UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1776 -i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Welsh Affairs Committee

Commission on Devolution in Wales

Tuesday 24 January 2012

Paul Silk, Dyfrig John cbe and PROFESSOR Noel Lloyd cbe

Evidence heard in Public Questions 1 – 61

USE OF THE TRANSCRIPT

1.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.

2.

Any public use of, or reference to, the contents should make clear that neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.

3.

Members who receive this for the purpose of correcting questions addressed by them to witnesses are asked to send corrections to the Committee Assistant.

4.

Prospective witnesses may receive this in preparation for any written or oral evidence they may in due course give to the Committee.

Oral Evidence

Taken before the Welsh Affairs Committee

on Tuesday 24 January 2012

Members present:

David T. C. Davies (Chair)

Stuart Andrew

Guto Bebb

Geraint Davies

Jonathan Edwards

Nia Griffith

Mrs Siân C. James

Karen Lumley

Jessica Morden

Mr Robin Walker

Mr Mark Williams

________________

Examination of Witnesses

Witnesses: Paul Silk, Chair, Commission on Devolution in Wales, Dyfrig John CBE, Independent Commissioner, and Professor Noel Lloyd CBE, Independent Commissioner, gave evidence.

Q1 Chair: Good morning. Mr Silk, we know each other of old but perhaps you would introduce yourself and the other witnesses for the purposes of the record.

Paul Silk: I am Paul Silk, the chair of the Commission on Devolution in Wales. My colleagues are the two independent members of the commission, Dyfrig John and Professor Noel Lloyd.

Q2 Chair: Good morning to you all. Would you begin, Mr Silk, by telling us how you were chosen for this important task?

Paul Silk: In some ways it is a mystery to me. It was a decision taken by the Secretary of State. I was telephoned and asked if I would be prepared to take on this role. It is not something that I applied for or in any sense canvassed for, so I do not know the process of choice. It is a question that you would have to ask of the Secretary of State.

Q3 Chair: Were you aware of any other candidates or of some sort of interview process involving other people?

Paul Silk: There was not an interview process. I was not aware of any other candidates; I think that there were probably others involved, but it certainly did not involve me.

Q4 Chair: What about the other members of the commission, particularly the independent members?

Professor Lloyd: The same goes for our position, in that I was asked to serve on the commission, but I do not know whether other people were considered. The process was very much as Paul has described it.

Q5 Karen Lumley: May I start by asking what skills and competences make you suitable to serve on the commission so that the Committee knows?

Paul Silk: In a sense, I would say that it is for the Secretary of State to determine whether she thinks I have the skills or competences to be on the commission. If I were to be a little presumptuous about it, I would say that it is probably the fact that I was a Clerk in the House of Commons from 1975 to 2001 and then a Clerk in the National Assembly for Wales; I then came back to the House until October last year. The skills that you acquire as a Clerk in the House of Commons are impartiality as between political parties, the ability to read often quite complex evidence on subjects and determine what is cogent and sensible in that evidence, and also the ability to work with Members of Parliament or Members of the Assembly from different political parties and quite often to facilitate a process that achieves a consensus on sometimes difficult subjects. Some of the skills of the House of Commons Clerk are transferable to this role.

I have also been interested in constitutional affairs. I do not want to sound too much of a geek, but I read the Crowther report and the Kilbrandon report when still at school. I have been interested in these things for some time.

Dyfrig John: Perhaps I could offer something and it may go back slightly to the previous question. One comment that has been made to me is that Part I of the commission’s work is very much about taxation and borrowing powers; hence, my background in finance of over 40 years, with 20 years at a senior level should, I guess, give me some background to be able to make judgments on borrowing. I have lived in different countries around the world and have experienced different tax regimes.

In an earlier academic period, I studied taxation. I do not own up to that very often because, although taxation is one of those subjects on which you may know everything that you want to know about it today, it will have changed within six months. It is very dangerous to presume that you understand taxation. That background is relevant, particularly I admit to Part I of the commission’s work.

Professor Lloyd: I would add to that. My background is, of course, in higher education. I was vice-chancellor of the University of Wales and chair of Higher Education Wales, and I am very much aware of some of the issues and the importance of developing consensus. My academic background is also one where you look at the evidence and, having gathered it, draw conclusions. That is really what the commission is about.

Q6 Chair: Thank you. Out of interest, Professor Lloyd and Mr John, you were appointed as independent members. To your credit, I could not find any evidence that you had been involved in the referendum campaign for more powers for the Assembly or for the original one. Will you confirm that that is the case?

