DEVO MORE: How fiscal and welfare devolution is good for Wales and the Union

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Evelyn Craig
5 years ago
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1 DEVO MORE: How fiscal and welfare devolution is good for Wales and the Union Presentation for UK Changing Union project Alan Trench Cardiff Bay, June 2014

2 Why Devo More? Clearly the desire of bulk of Scottish voters but in danger of being overlooked in polarised referendum debates Schemes that work for Scotland might not be appropriate for or even damage other parts of UK Yet what happens in Scotland defines a path Wales often walks down too Welsh public like devolution nearly as much as the Scots Goal: to come up with model for union-reinforcing further devolution, capable of applying to Wales and N Ireland too and at least not harming England You can have more devolution and more union

3 Fiscal devolution: constraints Focus on major taxes first, then think about smaller ones What s actually deliverable Effects on Wales and N Ireland? Effects in England? Concerns about subsidising better services in Scotland Fiscal good sense and good practice Useful lessons from federal systems Practicalities of decentralisation in a fiscally very centralised state Implications for compliance costs (borne by taxpayers) and administrative costs (borne by government) Legal constraints (EU law, also Treaty of Union) Constrain devolution of corporation tax, VAT, excise duties Revenue volatility: the finance minister s worry And stability and predictability too things Barnett is good at But Barnett presents problems even for Scotland

4 Major taxes and their revenues 2010/11

5 The Devo More fiscal package All personal income tax including rates, thresholds, exemptions and reliefs Assigned share of VAT (can t devolve) 10 points Smaller taxes: Land taxes (already largely there through SA 2012/Wales bill, and council tax/ndr) Alcohol and tobacco duties desirable (though there are serious legal and practical difficulties) New taxes? Plus a redistributive block grant, based on relative need vital for Wales With reductions to allow for fiscal capacity for devolved tax bases, to be reviewed periodically This measure of fiscal devolution doesn t affect ability of UK Govt to carry out redistribution whether between governments or persons

6 Devo More and welfare Based on maintaining a UK-wide social union, treating all citizens equally wherever they live But including devolution of benefits that overlap with devolved services Housing Benefit Attendance Allowance (only benefit where devolved govt can remove eligibility of a claimant) And administration of Work Programme (but not JSA/ESA for WP participants) Plus power for devolved governments to supplement UKlevel welfare payments from their own resources How to calculate funding for devolved benefits? (Proxies)

7 The impact of Devo More In Scotland: Scottish Labour embraced key welfare proposals, though are somewhat behind on tax Scottish Conservatives embraced both key tax and welfare proposals Paul Silk s interest in welfare ideas in Welsh context

8 Other elements of the Devo More agenda Addressing English concerns, through UK Parliament and UK ministries A British model of devolution Fiscal devolution as precondition for welfare devolution A stable solution in institutional solution not a slippery slope or ever looser union ; decentralising to work better Constitutional stability does not equal institutional stasis: devolution remains a developing process. Key elements of Devo More can be delivered in 3-5 years; other aspects will take longer.

9 Comparing forms of further fiscal devolution

10 How is this good for Wales? The approach to finance is based on funding Wales s relative needs as its starting point Greater reliance on own tax revenues means Wales isn t tied to the model of public services in England a link Barnett imposes And devolution of tax levers offers meaningful tools for the devolved government to tackle economic backwardness and spur growth Welfare devolution means maintaining not undermining social protection but also increasing the policy levers available to Welsh Govt and improving policy integration

11 Read the Funding Devo More report Read the Devo More and Welfare report Read my blog, Devolution Matters: Follow me on

Summary of recommendations

Summary of recommendations Recommendation 1: the Scottish Liberal Democrats should reassert that they are federalists: in favour of home rule, within a strong and federal United Kingdom. Recommendation