Welsh Affairs Committee Oral evidence: Silk Commission and financial devolution in Wales, HC 896 Tuesday 10 December 2013 Ordered by the House of Commons to be published on 10 December 2013. Watch the meeting Members present: David T. C. Davies (Chair); Geraint Davies; Glyn Davies; Stephen Doughty; Jonathan Edwards; Nia Griffith; Simon Hart; Jessica Morden; Mr Mark Williams Questions 1-79 Witnesses: Rt Hon David Jones MP, Secretary of State for Wales, and Glynne Jones, Director of the Wales Office, gave evidence. Chair: Good afternoon, Secretary of State for Wales and Mr Jones. Thank you very much for coming along this afternoon. We know one another very well, so I do not think there is any need for preambles and introductions. Because the Children’s Commissioner is visiting at the invitation of one colleague later this afternoon, I would like to begin by calling Jessica Morden to ask some questions. Q1 Jessica Morden: Could I begin by asking you why it took the Government so long to respond to Silk? You were supposed to respond some months ago. Mr Jones: We weren’t supposed to. We did give an indication that we would respond by the spring. We had a number of representations, most particularly about stamp duty land tax, which made it clear that we needed to consult further, and we did consult further. As a consequence of that, we gave our formal response last month. Q2 Jessica Morden: Do you accept that that has frustrated people, because it has meant, for instance, that on things like the M4 there has been little progress—that it has all been delayed because of that? Mr Jones: No, I do not accept that at all. In fact, the Welsh Government started their scoping exercise before we made our announcement on 1 May. The announcement that we made on 1 May with regard to borrowing powers actually went beyond Silk and gave the Welsh Government the confidence they need to go ahead with the exercise, so I do not believe there was any delay at all. Q3 Jessica Morden: Can you explain a bit more about what will happen from now in terms of the M4—when and how it will happen? Oral evidence: Silk Commission and financial devolution in Wales, HC 896 1 Mr Jones: That, of course, will be a matter for the Welsh Government, because highways are devolved in Wales. Jessica Morden: But in terms of the borrowing. Mr Jones: We have made it clear that we will allow the Welsh Government to use their existing borrowing powers to help finance the project. As I said, that will give the Welsh Government the confidence that they need to proceed with the upgrade. Q4 Jessica Morden: What is the next stage of that? What happens next? Mr Jones: In respect of the legislation? Jessica Morden: In respect of pursuing it, yes. Mr Jones: Very shortly we will publish a draft Bill. It will come to this Committee for pre- legislative scrutiny, which I hope will be completed during this session of Parliament. Then we aim to proceed with the Bill in the next session of Parliament. Q5 Geraint Davies: The answer you just gave presupposes that the money for the M4 should come from borrowing. Would you not agree that Wales does not get its fair share of transport investments to start with, and that we should sort that out now, rather than leaving it for Welsh funds to fund what UK funds should be funding in the first place? Mr Jones: To begin with, roads are of course wholly devolved. To be absolutely frank, the Welsh Government should have been improving the M4 long before now, because that is part of their remit—that is part of the devolution settlement. To answer the wider aspect of your question, I do not accept that either. In fact, the investment that this Government have put into rail infrastructure is very significant. As you know, we have announced that we will proceed with the electrification of the Great Western line as far as Swansea whereas, with respect, there was absolutely no electrification under the last Labour Government. In north Wales, we are working on proposals for the electrification of the north Wales coast line and the Wrexham to Bidston line, so I would not accept your question at all. Q6 Geraint Davies: As you have mentioned railways, could I take the example of HS2? Our proportionate share of HS2 will be just under £2 billion. You will be aware that the Welsh Government are investing in an airport and that there is some talk about a railway system for Wales. Should not the costs of transport infrastructure like that come from the UK as a fair share rather than being taken from health and education needs in Wales—new schools and hospitals? Mr Jones: Not at all. You mention HS2. That is a project of national significance. Geraint Davies: North-south, not west— Mr Jones: Forgive me, but if you live in north Wales you will immediately see the benefit of HS2, because there will be an interchange at Crewe. It will be possible, when, as I hope, the north Wales coast line is electrified, to take electrified trains all the way through Crewe to Holyhead, so there is a significant benefit there. As far as south Wales is concerned, there will be an Oral evidence: Silk Commission and financial devolution in Wales, HC 896 2 interchange at Old Oak Common, which will benefit south Wales. As far as mid-Wales is concerned, there will be journey time improvements of about 41 minutes. Chair: Order. I am afraid I will have to suspend the hearing for a few moments. Hopefully, we can all try to get back within 10 minutes. Sitting suspended for a Division in the House. On resuming— Chair: We will resume, as most of us are back. Q7 Geraint Davies: Leading on from the previous question, may I ask whether you feel that, without fixing Barnett first, the idea of arguing that there is financial accountability is not really meaningful in terms of moving forward new borrowing and tax powers? Mr Jones: I think that the Welsh Government themselves welcome the powers that we propose to devolve to them. In fact, Jane Hutt herself said that this was “a good deal for Wales” and that it moved devolution on further. I do not think I would agree with you; possibly just as important, I do not think the Welsh Government would agree with you either. Q8 Geraint Davies: Finally, do you not feel that the mechanism will end up meaning a need for borrowing, which will have to be paid for from an income stream that will come from income tax that is devolved? There is a real risk that capital expenditure will end up with less revenue spend being available, because it is paying for borrowing—for health, education and other core services— which will begin to drive up tax rates, instead of our getting our fair share of UK money, as I said at the start. Mr Jones: I will make several points on that. First, it is very healthy for any legislature or elected Assembly to have some form of accountability for the money that is spent, as well as the money that it receives. I think that we will get increased accountability, which everybody will welcome and recognise as important. The second question is really an issue for the Welsh Government. What we intend to do is to devolve the competence to the Welsh Government to hold a referendum on this issue. The Welsh Government have to make the decision on whether or not to hold that referendum. If the referendum is not held, devolution of income tax will of course not happen. Q9 Jonathan Edwards: You have already said in your evidence—and, indeed, in your response to the Silk commission—that the Welsh Government will get limited investment powers, specifically in relation to the M4 project. Mr Jones: Borrowing powers. Jonathan Edwards: Yes, investment borrowing powers. Chair: I am sorry, I did not quite catch that. Mr Jones: Mr Edwards was saying that the Welsh Government would have limited borrowing powers in connection with the M4. Oral evidence: Silk Commission and financial devolution in Wales, HC 896 3 Jonathan Edwards: Can you inform the Committee how much the Welsh Government would be able to borrow with the WDA powers that you have now allowed them to use and the minor taxes, and how much they would be able to borrow following a successful income tax-sharing arrangement referendum? Mr Jones: Those are issues that would need to be agreed between the Welsh Government and the Treasury. In fact, those negotiations are taking place even as we speak. I think that both the Welsh Government and the Treasury are comfortable that those borrowing powers would be sufficient to assist the Welsh Government to upgrade the M4. Q10 Jonathan Edwards: What is the borrowing capacity available to the Welsh Government if they have the income tax powers? Mr Jones: Again, that would be an issue to be agreed between the Treasury and the Welsh Government. At this particular stage, I am not able to give you a precise figure. Q11 Jonathan Edwards: So I would be wrong to come to the conclusion that the borrowing capacity of the Welsh Government would be minimal without the income tax powers. Mr Jones: That is a question of how you define minimal. There would be a significant income stream coming from the so-called minor taxes.