Professor Lloyd: I confirm that I have had no political involvement.

Dyfrig John: I have had no political involvement.

Q7 Guto Bebb: Good morning. I apologise in advance for having to leave early, but I mean no disrespect to the Committee.

In addition to yourselves, there are political appointments to the commission. Do you consider them to be delegates acting on behalf of their political parties, or do you think that they can bring added value to the debate?

Paul Silk: In some ways, you would have to ask those four individuals about their relationships with their parties. At least one of them made it very clear at the commission’s first meeting that he did not see himself as a delegate of his party; he had been appointed at the nomination of his party, but what his relationship then is with his party I do not know. However, I hope that these four individuals will be the link between their parties, both in Cardiff and London, and the commission, as one of the strengths of the commission is having all four principal political parties in Wales as members. Indeed, one of the problems that Sir Kenneth Calman had in Scotland was having one party outside his commission. The link between the party and that individual is something that they need to finesse and work out for themselves. I hardly need to tell politicians that each party is different in its relationship with its members, but that will be a strength for the commission.

Dyfrig John: I would go further. We have had three formal meetings and I think you would be hard-pressed to decide which political party they were from by the openness with which they-

Q8 Chair: That does not necessarily reassure me.

Karen Lumley: Yes, it would.

Dyfrig John: It probably reassured me more. I thought that they might be highly political when I joined, but they have the Welsh agenda and Welsh people very much in mind. I found the debate to be very open.

Q9 Chair: With respect, Mr John, that may be the case with the people on the commission, but I suspect that if you talk to the activists-parties with views as diverse as Plaid Cymru and the Conservative party-you would not find that they all shared the same opinion and you would fairly quickly be able to discern who was who. How does the commission intend to ensure that the representatives of those political parties, who all appear to be saying the same thing at the moment, will represent the views of their members, or is that something you feel you do not have to achieve?

Dyfrig John: The only thing I would say is that we have had three meetings, and I have experienced a very clear wish to look into the real issues behind Part I in some detail and a wish to work together. Beyond that, I do not have a view at the moment.

Paul Silk: May I add that we are doing what we can to speak to as many voices inside the political parties as possible? I have spoken to the leaders of each of the parties in the Assembly, and I am speaking to the leaders in the House of Commons of Plaid Cymru and the Labour party today. I obviously speak to the Secretary of State. We hope that as many elected Members of the Assembly and Parliament-and, indeed, of local authorities-will engage with the commission. I hope that we will hear as many of the diverse views of the political parties as possible.

Q10 Jonathan Edwards: On that point, are you expecting formal evidence from the various political parties, or is it down to the delegates? How disappointed will you be if you do not get that evidence from specific political parties?

Paul Silk: We are expecting evidence from political parties. I shall be disappointed if we do not get it.

Q11 Guto Bebb: On that point I am reassured by that comment. It could be argued that the four delegates from the political parties who have been selected are all in favour of transferring further fiscal powers to the Assembly. That might be correct, but there is a concern that the more sceptical view of devolution in Wales is not part and parcel of it. Would you accept that?

Paul Silk: The way in which the four political delegates were chosen was not something that I was involved in. In a sense, if there is any grief, it is private grief inside those political parties. I certainly hope that the diversity of view that I know is held inside many political parties will be fully represented to the commission. We will take it all on board. For example, we had some criticism from True Wales on the first bit of evidence that found its way into the public domain. I hope that True Wales will come along to the commission and put its view to us. I do not want to exclude it because its view is different from what we think is the prevailing view among the political delegates.

Professor Lloyd: It is important to emphasise that we are inviting submissions and evidence through the consultation process, which will continue, and that our job is to look at that evidence, and if we have any conclusions to draw from it to do so.

Chair: By the way, the acoustics in the room are not the best. If I could gently ask everyone to speak up a little, that would be helpful.

Q12 Mr Williams: Returning to the three meetings and the progress that you may have made, in the minutes of the first meeting on the website, you allude to the possibility of the press actively trying to cause divisions among the members of the commission. How big a concern is that, and what are you doing to alleviate it?

Paul Silk: Even if it was within my power, I would not want to attempt to run the commission in a way that prevented anyone who has a dissenting opinion from expressing it to the commission. It is not some sort of Soviet approach to thought processes that tries to exclude dissenting voices or tries to suppress any reporting of them. I am not familiar with dealing with the press-it is not something that I have had to do myself-and I had a slight amount of finger burning from the press at the very beginning, not being quite as attuned to the sort of answers that one should be giving as I should have been. That minute probably reflects a discussion that we had along those lines.

