Owen Smith's absurdity

On The Wales Report last night Owen Smith said that the Welsh government should not have power to vary the rate of income tax,

" ... because we don't have the relative tax base in order to provide Wales with the volume of money that our needs requires."


This is an absurd line of argument. If not having enough of a tax base to provide you with "the volume of money that your needs require" was a valid reason not to have any major tax-setting powers, then the United Kingdom government should not have the power to set a rate of income tax either, or have any other macro-economic powers.

The "volume" of money it raises from taxation fell short of the money it needs to meet its spending needs by a massive £14bn in August alone. This is from a ConDem coalition government whose primary aim was to cut the UK's deficit, not increase it ... but the deficit would be even higher under Labour, because their main line of argument is that they would not cut it by as much.

And over the years, the tax base of the UK has been so inadequate to meet its spending needs that its national debt surpassed £1,000bn at the beginning of this year ... and it's getting bigger all the time.


What he went on to say in the interview was equally ridiculous. Immediately following the section I quoted above, he said that our low relative tax base was "why we've had Barnett".

No it isn't. The Barnett Formula merely ensures that any decisions which the UK government makes on spending in England require a proportionate amount to be given to Wales, Scotland and Northern Ireland as well. It has nothing whatsoever to do with the relative tax base of Wales, Scotland or Northern Ireland being inadequate. In fact Scotland's tax base is more healthy than the tax base of the UK as a whole; yet the Barnett Formula treats Scotland far more generously than it treats Wales.


Owen really hasn't thought things through. It's obvious that he doesn't want Wales to have any major tax-varying powers, and equally obvious that he and others in the Labour Party in Wales will therefore put all sorts of bogus arguments and unnecessary obstacles in our path to stop us getting them. But how else is Wales going to get the tools we need to do something to improve the state of our economy?

It seems that Labour see Wales as no more than a child. It's as if they see the money the Welsh government gets as pocket money given to us by Westminster, and the limit of their ambition is to let us supplement it with control of a few minor taxes ... the equivalent of doing a paper round. Big deal. Wales needs a government that is eager to take at least some responsibility for our economic performance. We won't make any real progress until we start to take this responsibility for ourselves.

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Anonymous said...
This comment has been removed by a blog administrator.
MH said...

Sorry, you're going to have to say that again, but without swearing.

Anonymous said...

Dai Smith's son, surprise surprise...

Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

What annoys me most is that they get away with saying this crap unchallenged by the media in Wales. If this was a UK minister pushing an equally bogus line of arguement then there is no way they'd get away with it without being challenged be it on something like Newsnight or any of the UK network wide political programmes.
I know the Welsh TV press is weak but it is as if Labour has what there is of it in its pocket. I was hoping this new programme with Huw Edwards would be a bit more in your face, sadly it appears not.


Anonymous said...

Owen Smith is not a stupid man and, therefore, he must be fully aware that he is being disingenuous at the very least. What does this say about his integrity? It is so very depressing.
It is, of course, not beyond the realms of possibility that he is not aware of the true nature of the situation, which is only slightly less worrying as it indicates incompetence.

Tarian said...

Depressing but predictable stuff from Labour. Their utter contempt for Wales and total lack of ambition to improve the state of the nation is beyond belief. We can expect approving noises from the London controlled Trinity Mirror rags and BBC. Without an independent mass media, free from outside influence, these toads will never be held to account.

Labour are terrified of having any real power or responsibility over taxation. They want power without responsibility, spending and waste without consequences. The worst feature about this episode (and others like it) is that Welsh Labour politicians have internalized a colonialist attitude - they view their own country and people much as the administrators of empire viewed their colonies: too small, too poor and too stupid to take on the responsibilites that other nations consider to be basic and fundamental.

How do they expect the Welsh economy to revive unless they maximise the tools at their disposal? They should be kicking down doors at Wesminster arguing for the even greater powers, not talking down our abilities as a nation and seeking to perpetuate a failing system. This reluctance also seems to be at odds with Carwyn Jones' hints at greater powers for Wales under a federal UK. So is this the usual Labour confusion and incompetence, or is there a growing division between the Wesminster set and the Assembly monkeys?

Anonymous said...

