Speech Clause 8 Wales Bill

I wish to speak to amendments 1, 2, 3 and 4, in my name and the names of my colleagues in Plaid Cymru. We intend to press amendment 1 to a Division at the appropriate time.

The lockstep income tax power that is on offer in this Bill is not the one recommended by the Silk commission. We see two ways forward to preserve the integrity of the original Silk proposals. Either the lockstep income tax power should proceed without a referendum, which amendment 1 would achieve, or the Bill should be amended as per the Silk commission recommendation on income tax, which amendments 2, 3 and 4 seek to do, thereby restoring the need for a referendum, as Silk envisaged, on an income tax sharing arrangement without a lockstep.

I remind hon. Members that their parties, through their representatives on the commission, agreed to the Silk recommendations. Indeed, the Labour party’s representative on the commission was the esteemed former Assembly Member, Sue Essex, who is of course a former Finance Minister in the Welsh Government. The purpose of amendment 1 is to ensure that the referendum is on the ability of Wales to vary each income tax band individually, rather than the lockstep that is proposed in the Bill.

I believe that we should not have a referendum on these powers. The borrowing powers that will accompany the income tax powers would be essential to move the economy forward. Capacity will increase with the income tax powers. However, I accept the position of my party that a referendum should be held on the original Silk recommendations. In my view, the principle of fiscal devolution has already been conceded in this Bill—we will discuss the minor taxes next week—so the case for a referendum is not very strong.

Amendments 2, 3 and 4 would alter the Bill so that the lockstep is removed from the income tax power, giving Wales the ability to vary income tax band rates independently of each other, subject to a referendum, as per the original recommendation of the Silk commission. As the Bill stands, the lockstep on the ability to vary income tax in Wales means that all three bands can be moved up or down only in tandem, as is the case in Scotland. I hesitate to point out that those powers have never been used in Scotland, even though they have been available since devolution in 1999. Of course, the Silk recommendation was for the power to vary income tax band rates independently of each other. In reality the lockstep kills the ability to vary income tax at all, which strengthens the argument that I put to the Minister in an intervention—the lockstep hinders what the Government claim to be trying to achieve in the Bill, which is to incentivise the Welsh Government to develop their economy. Without the ability to introduce innovative income tax policy, how are they meant to achieve that?

8 pm

The Tory and Liberal Democrat UK coalition Government put narrow party interests before the Welsh national interest and added the lockstep to the income
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tax powers, riding roughshod over not only the people of Wales but the supposedly autonomous parties and colleagues in Wales. They ignored the fact that they had signed up to the Silk proposals via their own commissioner. Meanwhile, the Labour party, at its recent spring conference in Llandudno, said that it wanted for Wales what its devolution commission has settled on in Scotland. That goes beyond the Tory lockstep, with the added handicap that the band can be moved only one way—upwards. That is why I have labelled it “lockstep-plus”. This goes against everything that First Minister Carwyn Jones and Finance Minister Jane Hutt were saying for months prior to the Bill being introduced by the UK Government. They argued that the lockstep must be removed and Wales be given the ability to vary the bands individually, as recommended by the Silk Commission. Having said that, we support amendment 41 from the Labour party, which would increase the fiscal responsibility of the Welsh Government up from 10p to 15p.

Hywel Williams: Does my hon. Friend find it peculiar that Labour’s position is to allow an increase in taxes in Wales, thereby handing a tax advantage to England? Its only policy on tax competition is to move it in favour of our friends in England.

Jonathan Edwards: That is an important intervention. The Labour party’s position is that it is worried about tax competition, yet, based on its tax policy, the only tax competition that could happen would favour England and other parts of the British state.

Owen Smith: Let us be absolutely clear: Labour has not argued, and is not arguing, for a tax increase in Wales. We know that the Conservative party is saying that it wants to cut taxes for the wealthiest in Wales. We are seeking to future-proof the legislation so that a Labour Government in Wales would be able to mitigate against further Tory tax cuts for the wealthiest, and introduce tax justice in Wales.

Jonathan Edwards: That is the crux of the argument, and the division between the Labour party and my party. My view is that we should empower the National Assembly and have a mature debate in Wales about what the level of taxation should be. I think the hon. Gentleman is aware of where my political conscience lies—I tabled an amendment to the Finance Bill to reinstate the top rate to 50p. Let us have the debate. Let us trust our Assembly Members to have the debate and let us see the National Assembly mature. The one thing that devolving responsibility for these powers will do is lead to the maturing of the Assembly. Hopefully, we will see the growth and development of our democracy in Wales.

When the Welsh Affairs Committee carried out the pre-legislative scrutiny of the Bill, we had independent witness after witness—I hasten to add that my hon. Friend the Member for Arfon (Hywel Williams) had taken over my role in the Committee for that period, as I was enjoying my paternity leave with my son Llywelyn—giving evidence, except of course the Secretary of State and Treasury Ministers, arguing that the lockstep should be removed. Those giving evidence included the leaders of all the parties in the Assembly, not least the leader of the Liberal Democrats and the Conservatives in Wales. Several distinguished economists, academics and experts,
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as well as the Chair of the Select Committee on Political and Constitutional Reform, also gave evidence. When the Welsh Affairs Committee visited Scotland following the initial Silk report, there was much excitement about its proposals. Academics, economists, civil servants, Ministers and Back Benchers in the Scottish Parliament were all in favour of Silk’s proposals for Wales, as opposed to what they have in the Scotland Act 2012.

