Tuesday 7 January 2014

Cold and drafty Wales Bill

The formal UK Government response to Silk I was laid in front of the UK Parliament
just before Christmas. What's proposed? And what does it  mean for Wales?
(Pic : Press Association via BBC Wales)

Back on December 18th, the UK Government launched the draft version of the Wales Bill (pdf) – the "meat" of the UK Government's response to Part I of the Silk Commission (devolution of limited fiscal powers), but also including changes to the Assembly itself and how AMs are elected.

As it's a draft Bill, it could still significantly change between now and whenever the full Bill is introduced to the House of Commons.
Pre-legislative scrutiny of the draft Bill, due to be undertaken by the Welsh Affairs Select Committee, started today.

So, as you might expect me to do, it's worth looking at the draft Bill in a bit more detail.

Taxation Powers

Subject to a referendum, Wales will have the power to vary income tax rates
for defined "Welsh taxpayers". However, are the powers functionally useless?
(Pic : The Telegraph)
The draft Bill proposes as follows :

Miscellaneous Taxes
  • Enables the creation of completely new devolved taxes via an Order in Council.
  • Removes existing stamp duty collection and management in Wales, granting the Assembly full powers to introduce its own land transaction tax.
  • Ditto existing landfill tax collection and management, granting the Assembly control over landfill tax.

Welsh taxpayers
  • Defines a "Welsh taxpayer" as someone who's resident in the UK, pays UK income tax, and meets one of the following criteria :
    • Has a "close connection" to Wales (presumably as a permanent resident).
    • Has no close connections with England, Scotland or Northern Ireland and spends most of the calendar year in Wales over other parts of the UK.
    • Is an MP, AM or MEP representing a Welsh constituency.

Income tax referendum
  • A referendum on income tax powers will be triggered when the Assembly passes a vote in favour of holding a referendum by a 2/3 majority.
  • The Welsh Secretary will have 180 days from the moment a motion's passed by the Assembly, to present an Order calling a referendum to both Houses of Parliament for approval. The Welsh Secretary will also have the power to "veto" any referendum.
  • In the event of a yes vote, an Order will be made by HM Treasury indicating when Welsh income tax powers come into force.
  • In the event of a no vote, a referendum on the matter could still be called at a later date via an Order in Council.

Income tax powers

If there's a yes vote in a referendum, the draft Bill :
  • Gives the National Assembly the power to set a "Welsh rate" of income tax for "Welsh taxpayers".
  • Outlines that income tax powers would be similar to those coming into force in Scotland in 2016 (if they don't vote for independence), which will mean income tax rates in Wales will be lowered by 10p in the pound and the Assembly will then set a top-up Welsh rate. However, the tax is "lock stepped", meaning tax rates in different bands can't be set independently of each other. If income tax is raised or lowered by 1p, for example, it has to apply across all income tax bands.
  • Outlines various mechanisms by which a Welsh rate of income tax would be collected by HM Revenue & Customs, how tax relief schemes would fit into it, and monitoring HMRC's performance in collecting a "Welsh rate" of income tax.

Borrowing Powers

Although still out for consultation, the new borrowing powers will
almost certainly be used to fund  M4 improvements in Newport.
(Pic : Sabre Roads)
The draft Bill :
  • Changes the circumstances by which Welsh Ministers can borrow as set out in the Government of Wales Act 2006.
  • Gives Welsh Ministers the power to borrow :
    • to manage volatility in receipts and forecasts, where forecasts differ from incomes (revenue expenditure).
  • Sets the borrowing limit at £500million for capital expenditure and £500million for revenue/current account expenditure. However, the borrowing limit can be changed by the Welsh Secretary up or down, subject to approval by the House of Commons.
  • Repeals borrowing powers relating to the, now defunct, Welsh Development Agency (WDA) - though it doesn't affect any outstanding debts.
  • Gives HM Treasury the power to set a cap on housing debt held by Welsh local housing authorities.
Changes to the Assembly
The "WAG" is dead. Long live the "WG"
- although it's already gone.
(Pic : NHS Wales)
The draft Bill :
  • Increases the length of an Assembly term from four to five years.
  • Will allow Assembly candidates to stand in constituencies and on regional lists at the same time.
  • Bans MPs from being Assembly Members at the same time, except where there's a UK General Election within 6 months of an AM being elected an MP (which is unlikely).
  • Formally changes the name of the "Welsh Assembly Government" to "Welsh Government" in the Government of Wales Act 2006.
  • Places a duty on the Law Commission to provide advice to the Welsh Government directly, and also places a duty on Welsh Ministers to report any reforms in devolved areas proposed by the Law Commission to the Assembly.