Q13 Geraint Davies: May I ask about the allocation of the budget? What is it? Also, to what extent can you get independent expert advice? It seems to me that the people in the commission and the political parties are all moving down a one-way street, as are the bureaucracies. The question is how much further you go down that street before going into reverse gear and reconsider subsidiarity, for instance. Where is the best place to achieve the right balance of power?

Paul Silk: On the point of substance, I certainly have not made up my mind about anything yet, and I do not think that Noel and Dyfrig have.

Q14 Geraint Davies: Would it be conceivable for the Silk report to say, "Well, on balance, we think that there has been a bit too much devolution in this area and perhaps not enough in that area"? That would never happen, would it?

Paul Silk: It is conceivable that that would happen. The Scotland Bill proposes taking some powers away from Scotland and handing them back to Westminster. It is perfectly possible that we would have evidence along those lines. If we heard evidence that was persuasive and cogent, we would be persuaded by it, but that is not going to be the direction certainly of the first part of our report. Wales has no taxation powers at present, so we cannot in any sense recommend that those taxation powers should be transferred back to London.

Dyfrig John: You mentioned budgets, and taking evidence from a wider, perhaps non-political academic area. So far, the budget is £1 million. The weight of evidence that we have had so far is from experts in this field, be they from the UK or further afield, and from academics that have a proven track record. There are some very well-known people in addition to Gerry Holtham himself, who appeared in front of the commission in December. Again, that was very valuable. There have been quite a broad number of presentations other than those with any political bias.

Q15 Geraint Davies: I thought that the terms of reference would include the Holtham Commission’s proposals. They are included, are they? I am a bit confused.

Paul Silk: The Holtham Commission’s proposals about Barnett are outside our terms of reference, but its proposals about the taxation regime are, indeed, entirely within our terms of reference.

Professor Lloyd: We reiterate the importance of wide consultation and casting the net widely to talk to people with expertise in the area and academics and others and to do so on an international level; there are international comparators that could well be valuable to us to consider.

Q16 Geraint Davies: Will you be considering functions? You said that tax and functions matter, but is it just the constitution and the tax, or does it include other things such as the police?

Paul Silk: That comes within the second part of our remit. Under our terms of reference, we are not to begin the second part until we have concluded the first. Although we have all given some thought to the matter, the commission has not yet discussed anything to do with the second part of our remit as a commission at all.

Q17 Chair: Mr Silk, Professor Lloyd understandably says that you will look at international comparators. As well as taking evidence from people with an instinctive view for or against more powers for the Assembly, you say that you will talk to financial experts, who will probably give evidence about what has happened in devolved regions of other nations. That is a fair summary. Will you also be taking evidence from people who have an expert view on what can go wrong when areas with fiscal responsibility within a shared currency area are allowed to borrow large sums of money? We need look no further than the eurozone to find examples of that. Will you be talking to people who have been involved in this fandango to get evidence as to the downside of allowing one constituent part of a currency area to borrow large sums of money hoping that another part will pick up the bill afterwards?

Paul Silk: One person who came to the commission’s last meeting was Paul Bernd Spahn, a member of the Holtham Commission. He is probably regarded as the expert on these issues in Europe, if not in the world. Some of those risks were alluded to or mentioned in the evidence that he gave to the commission. I am certainly open to hearing others-I would welcome it-who have experience of problems in the eurozone if it is relevant to the work of our commission.

Q18 Chair: Has Professor Patrick Minford, a distinguished economist from Wales, offered to give evidence?

Paul Silk: I shall have to check, but I am almost certain that he is on the list of people who have been approached for evidence.

Q19 Mr Williams: I turn to the terms of reference. You mentioned perhaps that one of the weaknesses of the Calman inquiry in Scotland was the absence of one of the political parties. Perhaps against the odds, four political parties in Wales have signed up to the origins of your commission and the work that you are undertaking. That was the result of a lot of bargaining between the parties. Mercifully, all of the four principal political parties in Wales are signed up. There has been some debate about the perceived restrictiveness of the terms of reference, but do you think that they are unnecessarily restrictive?

Paul Silk: The short answer is no. In the meetings of the commission, there has been no reflection that the terms of reference are unnecessarily restrictive. Indeed, there is a great deal to do inside those terms of reference. I know that the argument took place about what our terms of reference should be, but I am very happy with what has been agreed between the parties and the two Governments.

Q20 Mr Williams: I hope that you do not get sidetracked into a debate on the terms of reference at this stage. How rigidly do you intend to stick to them, and could evidence that is submitted lead you in a slightly different direction? How determined are you to stick to those terms?

