welsh Assembly make It would also be a very brave Government who wanted determine whether a family can afford to buy what they to put up income tax when most of our general elections want in the supermarkets and whether they can enjoy a are fought on who will put taxes up and who will not. meal on the table. When I hold surgeries on Fridays, most people want to talk about the cost of living crisis. What concerns me more than anything is that although Their concern is not about what we want the constitution it is very worthy to talk about tax-raising powers and to be. We need to get back to what Otto von Bismarck, more powers for the Assembly, we are once again debating the original iron Chancellor—I know that that title has constitutional issues in this Committee and, to make been claimed by many Chancellors, both Conservative matters worse, we are talking about a referendum. and Labour, over the years—called “realpolitik”. Realpolitik Wales is becoming famous for the two Rs: rugby and in my constituency is about the frightening cost of referendums. I had some sympathy with the hon. Member living. for Montgomeryshire when he said that he did not like referendums—neither do I. As I said about tax-raising powers, referendums tell the people who are electing Guto Bebb: The hon. Gentleman talks about real their Assembly Members that those Members are not politics, but surely real politics is people in Wales knowing trusted to make major decisions, so we have to go back where to lay the blame when things go wrong in Wales. to referendums. Is it not a failure of our democracy that people in north In the 2011 referendum, people all over Wales were Wales blame Westminster rather than Welsh Labour for apparently saying that they wanted more powers for the the failure of their NHS? Assembly, but the truth was that the turnout was 35%. The process cost Wales. Just do some number crunching: Chris Evans: I am disappointed in the hon. Gentleman. 2,289,044 were eligible to vote, but only 815,620 did, so When I mentioned Otto von Bismarck, I thought we the cost per vote cast was £7.22. I am sorry, but for me, would debate his legacy, but the hon. Gentleman has that is not money well spent. The truth is that if I gone back to politics. To be honest, the reason why knocked on the door of everyone living in Islwyn and people blame the Westminster Government is because tried to explain the consequences of Silk, I would be of what they see happening. They see the cost of living met with complete indifference. crisis: the cost of food going up and up; the cost of However important Committee members think that petrol going up and up; and their being ripped off Silk is, and however important the Welsh media think it by energy companies. And then what do they see: a is, the average person in Islwyn does not care. If they Government doing absolutely nothing. That is why they were asked what that £5.8 million should have been lay the blame on the Conservatives. spent on, they could think of a few things: welfare This seems never ending. We had the Silk commission reform, health and education. Since the foundation of report we are debating, and now the commission is the Assembly in 1999, after we first voted on that working on the second part of its remit—the powers of constitutional package, it has been dominated by the Welsh Assembly—with a report to be published this constitutional issues and constitutional reform. That is spring. I can tell you, Mr Caton, that I can hardly wait. a real problem for the Assembly and it is a real problem It is keeping me awake at night, just like Christmas for Members of Parliament. when I was a child.

Jonathan Edwards (Carmarthen East and Dinefwr) Hywel Williams: I am reluctant to interrupt the hon. (PC): May I try to summarise the hon. Gentleman’s Gentleman’s flow, but will he consider the alternative position: there should not be a lockstep; we should have explanation? We have what he calls a constitutional the full Silk proposals; and Silk should be implemented obsession and moves to change the Assembly because without a referendum? That is basically my position. we did not get things right in the first place. 47 Welsh Grand Committee5 FEBRUARY 2014 Silk Commission 48

Chris Evans: To be honest with the hon. Gentleman, I know that people in constituencies such as Islwyn the problem with the Welsh Assembly was that we had a expect outcomes from Government and the Assembly, referendum that was won on less than 1% of the vote, but they have many questions and they expect answers. on a turnout that was not what we expected, and then I can answer only certain questions. My aim to is to try we rushed into the Assembly elections. At that point, we to aid my constituents in every possible way, but I can needed to take a step back to win people over to the do that only when we start talking about the realpolitik Assembly and to ensure that the constitutional settlement that I mentioned, rather than the constitutional nightmare was right. I supported the Assembly at the time and I we have found ourselves going through. That should be support the Assembly now, but we needed to think the aim of the Assembly and this House, but I am about whether there would be problems with way we constantly disappointed that constitutional reform seems chose to elect the Assembly. There is still a debate about to be the only thing on the agenda, when the people of that 15 years on, so a lot of work is still to be done. Islwyn want to focus on the bread and butter issues of The one thing we do know is that the Assembly needs health, education and employment. borrowing powers—my right hon. Friend the Member for Torfaen touched on this. I know it; the First Minister 2.41 pm knows it; everyone in the room knows it. Even the Secretary of State for Wales knows it. We cannot do Mr Mark Williams (Ceredigion) (LD): It is a privilege anything about improving services or providing new to speak under your chairmanship, Mr Caton. We seem ones without extra finance, and that will come only to be getting through quite a few Chairs of the Committee: through borrowing. Limited borrowing powers and Mr Havard two weeks ago, Mr Owen this morning insufficient funds in the cash reserve mean that vital and now you. It is also a privilege to follow the hon. services will not be replenished in long term, and those Member for Islwyn. He used the phrase “nip it in the services directly impact the lives of my constituents and bud”. The right hon. Member for Dwyfor Meirionnydd cause real concern. Now that we have established that talked of “grasping the opportunity”. I do not think fact—I think we have done so today—let us just get on that this is a great problem. This is not a constitutional with it. We do not need any commission or referendum; nightmare; it is a huge opportunity, to the credit of our put it in the Wales Bill, and let us have a debate on the coalition Government. There might be a few issues that Floor of the House and get it done. the Conservative party needs to reconcile—that is its business. Simon Hart: Unfortunately, I will have to leave, but I This is an opportunity. I welcome the fact that this am so fascinated by the hon. Gentleman’s speech that Government, maybe based on the Calman model under I am going to stay for now. Which borrowing powers the Labour Government, set up the Silk commission. and which bits of the Wales Bill is he referring to? What This Government, after some delay, welcomed the is not being delivered by what is before the House at the publication of the Silk report and presented a draft Bill moment? He seems to be complaining about something before the Welsh Affairs Committee, of which I am a that the Secretary of State is delivering although, I have member. I sincerely hope that the Government will to say, the hon. Gentleman’s party did not deliver it in speedily put before us a Wales Bill on the basis of the all the years when it had the opportunity. recommendations of Paul Silk and his commissioners. We should pay tribute to all the commissioners. My Chris Evans: As my hon. Friend the Member for hon. Friend the Member for Brecon and Radnorshire Pontypridd said this morning, this is unfinished business. mentioned Sue Essex, replaced by another admirable We know what the problem is, so let us get on with it. Labour colleague, Jane Davidson. I wonder about their At the same time, let us once and for all settle the reaction to some of the comments this morning. I constitutional conundrum, because otherwise we will listened to this morning’s debate with sadness. Up until be back here debating the issue year after year, which now, we had achieved consensus: the creation of the will turn more people off and make turnout lower than Silk commission and the participation of the four parties. ever. We have come to the point where we have to draw The right hon. Member for Dwyfor Meirionnydd said the line. I apologise to you, Mr Caton, and to Conservative that that was not without some compromise by his Members because I am going to swear now. The problem party. The conclusions of the Silk commission represent we have—I will whisper it—is that we could end up like a compromise for some of us. the European Union—[Interruption.] There we are; However, it is sad