Library Note
Wales Bill (HL Bill 34 of 2014–15)
The Wales Bill would provide for a range of measures in three key areas. The first is elections to the
National Assembly for Wales, where the Bill would alter the length of the electoral term and rules on
candidacy. Secondly, the Bill would make provision with regard to a number of financial matters,
including the devolution of some tax-raising powers to the Welsh Assembly. These would include stamp
duty land tax and landfill tax, and some income tax powers—provided that this is approved through a
referendum in Wales. The Bill would give the National Assembly for Wales greater borrowing powers,
including over capital expenditure. Thirdly, the Bill would make provision with regard to housing
revenue account debt in Wales, and to adjust the relationship between Welsh Ministers and the Law
Commission. The Bill would also make some technical amendments to the Government of Wales Act
2006 and other relevant legislation.
The Wales Bill is a carry-over bill from the 2013–14 parliamentary session. It completed report and
third reading in the House of Commons on 24 June 2014, and is due to have its second reading in the
House of Lords on 22 July 2014.
James Tobin
16 July 2014
LLN 2014/025
House of Lords Library Notes are compiled for the benefit of Members of the House of Lords and their personal staff,
to provide impartial, politically balanced briefing on subjects likely to be of interest to Members of the Lords. Authors
are available to discuss the contents of the Notes with the Members and their staff but cannot advise members of the
general public.
Any comments on Library Notes should be sent to the Head of Research Services, House of Lords Library,
London SW1A 0PW or emailed to [email protected].
Table of Contents
1. Introduction .................................................................................................................................................. 1
2. Overview of the Bill .................................................................................................................................... 2
Part 1: The Assembly and Welsh Government ................................................................................ 2
Part 2: Finance .......................................................................................................................................... 2
Part 3: Miscellaneous (limits on housing revenue account debt and the Law Commission) .. 7
Part 4: General.......................................................................................................................................... 8
3. Second Reading and Committee Stage ................................................................................................... 8
4. Report Stage ............................................................................................................................................... 10
5.Third Reading............................................................................................................................................... 15
1.
Introduction
The Wales Bill 2014–15 (HL Bill 34 of 2014–15) would provide for a range of measures in three
key areas. The first is elections to the National Assembly for Wales, where the Bill would alter
the length of the electoral term and rules on candidacy. Secondly, the Bill would make provision
with regard to a number of financial matters, including the devolution of some tax-raising
powers to the Welsh Assembly. These would include stamp duty land tax and landfill tax, and
some income tax powers—provided that this is approved through a referendum in Wales. The
Bill would give the National Assembly for Wales greater borrowing powers, including over
capital expenditure. Thirdly, the Bill would make provision with regard to housing revenue
account debt in Wales, and to adjust the relationship between Welsh Ministers and the Law
Commission. The Bill would also make some technical amendments to the Government of
Wales Act 2006 and other relevant legislation.
The Bill follows the work of the ‘Holtham’ and ‘Silk’ Commissions on devolution in Wales. The
Independent Commission on Funding and Finance for Wales, chaired by Gerald Holtham, was
set up by the Welsh Assembly Government in 2008 to examine the Barnett Formula, tax
powers and borrowing. It published its final report in July 2010.1 This was followed by the
Commission on Devolution in Wales, chaired by Paul Silk, which was established by the UK
Government in 2011. The Silk Commission was split into two parts, the first to look at financial
powers and the second to examine constitutional arrangements.2
The findings of those Commissions are discussed in greater detail with regard to specific
provisions in the Bill below. It is worth noting here, however, that the Silk Commission’s first
report on fiscal powers was published in November 2012.3 The Government published their
response in November 2013,4 and many of the recommendations from the first Silk
Commission report have been taken forward in whole, or in part, in the Wales Bill. However,
the Silk Commission’s second report,5 published in March 2014 and covering legislative
constitutional issues, is not reflected in the Bill. The Government have indicated that it will be
for the next Parliament, and whichever party or parties form a Government after the next
general election, to consider and mandate for these issues.6
Pre-legislative scrutiny was also carried out on the Bill by the House of Commons Welsh
Affairs Committee.7 Again, their recommendations are discussed with reference to specific
clauses in the Bill below.
1
The Independent Commission on Funding and Finance for Wales, Fairness and Accountability: A New Funding
Settlement for Wales, July 2010.
2
The House of Commons Library Research Paper on the Bill notes that the Silk Commission “did not consider the
Holtham Commission’s recommendations on funding reform and existing borrowing powers: these were taken
forward by the two Governments”. Source: House of Commons Library Research Paper, Wales Bill 2013–14, 27
March 2014 RP14/19, p 3.
3
The Commission on Devolution in Wales, Empowerment and Responsibility: Financial Powers to Strengthen Wales,
November 2012.
4
HM Treasury and the Wales Office, Empowerment and Responsibility: Devolving Financial Powers to Wales,
November 2013.
5
The Commission on Devolution in Wales, Empowerment and Responsibility: Legislative Powers to Strengthen Wales,
March 2014.
6
Contribution by the Secretary of State for Wales, Rt Hon David Jones MP, HC Hansard, 24 June 2014, col 279.
7
Welsh Affairs Committee, Pre-legislative Scrutiny of the Draft Wales Bill, 27 February 2014, HC 962 of session
2013–14.
2.
