Archive for March, 2014

Financing Wales

photo“Bill to make provision about elections to and membership of the National Assembly for Wales; to make provision about the Welsh Assembly Government; to make provision about the setting by the Assembly of a rate of income tax to be paid by Welsh taxpayers and about the devolution of taxation powers to the Assembly; to make related amendments to Part 4A of the Scotland Act 1998; to make provision about borrowing by the Welsh Ministers; to make miscellaneous amendments in the law relating to Wales; and for connected purposes.”

This is not the most exciting paragraph that has appeared in the Almanac but it will no doubt be the subject of much discussion amongst Wales’s chattering class. It’s the implementation of the recommendations of part one of the Silk Commission, those to do with taxation.

If passed it will allow the Welsh Assembly for the first time to have a stream of money that it controls. It will raise the Welsh Assembly to the same status as a Community council i.e. able to raise some of its own money. Not quite everything that the Silk Commission suggested, but enough of an income stream that would allow the Welsh Government to borrow money and have the cash coming in to pay back the loan.

The bill aims to see non-domestic rate fully devolve to Wales by April 2015, which brings the country inline with Scotland in this area. Other taxes such as stamp duty land tax and landfill tax will take longer and aren’t expected to be devolved until 2018.

These will require not only the passage of the Wales Bill by the UK Parliament but also the Assembly will also have to legislate to introduce replacement Welsh taxes, which will come into effect when the UK taxes are ‘turned off’ in Wales.

According to Wales’s Finance Minister the Wales Bill and Command Paper deliver several improvements to the draft Bill that was published before Christmas. She drew attention to the new powers for the Assembly to set its own budgetary procedures. The Silk Commission, of course, recommended this.

The Welsh Government have been pushing for a commitment to review the borrowing ceiling for capital investment – currently set at £500 million – at each UK Spending Review. The Treasury have now agreed as also the creation of a Joint Exchequer Committee, which will be a new forum for Welsh and UK Ministers to discuss tax matters.  The Treasury have also signalled that they will consider devolving powers to borrow through issuing bonds, as has recently been granted to Scotland.

The hope of George Osborne is that they will use these new borrowing powers to build a road to relieve congestion on the M4. Whether that’s a good use of public money, is debatable, but of course business people have been pushing for this and George if he’s anything is a good friend of business.

The other parts of the bill on changing the electoral system for the Assembly re likely to meet with fierce opposition by Labour, they don’t want to revert back to allowing candidates for the Assembly to stand on the regional list and in individual constituencies.




The budget

2011budget_homepage_graphic1The Chancellor delivered a budget today that would have pleased at least one person, Lynton Crosby. Who he? Well, he’s the Conservative election strategist. For this budget has been crafted with skill to ensure victory in the 2015 general election.

Despite the event being about economic management it would be a very strange Chancellor that didn’t also have some populist measures in the package that would ensure tabloid headlines.

It doesn’t take much of a gift of prophecy to suggest that the tabloids will have headlines on cheaper booze, bingo and of course potholes. All of which have benefitted from the Chancellors largess.

The Chancellor clearly wanted to shore up his credentials as a future leader of his party, by appealing to his own backbenchers. Forget climate change and all that “green crap” advocated by those Liberal Democrats. Forget environmental targets he capped Carbon Price Support at £18 per ton of CO2 for a ten year period. Lovely, say the climate change deniers on his backbench.

Of course, there wouldn’t be many welfare recipients that would vote for his party, so they can be safely hit.  After all this group has already been demonized by the tabloids and so no votes there.  Capping the  welfare benefit bill at £119 billion will be popular, but it will certainly hurt many of the poorest people in society.

Not so pensioners, at least the better off ones. They are more likely to vote for the Chancellors party and for this group he has more than excelled.

Many pensioners have been frustrated with the lack of flexibility they have with money in their pension pot and how small their annuities are. The liberalizing measures announced will make a real difference.  Pensioner Bonds and raising the ISA levels will be welcomed by this group.  Not a bad headline to be called the “pensioners friend” before 2015.

Here are some of the most important announcements.


Level of paying income tax will be raised to £10,500


Bingo duty reduced from 20% to 10%


Threshold for 40p income tax to rise from £41,450 to £41,865 next month and by a further 1% to £42,285 next year


Inheritance tax waived for members of emergency services who put their lives on the line in their jobs


Tax on homes owned through a company to be extended from residential properties worth more than £2m to those worth more than £500,000


All long-haul flights to carry lower rate of air duty.