that we seem to have deviated from somebody is leaving already. the consensus that operated. There was unanimity among We have seen treaty after treaty while tying ourselves all Assembly party leaders in seeing the Silk report as a in knots and ripping ourselves apart, as Government package. I want to associate myself with that phrase: Members have done, with little satisfaction. The hon. seeing Silk as a package. That leads me, not in an Member for Ceredigion raises his eyes as if to say that unhealthy way, to question part of the Government’s that has nothing to do with him. We have had all that, response, part of the material that we are looking at in yet never a settlement. It is always about what is the the Welsh Affairs Committee. future and what does the constitution say. Unless we It was refreshing to hear the hon. Member for Islwyn nip this in the bud now, we are moving away from what talk about his concerns about the lockstep. I also agree is most important in Wales: health, education and with what he said about referendums, although I come transportation. to the same conclusion as my hon. Friend the Member Whether someone is a councillor, an Assembly Member for Montgomeryshire. Wales is suffering from referendum or a Member of this House, we all have the responsibility fatigue and I suppose—guilty as charged—my party to represent people. I can confidently say that we have must share some of the blame for the insistence on to start focusing on the issues that concern people. referendums. Whether that is the inevitable result of 49 Welsh Grand CommitteeHOUSE OF COMMONS Silk Commission 50

[Mr Mark Williams] the devolution project should be advanced, but part of this Committee seems to be heading into a cul-de-sac compromises in a coalition, that fatigue is a real concern. while others wish to move on. If parties have clear statements in their manifestos on the direction of travel, we should rest on the verdict Owen Smith: I want, once more, to remind members given at election time rather than go down the referendum of the Committee that they need to keep up with the route. The Silk package, however, did talk about having debate. We can all look back at what the Welsh Labour a referendum. party submitted as evidence to the Select Committee The Silk commission has made a serious attempt to and see that it did not call for devolution of income tax. tackle the deficiency in the devolution settlement: notably, Our position on that has not changed. the lack of responsibility and accountability. The hon. Member for Pontypridd is right to talk about the Assembly’s legitimacy, because it is elected. No one questions that, Guto Bebb: On a point of order, Mr Caton. A paper but the Silk commission has properly identified not submitted to the Welsh Affairs Committee on 15 January just accountability, but the opportunities of economic 2014 made it very clear that the Welsh Government incentivisation, empowerment, efficiency, equity and, were supportive of the devolution of income tax. That above all else, responsibility. It is that relationship between is a point of fact, not a point of opinion. people seeing politicians spending money and how that money is raised. The Chair: It is not a point of order, anyway. Wales struggles relative to the rest of the United Kingdom. I do not want to beat out a negative lament— Mr Mark Williams: My hon. Friend the Member for despite this morning—on the economy. We see good Aberconwy may be more assiduous in his reading of signs and we heard the figures on unemployment last these papers than I am. The point I wanted to make to week. However, we remain at the bottom of most the hon. Member for Pontypridd when he did not take indices of poverty and deprivation. We need action. my intervention this morning was that we are going to Economic incentivisation that stimulates the private have a Wales Bill and a Second Reading debate. I sector is critical, because that will create the wealth that suspect that some of us will find elements of the Bill will improve our public services. challenging. I still want to know which way Labour I turn to landfill tax and stamp duty. True, in terms of Members will vote on Second Reading on the basis of revenue, those taxes are not massive generators: they this draft Bill that we, as a Select Committee, are generate £200 million a year, or 0.33% of an overall investigating. Opposition Members—indeed, everybody— budget of £50 billion. However, I think we all welcomed have talked about the need for borrowing powers. There the fact that stamp duty land tax could be used to is an issue about scale, and I agree with some of the encourage inward investment and business generation, Opposition’s comments about the scale of borrowing, which would provide a much needed boost to the economy. and that the £500 million figure should be much greater, I will repeat what I said about the income tax proposals, but when Labour Members balance all the different the lockstep and the referendum. First, I very much dimensions of the Bill, will they vote in favour of it? I welcome the Government’s recognising the case for hope that they will join the other three political parties partial devolution of the income tax system. I was glad in voting for it. that the leader of the Conservative party in the National Assembly used the phrase “a Parliament”, rather than Jonathan Edwards: The hon. Gentleman is doing an an Assembly. It is an oddity when any Parliament does excellent job in highlighting the inconsistencies that not have taxpayers. There is the principle that legitimacy exist between the Labour party in the Assembly and the will be enhanced by Government not only spending Labour party here in Westminster. Does he further money, but having the capacity to raise money. However, agree with me that for Labour Members to be consistent I have concerns about the lockstep. in terms of the Government’s current proposals in the draft Wales Bill, based on their comments this morning, Guto Bebb: I am sure that issues on the lockstep will they would now renege on the way they voted for the reflect some of the evidence we heard in the Welsh Scotland Bill, which gave these powers to Scotland? Affairs Committee. Does my hon. Friend agree that the real issue about the income tax devolution proposals is Mr Williams: I will come on to the Scottish experience the widening gap between the Labour party in Westminster later. It strikes me that we are using Scotland as an and in Cardiff? The Welsh Government’s response to excuse and that needs to be addressed. the Select Committee’s work was clear: they were supportive The Silk commission recommended, of course, that of income tax devolution. Is he as surprised as I am by income taxes should be capable of variation independently the apparent rejection of the Welsh Labour party’s view to create better conditions in Wales. I have been disappointed by the Opposition in Westminster? by some of the responses from colleagues on the Welsh Affairs Committee about why the lockstep needs to be Mr Williams: I am grateful for that intervention. The introduced. I still have concerns that one of the mantras hon. Member for Arfon, who is no longer in his seat, being shared with us is, for some reason, that progressivity gave us a good quote this morning from Ms Jane Hutt must remain exclusively at a UK level. and the Labour party’s line at that time was clear. I do On the comments of the hon. Member for Carmarthen not say this for political point scoring—we had a lot of East and Dinefwr about Scotland: okay, so Scotland that this morning—but in sadness. There was consensus has this provision, but has all the valued work that Silk in the National Assembly that that was the way in which and the commissioners have undertaken been so that we 51 Welsh Grand Committee5 FEBRUARY 2014 Silk Commission 52 can say, “For Wales, read Scotland”? That is nonsense. Mr Williams: I very much agree with that. The hon. We need to be confident in a model that is suitable and Gentleman has returned to the Welsh Affairs Committee appropriate for Wales. for the duration of this inquiry. He knows that we will I was struck by the evidence given to the Welsh be looking at the generality of the question to carry us Affairs Committee by the Federation of Small Businesses forward. in Wales, which told us that it believed that a current or On borrowing powers, if there has to be a figure in future Welsh Government would be unlikely to use a the Bill, the Welsh Liberal Democrats believe it is only lockstep model because it does not provide sufficient fair that we have a figure that is comparable with Scotland. flexibility in policy decision making. Indeed, the Silk Therefore the figure prescribed by the Government commission stated in its evidence its conclusion that the needs to be higher—we are looking at something in the availability of capacity borrowing powers is contingent region of £1 billion. I have heard that if it was just on on the level of income tax devolution available to the the basis of tax receipts, the figure could be £100 million Welsh Government following a successful devolution or £130 million. I guess that £500 million in that climate referendum. The lockstep model is less attractive and should be progress. If