I suspect that by instinct Owen Smith is in favour greater devolution, including tax varying powers. However, the issue is a potentially divisive one within the Labour Party, so consequently Owen and the rest of the Labour leadership have decided to park it for the time being. Of course, they can't publically say that party unity is the basis for their current policy. Even so, I'm suprised that Owen couldn't have come up with something a bit more convincing than his response on the Wales Report.

Cibwr said...

Well the needs for Labour Party unity will always trump the needs of the Welsh Nation. We should not be surprised. This is part of the too small, too week, too poor, to stupid argument.

Anonymous said...

What a weird kind of "federalism" these Welsh unionists advocate. I've now heard the Tory Paul Davies want federalism without Welsh control over criminal justice or a Welsh legal jurisdiction, and Carwyn Jones/Owen Smith want federalism without income tax. Would be one of the strangest and most pointless federations in the world.

Why is Owen Smith talked up as "impressive" and "clever"? He's clearly articulate and not stupid but apart from that there's nothing in his interview with Huw Edwards that suggests he is anything but a bog standard Labour MP.

And as usual there is no pressure on Labour from the media because these issues of funding are boring and easy to confuse.

Anonymous said...

Also see the complete lack of scrutiny of Labour or the Wales Office on last week's "funding deal"- a deal that has been labelled unimpressive by devolution academic Alan Trench. Vaughan Roderick interviewed Trench favourably, and Betsan Powys asked some good questions of Jane Hutt, but apart from both governments got away with a complete stitch up, arguing they had reached a "deal" that is in fact almost worthless.

Cibwr said...

Alan Trench is always worth reading, his take on a legal jurisdiction for Wales is very useful... I heard Vaughan's interview, excellent!

Anonymous said...

This was a man who said that the UK had no budget deficit before 2008 and the banking crisis. He either doesn't know what he's talking about, or else he knows he's lying and says it anyway. I suspect it's the latter

Anonymous said...

Who? Owen Smith?

Anonymous said...

He's a member of the crachach.....son of Dai Smith.

Anonymous said...

Could anybody on here please inform me of the bread and butter details of any WAG income tax plans.

For instance, the present UK basic rate of income tax is 20%. Would the WAG add on a further income tax of (say) a further 3%..5%..10% to Welsh taxpayers for WAG to spend as they please?

There is far too much chattering, and far to few hard facts about just what WAG tax "varying" (which incidentally fools no-one) actually means.
Has a deliberate WAG 'secret' policy on taxation been agreed? With the income tax-payers of Wales kept in the dark about just how much our net pay will fall so WAG can make hay while we tighten our belts ?

Anonymous said...

Up to the old tricks again I see Syniadau.

Pulling out all the posts you don't agree with.

Leaving only your puppets and lackies to contribute.

Just how insecure are you !

MH said...

I've deleted two comments in this thread. One because it contained unacceptable language, another because if made unsubstantiated allegations. I've never deleted a comment because I disagreed with it.

I disagree with quite a few of the comments here, in particular those which attack Owen Smith for who his father is. Owen can only be held accountable for what he himself says and does, not for his background.


For those who missed it, last Sunday's interview with Alan Trench is here.


We can only speculate on what Silk will recommend, but because it has representatives from all four elected parties, it would be naïve to assume that certain senior people in each of the parties don't have a very good idea what I will contain. Perhaps it is significant that Sue Essex (Labour's nominee) should have stood down before the first stage report is published. It would be a way of distancing Labour from its recommendations ... and therefore probably a sign that Labour are not going to be happy with what it says.

I've already said (in this post) that I think the main reason Labour don't want major tax-varying powers is that they are in the very cozy position of only having to make decisions about how to spend the money others give them. Always being able to point the finger of blame for how much they have to spend elsewhere gives them an electoral advantage that they want to maintain. But of course they won't say that ... which is why people like Owen Smith resort to bogus arguments of this sort. We can only expose them for what they are.


As I see it, the argument has been distorted because of what's happening in Scotland. There, much of the discussion of recent months has been about devo-max. Devo-max might well have worked for Scotland, but it will not work in Wales: a point which Gerry Holtham has made and which Labour seem to have grasped hold of. This is because our current tax base is too small to support our current level of spending by a larger margin than is true in the UK as a whole.

