Welsh devolution: fitting the bill

28 Feb 14
Eleanor Roy

Proposed amendments to the draft Wales Bill from a Westminster select committee could help achieve a workable form of financial devolution. The Wales Office should accept the proposals and amend the bill

The UK Parliament’s Welsh Affairs Committee has today published a report on pre-legislative scrutiny of the draft Wales Bill. Committee members make a series of recommendations that, if accepted, would improve the bill and help to achieve its aim of increased financial accountability.

As well as altering some of the electoral arrangements for the National Assembly for Wales, the draft bill provides for the devolution of taxation and borrowing powers to Wales, reflecting the UK government’s acceptance of the majority of the Silk Commission’s proposals.  Such powers include the devolution of business rates, stamp duty land tax and landfill tax, income tax powers (subject to a referendum), and borrowing powers, both for short-term budget management and long-term capital investment.

CIPFA welcomed the draft bill and its intention to increase the financial accountability of Welsh devolved institutions.  However, we expressed concern that a number of matters were left unresolved, and thus responded to the committee’s call for evidence. The committee’s recommendations have taken on board CIPFA’s concerns, the issues raised in our written evidence and reflected some of our suggestions as to how the bill could be improved.

We agreed with the Silk Commission that, should their recommendations on tax and borrowing powers be implemented, the current budget process in the Assembly would ‘no longer be fit for purpose’.  But the draft bill contains no transfer of powers to allow the Assembly legislative control over its own budget process.

This was a key omission. There was a risk of having powers over taxation and borrowing without the ability to operate an appropriate budget process through which to hold the Welsh Government to account for its financial plans.

At present the Welsh budget process is designed only to deal with spending plans, and although the draft bill provides that an annual report on the operation of the taxation and borrowing powers must be presented to the Assembly, this provides only for ex ante scrutiny. Scrutinising the tax, borrowing and spending plans of the Welsh Government, will pose a challenge to the Assembly and its committees.

Thus, the ability to design a budget process to allow for the adequate reporting and scrutiny of financial plans will be essential. The committee’s report today reiterates this concern and follows our suggested recommendation that the bill should be amended to transfer such powers.

A further area of concern for CIPFA was that the draft bill made no mention of how the Barnett-determined block grant would be reduced to offset revenues raised by devolved taxes, despite detailed mechanisms being proposed by the Silk Commission.  Given that this area was the focus of much attention during the scrutiny of the Scotland Act 2012 in the Scottish Parliament, we considered that this provided a learning opportunity for the Wales Office.

The draft bill, or the accompanying documentation, would have benefited from an indication as to how such deductions would be calculated to allow for scrutiny of this important element of tax devolution.  The committee agreed with CIPFA’s concern, following our suggestion that on introduction of the bill the preferred mechanism for adjusting the block grant should be clarified.

The committee’s report represents a positive step in the development of the Wales Bill and towards achieving a workable form of financial devolution for Wales.  We would urge the Wales Office to implement the committee’s recommendations when amending the Bill.

These amendments would help the bill to better achieve its stated aim of increasing financial accountability of the Welsh devolved institutions and would provide legislation that works better for Wales.

Dr Eleanor Roy is research consultant for CIPFA Scotland

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