we are told that we have to would therefore discourage the Welsh Government from replicate Scotland’s income tax policy, it is wholly pursuing devolution and the additional capital borrowing appropriate that we should aspire to something greater powers that would accompany it. and look to our colleagues in the Wales Office to make The FSB in Wales concludes that the lockstep model that point to the Treasury. As consistency with Scotland does not enable Governments in Cardiff Bay to address is one of the central arguments adopted by the UK the fundamental challenges facing the economy of Wales. Government in all this, they should surely concur. Gerry Holtham reiterated that point in his evidence The Silk report recommended that Wales should be to the Select Committee, as did Professor Richard Wyn able to issue its own bonds, but provision for that has Jones. In the end, I find myself agreeing with the not been included in the draft Bill. Other local bodies, eminent economics professor, Dylan Jones-Evans— such as housing associations, can issue bonds in the [Interruption.] That has caused some merriment on the UK. Again, the Scotland Act 2012 allows for the UK Conservative Benches. He said that the most important Government to devolve bond-issuing powers without thing is to give a Government, irrespective of what further primary legislation and so there should be parity. colour it is, the powers to do the job. That to me is what I fear—I hope I am proved wrong—that if we do not the Silk package is all about. have progress on some of these measures, particularly Notwithstanding my disappointments, which are a the lockstep, Silk’s serious recommendations will be bit like those of my hon. Friend the Member for parked, kicked into the long grass or given ill thought Montgomeryshire, the Bill still represents a significant out tag-ons. I do not want that to happen to an important step forward in the devolutionary route that we need to principle such as tax-varying powers. It is ultimately our take. It is about having grown-up government and it destiny and we need to respond to that once the Bill is should not be about “nanny knows best”, with the published and we debate these matters. nanny residing somewhere in Westminster. That is why, in its evidence to the Welsh Affairs Committee, my I commend the Government’s record on devolution. I party made clear its preference for having the flexibility look forward to the Wales Bill. My frustration, if it is of income tax powers. Without it, we would hope to see anything, is that we are taking tentative steps when we more inward investment, a lower tax burden on the should be taking strides forward. I want grown-up poorest and a competitive edge for Wales. government. Some have used the word “maturity”. The tools must be available to our Ministers in Cardiff. In I repeat what I said about the referendum and the addition, we must remember the well known adage that concerns expressed to the Select Committee by Professor time and tide wait for no man. This will happen. We are Roger Scully. He said: moving remorselessly in a devolutionary direction. My “An income tax referendum turnout could be lower than the party has campaigned for this for many years. We need 35% who took part in the last referendum on law-making powers… the foresight to map that out, preferably without all I suspect that frankly this referendum would make the March 2011 referendum look like of triumph of participatory democracy. these referendums, as we move forward. I would not be at all surprised if you got turnout levels below To sum up from a Liberal Democrat perspective, I 25%.” quote from our former party leader Jo Grimond, who It goes back to when the hon. Member for Arfon famously—at least in Liberal Democrat circles—said: challenged the hon. Member for Islwyn about whether “I do not like the word devolution as it has come to be called. we got it right in 1997 and whether the question was It implies that power rests at Westminster, from which centre broad enough to carry the devolution project through. I some may be graciously devolved. I would rather begin by assuming suspect we did not. I worry that we will come back here that power should rest with the people who entrust it to their with part 2 of Silk with calls for another referendum. representatives to discharge the essential task of government.” When, if we do not get them now, we get tax-varying He said that way back in the 1950s. He continued: powers, there will be another referendum further down the line. That is not the way to proceed with devolution. “Once we accept that the Scots and the Welsh are nations”— and we have done— Hywel Williams: I am glad to agree with those views. “we must accord them parliaments which have all the normal Does the hon. Gentleman also agree that were we to powers of government”— have a referendum—I hope not—it should be on the Scottish model and a general agreement that the Assembly with emphasis on the “normal” powers of government— has various tax-raising powers and then it could just “except for those that they delegate to the UK Government or the about get on with it without further consultation? EEC.” 53 Welsh Grand CommitteeHOUSE OF COMMONS Silk Commission 54

[Mr Mark Williams] Stephen Crabb: The right hon. Gentleman talks about his support for the initiative on devolution on the basis That points to something that the right hon. Member of its bringing more local input into Welsh decision for Dwyfor Meirionnydd spoke about: the reserved making and Welsh governance. He has not mentioned, powers model of government. That is something we however, that since that initial referendum, there has should also aspire to. been another referendum, in which, by a majority of two to one, the people of Wales voted for a full law-making 3pm democratic body in Cardiff. Can the right hon. Gentleman Mr David Hanson (Delyn) (Lab): It is a pleasure to think of any other full law-making body in the world serve under your chairmanship, Mr Caton. If I may, that does not have significant fiscal powers? and much to my surprise, I will add a few words to the debate. I have been spurred into discussion following Mr Hanson: Northern Ireland, where my right hon. the course of the debate this morning to put on record Friend the Member for Torfaen and I served as Ministers, some of the legitimate concerns of my constituents, is one within the devolution settlement. I am sure there which reflect the part of the world that I represent in are others that I will be able to reflect on in due course. north Wales. Belfast has full law-making powers and a major budget Let me say at the outset that I support devolution. I to determine, but it does not have tax-raising powers, as can remember a time when I had a cup of tea with the my right hon. Friend said. hon. Member for Montgomeryshire in the House of Lords, in roughly 1995 or 1996, when he chaired the I am not saying that we will never rule out the Development Board for Rural Wales as a quangocrat. devolution of income tax-varying powers or that I will At that time, people such as Sir Geoffrey Inkin, who never vote for it in a referendum, but let us pause for had stood against Michael Foot, were running industrial thought and consider some of the key implications. I policy in Wales. Michael Griffiths, a very well-known cannot speak for other constituencies, but why is there local Conservative in my part of the world, had eight no demand for the measure in mine? It is probably days a week-worth of commitments sitting on quangos because many of my constituents work in Vauxhall in the quangocracy that we had at that particular point Ellesmere Port, the banking sector in Chester, Cheshire in time. Three Ministers were running the Welsh Office, West and Chester council, and police forces in Shropshire, none of whom, at one particular point in time, had a Merseyside and Cheshire. They work across the border, constituency in Wales. I supported devolution because and they know that the economy in my part of the there was an argument to try to democratise the work of world goes east-west, not north-south, and does not the Welsh Office. look to many other parts of Wales. Many of my constituents work in Wales side by side with people who live in the Glyn Davies: You could not get rid of me. Wirral, Merseyside, Chester, Cheshire or Shrewsbury. Many of the senior officials in my local council live in Mr Hanson: Well, there is an argument from the hon. north Shropshire and commute to my county hall in Gentleman that we could perhaps extend at another Mold. The movement is cross-border. date. Why does that matter? It is simple to make a tax code The important point is that support for devolution change if tax-raising powers are devolved, but we need was about getting local input, local electoral accountability to look at the consequences. In my constituency, two and local democracy for what was effectively run by and Airbus workers could do the same job in the same large by quangos appointed from Westminster by Ministers factory, produce the same goods and contribute the who—for a large part of the time in which I was active same amount of wealth to the United Kingdom, but in politics—represented seats outside of Wales, and have different tax