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Fairer funding for Wales

July 5, 2011 4:12 PM
By Peter Black
Originally published by Peter Black and South Wales West Liberal Democrats

Peter Black: I also welcome the fact that we have a consensual motion before us today: one that has all-party support and one that signposts the way forward in terms of how we are to advance this agenda in Wales and with the UK Government.

In terms of the detail of this motion, it is important that we acknowledge that there are a number of different elements to it. First, I think that there is unanimous support in terms of incorporating the Holtham floor within the funding formula. I suspect-and understand-that the UK Government is 99 per cent there in terms of agreeing that, and that it is just a matter of the timing of when that will be put in place. The important point for us, in terms of our interest, is to ensure that, when the UK Government comes to announce the terms of reference for its Calman-style process, the Holtham floor is not part of that but has already been put in place separately from it. The last thing that we need to do is to incorporate into a review something that has had agreement, which the Treasury has almost achieved. It will not cost the UK Treasury anything for the first two years or so of that floor being in place. That floor must be implemented irrespective of the terms of reference on how the Calman-style process advances.

We must also recognise that there are different agendas between the United Kingdom Government and the Welsh Government. I think that we all agree on borrowing, funding capital investment and the right to raise capital funds. Hopefully, that will be incorporated as part of that process. In terms of the discussions around the terms of reference for the Calman-style process, the UK Government wants to look at a wider agenda. By narrowing the terms of reference of what we want to look at, we are in danger of missing out in terms of what we can get out of that process. If we are too cautious, we might get very little. I do not think that we can pick and choose from the first and second parts of the Holtham document. We have to put it all on the table and let the UK Government look at it so that it can come to its own conclusions. Ownership is important. If the Treasury looks at the whole process, comes to a similar conclusion as Holtham, and has ownership of that agenda, we will benefit from that. However, if we argue quite stridently that we want to look only at certain taxes or the Barnett formula, but we are not currently convinced in terms of income tax, we are in danger of constricting what the UK Government looks at,and it may well be that the Calman-style process will turn out not to be to our advantage after all. We must be careful about how we deal with this in terms of talking to the Treasury as part of that.

The Welsh Liberal Democrats want to look at all the tax powers. We think that there are advantages to the Welsh Government being able to reduce corporation tax to stimulate businesses, in particular, and that that should be looked at as a part of this process. In the long term-not necessarily straight away-there are advantages to being able to vary income tax levels, because that gives you, as Ieuan Wyn Jones has just referred to, the responsibility for your budget. Having that responsibility is very important not only in relation to how the Welsh electorate views you but also how the UK Government views you as a partner. If it sees that you are trying to spend the block grant that it has handed down to you while continuing to nag about what it considers to be various side issues, it may not take you as seriously as it could.

Nick Ramsay: I am grateful to you for giving way. Do you agree that there is a danger and a complexity to devolving even corporation tax, which has been looked at as one of the easier taxes to devolve? If you looked at the level of reduction in the block grant that we got because we were raising corporation tax, you would see that it might be beneficial to certain areas of Wales, but that other areas could lose out because they were not getting the benefits of the corporation tax reduction and, likewise, they were not getting the money from Westminster.

Peter Black: There are dangers to any reform. You can always make a negative argument about any reform. What you must do is look at the positive aspects of that reform. In particular, how the Welsh Government applies this and how we scrutinise it are important. If we had powers over corporation tax, I envisage that we would want to apply it to the whole of Wales. It is possible that you could apply it to the Objective 1 areas, but you would have difficulties in doing that, so I think that you would want to apply it to the whole of Wales. There will always be dangers, but fiscal federalism empowers us in terms of our taxes, is more democratic and sustainable, and allows the development of a wider range of solutions to Wales's unique problems. That is the appropriate system of finance and funding for Wales, and across the United Kingdom.

In summary, the Welsh Liberal Democrats have argued for a long time for reform of the Barnett formula. That reform must take place. We must have the Barnett floor, separate from that, but the Calman-style process must be as wide-ranging as possible, because that is the only way that we will get the benefits that we need from the UK Government.