Devolving tax and borrowing powers toWales would empower the Welsh electorate and Government, increase responsibility and strengthen Wales and thus the United Kingdom, according to the Commission on Devolution in Wales, which today published its report on fiscal powers.
The Commission’s report ‘Empowerment and Responsibility: Financial Powers to strengthen Wales’ makes 33 recommendations which, if implemented, will increase the financial accountability of the National Assembly for Wales and make it responsible for determining a proportion of its own budget for the first time.
The proposals to give Wales its own tax and borrowing system for the first time represent a significant change which should be implemented step-by-step to build experience and balancing risks to the Welsh and UK budgets.
The Commission recommends that the National Assembly for Wales should be empowered to take tax decisions in devolved policy areas, starting with the smaller yielding taxes:
• landfill tax, stamp duty land tax, and aggregates levy should be devolved and business rates should be fully devolved;
• Air Passenger Duty should be devolved for long-haul flights initially, with future full devolution possible;
• the Welsh Government should have increased power to introduce levies reflecting Welsh priorities.
To make the Welsh Government responsible for funding a material amount of the money it spends, significantly improving financial accountability, the Commission recommends:
• 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;
• the transfer of income tax powers should be conditional upon resolving the issues of fair funding in a way that is agreed by both the Welsh and UK Governments;
• income tax devolution should be subject to a referendum and provisions for the referendum should be contained in a Wales Bill, which should be introduced in this Parliament to take forward the report’s recommendations;
• corporation tax should not be devolved unless it is devolved to Scotland and Northern Ireland. However,Wales should be able to have more than its population share of Enterprise Zones with enhanced capital allowances if the Welsh Government pays the incremental cost.
Where an existing UK tax is devolved, the report proposes fair mechanisms for determining the reduction in the block grant that would follow.
The report also makes a number of recommendations in relation to borrowing powers, including:
• a power to borrow to support increased investment in infrastructure;
• a power to borrow to fund current spending to manage greater variability in tax revenues;
• borrowing powers to be subject to prudent limits agreed with HM Treasury.
The report also recommends other improvements in financial accountability, including publication of more information on the Welsh public finances, the development of a Welsh Government Treasury function and allowing the National Assembly to decide its own budget scrutiny processes.
The package of recommendations would ensure that around one quarter of devolved spending in Wales would be determined by taxes decided inWales(including Council Tax and Business Rates).
The full report and its Executive Summary can be downloaded from the Commission’s website.
The Commission’s Chair Paul Silk said: “Our package of recommendations meets the test of our Terms of Reference: to come up with recommendations which improve financial accountability, are consistent with the UK’s fiscal objectives and command a wide degree of support. In order to achieve this, we placed great emphasis on gathering evidence, consulting widely and listening to the wide range of views presented to us.
“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.
“What we are recommending is significant and historic. It will give Wales its own tax and borrowing system for the first time. The Commission is delighted to present our agreed report to the UK Government and we hope for speedy implementation.”
Secretary of State for Wales David Jones said: “I am grateful to Paul Silk and all the commissioners for their hard work in bringing together this report. I know that the Commission have sought opinions from across Wales, so that this report is reflective of a very wide range of views on the future fiscal responsibilities that the Welsh Assembly and the Welsh Government should hold.
“The Commission is supported by all four political parties in the Assembly and the publication of the report today demonstrates the importance of cross-party working.
“I will now consider the report’s recommendations, discuss with relevant colleagues across Government and respond formally in due course.”
Chief Secretary to the Treasury, Danny Alexander, said: “I am grateful to Paul Silk and the Commission for the expertise and rigour that they have brought to this important work. 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 Commission on Devolution in Waleswas set up by the Secretary of State forWales in October 2011. Its remit was divided into two parts.
During Part I, the Commission was asked to consider the National Assembly’s current financial powers in relation to taxation and borrowing and report by Autumn 2012.
Two issues were excluded from its Part I remit and have been taken forward through separate intergovernmental talks, namely, questions about the future of the Barnett formula and fair funding; and the use of the Assembly’s existing borrowing powers.
The Commission will now begin its work on Part II, reviewing the current non-financial powers of the National Assembly forWales. It will report on Part II by Spring 2014.