rates depending on where they lived. who, let us not forget, managed a block grant given to They could be up or down, depending on whether they them as part of general taxation without any local lived in England or Wales. tax-raising powers. I supported devolution, and I voted Does that matter? As my hon. Friend the Member for for the proposal in the referendum. My right hon. Pontypridd said, we need to look at unintended Friend the Member for Torfaen and I are the only two consequences. Depending on the level of up and down, members of the Committee—and you, Mr Caton—who there could be housing pressures. In the constituency of voted for the Government of Wales Bill in 1998. my hon. Friend the Member for Alyn and Deeside, I will therefore not take any lessons about devolution there is a street, one side of which is in England and the and the need for it. However, we need to take a deep other side—no further away than the hon. Member for breath and look at the points that have been made by Montgomeryshire is from me in this Committee Room—is my hon. Friend the Member for Pontypridd which have in Wales. There will be consequences for house price been reflected across the board in Committee. While I movements, business movements and individual pay accept that the aggregates levy, stamp duty and the packages. landfill tax are useful additions, and while I thank Paul Silk and his team for that work, I will have been a Jonathan Edwards: Surely the same applies if one of Member of Parliament for 22 years in April, and this the Airbus workers lives in the Wrexham county borough morning, I struggled to think of one single occasion on council area and the other lives in Flintshire, which has which anybody has said to me, “Please devolve tax-raising a different rate of council tax. powers on income tax to the Welsh Assembly” in any way, shape or form. If I have done a constituent a disservice— somebody may have written me one or two letters or Mr Hanson: That is indeed a factor. However, this spoken to me in the street—I will take that comment goes to the heart of the argument that I wish to make, back, but I cannot genuinely recall such an occasion. along with my hon. Friend the Member for Pontypridd. 55 Welsh Grand Committee5 FEBRUARY 2014 Silk Commission 56

Income tax is part of the glue that cements British taxes but had not done detailed work on income tax via society, and I will tell the hon. Member for Carmarthen the Treasury. That is worthy of consideration, particularly East and Dinefwr why. [Interruption.] Let me move on as the demand is not there in my constituency. Even to services. when the Silk commission came to my constituency and A third of my constituents were born in Chester, at we had a meeting in Flint library, I was the only person the Countess of Chester hospital. Many of my constituents there for the first 25 minutes, with nobody else coming use public services in England. The railway service from through the door. There is no demand for that level of Crewe to my area, which is part-devolved, is partly issue. Let us explore it, but there are serious issues. funded by general taxation and partly funded by block grant support from the Welsh Assembly. If I travel by Stephen Crabb: The right hon. Gentleman makes train from my town in Flint to the Welsh Assembly, I go some important points, as he always does. Can he not through Shrewsbury, Church Stretton and Herefordshire, see that, by saying that we need to take account of the but the line and potentially the ticket are subsidised by complexities and tread carefully in our first venture into the Welsh Assembly. The division of taxation between the devolution of income tax in Wales, his arguments the Welsh Assembly and the UK Government is a support what we are proposing, which is the lockstep? complex issue. That preserves the progressive structure of UK tax rates It would be no different if I represented an English within a Welsh context. That is supported by his arguments constituency. I am pleased that the hon. Member for about treading carefully around complexities. Shrewsbury and Atcham is here, and that the hon. Member for Hereford and South Herefordshire (Jesse Mr Hanson: We will look at that. I am not sure that Norman) has raised this issue. Sometimes people in the lockstep is a concept that is easily understood by Shrewsbury, Herefordshire, north Shropshire and Oswestry our constituents, or that it would be reflected in policy, have to rely on a doctor in Wales for their services. or whether it is just a way of ensuring that we do not Sometimes they use public services such as libraries in increase taxes for richer people or reduce them for Wales. With the disaggregation of income tax, that is poorer ones. paid for out of income tax, generally through the block grant in Wales or in England. The proposal before us is Owen Smith: My right hon. Friend is making an to have a differential rate of tax that could be higher in excellent speech. I am sure he would agree that the point England or in Wales, depending on where we are. That about lockstep is that, although it might mitigate to creates complexities that deserve full and frank some extent the dangers of tax competition, it does not consideration. preclude them entirely. There would still be the basic Cardiff airport is owned by the Welsh Assembly—good situation that he describes of differential rates on either luck to it. None of my constituents ever fly from Cardiff side of the border. If the Government were serious airport, as it is 170 miles away. My local airports are about this, and not just scoring party political points, as Liverpool and Manchester. Again, if the block grant they have done again this afternoon, they would have element is taken and taxation is raised, the resulting done the work. complexities need to be thought through. There are complexities in a differential rate of tax in my part of Mr Hanson: I agree. My hon. Friend has made valuable the world, where I can open my bedroom window in points. He said earlier today that 48% of the Welsh Wales and see the two Liverpool cathedrals, and where I population live within 25 miles of the English border, can travel by train to Chester in England in 10 minutes. and 10% of the English population live within 25 miles I can drive in my car and be in England in five minutes. on the other side—6.3 million people in total. Those complexities need to be thought when we consider the economic impact of differential tax rates either side of the border. Hywel Williams: I do not quite understand why income tax should be singled out in the right hon. Gentleman’s Glyn Davies: I am listening with great interest to the speech when there are other fundamental services such right hon. Gentleman. Those are very much the arguments as health services, which have already been referred to. I that I would have used before the 1999 vote. There are remember that his Government brought in regional pay, complexities and they warrant discussion. What does he and pay is even more fundamental than income tax. think of his own Front-Bench speakers virtually ruling With regional pay, court workers working in Mold were out income tax without any discussion? There will not paid differently from workers in Chester, for example. be any discussion because it has virtually been ruled out. Mr Hanson: I opposed that at the time. It was only in court services, and we supported a national minimum Mr Hanson: The hon. Gentleman will not find me wage. The hon. Gentleman can lob a few stones, but I divided from those on my Front Bench with regard to believe that income tax is a glue that cements our today’s discussions. He will find that there are common society together. If the Welsh Assembly levies a lower points made by my hon. Friend the Member for Pontypridd rate of income tax in Wales, yet my constituents still use that are worthy of consideration. Those points are the Countess of Chester hospital, is that genuinely fair? extremely important, not just in terms of service delivery Is it a viable, long-term proposal for people in my and pay levels. There are consequences that have not constituency to use the Chester hospital if they pay a been thought through, such as impact on houses, businesses lower level of income tax in Wales? and all sorts of things. My hon. Friend the Member for Pontypridd rightly Guto Bebb: I hear what the right hon. Gentleman pointed to the fact that the Government had looked at says about income tax, but if Opposition Members have independent studies on aggregates, stamp and landfill such concerns, how do they explain the position of the 57 Welsh Grand CommitteeHOUSE OF COMMONS Silk Commission 58