Overview of the Bill
As introduced in the House of Lords, the Bill contains four parts:
Part 1: The Assembly and Welsh Government
Part 1 of the Bill would mandate for changes to the electoral arrangements to the Welsh
Assembly. This includes setting the term of the Assembly at five years, rather than four at
present (clause 1). This change is intended to prevent potential clashes with the timing of
elections to Westminster. Therefore, should the Bill receive royal assent, the next election to
the Welsh Assembly after 2016 would be in 2021 (and every five years thereafter), thus in the
first instance avoiding a clash with the Westminster election in 2020.
The Bill (clause 2) also provides for the removal of the current restriction on being a candidate
for both constituency and electoral region in elections to the Welsh Assembly. Therefore, it
would be theoretically possible for a candidate who failed to be elected through a constituency
vote to be elected as a regional member as a result of the list system. This measure would
repeal the changes made by the Government of Wales Act 2006, introduced to prevent such
dual candidacy. However, any individual would not be able to stand as a candidate in a
constituency outside of the region in which they are running for election. They would also be
prevented from standing for one party in a constituency and another in a regional area.
The Bill (clause 3) would disqualify Members of the House of Commons from sitting in the
Welsh Assembly (so called ‘dual membership’ or ‘double jobbing’). It would also provide for
transitional or grace periods following an election before an individual is disqualified from their
membership. In addition, the Bill would provide for the renaming of the Welsh Assembly
Government as the Welsh Government, or Llywodraeth Cymru (clause 4). Finally, the Bill
would amend the Government of Wales Act 2006 to clarify that the First Minister retains his
post in the event of the dissolution of the Assembly (clause 5).
Part 2: Finance
Part 2 of the Bill would provide for certain taxation and borrowing powers to be devolved to
the Welsh Assembly and Welsh Assembly Government. Tax policy—with the exception of
Council Tax—is currently outside the remit of the Assembly. The Bill would provide the
structure within which the Welsh Assembly can legislate on tax in future (clause 6), and would
specifically devolve stamp duty land tax and landfill tax, and some income tax powers—
provided that the devolution of these income tax powers is approved by a referendum in
Wales.
Clause 6 would also enable additional taxes to be designated as devolved taxes by secondary
legislation.8 As explained in the Command Paper published alongside the Bill,9 the Government
envisages that such powers could be used for two purposes:

8
Enabling the Welsh Government to introduce specific new taxes in Wales, with the
agreement of each House of Parliament and the Assembly; or
Any such Order would be subject to parliamentary approval by both Houses of Parliament and the Welsh
Assembly.
9
HM Government, Wales Bill: Financial Empowerment and Accountability, March 2014, Cm 8388.

Allowing the UK Government to devolve further existing or new UK taxes, again with
the agreement of each House of Parliament and the Assembly.10
Any proposals by the Welsh Government for a new devolved tax would be assessed by the UK
Government according to a range of criteria, including the extent to which the new tax:

affects UK macro-economic or fiscal policy and/or the single market;

may be non-compliant with EU legislation;

increases tax avoidance risks;

creates additional compliance burdens for businesses and/or individuals;

is aligned with devolved responsibilities.11
These criteria are consistent with those set out alongside the Scotland Bill (subsequently
enacted as the Scotland Act 2012), which made similar provision with regard to powers of
taxation in Scotland.12 The Bill (clause 7) would also enable Her Majesty’s Revenue and
Customs (HMRC) to disclose relevant information to Welsh Ministers in connection with
devolved taxes, and if considered desirable would ensure that HMRC could administer these
taxes on the Welsh Assembly Government’s behalf.
Income Tax and the ‘Lockstep’ Model
The Bill (clauses 8 and 9) would allow the Welsh Assembly to set a Welsh rate of income tax,
subject to a referendum vote in favour of devolving these powers. In the event of such a
mandate, however, the Bill would not provide the Assembly with discretionary control to set
each tax band as it chose. Instead, similar to the model set out in the Scotland Act 2012, the Bill
would provide for a so-called ‘lockstep’ framework.13 Under such a model, the basic, higher and
additional rate of income tax would be reduced in Wales by 10 percentage points. The new
Welsh rate, set by the Welsh Assembly Government, would then be added to each of these
rates. The Bill mandates that there would only be a single rate of Welsh income tax—it would
not be possible to set a different rate to be added to the basic, higher or additional taxation
rate.14 This aligning of rates is known as the ‘lockstep’.
The Holtham and Silk Commissions both recommended that the Welsh Government should
have the power to set different rates for each income tax band, making the use of the lockstep
10
ibid, para 70.
ibid, para 72.
12
For more detail, see House of Commons Library, Wales Bill 2013-14, 27 March 2014, RP14/19, p 3; and
Devolution of Tax Powers to the Scottish Parliament, 2 February 2012, SN5984.
13
For further details on the Scottish model, see House of Commons Library, Devolution of Tax Powers to the Scottish
Parliament, 2 February 2012, SN5984.
14
The current basic, higher and additional rates of income tax are 20 percent, 40 percent and 45 percent. A
reduction of 10 percentage points would therefore reduce them to 10 percent, 30 percent and 35 percent
respectively. As an illustrative example, the Welsh Assembly Government—in the advent of a positive referendum
vote—could set a single Welsh rate of 5 percent. Accordingly, that would create a basic rate of 15 percent, a
higher rate of 35 percent, and an additional rate of 40 percent. It would not be possible, for example, to impose an
increase of 3 percent on the basic rate, and 5 percent on the higher rate. Please note that this example is for
illustrative purposes only. It makes no prediction about any future taxation decisions.
