Wales starts to grapple with numbers

The Silk Commission’s remit to look at the possibility of giving the Welsh Government fiscal powers is yet another stage on the learning curve of governance that Wales has climbed in recent decades. First, in the days of the Welsh Office, we dealt with some limited autonomy in executive action, before moving on to a more extended and democratised version of that in the first two terms of the National Assembly. Then we began to grapple with the legislative foundations of policy following the Governance of Wales Act in 2006, before getting primary powers in the wake of the 2011 referendum.

But it seems that nothing has prepared us for a debate on the harsher business of raising rather than spending public money. It has been a terra incognita to most of Welsh civil society outside local government. Is this, I wonder, the reason for the rather limited range of submissions from Wales to the Silk Commission inquiry – a lack of familiarity with the intricacies of taxation practice and theory? Perhaps our civil society is naturally more literate than numerate.

In the first part of its inquiry the Silk Commission, set up by the UK Government to look at the devolution settlement in Wales, has been ordered to concentrate on the question of fiscal powers, on the widely held premise that a body responsible for spending money should also be responsible for raising at least part of it. Controversially, the Barnett formula and borrowing powers were excluded from that remit. The Commission called for evidence on 25 November 2011, but set a deadline of 3 February for submissions. The long British Christmas break made this a tight deadline for many.

Taking the 41 submissions in the round, four things stand out:

• A strong division between those who adopt a maximalist position on the devolution of fiscal powers and those who are totally opposed. Those whose views fall between these two poles are for the most part tentative or conditional.

• Overwhelming support for reform of the Barnett formula across the political spectrum, and criticism of its exclusion from the remit.

• The intrusion of local government funding into the debate.

• The absence of any research base, particularly grounded in Welsh data, beyond that already provided by the Holtham Commission. This is exemplified by the fact of only one submission from a Welsh university academic, and that merely arguing for improved modelling of the Welsh economy and, seemingly, hoping to be commissioned to do it.

Government and Party submissions

Three of the four parties in the National Assembly have expressed support for varying degrees of tax devolution: Plaid Cymru seeking full fiscal autonomy, the Liberal Democrats wanting to increase ‘financial competencies’ as part of a move to a federal state, and the Welsh Conservatives Assembly Group arguing that Wales should determine a proportion of income tax. Outside the Assembly parties, only the Communist Party has made a submission, and is in favour of devolving income tax and corporation tax and giving the Welsh Government power to find an alternative to the existing council tax. There was no submission from UKIP or the Green Party.

The Labour Party, as such, has not made a submission, leaving it to the Welsh Government whose submission is very much conditional on what happens in Scotland and Northern Ireland and on the reform of the Barnett formula. Although it says it is open-minded on tax devolution, it restates many of the objections. A letter from the Welsh Conservative Party does not state a view but argues for clarity, good governance and a clear audit trail.

Support for a radical line on tax devolution is also taken by the Plaid Cymru-led Caerphilly and Gwynedd Councils, the only two councils to make their submissions separately from that of the Welsh Local Government Association (WLGA). The WLGA’s own document supports the devolution of taxation powers ‘on a case by case basis’, and conditional on the reform of Barnett. It argues that Barnett does not compensate for the low local government tax base in Wales based on lower property values. It advocates the application of the proposals for fiscal powers for Scotland – as they then stood in the current Scotland Bill – to Wales. Later amendments to the Scotland Bill to enhance its appeal to the Scottish Government means that the Bill itself is a moving target.

The WLGA is also in favour of borrowing powers for the Welsh Government Assembly but, in line with its belief in subsidiarity, is resistant to the devolution of business rates to the Welsh Government.

Only four submissions have been made by individual politicians. The Conservative AM, David Melding says there is a strong case for taxation powers, the devolution of which would also make it easier to extend borrowing powers to the Assembly. The Labour AM, Mark Drakeford, puts forward a case for a Land Value Tax, but does not address other issues. The Labour MP, Paul Murphy, a former Secretary of State for Wales, says there is no appetite in Wales for fiscal powers, which he claims would see Wales falling into a trap. Lord Garel-Jones, writing a one-page letter from an address in Spain, claims that Spain’s ‘over-enthusiastic’ devolution leads to excessive expenditure, prestige projects, corruption and a drift to separation.