[Guto Bebb] grant it gave, although that would be possible. However, if a Welsh Assembly reduced taxation and said, “Thank Welsh Labour Government in Cardiff, which provided you very much—we will take less taxation,” would a papers to the Welsh Affairs Committee in support of Westminster Government say, “If you are willing to income tax devolution? reduce taxation, why don’t we?”? I cannot see any breaks or guarantees in the proposal Mr Hanson: I am a Front Bencher; I speak on on what would happen to the block grant in the event of immigration matters. I have not discussed income tax a dynamic change in the tax rate in Wales—whether up devolution with my hon. Friend the Member for Pontypridd or down. That needs to be considered and, at the very to inform his view on what he said today, and I have not least, boxed off. I want to see some form of commitment discussed the matter with any other Member who is that says that if the Assembly were to be exercise the here today. I am entitled to have a view as a Member of power to change the income tax rate, that would have Parliament for my area. I am also entitled to say to my no impact on the Westminster Government’s decision friends in the Assembly that they are entitled to their on the block grant level over a period of time. view. We are part of a debate, and it is reasonable to General taxation is the glue that cements our society, raise these issues in this forum. and it will not have escaped anyone’s notice that Wales has not been the richest part of the United Kingdom Guto Bebb: The point I am making is very simple. Is over many years. Part of the reason for that is that the the right hon. Gentleman saying that the Welsh Government work and assets created by people in Wales often find had not taken into account complexities such as he their way to England rather than being kept in Wales to mentions before submitting a paper to the Welsh Affairs develop the services, quality of life and health of the Committee in support of devolving income tax? people of Wales. Companies have been known to transfer wealth to England by having factories and management there, and part of the way in which we have rebalanced Mr Hanson: The Welsh Government are entitled to that over many years has been through progressive their view. I have not criticised—[Interruption.] Perhaps taxation. To be frank, that ensures that the people of the hon. Gentleman would like to listen, having intervened. Surrey pay for hospital services in the valleys of Wales A Member of Parliament speaks on behalf of his and north Wales, and for the other services required on constituents and says what they would want him or her a United Kingdom basis. I worry tremendously, therefore, to say. I am raising issues that I think my constituents that the impact on the block grant—whether we have a would want me to raise, irrespective of the Labour Barnett formula or not—will be detrimental to the party in Wales, or even, dare I say it, my hon. Friend the people of Wales. Member for Pontypridd. As a fellow Front Bencher, I would not speak against my hon. Friend’s point of Those are my thoughts. Although I could be convinced, view; I would speak to him privately about it. I have I remain sceptical about the changes to income tax spoken today because he happens to reflect the view based on geography, experience and the fact that no one that I share as a Member of Parliament. It is perfectly has ever asked me to devolve that power. The people of reasonable to put our concerns on the record. I do not Wales want to remain part of the United Kingdom and rule anything out for the future, but there are serious, feel that they are part of a tax-raising base that shares complex issues in divorcing tax rates in England and the wealth of this society. People want to ensure that, Wales. with Cheshire and north Wales next to each other, there is parity, because we depend on each other economically. To divide us with a tax rate in such an area of economic Owen Smith: I want to put on record the contrast growth would be detrimental to the people I represent between the—dare I say—feeble attempts by the hon. and to British society as a whole. Member for Aberconwy to paint the position as being one of variance between me and Carwyn Jones, the 3.22 pm First Minister of Wales, and the remarks made this morning in respect of my speech: Hywel Williams: The Welsh Grand Committee is not “Owen Smith is echoing comments made by the first minister always the cockpit of Welsh politics that we fondly and he is right to say that this...is a trap being laid by the Tories.” imagine, or a mini Assembly, as a journalist who was here this morning put it in a tweet. Despite the best efforts of the fourth estate, we do not always rivet the Mr Hanson: I am grateful to my hon. Friend for attention of Welsh people. Unsurprisingly, they are clarifying that point. I will move on, because I am more interested in family life, making a living in hard conscious of the time. The relevant point is what happens times, paying the bills and the result of the match on to the block grant if the tax rate goes down or up. How Saturday—the bread-and-butter issues that are important does the block grant relate to any tax-raising power that to right hon. and hon. Members on both sides of the is made—[Interruption.] Committee. However, everyone in Wales should be aware, or be made aware, that this morning, Labour, through The Chair: Order. Will Members cease making comments the hon. Member for Pontypridd, revealed its true from a sedentary position? colours as the anti-devolution party—the gloves came off. On income tax sharing, it is just the hon. Member for Mr Hanson: I am grateful, Mr Caton. If, for example, Pontypridd and his friends—and presumably a few a future Welsh Government of whichever hue chose to eccentrics and a dog in True Wales—who have come out raise taxes in Wales and brought in a differential tax against that. I listened carefully to him this morning, rate that was higher than in England, I doubt whether a and I think he said that the First Minister has been Westminster Government would review the amount of extremely clear that he did not ask for tax-varying 59 Welsh Grand Committee5 FEBRUARY 2014 Silk Commission 60 powers. The Welsh Affairs Committee took evidence Whether that is the case is another matter. I thought from the First Minister in Cardiff, and I did not get that that the position was entirely clear. impression. I might be entirely wrong, and I will try to I say to the hon. Member for Pontypridd that the consult the record, but other members of that Committee Welsh Affairs Committee will have to satisfy itself about are here. It might be wise for us to write to its Chair, the Labour party’s position. We have heard reference to who could then contact the First Minister for some minor tiffs in the Conservative party about the matter, elucidation on what his evidence was a few weeks ago and I will refer to those in a moment. I was unaware and whether he has been persuaded otherwise. that there was such a split, although I am sure the hon. Gentleman will spring to his feet to assure me that there Guto Bebb: I agree entirely with the hon. Gentleman are no splits in the Labour party on this matter. What I that the position of the Welsh Government needs to be had thought of saying—perhaps I should say it—was clarified. However, I refer him to the written evidence that it seems to me that it is the hon. Member for supplied by the Welsh Government on 14 January, Pontypridd against everybody else in Wales. It is the which categorically states that they are in favour of hon. Gentleman against the Holtham commission, the income tax devolution, subject to a referendum. Silk commission, the Tories, the Liberal Democrats, me, and all those people in Wales who have expressed an opinion in opinion polls. [Interruption.] The TUC can Hywel Williams: I thank the hon. Gentleman for that be added to that list. Now the hon. Gentleman is even point. It echoes the quote that I gave the Committee against his own colleague, Jane Hutt, the Finance Minister. this morning from Jane Hutt, which I will refer to later The Secretary of State, as I said a moment ago, has on. The position seems to have changed. not been entirely free from a little local difficulty with his own troops. I do not want to intrude on private grief, Owen Smith: The hon. Member for Aberconwy has but as we heard from my right hon. Friend the Member made that point three or more times. The position of for Dwyfor Meirionnydd this morning, the proceedings Welsh Labour has not changed at all. From the beginning, of the Welsh Affairs Committee on 30 January have just we have said that we are not asking for income tax-varying been made public. In evidence on that day Mr Andrew powers. We do not think they are a priority for Wales, R. T. Davies, the leader of the Conservative group in the and we said that once Silk had reported, the only way in Assembly, said that he was against lockstep. Later the which we could ever look at income tax-varying powers Secretary of State said: would be if they were subject to a triple lock: are good “I think that the view that Mr Davies is enunciating is very for Wales? Will they be good in the long term for the much a personal view of his own. It certainly does not represent whole of the UK? Are the people of Wales content with the policy of the…Assembly Group” them at a referendum? That has not changed. What I and does not did today was expand on concerns about unintended “represent the policy of HM Government.” consequence, which the Government and Plaid Cymru I listened to it again at lunchtime on my computer—that are not considering adequately. is how I spend my time, and it is very sad indeed. His comments led to a letter to the Chair of the Welsh Affairs Committee from the Tory Assembly group