11
model one of the few areas from the Silk Commission’s first report that was rejected by the
Government.15 The Government’s rationale for this decision was set out by the Exchequer
Secretary, David Gauke:
Following a thorough and robust assessment of the Silk Commission recommendations,
we have determined that that would be most effectively achieved through a single
Welsh rate of income tax that applied to all bands. There are two main reasons for that.
First, the pooling and redistribution of tax revenues is a key feature of our fiscal model
and ensures that wealth is shared among the regions and countries of the UK. The
income tax structure is a key mechanism for achieving wealth redistribution. It is surely
right, therefore, that UK-wide redistribution is decided at the UK level. The lockstep
ensures that that will continue to be the case.
Secondly, although there are many benefits of tax devolution, it is not without risk.
Specifically, we need to minimise the potential for harmful tax competition, increased
opportunities for tax avoidance and evasion, and higher administrative burdens. It is
therefore crucial that when we devolve taxes, we do so in a way that minimises those
risks. In particular, the Government have consistently been clear that tax devolution
should not benefit one part of the UK to the detriment of another. Tax devolution is
not about moving economic activity from one area to another, but about empowering
the devolved Administrations to generate additional growth and increasing their
accountability by linking their budgets to their decisions. That incentivises the devolved
Administrations and increases their accountability to the people, in this case in Wales.16
The Bill would also make provision for who would be deemed a Welsh taxpayer for the
purposes of any changes to income tax. This would include—as mandated for by new
provisions introduced at committee stage (clause 10) which are discussed briefly below—for
social security and child support purposes. The Bill also includes provision to clarify the
respective income tax arrangements in Scotland and Wales, including to designate that an
individual could not be classified as a Welsh and Scottish taxpayer in the same year (clause 11).
Subsequent clauses of the Bill would mandate for the holding of a referendum on income tax
devolution (clauses 12 and 13). This was recommended by the Silk Commission, who argued
that the taxation proposals represented a fundamental shift in tax competency from
Westminster to the Welsh Assembly, and were thus deserving of a referendum vote.17 The Bill
would make provision for commencement of income tax devolution in the event of a
favourable vote (clause 14).
The Bill would also provide the mechanism for bringing to an end the collection and
management of stamp duty land tax (SDLT) in Wales and to allow the Assembly to bring in its
own land transaction tax (clauses 15 and 16); for information provisions on Welsh land
transactions (clause 17); and for the mechanism for bringing to an end the collection and
management of landfill tax in Wales and to allow the Assembly to bring in its own tax on
disposals of waste to landfill (clauses 18 and 19). As observed by the Welsh Affairs Committee
in its discussion of the devolution of these taxation measures, “the Welsh Government will be
15
House of Commons Library, Wales Bill 2013–14, 27 March 2014, RP14/19, p 17.
HC Hansard, 30 April 2014, col 947.
17
The Commission on Devolution in Wales, Empowerment and Responsibility: Financial Powers to Strengthen Wales,
November 2012, p 130.
16
able to change the rates of tax in these two areas as well as the structure and progressivity of
these taxes, unlike with income tax”.18
Borrowing Powers
The Bill (clauses 20–23) would extend the borrowing powers available to Welsh Ministers. As
outlined in the explanatory notes to the Bill, it would enable the Welsh Assembly Government
to borrow—subject to controls and limits dictated by HM Treasury—for the following
purposes:
a) To manage in-year volatility of receipts, where actual income for a month differs
from the forecast receipts for that month;
b) To provide a working balance to the Welsh Consolidated Fund (WCF) in order to
manage cash-flow;
c) To deal with differences between the full year forecast and outturn receipts for
devolved taxes; and
d) To fund capital expenditure.19
The Bill would provide for the Welsh Assembly Government to borrow up to £500 million for
current spending (with a maximum of £200 million in a single year).20 With regard to capital
borrowing, the Bill would also provide for an overall cap of £500 million, with an annual limit of
£125 million.21 Therefore, the total aggregate outstanding of principal (both current and capital)
cannot exceed £1 billion.22 The Bill would allow the UK Government to increase (and
subsequently decrease) the £500 million limits for both capital and current borrowing, without
recourse to primary legislation. However, these limits could not be lowered any further than
the initial £500 million in each case. As stated in the Command Paper, the Government will
assess the capital borrowing limit according to a number of criteria:
The UK and Welsh governments have previously agreed a joint process to review levels
of convergence in Welsh funding at each Spending Review, and the UK Government
proposes to extend this process to ensure that the capital borrowing limit remains
appropriate. The limit will be set at a level that the UK Government considers to be
appropriate based on its assessment of the economic and fiscal circumstances at the
time of each Spending Review, the impact of inflation on the real value of the limit, and
on the size of the independent revenue stream available to the Welsh Government.23
The Government envisages that the borrowing powers provided to the Welsh Assembly
Government by the Bill for both current and capital borrowing will come into force in
2018/19.24 The Bill would not provide the Welsh Assembly Government with the power to
issue bonds to fund borrowing. However, it would allow the UK Government to alter the
sources of finance available to the Welsh Assembly Government without recourse to primary
18
Welsh Affairs Committee, Pre-legislative Scrutiny of the Draft Wales Bill, 27 February 2014, HC 962 of Session
2013–14, p 23.
19
Explanatory notes to the Bill, p 25. Under existing legislation, the Welsh Assembly Government can already
borrow for reasons a) and b).
20
House of Commons Library, Wales Bill 2013–14, 27 March 2014 RP14/19, p 29. This £500million limit is
unchanged from the Government of Wales Act 2006.
21
ibid.
22
Explanatory notes to the Bill, p 26.
