Welsh Grand Speech – Silk Commission

Diolch, Mr Owen. I will keep my contribution brief, as I did not intend to speak today.

We have had a very interesting and positive debate. As the hon. Member for Newport West said, it has lifted my mood no end. It has been further lifted by the news that Michu signed a four-year deal with Swansea, which was welcomed in my part of the world and also, I am sure, by the shadow Secretary of State, who I have seen down the Liberty a few times this year.

We know that the Silk commission is a process of compromise between the parties. The contribution of my right hon. Friend the Member for Dwyfor Meirionnydd outlined the points in our submission to the commission, although it was not accepted by Silk. It is essential that there is no cherry-picking of the report if we are going to move this process forward. I do not see the need for a referendum, but I am willing to accept it if it means that we can move forward with compromise and implement the Silk timetable as set out in his report.

There seems to be broad agreement on the issue of minor taxes, particularly because they trigger borrowing power. I welcome the comments of the shadow Secretary of State in that regard. Because there is broad agreement on these measures, they should be implemented in the Finance Bill in the spring. If the Government do not table provisions in the Bill, I invite Labour Members to put them forward. I assure them that the Plaid Cymru, Scottish National party and Green group will be more than happy to support those efforts, as Liberal Democrat colleagues will be as well. I am sure we can pursue the matter via the Finance Bill if that is the intention.

The big dividing line is on the income tax proposal. I find it strange that Unionist parties seem to be in favour of full devolution of some taxes yet opposed to the one proposal in the Silk report about a tax-sharing arrangement.

There are two key reasons why the income tax proposal should be implemented. The first is the accountability issue, which is something that finds favour with Conservative
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Members. When I do TV interviews and talk about the Welsh Government, I point out that it is essentially a spending body that operates on a pocket-money basis. It gets pocket money from the UK Government and spends it on pet projects. Empowering the Welsh Government with some responsibility for raising the revenue that they spend on public services would be a big step forward in the maturing of Welsh politics.

The main reason why Plaid Cymru Members would like to see the income tax proposals put forward is that they would incentivise the Welsh Government to promote economic growth and development. Income tax is a key job-creating lever. To that end, I was very pleased to see the proposal last week—not that I agree with it—from the Liberal Democrats about how they would use that power. It is a significant step forward in the debate on how those powers might be used.

We know that such powers are already devolved to Scotland. As I said in an intervention, when the Welsh Affairs Committee went to Edinburgh, academics, civil servants, economists, and even Unionist politicians in Scotland, far preferred the Silk Commission proposals to what they were offered via the Calman process and the Scotland Acts.

Another key reason why the income tax proposals are so important is that they will significantly increase the borrowing capacity on which the Welsh Government will be able to call. They do not necessarily need to change the income tax policy; the fact that they have that income stream coming in will enable them to fill gaps in the capital spend budget.

Roger Williams: The Silk report says that reform of income tax raising powers in Wales should be consequential on reform of the Barnett formula. However, some people say that the implementation of a Barnett floor would be enough to allow the proposals to go forward. Does the hon. Gentleman agree?

Jonathan Edwards: I will address that point later. I have a slightly different view from the hon. Gentleman, although, of course, Barnett reform has been a clarion call for my party and the Liberal Democrats for the best part of two decades.

The position of Labour Members on income tax is quite interesting. They seem to be concerned that if the economic performance of Wales continues to decline, the devolution of income tax might lead to less money being available for expenditure on Welsh public services, which clearly would be the case under the proposals. That seems to indicate that they have no faith in the ability of their party to control the Welsh Government to use those powers to improve the Welsh economy. That shows a complete lack of confidence in the First Minister and his team.

Owen Smith: The hon. Gentleman will not be surprised to hear me say that I repudiate completely the notion that there is any way he can infer that is what we think either from the comments we made this morning or on any other occasion. We have pointed to the detail that Silk lays out and the uncertainty in respect of the changing pattern of the Welsh work force and, in particular, the impact of the Westminster Government’s austerity measures on the Welsh ability to raise revenue. That is why we want certainty that we will be better off before we commit to supporting Silk on income tax.
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Jonathan Edwards: I am grateful for that intervention. The UK Government coalition has the strategic aim of rebalancing the economy geographically. That is something we welcome, both on an area basis and in terms of sectors of the economy.

The Parliamentary Under-Secretary of State for Wales (Stephen Crabb): On that point about rebalancing the economy, and to pick up on points made earlier by the hon. Member for Pontypridd, does the hon. Gentleman join me in welcoming the fact that there are 19,000 more manufacturing jobs this year than there were when we formed a Government two years ago?

Jonathan Edwards: I certainly welcome an increase in manufacturing. Wales has traditionally been a producing economy. We are well aware that more than a million manufacturing jobs were lost across the UK under the previous UK Government, and of course Wales faced the brunt of those hits. We definitely need—geographically and sectorally—to rebalance the economy. The UK economy as a whole needs to go back to producing goods, which is the traditional strength of the Welsh economy. If we are to go down the road of geographically rebalancing the economy, I would imagine that empowering the devolved Governments with fiscal levers would be a good way of achieving that. There is a pressing need to move on with the implementation of the Silk report to achieve some of UK Government’s core strategic aims.

The Institute for Public Policy Research, a traditional Labour think-tank, published an interesting report this week that argues for 100% devolution of income tax to all the devolved Governments for two key reasons: first, because it is the only way to save the Union, in the context of Scotland, as it would offer an alternative vision to the status quo to combat the call for independence in Scotland; and, secondly, because only fiscal empowerment will genuinely enable the devolved Governments to undertake political and policy divergence from what is being pursued at Westminster. It seems strange that certain hon. Members who are critical of UK Government policy—I am among the foremost of those—would be against giving the Welsh Government the fiscal autonomy to allow them to pursue a different policy path.

Barnett reform has been a clarion call and a main campaigning point—it could be called a signature policy—of my party for more than 30 years, but the bilateral negotiations between the UK and the Welsh Governments have been a disappointment. There has been no Barnett floor, no reform of Barnett and no progress on issues such as the housing revenue account subsidy scheme. The reality is that the Treasury has completely snookered the Finance Minister in the Welsh Government. I was not aware that further bilateral negotiations were ongoing, so I hope there might be progress. I had hoped that the First Minister might have had a reshuffle by now through which he had changed his Finance Minister, because then we might have had a stronger individual batting for Wales than the current incumbent.

I do not think that Barnett reform and the implementation of Silk need to be completely linked. Although we want to see progress on Barnett, the proposals in Silk, even on income tax, can be implemented without Barnett reform. However, I echo the concerns of the hon. Member for Swansea West, who is no longer in the room, that we should not lose sight of the
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importance of Barnett reform and just concentrate on the implementation of Silk. They are both important, but they are not directly linked.

As for the Labour party’s concern about Barnett reform, the sceptic in me thinks that although the tone of today’s debate has been positive, its call on Barnett might be a blocking mechanism to stop the implementation of Silk, and specifically the income tax proposal. If the Labour party is so concerned about Barnett reform, perhaps the hon. Member for Llanelli will take the opportunity to give a commitment to the people of Wales in her winding-up speech that Labour will include Barnett reform in its manifesto for the 2015 general election.

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