I need not remind Labour Members present that the Labour First Minister, Carwyn Jones, said that the lockstep is a “Tory trap” and that it should be removed. He said the lockstep was “a long way short” of what was considered to be good for Wales, adding that

“binding the rates together is not right for Wales”.

That is a clear indication of the need to remove the lockstep on income tax varying powers.

We in Plaid Cymru are seeking, through amendment 21 and several other amendments, to maintain the integrity of the original cross-party Silk commission recommendations. We believe that the Welsh economy needs that sensible package of reforms in order to increase its ability to bring about economic growth and create jobs. We believe that it is a necessary tool, which will help us to begin to rebalance the economy of the British state by giving greater power to the nations and regions, and will help Wales to begin to lift itself from the bottom of the UK economic league table.

In its present form, the Bill requires Wales to hold a referendum on the lockstep model of income tax and win it in order to gain access to the higher limit applying to borrowing to fund investment. We believe that Wales needs access to that money in order to invest sensibly in infrastructure, secure a good return on its investment, and provide jobs that will have a beneficial effect on the state of the Welsh economy. We are all mindful of the huge cuts in its capital budget that the National Assembly has suffered under the coalition Government.

Given that the lockstep was not the compromise agreed by the parties during the Silk commission’s deliberations, it would surely make more sense to devolve the model without the need for a costly referendum. It is simply an income tax-sharing model, with a 90-10 split between the United Kingdom and Welsh governments. Giving the Welsh Government the ability to vary tax is a theoretical exercise that, as the Treasury well knows, cannot become reality with a lockstep—hence the strings that are attached in the Bill. The big prize of what we propose would be the increased borrowing capacity that I believe is required to help the Welsh economy to regenerate and renew itself.

It is clear that all the other parties are now putting narrow self-interest ahead of the Welsh economy by attaching conditions and caveats to Wales’s gaining of greater fiscal and financial powers. The Tories and Liberal Democrats have their condition of the lockstep, while Labour has its caveat in regard to reform of the Barnett formula, on which its members continue to contort and refuse to commit themselves despite citing it as a precondition for greater financial powers for Wales.

As for the debate in Wales, Andrew R. T. Davies and Kirsty Williams have announced some exciting tax policies that they wish to pursue in relation to the ability to vary taxes. Unfortunately, their colleagues down here in London are completely undermining what they have pledged to
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the people of Wales in various policy announcements. That is a big hit to their credibility, which may be why the Secretary of State introduced the lockstep: perhaps he wanted to undermine Andrew R. T. Davies.

There has already been much public debate in Welsh civil society about the issue of the lockstep and the power to vary income tax bands individually in Wales. There has been controversy as the lockstep row has engulfed the Conservatives. The Welsh Secretary has claimed that the mechanism would not prevent Welsh Ministers from using the powers—although they have not been used in Scotland since 1999—and has suggested that a 1p cut across all three bands would increase Wales’s competitiveness, a claim which, according to the Welsh Government, would cost £200 million a year. Meanwhile, the leader of the Conservatives in the Assembly rejected the lockstep in his submission to the Welsh Affairs Committee hearing on the powers, prompting a damaging fall-out with the Secretary of State. All the Tory Assembly Members were seconded down here to No. 10 Downing street to try to repair some of the damage.

We are often given the impression that it is the Treasury that does the overruling in all these matters. If Scotland does not have it, Wales surely cannot have it. However, the ability to vary income tax bands individually, as per Silk, would truly allow for the ability actually to vary income tax in Wales, and would be a significant step in the maturing of our democracy. As I said in our first debate this afternoon, it would provide a very positive narrative for the Westminster parties in relation to Scotland, demonstrating that they were serious about reforming the settlement of the UK and going beyond what Scotland has at present.

Mr Mark Williams: As the hon. Gentleman knows, I have a great deal of sympathy with him in regard to the lockstep, and, indeed, with one of his Select Committee colleagues who voted to remove it from the Bill. However, he is ending his speech—I think it is coming to an end: I think he has reached the last sheet—on an incredibly negative note. Does he accept that, in ensuring that our National Assembly has fiscal accountability, the Bill still represents a huge advance on the status quo? I sincerely hope that he will support it on Third Reading for that reason, whatever happens to his amendment this evening.

Jonathan Edwards: Of course the hon. Gentleman is right. We do support the Bill, but we want to use the opportunities provided by the Committee stage to strengthen and improve it. In my view, the lockstep is one provision that needs urgently to be removed. If the United Kingdom Government are determined to introduce it, let us devolve it in the Bill and then have a referendum on its removal. Why have a referendum on the lockstep mechanism?

The Secretary of State has spoken before of his belief that Wales needs the ability to vary income tax in order to be competitive—spoken as a true Conservative—but then does not offer a power that actually allows for any variation in income tax. That is the huge contradiction in the Bill as it stands. It is time for him and his Government to put their money where their mouth is and support our amendments—I am not holding out
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much hope—and for the Labour Members present to support what their party in Wales is saying by supporting us in the Lobby later.

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