rebutting Hywel Williams: I am grateful for that clear explanation. the contention. I would like to take advantage of this I will look at the record. opportunity to say that I was under the impression that the Conservative group had written to the Secretary of Guto Bebb: On clause 8 in the draft Wales Bill, State, but I understand that it was the Chair of the “Welsh rate of income tax”, the written response to the Welsh Affairs Committee to whom it wrote. I misled Welsh Affairs Committee from the First Minister of myself, and I hope I have not misled hon. and right hon. Wales was: Members, including my right hon. Friend the Member “Agree that income tax should be devolved to Wales, subject to for Dwyfor Meirionnydd this morning. Members who a referendum (see clauses 10-12) and to resolution of the fair followed Prime Minister’s Question Time today will funding issue”. have heard the Prime Minister confirm the Secretary of I accept that, but the shadow Secretary of State opposed State’s position, while studiously avoiding mentioning the concept of income tax varying. That is a significant Mr A. R. T. Davies. ARTD will no doubt now be known change. In view of the fact that the Welsh First Minister as HWCBM—“He who cannot be mentioned.” has apparently supported his view this morning, we Irrespective of the Conservatives’ minor domestic now know who the leader of the Welsh Labour party is. tiff, the hon. Member for Pontypridd excelled in the internecine stakes this morning. He fulfilled the alleged purpose for which the Welsh Grand was set up all those Hywel Williams: I thank the hon. Gentleman for that years ago, because for once a Welsh Grand debate rather lengthy intervention, which was entirely in order, clarified an issue in Welsh politics. Labour Members Mr Caton, as otherwise you would have interrupted want the borrowing powers, and I agree with them him. Perhaps I can back up what he said with a further entirely, but they do not seem to want the tax responsibility. quote from Jane Hutt, the Finance Minister in Cardiff. They want devolution, but only the subsidiary and She said: dependent element. Echoing St Augustine, they want to “I’m very pleased that the UK Government has published its be pure, but not just yet. draft Wales Bill today. This represents an important milestone on the journey towards a better financial settlement for Wales… I We in Plaid Cymru are not against caution. We are a also believe that the UK Government should have adopted the cautious party, having existed for 85 years in a fiercely model of income tax devolution that was set out by the Holtham contested political space. The adage that perhaps guides and Silk Commissions. However, there is no doubt that taken as a us is, “When you share a cage with a tiger, you tread whole this represents a very positive package of reforms.” softly.” That is what we have done. 61 Welsh Grand CommitteeHOUSE OF COMMONS Silk Commission 62

Owen Smith: Grrrrrrrr! My hon. Friend the Member for Islwyn said that it was very easy for us to become obsessed with constitutional Hywel Williams: There we are. Conclusive proof. issues and forget what the people of Wales really wanted to know about and the concerns that they had. My right We live in difficult times and we are mindful of the hon. Friend the Member for Torfaen explained some dire state of our economy. As was said this morning, very pertinent points, which I shall come to, together the economy is in a difficult state; we have a low tax take and high social commitments. We are mindful of the with the points by my right hon. Friend the Member for temptation for the Government here—any Government, Delyn. Turning first to the subject of borrowing powers, be it Tory, coalition or Labour—to tell the Assembly, which were broadly welcomed across the Floor, there “You’ve had your lot. Use your tax powers if you want are provisions in the draft Bill which relate to both more.” For us, the solution is not to duck the question current and capital account borrowing. The limit for of tax-sharing powers but to grasp it, and for that current account borrowing, which is to cover temporary matter, to grasp more. We must grasp reform of how shortfalls in tax receipts, will be £500 million. The limit Wales is funded. We in Plaid have long campaigned for for capital borrowing for investment projects will also Barnett reform, or “fair funding”, as it is now called. I be £500 million, making a total of £1 billion. However, readily concede and welcome the fact that the right hon. it is the capital investment projects that we are questioning. Members for Torfaen and for Neath and others have While we very much welcome these powers in order taken steps following a change in their views on this to make progress with investment in infrastructure matter in 2009. projects—powers which are all the more badly needed There was general agreement in 2012 that Wales is as the capital budget for Wales has been cut by one-third underfunded. I accept all that, but I call on parties in by the Conservative-Lib Dem Government—a number Wales—all parties, in fact—to commit to fair funding of Members have asked why there is a ceiling of in their next Westminster manifesto and call on whoever £500 million. We understand that borrowing powers will be Secretary of State to make the reform of Barnett will be extended to Wales in three stages. The initial his or her priority. Otherwise—I will finish on the point borrowing, as agreed in intergovernmental talks last I made this morning—£300 million, or even £400 million, will continue to be lost to Wales each and every year. It year, will be available to help with the financing of the will be £600 million or £800 million in two years; M4, but we still do not know the exact amount that is £900 million in three years; and £1.2 billion in 4 years. It be accorded there. The second stage involves borrowing will be irrevocably lost to our people. No Member here powers that are linked to the devolution of the minor or in the Assembly should have a moment’s rest while taxes—landfill tax and stamp duty. The draft Bill says that continues. that the limit will be £500 million for capital projects, and £500 million for current spending. However, we 3.34 pm heard today that it is not clear how the Government decided that £500 million borrowing limit for capital Nia Griffith (Llanelli) (Lab): We have had a lively and projects. As hon. Members have pointed out, including wide-ranging debate. Hon. and right hon. Members my right hon. Friend the Member for Torfaen, it seems have raised many contentious issues and pertinent questions. that Wales is being singled out for capital borrowing to Some of those questions remain unanswered, so perhaps be linked to the devolution of tax-raising powers. we could focus on one or two of them in the winding-up Wales Office Ministers say that the extent of borrowing speeches. First, however, I would like to refer to one or powers will depend on the tax powers that Wales holds. two of the comments made by other members of the In other words, in the first instance, when minor taxes Committee. are devolved, it will be £500 million, but this will The leader of Plaid Cymru highlighted the divisions increase to £1 billion if income tax powers are devolved. between the Conservatives in the Assembly and the Ministers have also claimed that £500 million is generous, Secretary of State here. He also stressed the importance and that, according to the powers that Wales is being of borrowing and said that that was why he would given, the limit should actually be £100 million. However, support income tax-varying powers. His colleague, the contrary to the position in Wales, such capital borrowing hon. Member for Arfon, stressed the need for fair in both Scotland and Northern Ireland, as has been funding. The leader of Plaid Cymru also spoke about firmly pointed out by my right hon. Friend the Member prioritising investment in a south Wales metro and in for Torfaen, is not linked in this way. Scotland’s borrowing north Wales infrastructure. He implied that there was powers are linked to its capital budget: the total limit is rather less enthusiasm for the M4. 