23
HM Government, Wales Bill: Financial Empowerment and Accountability, March 2014, Cm 8388, p 26.
24
ibid, pp 25–6.
legislation, which could include bonds.25 In order to facilitate these borrowing changes, the Bill
would repeal elements of the Welsh Development Act 1975 related to borrowing and
guarantees (clause 21). The Bill would also give the Welsh Assembly competence for its own
budgetary procedures (clause 22). This was recommended by the Silk Commission and the
Welsh Affairs Committee and, though not present in the draft Bill, was added to the Wales Bill
as introduced to the House of Commons. The Bill also sets out the reporting requirements for
the Secretary of State and Welsh Ministers on the implementation and operation of the new
finance powers (clause 23).
Adjustment of the Block Grant
At present, almost the entirety of the Welsh Assembly’s funding is derived from a block grant
from the Treasury. Under the proposals set out in the Bill, the block grant would remain, but
would be supplemented by the tax revenue raised directly by the imposition of devolved
taxation.26 As a result, the block grant would be adjusted to take account of this revenue.27
The Government has accepted the Silk Commission’s recommendation that the indexed
deduction method will be used to determine the reduction to the block grant deriving from any
decision to impose a devolved rate of income tax.28 That mechanism has two parts, as outlined
in the Command Paper:
The mechanism involves two elements—a first year adjustment and then indexing this
amount against growth in the corresponding UK tax base (ie taxable non-savings and
non-dividends income) to determine the adjustment in subsequent years. By indexing
against the tax base rather than tax revenues or total income, the Silk Commission
recognised that this “automatically incorporates the principle of ‘no detriment’” as is
also the case in Scotland. This is because the UK tax base will reflect decisions made by
the UK Government in relation to thresholds, allowances and reliefs.29
The Government has also accepted the Silk Commission’s recommendation for a transitional
period to “help manage the transfer of risk”.30 The process by which the block grant would be
calculated during the transitional and post-transition periods is set out in the Command
Paper.31
The impact of the changes would be to make the Welsh budget more dependent on devolved
tax revenue, assuming that there is a positive referendum vote in favour of such a move. The
examination of the potential consequences of making Wales more dependent on devolved tax
revenue was discussed by the Silk Commission. However, whilst the Commission recognised
that there were some economic circumstances where the changes could potentially
disadvantage Wales in comparison with the current arrangements, it concluded:
The key advantage of adopting the indexing deduction method for the block grant offset is that it is not the actual level of tax revenue that is raised in Wales that would
25
House of Commons Library, Wales Bill 2013–14, 27 March 2014, RP14/19, p 30.
HM Government, Wales Bill: Financial Empowerment and Accountability, March 2014, Cm 8388, p 6.
27
ibid.
28
ibid, p 18. This method was originally proposed by the Holtham Commission, and is also the method which will
be employed in Scotland.
29
ibid, p 17.
30
ibid.
31
House of Commons Library, Wales Bill 2013–14, 27 March 2014, RP14/19, pp 18–21.
26
determine whether the budget of the Welsh Government would be more or less than
in a wholly block funded scenario. The important determinant is the relative growth in
tax revenues in Wales compared to the rest of the United Kingdom [...] While there
are indeed risks that in the future Welsh income taxes grow at a slower rate than
across the United Kingdom as a whole, our analysis shows that unless the income tax
base in Wales grows at a much slower rate than the rest of the United Kingdom then
the financial impact is relatively modest. A pessimistic outlook for Wales in comparison
with the rest of the United Kingdom is in no way inevitable.32
The mechanism for reducing the block grant to take account of the revenue generated by the
devolution of stamp duty land tax and landfill tax is not specified in the Bill. The Government
has set out a potential approach in the Command Paper using a baseline deduction and smaller
adjustments to the Barnett Formula, and stated that it has opened discussions with the Welsh
Assembly Government on this matter.33 The Command Paper also stated that there would be a
one-off adjustment to the block grant as a result of the full devolution of business rates.34
Part 3: Miscellaneous (limits on housing revenue account debt and the
Law Commission)
The Bill (clause 23) would make provision to change the way in which Welsh Local Housing
Authority debt is determined. The rationale for the move is to address the issue of ‘negative
subsidy’ currently faced by Welsh local authorities with retained housing stock and to bring
Wales in line with recent reform in England. The issue faced by Welsh Local Housing
Authorities is explained concisely in the House of Commons Library paper on the earlier stages
of the Bill:
The eleven Welsh local authorities with retained housing stock are required to record
all income and expenditure in relation to these dwellings in their ring-fenced Housing
Revenue Accounts (HRAs). Where an authority’s notional HRA expenditure (mainly on
management and maintenance of the stock) exceeds its assumed income the UK
Government pays Housing Revenue Account Subsidy (HRAS) to make up the deficit.
Where notional expenditure is less than assumed income the authority is required to
pay the surplus to the Exchequer. The surplus is known as ‘negative subsidy’. All eleven
of the stock retaining Welsh local authorities are in this position—the annual surplus
paid by Welsh authorities to the Exchequer is estimated to be £73 million.35
The Localism Act 2011 provided for the abolition of HRAS in England, and moved English stock
owning authorities to a self-financing regime. Clause 23 would allow the UK Government to set
an aggregate cap on Welsh local authority borrowing in relation to housing, and for Welsh
Ministers to set a cap on individual local authorities. The effect of this provision would be to
give Welsh Ministers powers equivalent to those provided by the Localism Act 2011 with
regard to England.36 The Welsh Assembly is currently legislating for the abolition of the HRAs.37
32
The Commission on Devolution in Wales, Empowerment and Responsibility: Financial Powers to Strengthen Wales,
November 2012, pp 93–5.
