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Wales should have power to raise taxes, report finds Wales should have power to raise taxes, report finds
(about 2 hours later)
The power to raise taxes and borrow money should be devolved to Wales, a key report on the future of the country and its relationship with the rest of the UK has concluded. A commission set up to examine the future of devolved government in Wales is recommending new financial powers that would result in a "fundamental constitutional shift" from London to Cardiff.
A "significant and historic" series of recommendations designed to "empower" Welsh voters and the Welsh government have been set out in the Silk report, written by the Commission on Devolution in Wales. The most eye-catching recommendation is that the Welsh government should be able to vary the level of income tax residents of Wales pay. The commission claims this would make the government in Cardiff more accountable to its people and give it greater incentive to improve the economy.
The report makes 33 recommendations and says that, if implemented, they would make the Welsh assembly responsible for determining a proportion of its own budget for the first time, thus making it more accountable to voters. Other measures put forward by the Commission on Devolution in Wales, which was set up by the UK's Tory-Lib Dem coalition, include giving Wales control over some smaller taxes such as stamp duty and air passenger duty. It also calls for Wales to be given powers to borrow money to fund infrastructure projects.
Recommendations in the report, entitled Empowerment and Responsibility: Financial Powers to Strengthen Wales (pdf), include: The chairman of the commission on devolution in Wales, Paul Silk, described the report (pdf) – which has 33 recommendations – as "significant and historic", adding: "It will give Wales its own tax and borrowing system for the first time."
• The national assembly for Wales should be empowered to take tax decisions in devolved policy areas, starting with the smaller-yielding taxes, such as landfill tax, stamp duty and aggregates levy. He is calling for a new Wales bill to be introduced in this parliament to take forward the recommendations that need legislation. He envisages the smaller taxes would be introduced by 2016 and the changes to income tax – which he says would need a referendum – would come into force by 2020.
• Air passenger duty should be devolved for long-haul flights initially, with full devolution possible in future. Silk, a former clerk to the Welsh assembly, said: "The commission have all agreed recommendations which we firmly believe would benefit Wales and strengthen its democracy and economy. Our proposals would provide the Welsh government with an important set of fiscal levers and would enable political parties in Wales to offer people real fiscal choices."
• Responsibility for income tax should be shared between Cardiff Bay and Westminster, with the Welsh government being able to vary income tax rates within the UK income tax structure (but income tax devolution should be subject to a referendum). Currently the bulk of the Welsh national assembly and government's budget is made up of a block grant from Westminster. So though the government is responsible for spending £15bn, it does not have the power – or responsibility – to raise the funds.
• Power to borrow to support increased investment in infrastructure. In its 200-page report the commission calls this an "anomaly" that did not "meet the requirements of a mature democracy".
According to the report, the package of recommendations would ensure that around one quarter of devolved spending in Wales would be determined by taxes decided in the country. It calls on the Welsh government to "share responsibility" with the UK government in the setting of income tax rates. The commission suggests the UK government decides the structure of income tax, including the personal allowances and the income thresholds. Westminster would then reduce each rate of income tax that applies in Wales by 10p in the pound, and also reduce the grant to the Welsh government by an equivalent amount.
The chairman, Paul Silk, said: "The commission worked closely as a team over the past year and have all agreed recommendations which we firmly believe would benefit Wales and strengthen its democracy and economy. Our proposals would provide the Welsh government with an important set of fiscal levers and would enable political parties in Wales to offer people real fiscal choices. The Welsh assembly would then vote to decide the level of Welsh income tax for each rate individually. This could restore the 10p that was deducted (to restore the status quo) or different rates could be applied to each rate.
"What we are recommending is significant and historic. It will give Wales its own tax and borrowing system for the first time." At the moment Wales can only borrow from the Treasury to manage its cash flow. The Silk commission says it ought to be able to borrow to fund infrastructure projects.
The secretary of state for Wales, David Jones, said: "I will now consider the report's recommendations, discuss with relevant colleagues across government and respond formally in due course." It concludes: "Taken together these recommendations would create a Welsh tax and borrowing system for the first time. They would mean that around a quarter of the Welsh budget would be funded by taxes decided and raised in Wales. In our view that would provide real financial accountability, empowerment, fiscal responsibility and choice for the National Assembly for Wales."