10% of the capital budget each year. Northern Ireland The hon. Member for Ceredigion saw the Bill as a has no revenue-raising powers, but it still has access to huge opportunity and questioned why progressivity borrowing. should remain at UK level. He questioned the inclusion Ministers have set the figure for Wales at £500 million, of the lockstep and he had concerns about turnout in a even with the devolution of minor taxes. Why not referendum and about borrowing and the lack of £1.3 billion, as the Welsh Government’s Finance Minister opportunity for the Welsh Government to raise bonds. has suggested? We should also remember that Wales The hon. Member for Montgomeryshire gave us a has relatively little exposure to private finance initiative magnificent confession that he had been anti-devolution, debts compared to Scotland, as was pointed out by the but had a Damascus moment after the referendum and Silk commission. Logically, that means that a more became an enthusiastic convert. He is looking forward generous settlement could be considered. Instead, Wales to the Minister’s response on the question of what is being short-changed by the Tories. We are being happens to the block grant—perhaps the Minister would offered less as the total amount of borrowing, and we like to clarify that in some detail. have to wait for the devolution of minor taxes to access 63 Welsh Grand Committee5 FEBRUARY 2014 Silk Commission 64 it. Further borrowing powers are only on offer when put in the funding floor as a manifesto commitment. income tax is devolved, thus building in yet another That is exactly the way we will proceed. We will look at obstacle and delay. where we are now and what needs to go into the next On the issue of bonds, which were mentioned by manifesto. We have done that before, so we are perfectly several Members, the Silk report recommended that capable of doing it again. Wales should be able to issue its own bonds. This If I may continue for a couple of minutes before I provision has not been included in the draft Bill. A hand over to the Minister, Mr Caton? My right hon. provision was included in the 2012 Scotland Act, so is Friend the Member for Delyn explained clearly the there not a case for including a similar provision in the reality for people living in border areas. He pointed out draft Bill, so that such a power would not require that many people cross the border on a regular basis further primary legislation? It seems like a missed from home to work or to access services, and that nearly opportunity, as there are publicly funded bodies that half of the Welsh population live within 25 miles of the can issue bonds. English border, with 10% of the English population If Wales is to have its own powers to raise taxes, it is living within 25 miles on the other side. That is 6.3 million absolutely vital that we have a firm base on which to people in total. That contrasts sharply with Scotland, build. In other words, if we are talking about devolving where very few people live near the border. income tax powers to Wales we must get the issue of fair As the draft Bill proposes the devolution of income funding resolved first. That theme has been echoed by tax, with the power to vary it by up to 10%, there should many Members. The First Minister made it clear when be a proper impact assessment of the consequences of he gave evidence to the Welsh Affairs Committee that tax competition arising from different rates of income he would tax on the two sides of the border. It is all very well to “not be supportive of income tax devolution without the issue of say that we have had different rates of council tax, but fair funding being addressed first. The base has to be firm before we know that people have been entreated to buy homes we could build upon it.” by being told there is a lower rate of council tax across He went on to say: the border. That has happened in areas outside our big “Until that underfunding is addressed, I would certainly be cities where some of the counties have had a lower most reluctant to look at income tax devolution, because it would council tax. There will obviously be an impact on jobs simply lock in that underfunding. Why?” and people. However, until a proper impact assessment has been carried out we just do not know exactly what Jonathan Edwards: Will the hon. Lady give way? that impact might be. There seems to have been very little Treasury analysis of the impact of differential income tax rates on either Nia Griffith: No. side of the Welsh border, so we really do not know what The First Minister continued: having different levels would mean. A lot more work “I suspect that, with the devolution of some income tax needs to be done on that, before we can be in a position powers, whenever the issue of fair funding would be raised in the to scrutinise the Bill properly. We cannot make decisions future, the answer would simply be ,‘You’ve got powers to raise without a proper impact assessment. money yourselves; get on and do it’.” In complete contrast, before the publication of their We can clearly see a trap being laid. The Government response, the Government had a consultation on stamp have cut the Welsh budget by £1.6 billion over the duty that looked at cross-border impacts. Why has that course of this Parliament, not to mention the fact that not been done for income tax? I will not repeat many of the Treasury has sucked millions out of the Welsh the points made by my right hon. Friend the Member economy through other fiscal measures such as cutting for Delyn, but there are serious considerations to be tax credits and raising VAT, which hit the poorest areas taken into account on what would be the effects across of Wales hardest. the border. That would not simply be for the big businesses It would be disastrous, as the First Minister says, to that no doubt have the technology to do their payroll, lock in that underfunding, so that every time the Welsh but for the ordinary person in the street who may have Government raised the question of fair funding, they a job on the other side of the border. Those are would be told to go and raise their own funds; in other the impacts that need to be looked at, not to mention words, to impose additional taxes in order to make up the impact on inward investment. I will now allow the the shortfall. That would completely undermine any Minister time to answer some of the questions that discussions on fair funding. I have asked. I remind the Committee that the Silk commission recommended that income tax powers should only be 3.44 pm devolved once funding was agreed between both Stephen Crabb: It is a pleasure to serve once again Governments. That clearly has not yet been done. under your chairmanship, Mr Caton, and always a pleasure to follow the hon. Member for Llanelli. Hywel Williams: Will the hon. Lady therefore commit This afternoon we have had an interesting, focused any future Labour Government to put reform of the debate in the best traditions of the Committee. It is funding formula at the top of the agenda? I did ask that right that we have taken time to consider this historic of the First Minister in Cardiff and he refused to give set of issues, because I think that the report from the me an answer. Silk commission is an historic piece of work. I put on record my tribute and thanks to the members of the Nia Griffith: The Barnett formula served us well until Silk commission for their work. We should also put on the end of the Labour Government’s term in office. At record that the commission’s membership included those that point, my right hon. Friend the Member for Neath nominated from all the political parties in Wales to be 65 Welsh Grand CommitteeHOUSE OF COMMONS Silk Commission 66

[Stephen Crabb] achieve it through changing tax bands, which might lead to increases in tax take, or through pulling other part of its work and to feed into it. From the comments economic levers to achieve growth, which leads to more we heard this morning, particularly from Welsh Labour and better-paid jobs, which also increases income tax Members, they are so hasty in their retreat from the Silk take, or through unlocking extra borrowing powers, work that one would not think that any member of the which devolution of that portion of income tax will Welsh Labour movement was involved in the work of achieve. None of that will affect the overall level of the the Silk commission, but indeed they were. block grant. Today’s debate is significant, because it represents the day on which the Labour party sought to ditch Silk. Nia Griffith: Will the Minister explain exactly what Taking the lead from the hon. Member for Pontypridd, he means by changing the banding of tax? Does he his colleagues launched a wholesale assault on the Silk mean that people would come into a different band of proposals. To remind ourselves of some of the language tax at a different income level, because it sounds like used this morning, we heard that the Silk recommendations that is what he said? While in theory I fully understand were a Trojan horse, the hon. Member for Pontypridd that there is the block grant and the 10p to fiddle about described them as a Tory trap and the right hon. Member with at the top, what is to stop a future UK Tory for Neath described the Silk devolution of tax proposals Government cutting the block grant? as manic. Labour Members were queuing up to trash the Silk recommendations, which we had all been led to believe had been welcomed unanimously by all parties Stephen Crabb: We are building it into the legislation in Wales. and the commitments that we are making that that The debate has centred on several areas of controversy, is not going to happen. I know what the hon. Lady is so I hope that I can offer some enlightenment as opposed trying to achieve by sowing seeds of greater confusion to adding to the confusion. The first key area is the in the Committee. She knows exactly what I meant in lockstep, and we have heard differing views about its my remarks about tax bands because I took a moment merits. The Silk commission recommended variable to explain and defend the lockstep structure of devolved income tax bands if a proportion of income tax is income tax in Wales. So, no, the block grant will not be devolved to Wales. In our response, we have proposed a changed by the Westminster UK