An early referendum on tax powers

The devil is in the details, but the announcement by David Cameron and Nick Clegg that there will be a referendum on the National Assembly getting tax-setting powers is very welcome.


     Wales to get referendum on tax-raising and borrowing powers

     Cameron announces plans for referendum on tax-varying powers
     for Welsh Government

The official Ministerial Statement was published this morning, here, but doesn't say very much more than yesterday's media announcements. More details will be published before the end of the year.


The recommendations in Part I of the Silk Commission's report were put together as a package. As such, it was compromise that took care to balance a range of different viewpoints. But ever since its publication different parties have been calling for only parts of it to be implemented.

Labour has always wanted the borrowing powers, but not the taxation powers. Therefore its position has been to call for immediate borrowing powers and immediate control over some minor taxes, while at the same time saying that a referendum on major tax powers such as income tax should only be held at some, yet to be specified, point in the dim and distant future. This has never been a credible position. The argument that Wales should get borrowing powers on the strength of control over a handful of small taxes simply doesn't stack up, not least because these taxes are likely to be reduced rather than increased.

The only credible way forward is for borrowing and taxation powers to be given at the same time; and if this requires a referendum, that referendum needs to be held before we get either borrowing or taxation powers.


There is plenty of time to do this. We need—and are clearly going to get—a new Government of Wales Act (or perhaps Wales Act) at some time before the next Westminster election in May 2015, and the most obvious time for its provisions to come into force is May 2016. The referendum could therefore be held as late as, say, March 2016. This would mirror what happened in March and May 2011 over primary lawmaking powers.

But it would probably be better for the referendum to be held before this. If we can agree that the Welsh Government should have taxation and borrowing powers sooner—and I think we can get cross-party consensus on this—then there is no reason why the referendum shouldn't be held considerably earlier.

Carwyn Jones has on several occasions made the point that the UK Government needs to give Wales significantly more powers as a sign that it will give Scotland considerably more powers within the UK, in the hope that fewer Scots will then vote for independence. There is some merit in this, especially because the income tax arrangements outlined in Silk Part I are in fact more advanced than those contained in the Scotland Act 2012. So if Carwyn is consistent, he would need to press for our tax referendum to be held before September 2014.

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Owen said...

I wasn't very impressed with the original proposals, so I'm even less impressed with the outcome. Yes, indeed, it's a "step in the right direction", and we can get excited about yet another bloody referendum, yet again on a technical matter dependant upon which side Welsh Labour get out of the devolution bed in the morning.

Carwyn has his reason to stall - no fair funding formula in place (yet). Plaid are unlikely to sign up to a referendum without one in place either because it would give Labour a stick to beat them with in the whole "Standing up for Wales" schtick.

The borrowing powers are important, though perhaps not for the reasons they've been sought. Stamp duty might help the housing market or first time buyers, but that's still dependant (as a source of income) on high house prices. Landfill tax is a no-brainer, but as you hint, it's not a big deal. I understand that aggregates levy is dependant on further negotiations, so Wales will soon have that mighty fiscal lever in the arsenal too. APD for long-haul flights seems to have flown away, while there's no mention of any power to create new taxes or levies within devolved matters.

The thing I'm bordering on angry about though, is that devolution of business rates appears to be off the table or on hold. Reforms to NDR would make a big difference. In fact, based on the presumption that the Welsh Government are unlikely to enact significantly different income tax rates from England, I'd prefer devolution of NDR over income tax if there were a choice.

The original proposal was an imperfect if well-worked compromise. This seems to be a further dilution - a compromise of the compromise. Dependant on Silk II, if/when there's a referendum I'd be tempted to vote/campaign for a no (along similar lines to MOF in 2011) just to spite the whole thing. We're being treated like chumps.

Welsh not British said...

Could it be that the Red Tories will withhold the income tax referendum in the hope it can be used as some sort of bartering tool for a future budget or coalition agreement?

MH said...