The only input from the UK Government is a joint letter from the LibDem Chief Secretary to the Treasury, Danny Alexander and the Secretary of State for Wales, Cheryl Gillan, saying it will not be submitting evidence, despite the fact that the UK Government did give evidence to the Calman Commission in Scotland. “Our view is that this was only necessary because the Calman Commission was jointly established by the Scottish Parliament and the UK Government,” they say, which some might read as lame.

Stakeholder and lobbying organisations

It is striking how few organisations in civil society have made submissions. In all there are only 12 organisations involved in making eight submissions:

• The Changing Union Partnership of the Wales Governance Centre, the Institute of Welsh Affairs and Tomorrow’s Wales limits itself at this stage to setting the scene – particularly the case against Barnett – in readiness for a later submission that it plans for this summer. It does make eight specific recommendations, three of which are to do with the reform of the Barnett formula.  These are set out in full here.

• True Wales – the organisation that campaigned against the devolution of law-making powers during the 2011 referendum offers an ‘I told you so’ diatribe against the whole process.

• The Parliament for Wales Campaign has flickered into life to support a radical measure of devolution of fiscal powers, saying it is not right that the Isle of Man and Britain’s other offshore islands should have more financial autonomy than Wales.

• PwC, one of the big four accountancy firms, has clearly taken advantage of its knowledge base in all parts of the UK. It accepts the accountability argument for making the Welsh Government responsible for raising some part of its revenue, and says that Wales should not be treated in isolation from Scotland and Northern Ireland. It also criticises the exclusion of the Barnett formula issue from the Silk Commission’s remit. Although it accepts that some minor taxes could be devolved, it says the only realistic major option is income tax. It sees many obstacles to the devolution of national insurance, VAT and corporation tax.

• The Federation of Small Businesses concentrates on business rather than personal taxation and is in favour of taxation powers for the Assembly only if they are to be used to lower and simplify taxes. It is also tempted by the prospect of devolving corporation tax although it acknowledges that there must be checks and balances.

• The National Farmers’ Union shares the FSB view that taxes should be lower, but also argues that the accountability argument is not sufficient reason to give the Welsh Government fiscal powers. In its view a referendum would be required.

• Sustrans, the environmental organisation supporting ‘smarter travel choices’, largely confines itself to a case for the hypothecation of Fuel Duty to incentivise sustainable travel, but does say Wales should have greater freedom to determine the balance between revenue and capital spending. .

• The Three Welsh Fire and Rescue Services wrote to support the WLGA line.

• The South East Wales Economic Forum says its priority is that Wales should get the same borrowing powers as Scotland. It also argues that Wales needs to develop a better relationship with the UK Treasury.

• The Wales Audit Office says its only interest is in the integrity of financial accountability and that any changes should ensure that the responsibilities of the UK Parliament and the National Assembly are clear and unambiguous.

There is a striking lack of submissions from Welsh universities. Apart from the Wales Governance Centre’s involvement in the Changing Union partnership with the IWA and Tomorrow’s Wales, the only submission is from the Welsh Economic Research Unit at Cardiff Business School, and even this is a less a submission on the issues as a plea for business from the Commission. Gone are the days, alas, when Welsh universities were doing pioneering work in modelling the Welsh economy.  The one other academic submission is from Scotland, from Professor David King at the University of Stirling who supports some measure of tax devolution.

Individuals

There are also sixteen submissions from individuals outside the political parties – mostly true believers in either the positive or the negative proposition. In many cases their political allegiances are discernible even if not stated. Five are in favour of a radical transfer of fiscal powers to Cardiff, and one would like to see borrowing powers but is sceptical on income tax. The other nine are opposed to any transfer of fiscal powers with only slightly varying degrees of vehemence. For the most part they are opposed to devolution in general.

But what now? The Silk Commission is touring Wales to gauge public sentiment, but that will not be of much help in nailing down the technicalities of taxation. Beyond such conventional public consultation, is it going to retire into a darkened room until it merges with some conclusions early next year? I hope not. There is a desperate need to feed civil society with good and clear information and to allow that civil society the time to mull over a trickier decision than it faced in last year’s referendum. The Changing Union partnership will do what it can to assist that process.