Owen Smith says to accept income tax powers without re-examining the Barnett formula would lock in under-funding
Watching David Cameron perform in during his visit to Cardiff ten days ago was like attending a PR master-class. Sweeping in to our local TV studios, lavishing unaccustomed attention on star-struck journalists, with the confession that he is now a committed devolutionist, ready to let Wales take the next step and raise taxes as well as spend them, this was the Prime Minster at his thespian best. Trouble is, his professed respect for Wales never quite rings true in the mouth of a man who consistently puts partisan advantage before national interests. And the concern for Welsh livelihoods and living standards rings wholly false from a Prime Minster whose policies have hit Wales harder than anywhere else.
Responding to Silk
This is the fourth of a series of articles on the UK Government’s response to the Silk Commission’s recommendations on tax and borrowing powers for the National Assembly. Previous articles were carried in posts last week.
The announcement was an acknowledgement by the Conservative-led coalition that devolution is now an established and irreversible feature of our political landscape and that it should be developed further. The Commission on Welsh Devolution, led by former senior civil servant Paul Silk, recommended almost a year ago that Wales should enjoy borrowing powers like those of Scotland and Northern Ireland, funded by the devolution of responsibility for four ‘minor’ taxes (Stamp Duty, Air Passenger Duty, the Aggregates and Landfill Levies).
Longer term, post-2020, after a referendum and a period of assessment to check whether Wales would be worse off, Silk suggested that Welsh Ministers might take responsibility for raising a proportion of income tax through the ability to vary the rates of taxation by up to 10p in the pound. This, too, would be a reflection of the Scottish position after 2016, with the crucial exception that Silk recommended being able to vary the bands independent of one another, unlike the Scottish power which binds them together in lock-step: a 5p increase in the 40p top rate having to be matched by a 5p hike in the 20p basic rate. As any fool can see, and as Silk elegantly pointed out, such fiscal shackles make it unlikely that a Scottish or Welsh ‘Chancellor’ would avail themself of the power.
So how did the Coalition Government respond? Positively, they acknowledged that Wales should have borrowing powers. As well they might since the Welsh block grant will be cut by £1.7 Billion over the course of this Parliament, and the borrowing is vital to offset the 33 per cent hole in capital budgets and to allow investment in important infrastructure projects such as the renovation of the M4. And Labour will warmly support that initiative when the Government publishes a bill to enact it later this year.
Equally bright and positive sounding – to nationalists and the naive, at least – was the announcement that the Government ‘accepted’ their Commission’s recommendation on income tax-varying powers. Logically, and in abstract, this is right of course: most established legislatures have some responsibility for revenue-raising as well as expenditure. In practice, however, the glib simplicity with which the Prime Minister and his new-found, nationalist friends present this case is deceiving, and dangerous for the people of Wales. The Welsh have learned from long and bitter experience to beware Tories bearing gifts, and this package is no exception.
As Carwyn Jones has said, accepting income tax powers without first re-examining the Barnett formula, which allocates funding to the devolved nations and would rise or fall with any changes in tax take, would be irresponsible in the extreme and lock in under-funding.
And even in these circumstances, the room for manoeuvre would be limited given that Wales raises around £16 billion in taxes each year (£4.8 billion in income tax) and spends around double that. That £32 billion is spent on health, education and local government, all devolved to Wales, of course, and also on pensions and social security which are not. It’s a deficit that reflects the industrial heritage of a proud part of Britain, which fired the Industrial Revolution but was left with a powerful economic and social legacy of decline and depopulation, still evident in our aging and sickly demographics.
Despite this, we heard from the Prime Minister and his Tory colleagues that these powers should be used to make Wales a ‘low tax’ economy. And whose taxes is he proposing to cut? Those of the wealthiest, of course. What clearer indication of Tory priorities could you have, when in a country of three million they promise to cut taxes for the 89,000 who have the most?
Given these challenges, we will not be goaded by the Tories or nationalists, whose agenda is to exploit Tory trickery to further their separatist cause, into taking powers for powers sake. And especially not if we fear their adoption could be used by a Tory government with little interest in the working people of Wales to cut our budgets and disinvest in our success. Labour is the last true One Nation party. We are proud of Wales, Scotland and all the diverse nations and regions of Britain, but proud too of the British family those nations make up. Our politics are about bringing those nations and their people together in pursuit of progress for all, not dividing them for partisan advantage and the vested interests of the few.
Those politics, that belief in local accountability for delivery alongside central responsibility for fair allocation of resources, will inform our response to the legislation to implement Silk. Unlike the Tories, we will not play games with the constitution, nor less with the future of the Welsh people. Tax reform may well have an important part to play in securing economic progress for Wales, but we cannot trust the Tories to make the right decisions on tax cuts, just as we cannot trust David Cameron to develop devolution in the interest of our people.