Yes, it is "yet another bloody referendum", Owen, and I would say that wasn't necessary to have this one. However it was part of the compromise, and I'll have to accept it on that basis.

But I don't actually mind the fact that we have had so many. Ireland is forced to have referendums on every change, and these "little-but-often" referendums have served Ireland well, particularly over Europe, for the people have had to say Yes on a step-by-step basis. In contrast, the UK is now faced with a huge problem because it has never sought step-by-step consent for what it does, so that when a referendum comes, it tends to become about "everything-and-the-kitchen-sink" rather than about the specific issue at hand.

Little-but-often referendums contribute to the public perception that devolution of power from Westminster to Wales is something that is continually progressing. Unlike Scotland, continual progression has become "normal" for Wales ... and what is normal will be expected to continue. It will be very hard to stop a process that has been gathering momentum over a period of years.


I wrote what I did without seeing the videos, so I am disappointed that Wales is to get some powers now, but that the referendum will only be triggered later. But it might not be as bad as I thought. The devil is still in the details. The first and biggest point is that the UK Treasury would be absolutely insane to let Wales borrow more than what we have the ability to repay. So the key will be that if the WG wants to borrow £1bn for a new M4, it will have to have some control over income tax because the revenue from small taxes won't be enough to cover such a large sum. (Though there is a counter-argument: that the UK Treasury may, like a loan-shark, want Wales to get into unrepayable debt.)

Also, as I said here, it is economic suicide for the Welsh Government to borrow money for an infrastructure project if the economic return that the project would be expected to generate actually goes to Westminster rather than Wales. Having control over income tax is one way of ensuring that part of the economic return (more employment and therefore more people paying more income tax) goes to the Welsh Treasury rather than the Westminster Treasury. Labour should realize that it needs income tax powers for this reason.


Another key detail will be what majority is necessary to trigger the referendum. Labour will of course want it to be a two-thirds super majority, because that will effectively give them a veto whether they are in power or not. I can only hope that it is triggered by a simple majority.

It is possible that this might become a bargaining issue, Stu. What happened in 2011 was that Plaid did a deal with Labour rather than the LibDems and Tories because only Labour's votes would get the two-thirds super majority required for the referendum on primary lawmaking powers. Labour might hope that the same thing happens again.

If the Tories and LibDems in Westminster have got any political sense, they will learn from this and ensure that only a simple majority is necessary this time round. Anything else will make it more likely that Labour will remain in power in Wales (in some form) after the 2016 election ... which is surely the last thing either party would want.

Anonymous said...

A referendum on tax raising (as it will be styled) will almost certainly result in a No vote - who has ever voted for politicians to put their taxes up?

After the yes vote in 2011, this would reverse any momentum which the pro-devolution/independence side has managed to build up and 'change the direction of travel'

Cibwr said...

The voted yes in Scotland on the second vote, on taxes, so there is a precedent.

Yes this is a watering down of Silk, so much for the respect agenda and listening to Wales. Two peanut taxes don't make for a very flexible settlement and without the novel taxes within devolved areas bit it prevents the National Assembly from innovating. Looks like the Secretary of State for Wales has had his way. Doesn't bode well for part 2 of Silk.

Welsh not British said...

"A referendum on tax raising (as it will be styled) will almost certainly result in a No vote - who has ever voted for politicians to put their taxes up? "

Tax raising doesn't just neccesarily mean raising the taxes higher than they are it could just mean raising them (as in receiving the money) in the first place.

Anonymous said...

The economic poverty of Wales is nothing compared with Labour and Carwyn Jones's poverty of ambition for Wales.

Silk is not perfect, there's absolutely no need for a referendum, the two taxes devolved are, what, 2% of any income generated from tax (if that) so are totally miniscule.

However, what Silk does do is for the first time ever Wales are discussing money and a Welsh treasury. People will think that the Assembly already has more financial powers than it actually has and so the referendum, when it comes, will not be such a big deal.

Anonymous said...