33
HM Government, Wales Bill: Financial Empowerment and Accountability, March 2014, Cm 8388, pp 12–13.
34
ibid, pp 6–7.
35
House of Commons Library, Wales Bill 2013–14, 27 March 2014, RP14/19, p 34.
36
The implications and consequences of the debt cap are explored in the House of Commons Library publication,
Local Housing Authorities—the Self-Financing Regime: Progress and Issues, 10 January 2014, SN06776.
37
House of Commons Library, Wales Bill 2013–14, 27 March 2014, RP14/19, p 34.
The Bill (clause 24) would also make provision with regard to the relationship between the Law
Commission and the Welsh Government, providing for a new protocol for the Commission’s
work relating to Welsh matters. Whilst the clause provides for a relatively minor change, it has
been observed that it could facilitate the future development of a legal jurisdiction for Wales
separate from the existing England and Wales jurisdiction.38
Part 4: General
Part 4 would make provision for the extent and commencement of the Bill, and for
supplementary or consequential provision to be made.
3.
Second Reading and Committee Stage
The second reading of the Wales Bill took place in the House of Commons on 31 March 2014.
Introducing the Bill, the Secretary of State for Wales, David Jones, said:
The legislation before the House today delivers an ambitious package of devolved
powers for Wales, including powers providing incentives and opportunities for the
Welsh Government to grow the Welsh economy and increase prosperity; powers
making the devolved institutions in Wales more accountable for raising some of the
money they spend; and powers that make devolved governance in Wales fairer.
[...]
The powers devolved to Wales by this Bill will, for the first time, make the devolved
institutions in Wales—both the Welsh Government and the Assembly—directly
accountable to the electorate for raising some of the money they spend. The Bill will
give the Welsh Government more levers to enable it to deliver sustainable economic
growth in Wales. It will also deliver borrowing powers that will allow the Welsh
Government to invest more in critical infrastructure, not only in transport links such as
the M4 and the A55, but in schools and hospitals.
The Silk Commission included commissioners from all four political parties in the
Assembly, and reached unanimous agreement on its recommendations. I hope that the
same spirit of co-operation and broad consensus will extend to all parts of this House
today in respect of the Bill.39
Responding for the Labour party, the Shadow Secretary of State for Wales, Owen Smith, said
that this was an “important bill”.40 Mr Smith indicated that the Labour party would support the
measures in Part 1 of the Bill on the length of electoral term for the Welsh Assembly, and to
end the practice of ‘double jobbing’. However, Smith also made clear that his party did not
support the ending of the prohibition on dual candidacy. In comments which were echoed by
the former Secretary of State for Wales, Peter Hain, who introduced the prohibition, Mr Smith
said:
The changes in the Bill include a reversal of the Government of Wales Act 2006 ban on
candidates standing both under first past the post and on the proportional
38
House of Commons Library, Wales Bill 2013–14, 27 March 2014, RP14/19, p 36.
HC Hansard, 31 March 2014, col 607.
40
ibid, col 615.
39
representation list in Wales. The reason that the previous Labour Government decided
to introduce that ban ought to be well understood by the Secretary of State, as it
stemmed from a Tammany hall-style example of an election that took place in his
constituency of Clwyd West in 2003. On that occasion, the winning Labour candidate
was elected on first past the post, while the losing Liberal Democrat, Conservative and
Plaid Cymru candidates were also all elected, by the back door and on the back list—
Tammany hall in Clwyd West. The system was designed by an earlier Labour
Government, but we decided that it was clearly at odds with democracy in Wales. We
decided that the people of Wales would not understand how losers could become
winners.41
Mr Smith said that Labour was in favour of the devolution of stamp duty land tax and landfill tax
to Wales, though he raised questions about how the impact of such taxation upon the block
grant would be calculated.42 Mr Smith also said that his party was in favour of the income tax
question being put to the people of Wales, although Labour retained concerns over tax
competition.43 On borrowing, Mr Smith said that Labour supported the extension of borrowing
powers included in the Bill, but felt that the caps imposed were too low.44
Speaking for Plaid Cymru, Jonathan Edwards (MP for Carmarthen East and Dinefwr) indicated
that his party was in favour of the devolution of taxation powers, but raised the issue of the
lockstep which he said would effectively “handcuff” the Welsh Government.45 For the Liberal
Democrats, Roger Williams (MP for Brecon and Radnorshire) welcomed the move to a five
year electoral term and the lifting of the ban on dual candidacy.46 Responding to the points
raised on dual candidacy at the conclusion of the debate, the Parliamentary Under Secretary of
State for Wales, Stephen Crabb, highlighted that all other parties with the exception of Labour
were in favour of the measure, and that Wales was the only country with this kind of electoral
system which had imposed such a ban.47
The Bill was considered in committee on the floor of the House of Commons on 30 April and
6 May 2014. No amendments were made to the constitutional sections of the Bill, but there
were some technical amendments made with regard to the financial provisions in part 2 of the
Bill, as has been briefly touched on above. A range of issues were debated with regard to part 2
during committee, including the usage of the lockstep model and the issue of ‘fair funding’ for
Wales. These are explored in detail in the House of Commons Library Standard Note, Wales
Bill 2013–14: Progress of the Bill, 4 June 2014. In summary, the amendments made to the Bill in
Committee were to:

Provide that overview provisions with regard to the Welsh Assembly’s power to set an
income tax rate would only come into force after a positive referendum vote;

Clarify that the Welsh Assembly could only alter the functions of HMRC if these
functions related to devolved taxes, which would still require agreement from the
Treasury;
41
ibid.
ibid, col 619.