Paul Silk: If you take on a commission such as this and are given terms of reference, you take on the terms of reference. It would be wrong to say, "We have these terms of reference, but we are going to ignore them and go off in a direction that we think is more interesting." However, as with any set of terms of reference, there is always some latitude and flexibility and some interpretation. I do not feel this is a straitjacket in any sense. I do not know whether my colleagues agree.

Dyfrig John: No. You have to take it in the round. Things happening in Northern Ireland on corporation tax are being studied-it would be wrong of us to ignore what is happening there-and obviously, there is the situation in Scotland with the Calman report and the Scotland Bill and so on. You do not push them away; you absorb them. However, the terms of reference are very specific to Wales, so we have to take that data, information and those views and apply them particularly to Wales.

As you know, there are some specific differences between the borders of Scotland and Wales, such as the north Wales situation and the number of people who live and work within 25 miles or 50 miles. It is very different from Scotland, and you have to take that into account. I do not think you can ignore it or push it away, but you have to take it into account in the round and then apply it to Wales. It would be wrong of us to say that we are not paying any attention to that. I come back to the previous point about Greece and things like that. We are familiar with it, and live day by day with what is happening in the eurozone and so on. Yes, you absorb these things. You take them in the round, but it does not mean that it is a fit for Wales.

Q21 Mr Williams: On a practical basis, particularly on the financial arrangements, I suspect that you probably have already received a welter of submissions relating to Part II but that that part of the inquiry is firmly on hold until Part I is completed.

Paul Silk: To my knowledge, we have not received any submissions on Part II; we have not asked for any and, as I said before, we were specifically told not to begin Part II until we have completed Part I. We are not running the two inquiries in parallel.

Q22 Geraint Davies: When Wales invests, for instance in job creation, the benefits to the Exchequer will be taken up in London, as opposed to there being more money in the block grant for Wales. So there is not a great incentive to do that. If the health service budget is spent on mental health problems to get people back to work, which would again generate revenue, the financial impact would be felt in Westminster and not in Wales. As a result, there may be a disincentive to help people with mental health problems in Wales as against England. Given your remit, are you going to look at those quite complicated interactions between function, responsibility and incentives and the tax structure?

Paul Silk: You are right in saying that there is a synergy between the two sides of what we are doing-to an extent.

Q23 Geraint Davies: I am thinking of the contradictions between England and Wales.

Paul Silk: That is not something we have yet discussed inside the commission, but it is something that we ought to discuss.

Q24 Jonathan Edwards: The Holtham Commission reported in 2010. I am reliably informed by Treasury sources that it is a far superior piece of work to the Calman report, which is now the subject of the Bill going through the House of Lords. How are you going to build on the work of Holtham?

Paul Silk: You are right that the Holtham report was, as I understand it, very well regarded by those who read it who were not part of the commission. Gerry Holtham has already met our commission, as have the other two members of the Holtham Commission-David Miles and Paul Bernd Spahn. We regard the Holtham Commission report as something on which we will be building. As a commission, we have not yet discussed whether there are areas where we might disagree with Holtham, but it is such an important building block in our work that I do not think anyone in the discussions we have had thinks it is something we can do other than build on. We certainly cannot throw it to one side or disregard its recommendations.

Dyfrig John: It was in fact the first document sent by the secretariat. For me, it was a genuinely interesting read. I was aware of the document in the background, but I had not gone into the detail, and that is what Holtham provides. It provides a background document with a terrific amount of detail and data. When it comes to taxation and so on, these are complex issues and you need to understand that level of detail. I alluded to one thing that Holtham covers very adequately-the permeability of the border in terms of tax. It provides an excellent base. It clearly covers a few other things, such as the Barnett formula, which to a certain extent is being pushed off to one side a little for this inter-governmental debate that is going on, but even so, it is a first-class document. I have read the Calman report as well.

Q25 Jonathan Edwards: That brings me to my next question, which is on Barnett and borrowing powers. Your commission is excluded from considering those matters. As you know, those are now a process of inter-governmental negotiations between the Welsh and UK Governments. Will that be a hindrance for your commission? The way in which those two issues are resolved will clearly have a huge impact on the conclusions that you might come to. Are you receiving updates from either Government on how those negotiations are going?

Paul Silk: Yes. On the last point, in fact, our secretariat has been invited to participate in every other meeting of those inter-governmental talks between officials. We are getting a readback from there, with the agreement of the United Kingdom Government and the Welsh Government. That is entirely positive. Dyfrig will want to come back on the point of substance, but nobody is suggesting that there will not be some form of grant. It is therefore possible to look at fiscal matters irrespective of how the grant is fixed. I do not think that it is a hindrance. As I said to Mr Williams, it is not an inhibition on us doing our job properly.

