Wales Bill — House of Lords, 2017-01-10
Topic: Macroeconomics
Mair Morgan (Labour, Centre-left): My Lords, I wish the Minister a happy new year. It is extremely good news that the Welsh Government were able to come to an agreement with the UK Government on the impact of partial income tax devolution to Wales and the other taxes due to be devolved as a result of the Wales Act 2014. We were all aware that there was no chance that this Bill could be passed if there were no agreement As financing of the Assembly is central to this Bill, it is worth pausing on the matter for a while, as it is crucial to the deliverability and provision of services in Wales. I turn first to the effective change in the method of financing Wales as a result of partial income tax devolution. It has long been argued that due to its relative degree of poverty, Wales has been short-changed over a relatively long period, in particular when compared to Scotland, on the basis of the Barnett formula. In this new deal Wales will have access to around £2.5 billion in new tax revenues from the people of Wales. The Treasury will of course be anxious to cut the Welsh block grant to an equivalent amount If income tax receipts were to stay constant in both Wales and the UK over the long term, this would not be a problem. However, the fact is that in future years this block grant adjustment will go up or down depending on what happens to revenues in the rest of the UK. Unless Welsh taxes are to grow as quickly as England’s, we could be in trouble in future years. I am afraid that the chances of this happening are quite remote, not because Wales is incapable of raising its game but because it starts off with much lower incomes and does not have the tools to change the situation if the UK Government implement certain policy decisions which may make sense in England but do not make sense in Wales. Fiscal responsibility on the whole remains at the UK level To take as an example the UK Government’s policy of increasing the level at which taxpayers start to pay income tax—the personal allowance—this is great news for people on low incomes. But, because proportionately more Welsh taxpayers than English taxpayers are taken out of paying tax altogether, less tax will be collected in Wales to pay for our schools and hospitals, and Wales will have no control whatever over this decision. To be fair to the Treasury, and to its credit, it has recognised this and has agreed to make separate block grant adjustments for each of the three bands of income—so that was a good win for Wales I will heap even more praise on the Treasury—which I assure noble Lords does not occur often. It has been agreed that the Barnett floor will be made permanent, which means that Wales should not lose out under this deal either now or in the future. In the past, the system has worked because, ironically, the more public funding is spent in England, the worse off Wales becomes in terms of expenditure relative to England. This led Gerry Holtham to claim in his report that Wales was being short-changed to the tune of around £300 million a year However, the fact is that in recent years we have had an extended period of austerity. Wales has also had relatively slower population growth, which means that for every £100 per head spent in England, the Welsh Government now receive approximately £120 per head—higher than Holtham’s suggestion that Wales needs around £115 per head to respond to the needs of the Welsh people. Of course, we are not dancing in the streets in Wales, because this really reflects a reduction in the role of the state—a principle to which we are opposed, not just in Wales but across the UK. We will start believing Theresa May’s rhetoric on the shared society when she stops shrinking the state and starts expanding it. That is worth noting. We are also aware that this situation is likely to change at some point in the future, and we need to focus on this issue In accepting that the Barnett floor will be made permanent, Wales will always be assured of 115% funding for its devolved public services. This is extremely welcome news, and I hope that it will go some way towards alleviating the concerns that my noble friend Lord Hain and others expressed in Committee. The slight concern I had in relation to the impact of population change, over which of course the Welsh Government have little say, has been addressed by the Barnett bonus that has been agreed to, which is a 105% multiplier to any Barnett consequentials from 2018 On the amendments which relate to borrowing powers—my Amendment 73 and government Amendment 73A—we made it clear at Second Reading and in Committee that one of the key requirements, if there should be a partial income tax devolution to Wales, was that there should also be an increase in the amount the Welsh Government are allowed to borrow. We, along with the Welsh Government, are intensely aware of the restrictions that austerity, along with the potential serious loss of European funding, will put on our ability to invest in infrastructure in particular. We are aware that, despite having the lowest unemployment rates in the whole of the UK for the first time ever, low productivity rates are a real curse on the Welsh economy, and that infrastructure investment would go a long way towards improving the situation and increasing the GVA of Wales In our amendment we request that the amount allowed to be borrowed should be £2 billion. This is based on the Holtham recommendations, which take into account the fact that Wales has borrowed very little under the PFI initiative compared with other parts of the UK. The amount offered by the Treasury is £1 billion. This is £500 million more than the current amount but £1 billion less than we had hoped I have spoken to the Finance Minister in the Assembly and he suggested that, in the current circumstances, as we have to use revenue from the Welsh budget to support any capital borrowing, the amount we can borrow is limited because we would have to divert money from the regular running costs of the NHS, education et cetera to support that borrowing. This underlines how flawed and self-defeating the policy of austerity being pursued by this Government is.