43
ibid.
44
ibid, cols 620–1.
45
ibid, col 613.
46
ibid, col 657.
47
ibid, col 692.
42

Allow minor technical changes to the income tax provisions in the Bill concerning its
implementation; and

Detail the nature of a statement to be laid before the Assembly each year by the
Secretary of State on the operation of the financial powers provided by the Bill.
4.
Report Stage
Income Tax Provisions
Opening debate at report stage, the Exchequer Secretary, David Gauke, moved new clause 1
which would allow the Secretary of State to treat someone as being (or not being) a Welsh
taxpayer for social security or child support purposes. Mr Gauke also moved technical
provisions with regard to the calculation of social security benefits if a Welsh rate of income
tax had yet to be set. New clause 1 and these technical amendments were added to the Bill
without division.
Speaking for Labour, the Shadow Secretary of State, Owen Smith, then moved probing
amendment 10, which would have the effect of subtracting 15 percentage points rather than 10
from the respective rates of income tax in the UK, to then be supplemented by a Welsh rate of
income tax. Mr Smith also moved amendments 11 and 12 which would mandate that the
income tax provisions in the Bill would not come into force until a Welsh Government Minister
had laid a report before the Welsh Assembly stating that the Welsh Government was satisfied
with the ‘fairness’ for allocating funding from the UK Government to Wales. A similar reporting
requirement would also be imposed for any future substantive reform or alteration of these
measures.
Speaking to the amendments, Mr Smith made clear that his party supported the “greater
accountability and, in particular, the borrowing powers that are associated with income tax and
other taxes” in the Bill.48 However, he added that there were “all sorts of reasonable
questions” which could be asked about the impact of the measures.49 In particular, Mr Smith
drew attention to the “causal connection” which be believed existed in the Bill between the
income tax and other taxes to be devolved and the amount of borrowing afforded to the
Welsh Government—a rationale that he argued was not explicitly employed in Scotland.50 He
added:
Clearly, the Government have chosen to employ a totally different rationale in order to
justify the lower level of borrowing that they will give to the Welsh [...] The shift from
10p to 15p would not only increase the amount of borrowing that Carwyn Jones’
Government could undertake to fill the £1.6 billion gap left by this Government, but
afford greater symmetry between what Labour is proposing in Scotland and what we
are proposing in Wales.51
For Plaid Cymru, Jonathan Edwards (MP for Carmarthen East and Dinefwr) also moved
amendment 9 which would provide for the Welsh Government to be responsible for 100
percent of income tax revenue gathered in Wales. Speaking to the amendment, Mr Edwards
48
HC Hansard, 24 June 2014, col 229.
ibid, col 229.
50
ibid, col 230.
51
ibid.
49
highlighted what he called the “damaging” inclusion of the lockstep model, which his party had
spoken out against in Committee and continued to believe ran contrary to the
recommendations of the Silk Commission.52 The lockstep would, he argued, deny the Welsh
Government sufficient ability to affect income taxation rates and thus increase economic
growth and prosperity. Mr Edwards also drew attention to the conclusions of the recent report
of the Commission on the Future Government of Scotland, led by the Conservative Peer, Lord
Strathclyde. This report, Mr Edwards noted, advocated the devolution of 100 percent of
income tax powers to Scotland—he argued that his amendment would put Wales on an equal
footing.
Addressing these amendments, the Minister, David Gauke, said when it came to the extent of
income tax devolution to Wales there was a “careful decision to make”.53 He argued that such
devolution brought greater accountability, but also potentially greater risk:
Devolving an element of income tax would increase the financial accountability of the
Assembly and the Welsh Government in three important ways. First, it would enable
the Assembly to fund more of the spending for which it is responsible. Secondly, the
Welsh Government’s budget would be directly linked to their economic decisions in
areas such as education, skills, housing and planning. Thirdly, the Welsh Government
would be able to vary the levels of tax and spending in Wales. However, creating the
link between the Welsh Government’s decisions and their budget involves transferring
some risk to the Welsh Government. Specifically, the Welsh Government’s budget
would benefit if the income tax base grew faster in Wales than the UK average, but
would be adversely affected if growth in Wales was slower.
The larger the proportion of income tax we devolve, the greater the potential impact
on the Welsh Government’s budget. Devolving 15p of income tax would increase the
size of these impacts by 50 percent compared with devolving 10p. Devolving all income
tax to Wales [...] would increase the potential impacts even further.54
With regard to the issue of funding convergence between England and Wales, and the
associated issue of the ‘fairness’ of Welsh financial provision, Mr Gauke said that the UK and
Welsh Governments had agreed to implement a joint process to review the levels of funding in
both countries in advance of each spending review. If convergence was forecast during this
period, he said that options would be discussed to address this issue in a “fair and affordable
manner, based on a shared understanding of all the available evidence”.55 On reporting
requirements, Mr Gauke added that HMRC was looking to develop a specific estimate of the
cost of the implementation of a Welsh rate of income tax, but that given the uncertainties over
a referendum vote and when the measures could be implemented it was difficult to do at the
time of the debate.
With regard to comparisons with Scotland, Mr Gauke noted that population differences
between Wales and Scotland would have an impact on potential implementation costs, as
would the number of people who live close to the border in each respective country.56 On the
52
ibid, col 232.
ibid, col 225.
