Owen Smith warns of the consequences for Wales of unpicking the Union
These may be confusing times for casual followers of the devolution saga in Wales. Labour, my party, the party that campaigned for a Welsh legislature for a hundred years, and delivered one in 1999, is being painted as ‘anti-devolution’ by Conservatives who used to wear that epithet as a badge of honour.
In fact, anyone would swear that my remarks at Wednesday’s Welsh Grand Committee in the House of Commons committed Labour to rescinding devolution, judging by the feigned hysteria of the Tory response. It’s nonsense, of course: desperate stuff from a Tory Party scratching around to find a foothold in Welsh politics and fearful that next year’s election may sweep them away. Though not quite as desperate as the current Welsh Secretary’s attempts to present this all as a split between Labour in Wales and Westminster. Nice try, but I’m afraid this won’t cover his blushes at the unseemly public spat with spat with his Leader in the Assembly, especially when the truth is that Carwyn’s government has never asked for income tax to be devolved and has always been mindful of the risks.
As they stated in their submission to the Silk Commission last year: ‘The Welsh government has not sought devolution of powers to vary income tax rates….We are mindful of the need to ensure any proposals on income tax must take account of Welsh socio-economic circumstances, particularly the integrated nature of the Welsh and English economies.’
As for the spurious notion that Welsh Labour’s support for devolution has waned, well that’s nonsense too. Our attitude is unchanged. We are the party of devolution, which believes it is the best way to respect and reflect the identity of Wales and deliver more locally intelligent and accountable government, but within the supporting framework and family of the United Kingdom. We do not support independence for Wales, and we do not see devolution as a stepping stone to that destination. And though our devolution journey may not yet be done, with important prizes such as the shift from a conferred to reserved powers model still to be won, we should not fall into the mindset of assuming any new measure of devolution is good for Wales by default. There are some presents you wish you’d never received, and Tory gifts to Wales tend to fall into that category. If only John Redwood had come with a receipt, sale or return?
The gift in question today is the devolution of income tax raising powers from Westminster to Wales. The Coalition government intends to give Wales the same powers that Scotland will have from 2016: to raise or cut current income tax rates of 20p, 40p and 45p for ‘Welsh taxpayers’ by up to 10p in the pound. That would mean Wales could have a basic rate of 10p or 30p and a top (additional) rate of 35p or 55p.
At first sight, that might seem a reasonable proposition. Why shouldn’t Wales have the same freedom as the Scots, after all? And don’t the Tories say they’d cut taxes for us all if they had these powers (even if their landowning leader in the National Assembly says he’d only cut them for the richest 90,000 people in Wales)? Unfortunately, it’s not quite that simple. Because every penny the Tories cut off our taxes (if, heaven forfend, they ever got elected in Wales) would mean a cut in Welsh budgets of £200 million, at a time when the Tory-Liberal Coalition has already taken £1.7 billion from us, and are coming back for more if they win in 2015.
We know a Tory Government in Westminster would cut the Welsh block grant if Wales cut its taxes. They would use this as another means to pursue their goals of shrinking public spending and forcing privatisation of the public services – health and education – that Wales has wisely kept out of private hands. You want better public services, they’d say, well don’t look to us for fair funding, you’ve got the powers: raise the money yourselves.
No, the Tory agenda is quite clear, which is why they aren’t too bothered to look into the details of how income tax devolution might work for Wales: whether we’d be better or worse off, or whether, in fact, it would work at all? If they were bothered, they’d surely have done some analysis to figure out whether it was feasible, how much it might cost to run two separate tax areas and what any unintended consequences might be. But the uncomfortable truth is that they’ve done none of those things. Not one.
They have absolutely no idea what the price tag for the Welsh Government might be, or of the impact on businesses with both Welsh and English taxpayers on the payroll. They have no clue how many people might move to or from Wales to exploit any difference in the rates, behaviour that would be entirely rational when faced with the ‘competitive advantage’ that David Jones wants Wales to aim for. Crucially, they’ve made no analysis of the impact lower rates in Wales, which, remember, the Tories say they would deliver, would have on attitudes in England’s regions that remain subject to centrally determined tax rates, and to the Barnett Formula support for Wales, which those taxes underwrite. Though Barnett may be flawed, it still provides us with £112 for every £100 of English public spending. How long would solidarity and support for Barnett last in Bristol or Chester, Herefordshire or Shropshire, when border Tories started complaining about the unfairness of lower rates in Wales, I wonder?