The mental "short circuit" that Labour are making is that because devo-max is a bad idea for Wales, it doesn't mean that a greater degree of fiscal autonomy short of devo-max would be bad for Wales. But worse, what they fail to realize is that by refusing to take any degree of responsibility for a range of major taxes, they are condemning Wales to yet more economic decline. It is only by being able to tweak these levers that we can set up a tax regime that is tailored our economic strengths rather than the economic strengths of SE England.


As for how a future Welsh government might vary the rates of personal and corporate taxes we pay, that will be set out in the various party manifestos and people in Wales will vote accordingly.

If putting up the rate of income tax and increasing public spending is in a particular party's manifesto, then people are free to vote for that party if they agree ... but equally free to vote for a different party with a different agenda if they disagree.

Anonymous said...

From the Western Mail Dec 7 2006.

A WELSH Labour MP has gone off message by describing his party's unsuccessful Blaenau Gwent by-election candidate Owen Smith as a "drug pusher".

Mr Smith is a top lobbyist with the pharmaceutical firm Pfizer.

In an interview with the cultural magazine Planet, Newport West MP Paul Flynn also took issue with those in the party who had described the Independent candidate who beat Mr Smith as lacking "validity".

Mr Flynn said, "The lobbyists are a curse, a cancer in the system. It's insidious. One of my main interests in politics is areas in which lobbyists used their wicked wiles to get access to government. One example is the pharmaceutical industry, who are the most greedy and deceitful organisations we have to deal with."

Interviewer Patrick McGuinness then said, "Some of their lobbyists end up as candidates in Welsh Labour. Blaenau Gwent for instance."

Mr Flynn responded, "Indeed - I wasn't too pleased by the fact that we had a drug pusher as a candidate."

Read More http://www.walesonline.co.uk/news/welsh-politics/welsh-politics-news/tm_method=full&objectid=18222608&siteid=50082-name_page.html#ixzz2AuE2d3EX

Anonymous said...

Don't worry too much about who gets labelled as "impressive". Welsh politics is crying out for articulate people and the media is quick to seize on new "stars". Remember that Naz Malik was in the fantasy assembly!

Anonymous said...

Devo max is inappropriate for Wales but it is NOT on offer in Wales through Holtham, through Plaid Cymru and will therefore not be on offer through Silk. However, Labour figures in Wales will still use the spectre of Devo-max (not
on offer) to prevent Devo-more (on offer) from happening, if that makes sense. I have seen two Labour members do this; Peter Hain and the former activist David Taylor. Other Labour figures will be happy to put up Devo-max or
Full fiscal autonomy to prevent even modest reform, just as they have for years been putting up independence to slow down and delay self-government or autonomy.

Don't fall for their distractions and smears.

MH said...

Thanks for the link to the Paul Flynn quote I deleted, 19:19. I can see how it makes sense in context.

Anonymous said...

Anon 13:10's lack of understanding of tax devolution shows the kind of scare stories that will proliferate in any referendum.

The Welsh Government wouldn't add a new layer of tax. They would (to an undecided extent) take over the existing brackets of income tax and have the choice to increase or decrease them. They would get the resulting revenue from any increase, and would equally have to pay for any decrease. A share of income tax would then replace part of the block grant. The majority of the block grant (hopefully worth proportionally more if a needs-based formula is ever accepted) will remain in place.

This is a normal arrangement in most federal countries,

Anonymous said...

Thank you Anon 09.55 for your very simple explanation. Having read the posting and the thread of comments, I was worried we weren't going to get to that very simple argument.

Elements of the Labour Party in Wales are willfully confating two very different models:

1. Full fiscal autonomy (and for that read responsibility as well - you only get to spend what you raise and the central government won't top you up any further, oh and by the way you'll have to pay the central government a levy for federal services - defence, foreign affairs, etc.)

and 2. Fiscal variance (you have the autonomy to raise or lower the overall fiscal burden to fund higher spending in your areas of responsibility or cut spending and provide lower taxes, but a block grant continues to provide 'equalisation' funding to ensure overall funding is consistent with need. Central goverment costs are covered by the central government. The amount (and type) of tax burden devolved to you has to be big enough for your policy decisions to be meaningful and have an impact, but a significant proportion remains with the central government to avoid radical divergence.