54
ibid, col 225.
55
ibid, col 224.
56
ibid, col 236.
53
subject of the Strathclyde Commission, Mr Gauke said that would be a matter for the next
Parliament to consider.
Amendments 9, 10, 11 and 12 were not moved to a division, and thus not added to the Bill.
Infrastructure Guarantees/Binding Referenda/Capital Expenditure Priorities
On behalf of Plaid Cymru, Jonathan Edwards (MP for Carmarthen East and Dinefwr) moved a
series of amendments that would transfer the responsibility to the Welsh Government for
issuing infrastructure guarantees in Wales (new clause 2); give the Welsh Assembly the ability
to hold binding referenda (new clause 3); and enable Welsh Ministers to set their own capital
expenditure priorities (amendment 8).
Speaking to his amendments, Mr Edwards said that in his view, the Wales Bill should be used to
“empower the Welsh Government with an arsenal of powers to enable them to intervene in
the Welsh economy”.57 To that end, he believed that allowing the Welsh Government to issue
financial guarantees to private projects would allow them to “kick-start infrastructure
development in Wales, boosting jobs and growth”.58 With regard to capital expenditure, Mr
Edwards said that his party “remained concerned that the UK Government will seek to shackle
the ability of a future Welsh Government to use the borrowing-for-investment powers
[provided by the Bill] as they see fit”.59 He argued that amendment 8 would prevent such
restrictions. Hywell Williams (Plaid Cymru MP for Arfon) spoke to new clause 3, arguing that
the Bill should provide the Welsh Assembly with the power to hold referenda in the areas for
which it already holds competence, and on questions relating to further transfers of
constitutional or financial powers. This, he argued, would allow the will of the people of Wales
to be heard on issues of significant national importance.
Responding for the Government, the Parliamentary Undersecretary of State for Wales, Stephen
Crabb, argued with regard to capital expenditure priorities that the Bill would already provide
for Welsh Ministers to have “complete flexibility” over how they use their borrowing powers,
“in much the same way as they have complete flexibility regarding their resource and capital
budgets”.60 He stated that the provision in the Bill regarding Treasury approval “merely refers
to the overall borrowing limit, which the Treasury will agree with the Welsh Government [...]
it is not about the Treasury signing off individual projects”.61 Similarly, with regard to
infrastructure projects, Mr Crabb said that the Welsh Government already had the power to
provide guarantees in relation to their devolved responsibilities should they choose to do so.
Mr Crabb also rejected the need for further referendum powers, arguing that the new clause
was an attempt to try and “shoehorn far-reaching and fundamental changes” to the wider
devolution settlement for Wales into this Bill which specifically takes forward the
recommendations of part 1 of the Silk Commission.62
New clauses 2 and 3 were not moved to a division, and thus not added to the Bill. The House
divided on amendment 8, which was defeated by 278 votes to 8.63
57
ibid, col 238.
ibid, col 238.
59
ibid, col 240.
60
ibid, col 254.
61
ibid, col 255.
62
ibid, col 256.
63
Ibid, col 274.
58
A Reserved Powers Model
Nia Griffith (Labour MP for Llanelli) moved an amendment (new clause 4) which would require
that the Secretary of State for Wales lay a report before each House of Parliament on the
legislative steps needed to move to a model of reserved powers for the Welsh Assembly. The
clause would also require that, until such a report is provided, the borrowing powers provided
to the Welsh Government by the Bill would not come into force.
The relationship between the UK Government and the Welsh Assembly currently operates
according to a ‘conferred powers’ model, meaning that the UK Parliament has specified subject
areas in which it has granted the National Assembly law-making powers. The UK Parliament
legislates in all other areas. In contrast, under a ‘reserved powers’ model (as operates in Scotland
and Northern Ireland), the Welsh Government would have the power to legislate in any area that is
not specifically reserved by the UK Government. In its second report (on constitutional and
legislative issues), the Silk Commission recommended that a reserved powers model be adopted. It
argued that such a system would be more “certain, stable, and coherent” than the conferred
powers model and would “allow law-makers to undertake their role more confidently” which
would be in the interest of the people of Wales.64
Speaking to her amendment, Ms Griffith argued that not making progress on a move to a
reserved powers model in the Bill would be a “missed opportunity”.65 She argued that a
reserved powers system would reduce referrals to the Supreme Court on issues of legislative
competency, and including it in the Bill would prevent the issue from being “kicked into the
long grass”.66 Hywel Williams (Plaid Cymru MP for Arfon) also said that Plaid Cymru supported
both a move to a reserved powers model, and its inclusion in the Bill, arguing that the need for
such a move was “more pressing than ever before”.67
In response, the Minister, Stephen Crabb, argued that requiring a report be produced on the
potential adoption of a reserved powers model before the borrowing powers in the Bill came
into force could be viewed both as a “delaying” or “wrecking” tactic.68 He rejected the need for
the amendment, arguing that:
[The] Government have made clear on a number of occasions [that] a move to a
reserved powers model would be a fundamental change to the devolution settlement in
Wales. We have also made it clear, as did the Silk Commission, that this should be a
matter for party manifestos at the next election. Therefore, there is nothing to be
gained by requiring the Government to report to Parliament on the legislative steps
needed to move to a reserved powers model.69
The House divided on new clause 4, where it was defeated by 276 votes to 202.70
64
The Commission on Devolution in Wales, Empowerment and Responsibility: Legislative Powers to Strengthen Wales,
March 2014, p 44.