Of course, the Secretary of State for Wales will tell you that he’s got the Silk Commission which addressed some of those questions, a referendum first, and the example of Scotland to follow too. But as far as Labour is concerned, Parliament has not outsourced scrutiny of new laws to the Silk Commission or any other. Cross-party it may be, elected it is not. And I am quite sure that Paul Silk would expect Parliament to undertake detailed scrutiny of any of his proposals, especially something as significant as Wales’ partial withdrawal from the United Kingdom’s taxation system. Also, while we absolutely support the Silk’s proposal for a referendum on the issue, the people of Wales would expect the Parliament at Westminster, as much their Parliament as it is any of the nations of the UK – indeed as much their Parliament as the Assembly in Cardiff – to do its job and make sure that the implications of a yes vote were properly understood.
To date this scrutiny has focused on the model that might be on offer – in particular whether the Welsh Government should be able to vary each band independently, or can only move them all ‘in lockstep’. Entertaining though it is to see David Jones and his Assembly leader Andrew RT Davies squabble so publicly over this question, the reality is that the debate about lockstep is secondary to the primary question of whether Wales would benefit from these powers at all. That said, it is right, of course, and entirely responsible for the Welsh Government in Cardiff, which might have to exercise these powers as they are proposed from the Tories in Whitehall, to question their utility without the lockstep. But against that utility must be balanced the issue of tax competition between nations and regions, risking a race to the bottom.
As for the argument that Scotland’s got these powers so why might Wales not want them. Well, simply, Wales is not Scotland. And For Wales, see Scotland isn’t reason enough to make the argument for total symmetry in our settlements – even if, in certain areas, more symmetry might deliver greater stability to those settlements.
Wales’ population is 2.2 million less than Scotland, our historic, legal, financial and economic connection with England that much greater, our border more populous. Scotland’s economy is wealthier than ours, with oil, financial services and powerful city engines in Edinburgh and Glasgow. And, most importantly, as any variance in tax rates will require people to register as English or Welsh taxpayers, based on both residency and ‘connection’ to Wales, whereas only 4% of the Scottish population lives within 25 miles of the border, almost 50% of the Welsh population does, and nearly 10% of the entire English population too: 6.3 million people in total. Across much of Wales people’s working and social lives take them regularly back and forth across the border.
So straightforward comparison with Scotland is facile, and detailed analysis essential. Already the Scots are set to spend £45 million just preparing to take on the powers in 2016, enough to scrap the bedroom tax in Wales tomorrow or put 14,000 youngsters back to work. How much more complex and expensive a task might that be for the Welsh Government to bear, with the radically different make-up of our border and the integration of our economy with England?
But there’s another potential cost at stake in this debate; not just the set-up expense of establishing a new system, nor even the baking in of the Barnett gap should the system be imposed on Wales before Silk’s other caveat – fair funding agreed between the UK and Welsh Governments – is addressed. No, the real cost may be the damage to the Union of the United Kingdom, to the solidarity and common threads that bind us. Because what is a Union if not, at base, an economic and social alliance through the pooling of risk and the sharing of rewards? Yes, we share cultural, political and historical bonds too, but in practical, tangible terms, it is a common defence and foreign policy that protects and unites us at our British borders, and a common policy of taxation and social security that binds us within them.
That union is more fragile today than it has been for several generations. Not just in Scotland, but in Wales where the presence of a Tory Government at Westminster strains our patience, and in England, where frustration at English identity’s non-representation, strains the bonds too. In fact, look beyond our shores and note that those traditional alliances and bonds are strained right across Western democracies, as nationalist protectionism and racial discrimination rise up once more in austerity and poverty. It is not just our economics that bear some resemblance to those of the 1930’s, but our politics too. However, Labour, the party of the UK and of devolution, a social democratic party with roots and representation in every corner of our isles, has a duty to defend the unity of our peoples as well as to reflect and cherish the uniqueness of their national identities. Because in that unity there is strength and hope, solidarity and reciprocity. In that unity there are British values and Labour values.
Devolving 10p of income tax to Wales would not break those bonds tomorrow, of course it wouldn’t, and there are obviously examples of federalised tax systems in other unitary states. But there are risks in pursuing that course in Britain, especially in these times, and especially for those parts, like Wales, that currently spends far more than we earn. So Labour does not set its face against ever seeking incomes tax devolution for Wales, but we will weigh carefully the risks against the benefits we’re promised. And when there are Tories making the promises, we’ll greet them with a jaundiced eye. The people of Wales, whose interests we serve, deserve that from Labour. And the people of Britain, whose union we so value, deserves that too.
Support for devolution is not some nationalist virility test, where every measure must be grabbed without thought as if, by default, it must be better if devolved. Welsh devolution is for a purpose: for better government, local accountability and greater prosperity for Wales. It is not meant to jeopardise the union of our United Kingdom and would not command the support of the Welsh people if it did. Those are the yardsticks against which we will weigh the Government’s plan to devolve income tax. A One Nation Tory party would have understood that. This tin-pot, Tea Party version just doesn’t get it.