1. is higher risk but brings complete autonomy to not only determine the overall tax burden of your region/state but how and where that tax regime is levied (the fullest degree of 'macro-economic' control available in a still-federal state). This is a logical place to go for a region in fiscal surplus or parity and with good prospects of continued prosperity in the short and medium term, and it is therefore what the SNP promote for Scotland if they don't get independence. Its shorthand is "Devo Max".

2. provides a degree of fiscal autonomy (essentially to determine the overall tax burden - within limits - but within a structure/design determined by the central govt.) and consequently a limited degree of 'macro-economic' control. It is lower risk/lower autonomy. This is a logical place to go for a region/nation in fiscal defecit and above average economic performance only feasible in the medium to long term. Additionally, there must be genuine structural problems or characterisitcs in the economy that are best dealt with by a differential system. Consequently this is the sort of model most independent observers have recommended for Wales. Depending on the precise design of this arrangement the current shorthand is "Calman-style" tax devolution or "Devo-more".

2., or variations on a tune, is the commonest form of fiscal and funding arrangements in most federal countries.

All things considered, 2. is also potentially in the best interests of both regional and central government if the resulting differential tax and spend policy can increase growth and prosperity in the "poorer" region. Increased prosperity there means lower subsidies from central government and a more prosperous market for neighbouring regions to trade with.

If economic performance remains the same - central government is in no better/worse a position.

If things get worse... well the central govt. would have had to pick up the tab anyway under the previous system. It just becomes a question of 'blame' and accountability. Of course, some resistance to this model comes from the fact that certain elements of central politics and regional politics have already decided that failure is inevitable because the regional government is inately incapable of making a success of this type of model. I'm afraid that just boils down to subjective opinion.

Elements of the Labour Party in Wales are presenting the real short term option for Wales (option 2) as option 1 to the people of Wales in order to scare them away from option 2 because they do not have the confidence in themselves or the rest of Wales to make a success of it.

Anonymous said...

That's about right, Anon. What you've described as 2 is what is on offer or will shortly be on offer in Wales. It's nothing to do with the "income tax base" or "Barnett" as Owen Smith claims. Remember they could devolve income tax and not vary from the UK rate at all. Probably the likeliest outcome to be honest.

Aside from this I think part 2 of the Silk Commission is important. I see a new Govt of Wales Act as being essential. If we miss this opportunity then I will truly despair.

Anonymous said...

If Income Tax, small 'industrial' and 'environmental' taxes and a power to introduce new, 'incidental' taxes (tourist levy, second homes or whatever) were devolved, I would expect that a Welsh government would be inclined to vary/change the DISTRIBUTION of tax revenues slightly (how much proportionately comes from which source), but not the OVERALL tax burden on the Welsh economy (both private and business). I'd guess that this would remain largely similar to England averages. From an economic management perspective, that is exactly what (and all that) is needed at this stage of devolution: the ability to give stimulus in specific areas identified as opportunities for the Welsh economy, and disincentives to areas identified as under-performers or benefit-neutral. It's about managing the new opportunities and inherent problem areas of your economy through changes in the distribution of tax take.

It's not the only mechanism of course, but it's one that has been employed by all governments since the Middle Ages. Those that have the power to do it of course...

Why do it at a Welsh level? It's not written in stone that it should be... The answer to that, as always, is varied:

Causal - there are definably different economic problems and opportunites in the geographic area known as Wales
Theoretical - all things considered, and where feasible, economies are best mangaged locally
Circumstantial - there is a polity and growing civil society of economists in Wales who believe they have the policy ideas to improve the economy given the right mechanisms
Principle - the Welsh polity already exists and it has the accountability to decide the distribution of spending in Wales, supposedly to manage the 'micro' economy of Wales - but that is not real accountability, it's only one side of the coin (unless you decide to absolve it of all responsibility for the economy of Wales - which is theoretically possible but takes us back to a 1970s 'Greater Wales Health and Education Authority' (a grandiose county council) concept)

The decision, of course, is yours, theirs, ours, etc...

Anonymous said...

There are figures in the Silk Commission report about the Welsh tax base. Can someone cleverer than me perhaps make sense of them and then compare them to what Owen Smith said in the clip? Then we can prove or disprove whether he had a point!

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