Government in relation lockstep structure, which recognises some of the concerns to changes in the tax take achieved by the Welsh that the right hon. Member for Delyn raised about this Government. Where the block grant will change is in first venture into fiscal devolution. We need to take relation to its being indexed against increases or decreases account of such issues, and by necessity some caution in the overall UK tax base. must be exercised. I recognise the level of impatience and ambition on the part of some members of the Owen Smith: I am not sure that the Minister is right Committee, and of some of my colleagues down in about this. Will he clarify whether, if the Welsh Assembly Cardiff, to do something different and perhaps more Government chose to reduce all the rates by tuppence, radical. Given this major step forward that we are so that they were 43p, 38p and 18p in Wales, that would taking on fiscal devolution, however, it is right that we be netted off the block grant or would Wales get lower take account, particularly here in Westminster, of overall taxes and exactly the same amount of block grant? UK conditions. It is right that we should look at the merits of preserving the progressive structure of UK tax rates, if and when a proportion of income tax is Stephen Crabb: There are two questions there. In devolved to Wales. We will include such measures in answer to the first one, no it will not be netted off. What the Bill. will be netted off is the initial block of devolved taxation There was significant discussion and disagreement following a referendum decision to devolve that 10p about what will happen to the Welsh block grant, if and chunk of Welsh income tax. That is what gets netted off. when devolution of taxation takes place. The right hon. With the hon. Gentleman’s hypothetical example of Member for Delyn asked for some clarification, and taking 2p off all the bands, we do not know what will there was a pointed disagreement between the hon. happen to the overall tax take and that is the risk that Member for Pontypridd and my hon. Friend the Member the Welsh Government will bear. Those of our political for Montgomeryshire. We were asked to decide whether persuasion and philosophy on this side of the Committee the hon. Member for Pontypridd is correct in his assessment believe that lower rates of income tax and of taxation that any increase in tax revenue achieved by the Welsh generally foster entrepreneurialism and growth and that Government as a result of devolution of income tax that is what Wales needs more of. will be netted off the block grant. He is wrong— Owen Smith: I do not want to take up too much time, Glyn Davies: I knew he was wrong. but this is a crucial point. I fully understand the notion of no detriment and the fact that, at the point at which Stephen Crabb: In fairness, he is not wrong on everything, devolution occurs, the baseline would be that year’s but on this issue he and other members of the Committee block grant, but the Minister’s point about indexation is are incorrect. If I make a mistake in my interpretation, I that in subsequent years, in the event of there being a 5p promise to write to Members with absolute clarification. difference in all the rates in Wales, the block grant Following a referendum decision to devolve a portion would be amended, on an indexed basis, and that therefore of income tax to Wales, that 10p portion of Welsh there would be reductions. Otherwise, there would income tax will be netted off the block grant, and any be no incentive for the Welsh Government to do subsequent increases in tax revenue can be achieved by anything other than keep reducing the rates and have the Welsh Government in different ways. They can free money. 67 Welsh Grand Committee5 FEBRUARY 2014 Silk Commission 68

Stephen Crabb: With respect, the hon. Gentleman is having to go back to primary legislation, as was done wrong again. The indexation is against the overall UK in the Scotland Bill. Could it not have been thought of? tax base, which provides some protection for the Welsh Government. I am being as clear as I possibly can be, Stephen Crabb: My understanding, and I am very but I will write to Committee members to be absolutely happy to correct myself if I am wrong, is that there will clear. I expect more questions to be raised when the Bill be no requirement to go back to primary legislation. reaches the Floor of the House, but I am trying to be as The Wales Bill will have that flexibility in it, should that helpful as I can to the Committee this afternoon. be necessary. On borrowing, what came across loud and clear from We had a discussion about the merits of referendums Opposition Members was an appetite for the Welsh and various views were expressed. There was a consensus Government to get borrowing. With our chastening among four or five Committee members that people in experience with borrowing in this country over the past Wales are suffering from referendum fatigue, and they eight years, we know that we need to tread carefully. questioned whether we need to go through the expense The £500 million that is written into the legislation is and effort of a referendum on devolving a portion of a good starting point for the Welsh Government as a income tax. I believe that that is necessary. The people borrowing level. Much has been made today of comparisons of Scotland were given the decision, in principle, on with Northern Ireland and Scotland and there are of whether they wanted to do that, right at the start of course similarities and crucial differences between all their devolution project. This is a fundamental step the Administrations. We have to be clear that borrowing forward—a change in the devolution settlement—and I needs to get repaid. The hon. Member for Llanelli in think that the people of Wales should be given that say her remarks did not once make the link between the as well. need for independent revenue streams to support the level of borrowing. She did not mention the fact that the Scottish Government’s borrowing level is commensurate Jonathan Edwards: Of course, the principle of fiscal with the devolved taxes that they already have, which autonomy was conceded with the minor taxes. Therefore, supports their ability to repay borrowing. Does she there is no principle to debate on the referendum. The wish to intervene? Government are already conceding it in the Bill that they will introduce in due course. The Silk part 2 process will finish soon. Are we looking at two referendums Nia Griffith: indicated dissent. in a matter of years?

Hywel Williams: Perhaps I will. The Minister will Stephen Crabb: I am not able to give the hon. Gentleman concede, however, that the level of borrowing that the a full answer on that right now. To reiterate, I believe Welsh Government have undertaken in respect of PFI that this is a significant step forward. I draw a distinction schemes is miserly compared with that undertaken in between devolving minor taxes and devolving 10p-worth England and in Scotland and therefore, the gearing of of income tax—which could be in excess of £2 billion of commitments in Wales is that much lower. value—to the Welsh Government. There is a fundamental difference there and the people of Wales should be Stephen Crabb: I have heard that argument given an given the option to vote in principle on that. airing and it has featured in the discussions, unsurprisingly, We have had a good and lively debate. I am sure that between Welsh Government Ministers and our colleagues we can all agree that the issue is important and merits in the Treasury. We have arrived at a level of £500 million, further discussion. For too long, Wales has lagged which is a healthy starting point. Of course, should the behind the rest of the UK. This Government believe people of Wales vote for devolution of a portion of income that the devolution of tax and borrowing powers will tax, that unlocks a whole new chunk of borrowing provide an opportunity for the Welsh Government to capacity, so that is the starting point. We should not get do more to help change this, grow the Welsh economy bogged down in thinking that £500 million is the final limit. and generate jobs. There was a question about why we are not giving the I will end by quoting the leader of Plaid Cymru, Welsh Government the power to issue bonds. Well, go who quoted the hon. Member for Nottingham North back and read the Silk report. One of the points it (Mr Allen), the Labour Member who appeared before makes is that the cheapest route for the Welsh Government the Welsh Affairs Committee only the other day and to borrow will be through the national loans fund. said that this represents a step in the right direction. Although we are not closing off the option for the Welsh Government to benefit from bond financing in Question put and agreed to. the future, we believe that the cheapest, most efficient Resolved, way to fund debt for the Welsh Government will be That the Committee has considered the matter of the Government through the national loans fund. Response to Part 1 of the Commission on Devolution in Wales.

Nia Griffith: That is precisely the point. It is about 3.59 pm including something in the Bill that prevents us from Committee adjourned.