Silk report: UK government to 'seriously consider' tax proposals

Welsh Secretary David Jones (l) said the report from Paul Silk (r) would be taken 'very seriously indeed' by the UK government

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Serious consideration will be given to a report calling for Wales to have its own tax system, the UK government says.

The Silk Commission says a referendum should be held on allowing the Welsh government to vary income tax.

Welsh Secretary David Jones said work would begin straight away to decide which, if any, of the report's proposals are introduced.

The report says the two governments should share responsibility for income tax but only if voters agree.

Mr Jones said an analysis of the Silk report would start immediately and that his department had already spoken to the Treasury and First Minister Carwyn Jones.

Start Quote

It's a powerful piece of work which we will be giving very careful scrutiny to”

End Quote David Jones Welsh Secretary

The Conservative-Liberal Democrat coalition in Westminster promised to set up an inquiry into how the Welsh government is funded. Since 1999 the devolved administration has relied on an annual block grant from the Treasury.

The Silk Commission began its work following the Yes vote in the referendum in March last year to give the assembly more law-making powers.

David Jones was asked if it was part of a "slippery slope" towards ever greater devolution.

But he said: "I don't think it can be suggested that there is anything that has been sprung upon the Welsh people. They were always aware that this was part of the process."

He hailed a "very thorough piece of work" from the all-party Silk Commission.

Whitehall and Cardiff would look at the proposals "to decide which if any are appropriate to take forward", he said.

"It's a powerful piece of work which we will be giving very careful scrutiny to."

'Trap'

The Welsh government welcomed a recommendation to give it powers to borrow money.

First Minister Carwyn Jones says income tax devolution must be accompanied by reform of the block grant.

Analysis

It's about a toolkit for a future government being able to carve out a better economy.

It's surprising that corporation tax isn't in there as it was used heavily by Ireland to attract inward investment.

And it's surprising that income tax is in there, because that's not something central government devolves as early as this.

If this happened, an optimist would say it could raise £2bn from income tax and £1bn from business rates to be able to do something in terms of giving extra grants or facilities for enterprise zones, or boosting the high street.

If you're a pessimist, you'd say if the economy went down further there's be less money coming in from income tax, less money from business rates and we'd be worse off.

It is risky territory but powerful territory as well - so it's about optimism or pessimism.

His government says it is underfunded by the Barnett formula which the Treasury uses to work out the size of the grant.

And the Silk report says income tax powers should only be devolved if both sides settle a disagreement about "fair funding".

The first minister added: "If you look at income tax-varying powers, there is a trap there because at the moment we know that Wales is underfunded.

"If we were to take income tax varying powers now it would be on the basis of that underfunding. It would lock the underfunding into the system forever."

At a press conference in Cardiff Bay, commission members repeatedly stressed they had produced a "balanced" report.

The commission's Labour member Sue Essex, a former Welsh finance minister, said: "This is not a pie in the sky thing we are talking about. It's possible, it's doable in Wales."

Her party's shadow Welsh secretary Owen Smith recently said that income tax powers "probably oughtn't be devolved right now" and warned they could leave Wales worse off.

After the report was published on Monday, he said it was right to recommend a referendum.

"In assessing those recommendations, we will need to test not only whether the proposals are in the financial interest of the Welsh people but also whether they pass the test of enabling an equitable and sustainable financial settlement for the whole of the UK," Mr Smith said.

Start Quote

We are more cautious about the recommendations relating to the partial devolution of income tax”

End Quote David Lermon Institute of Chartered Accountants

Nick Bourne, the former leader of the Conservatives in the assembly who sits on the commission, said his party would get on board with the proposals.

"It's good for Wales, it's good for the United Kingdom. Why wouldn't they be comfortable with this?" he said.

Tory finance spokesman in the assembly, Paul Davies, said: "We believe that this is a comprehensive package of reforms to make the Welsh government more accountable for its decisions."

Welsh Liberal Democrat leader Kirsty Williams said: "We have been arguing for greater devolution for over a century. This is the latest step in our long campaign for a federal UK.

"It will strengthen Wales and help make a real difference to the lives of people across the country."

Plaid Cymru said the report does not go far enough.

Party finance spokesman Ieuan Wyn Jones said corporation tax should also be devolved - something the commission rejected unless the tax was devolved to Scotland and Northern Ireland.

"Currently we have little or no room to manoeuvre within the straightjacket of a block grant," Mr Jones said.

'Bureaucracy'

David Lermon, director of the Institute of Chartered Accountants in England and Wales, said: "We are more cautious about the recommendations relating to the partial devolution of income tax.

Digging deep: The Welsh government may get control of taxes on quarrying

"They will inevitably introduce greater complexity and bureaucracy into the UK tax system, two qualities that the tax system already has in abundance."

The Federation of Small Businesses (FSB) applauded a call for the full devolution of business rates.

FSB Wales head of external affairs Iestyn Davies said: "It is now imperative that this recommendation is acted upon to pave the way for a fairer, more progressive and wide-reaching change for the business community in Wales."

The Electoral Reform Society suggested the current 60 assembly members might not be enough to scrutinise the Welsh government if it got tax powers.

Steve Brooks, Director of the Electoral Reform Society Wales, said: "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."

Spencer Birns, head of commercial operations at Cardiff Airport, said: "The ability to control long haul air passenger duty rates is just one tool in the armoury we have to improve air passenger services to and from Wales and increase passenger traffic."

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