65
HC Hansard, 24 June 2014, col 245.
66
ibid.
67
ibid, col 251.
68
ibid, col 257.
69
ibid.
70
ibid, col 258.
Electoral Arrangements to the Welsh Assembly
In the final session of debate at report stage, Nia Griffith (Labour MP for Llanelli) moved
amendment 13 which would remove clause 2 from the Bill and thus maintain the current
prohibition on dual candidacy for elections to the Welsh Assembly, whereby a candidate cannot
stand both on a regional list and for a constituency. She also moved two other amendments (14
and 15) which would require that a report be provided to the Assembly by a Welsh
Government Minister on the ‘fairness’ of the electoral arrangements provided for by the Bill
before they came into force.
Speaking to her amendments, Ms Griffiths highlighted what she called the “blatant abuse of the
list system” which she argued had occurred in the past and which the ban on dual candidacy
had been enacted to prevent.71 This point was echoed by the former Secretary of State for
Wales, Peter Hain, who said:
[I]t cannot be right for losers to become winners through the back door, despite having
been rejected by the voters. That is an abuse of democracy. People who stand for a
single-Member seat and then lose can end up being elected anyway, in defiance of the
electorate’s wishes, because at the same time they are in a list category, and that is an
abuse of democracy. There is no real argument against losers becoming winners in that
way.
There was a widespread abuse practised by 15 of the 20 list AMs prior to the 2006 ban.
They used taxpayers’ money to open constituency offices in the very single-Member
seats in which they were defeated. They then targeted those seats at the following
election by cherry-picking local issues against the constituency AMs who had beaten
them. [...] With the 2006 Act ban having been removed by the Government, there is
nothing to stop such abuse being practised again.72
Responding for the Government, the Secretary of State for Wales, David Jones, noted that the
issue of dual candidacy had been discussed at length at committee stage, and that the House
had voted in favour of the inclusion of clause 2 in the Bill (by 265 votes to 191). Mr Jones
argued that Wales was the only country in the world with this electoral system where dual
candidacy was banned, including the Scottish Parliament, and that the prohibition had been
introduced against the advice of organisations such as the Electoral Commission and Electoral
Reform Society. Mr Jones also noted that amendments 14 and 15 would not give the Welsh
Assembly a vote on the provisions, and called them symptomatic of a “partisan agenda”.73
The House divided on amendment 13, which was defeated by 278 votes to 196.74
The Government also moved two minor technical amendments (6 and 7), which the Secretary
of State said were “to provide for flexibility” in the powers to make an Order in Council for
the conduct of a future income tax referendum, to ensure that such a referendum was
conducted using as “robust a process as possible”.75 Mr Jones noted that the Government had
consulted with the Electoral Commission with regard to the substance of the amendments.
Amendments 6 and 7 were added to the Bill without division.
71
ibid, col 263.
ibid, cols 263–64.
73
ibid, col 269.
74
ibid, col 270.
75
ibid, col 268.
72
5.
Third Reading
Introducing the debate at third reading, the Secretary of State for Wales, David Jones, said that
the Bill represented a “major milestone for Wales”.76 He said that the Bill provides the Welsh
Government with additional levers and incentives to deliver economic growth, and would
increase the scrutiny of them given that they would now be responsible for raising revenue as
well as spending powers. Mr Jones added that the Government would like to see a referendum
on income tax powers held “sooner rather than later”.77 Speaking briefly to the Silk
Commission’s second report on legislative and constitutional issues, Mr Jones said that they
would be issues for the next Parliament and that it would be for all parties to set out their
proposals at the next election and provide the next Government with a mandate to implement
whatever measures they have committed to. On the electoral elements of the Bill, Mr Jones
said that they provided for a fairer and more equitable system, and he concluded:
This Bill marks a significant strengthening of the Welsh devolution settlement. It bolsters
the democratic institutions in Wales, and ensures that the Assembly and the Welsh
Government are more accountable to those who elected them. It provides the tools for
the Assembly and the Welsh Government better to support stronger economic
growth.78
Responding for the Labour party, the Shadow Welsh Secretary, Owen Smith, reiterated his
party’s support for much of the provision in the Bill and in particular the decision to afford
Wales greater borrowing powers.79 Labour was also supportive of the devolution of stamp duty
land tax and landfill tax, and the separate devolution of business rates. However, Mr Smith said
that his party were “disappointed that the Government have failed in this Bill to undertake any
serious analysis of how the costs and benefits of tax devolution will be weighed for Wales”.80
He added:
It is also disappointing that the Government have failed to offer any real guarantee about
whether Wales will be better or worse off under these provisions. We still do not
know whether the block grant will be eroded over time. Initially, it will be protected,
but the Exchequer Secretary told us again here today that if Welsh gross domestic
product and revenues grew more slowly than those of England, Wales would have less
money over time to spend on vital public services. Given the problems of meeting the
demand for public services in Wales because of our specific demographics and history,
and of a £1.6 billion cut to the Welsh budget since the Conservatives came to power, it
would be better for the Government to give some sort of guarantee to the Welsh
people that they would not be worse off.81
Mr Smith said that it would now be for “noble Members of another place” to undertake further
scrutiny of the “long-term impact on Wales of the volatility of tax revenues and of costs of
establishing an Exchequer function for Wales”.82
The Bill was given a third reading without division.
76
ibid, col 278.
ibid, col 279.
78
ibid, col 280.
79
ibid.
80
ibid, col 281.
81
ibid.
82
ibid, col 282.
77