Cash and shares Isas to be merged into single New Isa with annual tax-free savings limit of £15,000 from 1 July


The 10p tax rate for savers abolished


Amount of Premium Bonds you can hold will o be lifted from £30,000 to £40,000 in June and £50,000 next year and number of million pound winners doubled




Tax restrictions on pensioners’ access to their pension pots to be remove and no to buy an annuity


Taxable part of pension pot taken as cash on retirement to be charged at normal income tax rate, down from 55%


Increase in total pension savings people can take as a lump sum to £30,000


A new Pensioner Bond will be introduced paying “market-leading” rates, available from January to over-65s, with possible rates of 2.8% for one-year bond and 4% for three-year bond.


Fuel, Alcohol and Tobacco


Beer duty cut by 1p a pint, duty on ordinary cider will be frozen as it will on whiskey and spirits.


Fuel duty rise planned for September will not happen


Tobacco duty to rise by 2% above inflation


State of the economy

Growth of GDP forecast to be up by 2.7% this year and 2.3% next year, then by 2.6% in 2016 and 2017 and by 2.5% in 2018



Twelve-sided £1 coin to be introduced in 2017


Welfare cap

Budget to be capped at £119bn for 2015-16, rising in line with inflation to £127bn in 2018-19


Public borrowing/deficit


Deficit forecast to be 6.6% of GDP this year, 5.5% in 2014-15 then falling to 0.8% by 2017-18 with a surplus of 0.2% in 2018-19


Borrowing forecast to be £108bn this year and £95bn next year, leading to a surplus of almost £5bn in 2018-19


Permanent £1bn reduction in government department overspends



Lending for exporters doubled to £3bn and interest rates on that lending cut by a third



As a consequence of the budget spend in England the Welsh government should receive an extra £36m to spend over the next two years, a little over 0.1% of its £15bn annual total budget.

The budget clearly was good news for business, the Chancellor has given them almost everything that they could have hoped for. It clearly helps the more affluent pensioner. The real losers are the poor and those in low paid jobs. The gap between rich and poor will continue to grow. And as for Wales it was announced that tomorrow will see the Bill giving the recommendations on tax and borrowing from the Silk Commission placed before the Commons. The Chancellor hoped that as a consequence  the M4 relief road improvements would go ahead.



Running late

DSC00057Electrification of the valley lines and indeed creating a metro for South Wales would make a real difference to the Welsh economy. That is why it came as a real shock when the First Minister raised questions about its funding in his monthly press conference.

The Westminster government in their public utterances has taken great delight in saying that they took the decision on electrifying both the main line from London to Swansea and the Valley lines.

But now there’s a question as to who is paying. Without the cash Network Rail are refusing to move ahead with the scheme. So who’s to pay the Welsh or the UK government?

According to the First Minister the UK government agreed it would fund the electrification of the London-Swansea main line and the Valleys lines. But an outraged Welsh Secretary David Jones responded by saying that ministers in Cardiff had agreed to bear the cost of electrifying the Valleys lines.

Who should the Welsh public believe?

What’s certain is that the cost of the main line upgraded to Swansea by 2018 will cost  £850m. In addition the electrification of the Valleys lines – which is due to be completed between 2019 and 2024 – will cost between £309m and £463m. In anyone’s book we’re talking large sums of money.

The Tory opposition in the Assembly was quick to jump to Westminster’s defense saying that a “deal” was struck in the summer of 2012. Under its current powers the Assembly hasn’t either got the power or the funds to finance such a large infrastructure project. So if they signed an agreement to pay for electrifying the Valley lines, they were acting beyond their remit.

In another life I interviewed the then Secretary of State for Wales, Cheryl Gillan and she was quick to claim credit for the project. There never seemed to be any suggestion that it was anybody but Westminster that was going to pay. Indeed the project was mentioned in the Chancellor’s budget speech, in a throw away comment, to show that he hadn’t forgotten little old Wales.

The commitment to electrify the railway had been repeated publicly many times by David Cameron.  Indeed as the BBC pointed out in an interview with BBC Wales in October 2013, Mr. Cameron said: “It’s this government that’s putting the money into the electrification of the railway line all the way up to Swansea and, of course, the Valley lines.”

Why the uncertainty now? It’s all a bit of a mystery, or is it? The answer could be connected with HS2.

A massive lobby of the northern English movers and shakers has been pressing the government to bring forward the second phase of the high-speed project.  Its dawned on the Westminster government that if this project is going to get cross party support they need to win the hearts and minds of the Northerners by conceding to the demands.

But to start work in the North now will take a great deal more than the current budget of the English Transport Minister. So what’s to be done? Well, save money on the Welsh project.

It’s only a hunch, but the story has all the hallmarks of a political fix. Perhaps George Osborne might shed more light on the finances when he gets up to deliver his budget tomorrow.