Reaction and Conclusions

The proposals aren't that impressive, but one seemingly overlooked point could leave
the door open for Wales to create a completely new tax to replace stamp duty.
(Pic : The Guardian)
I'm not sure whether to call this an important law or not, as you probably know I wasn't impressed with the Silk Commission's recommendations anyway. This is an even further watered down version of that.

It's basically a transplant of some aspects of the Calman Commission's finding's. Silk I was a complete waste of time and effort by all involved, and even key findings of the Holtham and Richard Commissions have been effectively ignored.

I suppose it's a step in the right direction, but the powers – borrowing aside – are piddling. Air passenger duty (APD) has been taken off the table while, for now, there's no mention of non-domestic(business) rates – though I understand business rates will be devolved at some point.

By "lock stepping" income tax powers,
any heady ideas Welsh parties had – including, ironically, the Welsh Conservatives – of creating a "dynamic low tax economy" have been blown apart.

Under these proposals, income tax cuts in Wales would be more expensive because changes will have to apply across all tax bands at the same time
. The same goes for tax rises - so tax rises for top rate payers would have to be matched by tax rises for basic rate payers.

Andrew Davies (Con, South Wales Central) seems to have forgotten that, judging by his Click on Wales article today.

The income tax powers, as presented, are functionally useless as - minus an ability to set income tax rates in each band independently from one another - I suspect income tax rates would always be set in line with England to avoid scaring the flock.

Then there's the little matter of convincing Welsh Labour to support a referendum, and winning it off the back of such a mind-numbingly technical matter. As it is, I'd either abstain or vote no. A "hard nat" contemplating voting against further powers for the Assembly - that's how poor a deal this is.

Of course, Scotland wasn't bound to a referendum on Calman. They can ditch the patronisation of Westminster and get real fiscal powers by voting yes in September.

The borrowing powers are long overdue and give the Welsh Government some "grown up" responsibilities. It remains to be seen whether both governments are intent on splashing it up the wall building the Newport bypass, but presumably that's what the borrowing will be used for – at least initially.

The most interesting thing here though is that the wording appears to leave the door open for the Welsh Government to create any tax they want on property transactions – not specifically continuing with stamp duty.

Could that mean Wales could create a "Land Value Tax"? As has been mooted by several people, including Health Minister Mark Drakeford (Lab, Cardiff West)?

In terms of the timing, it might've been wiser to have waited until after Silk II, in order to create a new Government of Wales Act with any (potential) new devolved powers wrapped up in a single piece of legislation alongside these financial powers.

This could hint, firstly, that Silk II isn't going to propose anything significant in way of powers; or secondly, that any new powers will simply be devolved via Orders in Council or amendments to the GoW Act 2006. If we're going to move to a reserved powers model though - as many have called for -  I would expect it to require significant primary legislation in Westminster. Time's running out to get than on the table before the 2015 UK election.

The reaction's been muted. The Welsh Government described it as an "important step forward", though they were disappointed that APD wasn't devolved and that income tax powers aren't set out as outlined in Silk I.

As you might expect, the Conservatives and Lib Dems broadly welcomed it, though the latter less enthusiastically than the former.

Plaid Cymru's Westminster group say they'll try to amend the Wales Bill to ensure the full recommendations of Silk I are included, while Leanne Wood recently ruled out campaigning for a yes vote due to the "lock step" provisions which, as I've also said and has been mentioned on National Left, render the income tax powers useless.

The Institute of Welsh Affairs weren't impressed either. Lee Waters used relatively strong terms to – broadly speaking – dismiss the draft Bill as "hollow".

Returning to the Assembly changes, the Electoral Reform Society welcomed the reversal of the ban on candidates standing jointly on constituency and regional lists, though they called for a 12-month "window/overlap" to allow newly-elected MPs to temporarily retain their Assembly seat(s).

That will no doubt be good news for Leanne Wood (Plaid, South Wales Central) and Leighton Andrews AM (Lab, Rhondda) in particular. When Leanne announced in 2012 that she would stand for a FPTP constituency - subsequently Rhondda -  at the time I said it was a "pointless risk". Depending on selection to the South Wales Central list for 2016 and Plaid's performance, there's probably no risk to her seat now. I wouldn't be surprised if we see AMs from all parties standing in constituencies and on regional lists in 2016, as happened prior to 2006.

The "WAG" is formally no more too, though the name changed (unofficially) in 2011. There was an opportunity, I suppose, to rename the National Assembly to something different, like Welsh Parliament.

There isn't anything wrong with the name "National Assembly" anyway (apart from "for Wales" instead of "of Wales" – yes, it's important) and changing it would result in a whole host of issues like re-branding and deciding what to call elected members.

So, all in all - *grunt of apathetic acknowledgement *.


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