Constitution Finance

Silk Part 1: the latest developments

12 December 2013

Article by Alys Thomas, National Assembly for Wales Research Service

GoWAA previous blogpost covered the Prime Minister and Deputy Prime Minister’s Senedd announcement of the UK Government’s response to the Silk Commission’s first report on fiscal powers.

On the 18 November the UK Government published Empowerment and responsibility: devolving financial powers to Wales, which fleshes out the earlier announcement.

The key points are:

  • Income tax:  subject to a referendum in Wales, the Assembly and Welsh Government would be granted the power to vary the basic, higher and additional rates of income tax up or down in tandem. This would mean that 10 percentage points of each UK tax rate would no longer be due to the UK government but to the Welsh Government.
  • Stamp duty land tax (SDLT) and landfill tax  to be devolved to the Assembly, with a corresponding deduction to the block grant
  • The UK Government will work with the Welsh Government to fully devolve non-domestic (business) rates. While Welsh Ministers already set these rates in Wales, under current arrangements the revenue generated does not directly affect the level of funding available to the Welsh Government.
  • The UK Government has accepted in principle Welsh Government capital borrowing powers for infrastructure investment, subject to the availability of an appropriate independent stream of revenue to support borrowing costs.
  • The UK Government will therefore provide the Welsh Government with early access to limited capital borrowing powers in advance of the implementation of tax powers to carry out improvements on the M4.
  • The power for the Assembly to legislate, with the agreement of the UK Government, to introduce new taxes and associated tax credits.

A draft Wales Bill is expected by March 2014 and it is anticipated the Wales Bill will be announced in the Queen’s speech in May 2014. Royal Assent is expected in March 2015 Pre-legislative scrutiny of the draft Bill is likely to undertaken by the House of Commons Welsh Affairs Select Committee.

Not all of the Silk proposals require legislation. Early access to borrowing powers and the full devolution of non-domestic rates could potentially be in place for the 2015-16 budget.

The Welsh Government published a position paper on the UK Government’s response on the 4 December 2013. It is generally welcoming of the UK Government’s response, although it identifies the need for further discussion with the UK Government on some issues. However, it expressed disappointment on two issues:

  • The Welsh Government supported the Silk Commission’s recommendation on income tax to devolve separate rate varying powers. It believes that the more limited income tax varying powers offered by the UK Government (a single Welsh rate of income tax)  will not provide the same level of flexibility to any future Welsh Government.
  • The Welsh Government saw the UK Government’s refusal to devolve Air Passenger Duty as a missed opportunity that would have provided a useful tool to help improve the Welsh economy.

The Silk Commission is due to report on Part 2 of its work on the powers of the Assembly in spring 2014.

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