I have much enjoyed reading the excellent series of thoughtful articles this week on our report Empowerment and Responsibility: Financial Powers to Strengthen Wales, following the Changing Union’s conference on the subject on 26 November.
The attention given to our report is gratifying. We were encouraged to see that the Assembly debate last week unanimously agreed a resolution welcoming the report and looking forward to its implementation. The UK Government confirmed in Wednesday’s Autumn Statement that they will respond formally in spring 2013, and their reception so far has been warm.
Our work on Part I of our remit has now concluded, and the focus of the Commission has moved to Part II, on non-financial powers. It is not for me to participate in the political debate on our Part I recommendations and their implementation, but I welcome the opportunity to make some observations on our report and the reactions to it.
Our report was a culmination of a long process of information-gathering and discussion. Indeed we visited every local authority area in Wales, with 28 visits in all across Wales. In addition we commissioned an opinion poll by ICM, which also helped us to gauge public opinion in Wales.
There was an excellent co-operative atmosphere within the Commission, with our Commissioners contributing their very wide political, economic and other expertise and experience. We also drew on the widely acclaimed report by the Holtham Commission on Welsh funding.
From the outset we were determined to produce a set of recommendations which would benefit Wales and the wider United Kingdom. We were also determined to produce an agreed report which reflected public opinion in Wales. I am delighted that our report was indeed fully agreed and that our report has been widely welcomed since its publication.
Wales is clearly in an anomalous position internationally. We could not identify any other country which has legislative and executive powers but not tax or borrowing powers. We came forward with a package of fiscal powers which we believe hangs together as a coherent whole and which we recommend should be adopted and implemented as soon as possible. Our main proposals are:
- Devolution of small taxes in devolved policy areas including landfill tax, stamp duty land tax, and aggregates levy.
- Devolution of long haul rates of Air Passenger Duty while keeping open the possibility of full devolution in due course.
- Full devolution of business rates.
- A power to introduce new taxes similar to Scotland.
- An option for the Welsh Government to ‘buy’ capital allowances in Enterprise Zones beyond the Barnett share.
- A sharing of the income tax base with part of each band being controlled by the Welsh Government.
- Capital investment and current spending borrowing powers, subject to annual limits agreed with the Treasury.
- A range of other measures including better information on Welsh public finances and a strong Welsh Treasury function.
We considered in some depth the implications of our populous shared border with England, and we concluded that mobile taxes such as excise duties and corporation tax should not be devolved, unless in the latter case the tax is devolved in both Northern Ireland and Scotland.
We think this is a practical, balanced and prudent package.
But we accept that our proposals, including on income tax, are not risk-free, and we set out some risks and possible scenarios in Annex E of our report. We propose carefully phased transitional arrangements. While we explain that Wales would be better off under our income tax proposals if the favourable recent Welsh labour market trends continue, we fully acknowledge that these trends may not continue. But the key point on our income tax proposals is that Wales should not be exposed to risks over which it has no control. This would be achieved by the block grant adjustment model proposed by the Holtham report, which we endorse.
We also set two conditions for the implementation of our income tax proposals. First, they should be conditional on a mutually agreed resolution of the fair funding issue between the UK and Welsh Governments. Secondly, devolution of income tax should be subject to a referendum.
All in all, our proposals would bring greater empowerment for the Welsh Government, Assembly and people, and the greater responsibility that goes with that. They would ensure that around 25 per cent of devolved spending in Wales would be financed by taxes decided in Wales. But the block grant from the UK Government will continue to be very important. We make clear that fiscal transfers to poorer parts of the United Kingdom are essential to the successful UK Union.
We have listened carefully to the views of business. We acknowledge that there will be some administrative and compliance costs, but based on the Scottish experience we think they should be limited and manageable. Indeed, we believe that our proposals will strengthen the Welsh economy by incentivising growth, providing a new set of fiscal levers and offering the power to increase investment in productive infrastructure in a prudent way. This will benefit the whole of the United Kingdom.
It is now for the UK Government to decide whether to accept our recommendations, in consultation with the Welsh Government. We set out a timetable for implementation. Many recommendations can be taken forward quickly without legislation. Where legislation is needed, we believe it should be enacted in this Parliament.
The political parties and civil society more widely, as well as experts, will comment on our recommendations. We welcome that – enriching the Welsh political discourse was one of our subsidiary aims. Our report shapes what we regard as a coherent architecture for the future. But architectural plans always benefit from the analysis of the builder, the planner, and the surveyor. I look forward to that analysis. Particular issues may well arise – indeed our report often called for more detailed work to be done before implementation. But I am confident that our plan is sound.
The Commission has now turned to Part II of our remit – the scope to improve non-financial aspects of the devolution settlement. I know that the IWA, its members and associates will want to be involved and debate these issues. We published our call for evidence on our website on 29 November and the Commission would like as many people and organisations to respond as possible before 1 March. We want to hear all views – no matter how heterodox.