Silk Commission suggests referendum to give Wales tax powers

The Commission on Devolution in Wales (also known as the Silk Commission) is an independent commission with the aim of reviewing the case for devolution of fiscal powers to the Welsh Assembly. A landmark report was produced by the commission this month, which recommends devolving tax and borrowing powers to the National Assembly. The report suggests the introduction of a ‘Wales Bill’ to devolve tax and borrowing powers (with provision for a referendum for this).

In summary, the report sets out the following points:

  • The current National Assembly of Wales is unique for it has legislative and spending powers but not tax and borrowing powers. Since the bulk of its funding comes from the UK Parliament, the Welsh Government and the National Assembly for Wales are not accountable to Welsh electorate for revenue generation in the same way as budget spending. A reform to existing system, therefore, is needed to deliver greater responsibility and empowerment to the Welsh Government. This can be done through devolution of taxation under the control of the Welsh Government.
  • The Commission recommends the following taxes to be devolved: Stamp Duty Land Tax, landfill tax, (subject to on-going state aid discussions) aggregates levy, long haul rates of Air Passenger Duty, business rates, and income tax. On income tax, the Welsh Government should share responsibility for income tax at all rates with the UK government. The Commission sets out a package on how the Wales Government can have its share in setting income tax rates.
  • The taxes that are not to be devolved include fuel duty, alcohol and excise duties, Vehicle Excise Duty, Capital Gains Tax, Insurance Premium Tax, stamp duty on shares, Inheritance Tax, betting and gaming duties, Climate Change Levy.
  • The Commission does not recommend devolving corporation tax to Wales as well as devolving NICs in their current forms. Similarly, it rules out the devolution of VAT. It recommends, however, that enhanced capital allowances should be offered within more enterprise zones in Wales subject to state aid rules and provided the Welsh Government pays the incremental cost.
  • Additional power to borrow should be given to Welsh Ministers in order to enable an increase in capital investment.
  • For the purpose of better financial accountability, the Commission recommends several measures such as improved tax and other financial data for Wales; consideration of a possible wider role for the Office for Budget for Budget Responsibility on the public finances and economy of Wales; strengthened consultation and working arrangements between institutions; and improvements to the Welsh public spending system.
  • A new Wales Bills should be introduced to take forward the recommendations that require legislations.  Changes that do not require legislation should take effect as soon as possible.
  • A referendum is needed to determine the devolution of income tax. Provision for such a referendum should be contained in the Act which introduces tax and borrowing powers.
  • In anticipation of the new changes, institutional arrangements need to be strengthened, such as by setting up a Welsh Treasury function in the Welsh Government and building the capacity of the National Assembly for Wales for financial scrutiny.
  • These recommendations would result in around a quarter of the Welsh budget being decided and raised in Wales. It is also believed that it would provide real financial accountability, empowerment, fiscal responsibility and choice for the National Assembly for Wales.

Link to Silk Report [PDF]