This is all marvellous news for those who actually work in Wales.

The prospect of lower taxes on almost everything when compared to England is surely something that most will welcome. And best of all, it will matter not one jot which party has a majority in the Assembly. No-one will ever dare to vote for a 'tax increase', not never!

The future in bright ...... long live Wales.

Anonymous said...

Obviously the comment above is trolling, but seriously we need to say "tax-varying" not "tax-raising". Raising taxes means collecting them, not putting them up. But better to say varying.

The UK Govt announcement is worrying to be honest. No business rates, no APD and no new levies.

It's potentially a climb down from Silk. Income tax is not that useful a tool although we should have it. Barnett reform before that is essential, as varying any taxes downwards costs money.

Anonymous said...

Sorry, but I think you are mis-guided. If you don't think taxes are set to fall in Wales then I suggest you look to move elsewhere.

Wales needs to 'up' its competitiveness PDQ (pretty damn quickly). It cannot 'up' it's education system overnight but it can attract masses of cheap labour by cutting a swathe of individual and other taxes. Now it just needs to focus on bringing the businesses here to provide the jobs. And again, this means making it cheaper for business to operate in Wales rather than in England!

As for your suggestion that 'raising taxes' does not mean putting them up I suggest you ask who has to pay for the tax collection systems in the first place. Yes, the taxpayers (individuals and businesses)!

Floppy haired thinking me thinks!

Anonymous said...

The media have been heralding this announcement as a big breakthrough.

But, in essence it is humiliating to be told that we need a referendum for such a small tax-varying mandate( 10 pence in every pound). Community councils in Wales have had this essential power since 1894!

Referendums should be reserved for significant constitutional changes such as the one which is taking place in Scotland next year. The proper place to have a discussion about tax-varying powers in Wales is during a Welsh General Election in 2016, where any changes can be placed in the proper context of proposed policies of the different parties. Electors can see what any tax-varying changes would actually mean in practice for them on an individual basis, and vote accordingly. Any True Wales type parties could also contest seats if they want to oppose any tax-varying powers.

This would provide a meaningful and democratic debate for the people of Wales about this important issue. A referendum on such a technical point on the other hand would be a massive turn-off for people, the turn-out would be miniscule and it would undoubtedly set back the cause of Welsh democracy.

I am also very suspicious of the Tories' motive with this move. It's a very clever and devious ruse in my opinion. Outwardly of course it would appear that introducing such financial accountability in Wales is a key conservative principle and that it is a way to blend their political outlook with actual circumstances in Wales

But, I suspect they are also preparing to use it as a weapon to attack Labour in the next parliamentary session post 2015, i.e they can say, look we have given Labour the right to implement income tax changes in Wales, but they have refused to use this opportunity, and prefer to use Westminster as a cash cow.( I think they have worked out Carwyn Jones and Welsh Labour in this respect, and this line of argument will be very useful for the Tory/UKIP perspective which is sure to develop post 2015).

Thirdly, I think they are also banking on the fact in such a referendum most people in Wales will instinctively think that this will lead to MORE taxes, and that will frighten people away from such an idea. Again, this is useful from a Conservative perspective.

So, how should Plaid Cymru respond? Firstly, they should be brave enough to break the cosy consensus around this matter, and argue that it is completely illogical to hold a hugely expensive referendum ( circa 8 million pounds) on such a minor technicality, and insist that Wales should have tax-varying powers immediately if they win/share power in 2016.

They should inform people that tax-varying powers would be used as an integral part of Plaid Cymru policies to improve areas such as health in Wales post 2016. These powers would be used primarily to tax big corporations/companies( the fizzy drink tax is one such idea, and there are others which could be used). This could show people that tax powers would be used constructively and in a hypothecated way to improve life in Wales.


I very much hope that Plaid Cymru will break the cosy consensus on this issue, and campaign

Anonymous said...

'These powers would be used primarily to tax big corporations/companies'.