Danny Alexander, the chief secretary to the Treasury, said: "I look forward to reviewing the commission's recommendations and working with the Welsh government and all parties in the Welsh assembly to deliver an ambitious outcome that best meets the needs of the people of Wales." The report flags up one "constitutional event" that might have "profound consequence" for Wales along with the rest of the UK – the Scottish referendum. It says: "The Welsh devolution settlement will need to be kept under review in the light of developments in Scotland."
The cross-party commission was set up by the UK government in October 2011. Its remit was divided into two. This first part was to consider the assembly's financial powers. It will now begin the second part, taking a wider look at the powers of the national assembly, to report by spring 2014. Silk's recommendations will cause passionate debate. The Labour-led government in Wales has backed the idea of some tax-raising powers but has not put its weight behind the idea of varying income tax rates, arguing that it would be difficult to administer, partly because of the porous border between England and Wales.
The Electoral Reform Society Wales warned the size of the assembly would need to be reviewed if it received extra powers. The Welsh first minister, Carwyn Jones, called the report "very comprehensive and well-argued". He said he was "particularly pleased" the commission had endorsed devolution of taxes such as stamp duty and borrowing.
It says consideration needs to be given to how many assembly members would be needed in future to ensure ministers were properly accountable for the £15bn budget. But he was more cautious on income tax: "We will look carefully at the proposal to move towards devolution of some powers over income tax – provided the people of Wales have the final say."
The society's director, Steve Brooks, said: "Over the years, additional powers have been devolved to the assembly including full law-making powers last year. While this is a welcome maturing of devolution, the fact that 13 of our 60 assembly members are either ministers or preside over assembly business means that the number of government backbenchers and opposition members able to hold the Welsh government to account is limited. Paul Davies, the Conservative shadow minister for finance at the assembly, said: "We believe that this is a comprehensive package of reforms to make the Welsh government more accountable for its decisions."
"Voters across Wales will want to know that ministers are using any new tax and borrowing powers responsibly. We need a strong national assembly that's able to hold the government's feet to the fire, and scrutinise how taxes are raised, public money is spent, and laws made." Kirsty Williams, the leader of the Liberal Democrats in Wales, said: "We believe that gaining powers over taxes will make the Welsh government more accountable to the people of Wales and will encourage the government to pursue better polices for growth."
The Electoral Reform Society Wales warned the size of the assembly would need to be reviewed if it received extra powers, suggesting that the current number of 60 might not be enough.
CBI Wales said it believed the government should consider establishing a "strong Welsh Treasury."
The cross-party Silk commission was set up by the UK government in October 2011. Its remit was divided into two. This first part was to consider the assembly's financial powers. It will now begin the second part, taking a wider look at the powers of the National Assembly, to report by spring 2014.
How would the changes affect Welsh people?How would the changes affect Welsh people?
The Silk report sets out the effects Welsh citizens would notice if its recommendations were adopted. They include:The Silk report sets out the effects Welsh citizens would notice if its recommendations were adopted. They include:
• All income tax payers would pay part of it to the Welsh government. In addition, the rate of income tax they paid would be determined by the Welsh government. So Welsh income tax payers could see a link between tax and spending in Wales.• All income tax payers would pay part of it to the Welsh government. In addition, the rate of income tax they paid would be determined by the Welsh government. So Welsh income tax payers could see a link between tax and spending in Wales.
• The differential between basic and higher rates of tax would be determined by the Welsh government so it could make the tax system more or less progressive than the rest of the UK, according to the preferences of Welsh citizens.• The differential between basic and higher rates of tax would be determined by the Welsh government so it could make the tax system more or less progressive than the rest of the UK, according to the preferences of Welsh citizens.
• Houses bought would be subject to a Welsh stamp duty or whatever replacement tax the Welsh government might introduce once stamp duty was devolved.• Houses bought would be subject to a Welsh stamp duty or whatever replacement tax the Welsh government might introduce once stamp duty was devolved.
• People making long-haul flights from a Welsh airport would pay a Welsh rate of air-passenger duty, which could be higher or lower than in England.• People making long-haul flights from a Welsh airport would pay a Welsh rate of air-passenger duty, which could be higher or lower than in England.