Don't you think these 'big corporations/companies' would just re-locate over the border? Or deliver their produce just over the border (for onward delivery to homes throughout Wales) to escape 'fizzy drink' taxes and the like.

Tax powers need to be used constructively. And that means reducing taxation, reducing big and local government and eliminating waste. As for healthcare, it gets more complicated each and every year!

Anonymous said...

No, the companies would still trade in Wales and factor any tax into their prices, with prices going up or down accordingly. This is completely normal. Tax devolution is common in federal style countries and companies basically get used to the rules of the market they are serving.

Anonymous said...

Income tax is a red herring because of the need for a referendum. The Tories think they have "forced" Labour into taking responsibility for (some of) their spending but they've actually given Labour a get-out clause, because the referendum would have to be requested by the Welsh Government. To me this kicks it into the long grass, and all we've actually gotten is stamp duty. I am underwhelmed, and I think the reason the Tories and Lib Dems are promoting this is to use Wales as a political football against Scotland. As usual, the Welsh national interest is simply not followed.

MH said...

Thanks for the comments over the past few days, and sorry it's taken me some time to address them.

I don't think there will be any problem in winning a referendum on tax powers, especially as the taxes the Welsh Government has been given are likely to be adjusted down rather than up. If Stamp Duty Land Tax went up relative to England, it would depress rather than encourage the housing market.

However I do think it would be dangerous to hold a referendum without being sure that we'd win it. As the three other parties in the Assembly support it, a lot depends on the Labour party. It would obviously be a walk-over if Labour backed it, but if Labour refused to back it we would have to do the electoral maths. There may well be a large swing away from our moribund party of government for what will have been 17 years in 2016, and that will make what Labour thinks irrelevant.

Labour are out of touch with public opinion in not wanting income tax powers. The Silk Commission Poll of July last year showed 64% wanted powers to set income tax to be devolved to the Welsh Government. That's a comfortable margin already, but there will also be plenty of opinion polls over the next few months and years, and they should make things clear.


As for terminology, I think it's best to use the term "tax-setting powers" rather than either "tax-raising powers" or "tax-varying powers". Setting is better than varying because it allows for innovative new taxes like a tax on sugary drinks, or dropping some taxes altogether and replacing them with others, like local income tax in place of council tax.


I'd agree with AGJ about whether or not a referendum is necessary, but can only repeat that the point of Silk Part I was to agree a package, and that a referendum was part of the compromise agreement reached.

What I think we have every right to be disappointed about is that the full package hasn't been accepted. Air passenger duty and the aggregates levy should also have been included. But does failure by the UK Government to deliver on that invalidate the agreement on a referendum? On balance I'd say no. In particular I'd note that a huge majority of 81% (p13 of above poll) thought that there should be a referendum on income tax, and I think we should respect that unless new polls show a marked change of opinion. I think the best course of action now is the ensure that no artificial boundaries are put in place, particularly that holding a referendum should not require a two-thirds supermajority in the National Assembly.

I fully agree that the best way of winning the argument for an early referendum is to show people what we would do if we had fuller taxation powers. Sugary (not fizzy) drinks is a good idea. There will be others.

Penartharbyd said...

"There may well be a large swing away from our moribund party of government for what will have been 17 years in 2016, and that will make what Labour thinks irrelevant". Take a look at this post Labour (almost) as popular as ever, across all age categories.

MH said...

I read what you wrote, Pa'rB, and understand the scale of Labour's dominance. I would say that things can change very quickly. Remember that Labour were streets ahead in polling before the 2011 Scottish Parliament election, but that their support suddenly collapsed. The same "may well", to repeat what I said, happen in Wales in 2016.

It's hard to work out exactly what is happening behind the scences on the tax referendum. The latest talk is that it will be time-limited to 2017. That would certainly up the ante and make it a big—if not the big—issue in the 2016 election, and it might make or break Labour. "We will not allow you to make a decision about whether you want tax-setting powers" is not going to be a vote winner.

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