Dyfrig John: Our aim is to look at all the various aspects of the borrowing powers. I tend to categorise them into three different parts. There is the immediate: you did not receive the receipts that you expected in tax, and you have to make a payment today. I spoke to officials, and they can call down from the Treasury here in London an intra-day payment; there is rarely a need on a day-to-day basis for borrowing powers. Within a year, you may be looking at different volatility and, from time to time, there may be some need for borrowing powers. In my language, that would be like a cash-flow shortfall within a year.

You then have something very different. It is for capital projects, which by their very nature tend to be bigger and longer term, spanning more than one accounting year in Government terms. From a capital point of view, it would make sense at times to have some borrowing powers. That has been suggested to us by a number of different individuals, but it is how you do it and to what extent. The Scotland Bill considers £2.2 billion as the maximum they consider to be appropriate over a term. It can be quite significant, but I see it in very clear steps. There is still more work to do, but those are the broad bones of it.

Q26 Jonathan Edwards: Events are moving very quickly in Scotland. Are you concerned in any way that those events will supersede the work of your commission?

Paul Silk: We agreed at the very beginning that our commission was to consider what was happening in Wales. Although events in Scotland show us, for example, what the United Kingdom Government are prepared to offer the Scots in a tax settlement following Calman, which is interesting and indicative, it may not be appropriate for Wales. We were all agreed from the start that we would follow what is happening in Scotland. We hope to go to Scotland at the beginning of April-we will take an active interest in the Scottish debate-but we do not intend simply to try to ape what happens there because it may well not be appropriate for Wales.

Professor Lloyd: May I reinforce that? We have to look at what is equivalent but in a different situation for Wales within the United Kingdom. It is not a case of the same pattern being transported from one area to another. There are very strong nuances, so we have to look at the evidence with a clear view and not try to mimic what goes on elsewhere. I mentioned national comparators. They are there to inform us, not necessarily to be followed.

Q27 Chair: Mr John, you set out two distinctive types of borrowing. One is a sort of holdover from the Treasury, effectively money from the UK Government. The second is perhaps the more interesting example, which is borrowing to build-for example, capital infrastructure projects. I presume that that would be borrowing on the open market by issuing a Welsh bond. Is that roughly what we are talking about?

Dyfrig John: There are a number of ways of doing it. The Holtham report encourages borrowing to be done through the Treasury, because it is likely to have the most cost-effective rates of interest, but I guess that those will change over time. You would have to take a view on that at the time when you want to do it.

Q28 Chair: Borrowing from the Treasury would be dependent on political agreement between the Governments in the UK and Wales, and a spirit of co-operation. It is not necessarily the case that that would be available in all situations. So, presumably, you are looking at issuing what I would term a Welsh bond.

Dyfrig John: If you are going to issue a bond, the first thing that the investors will look at is how you are going to repay it. That debate therefore goes hand in glove with what you are doing on the taxation side, because you are looking for a source of revenue to repay it. I guess that you could do it out of Barnett formula payments, but, equally, there are examples in different parts of the world where there has been some sub-Government delegation of taxation, and that tends to be earmarked specifically against the repayment of capital projects.

There are a number of ways of doing it, but if you are going to issue a bond it would have to be rated. The rating agencies would therefore look at your ability to repay. Again, it is a cyclical thing, and it may be easier to get the necessary permissions and qualifications to borrow through the Treasury. We certainly have not closed our minds on any of it. As for interest rates, it depends on market conditions. Albeit that some people think it would be a very difficult time to issue a bond, whether company bonds or Government bonds, interest rates are relatively low at the moment.

Q29 Chair: Presumably it would also depend on whether the potential purchasers of a bond felt that the UK Government were standing behind it at some level, or whether they felt that it really was down to the Government in Cardiff either to pay it back or, in the worst case scenario, to default.

Dyfrig John: Absolutely, and that is where the rating will vary.

Q30 Geraint Davies: Normally, businesses would borrow money at a market rate, invest in productive capacity, recover the money through increased revenue of the business and pay back the debt. We are talking here about borrowing money, perhaps to invest in productive capacity, but with the money going back somewhere else; as I said earlier, it goes to the Treasury, not to Wales. It is a sort of strange relationship. If borrowing is available, should the money be spent on things such as hospitals or infrastructure such as roads and rail that might give a higher return to the Treasury? If you do not have any return from the money, why spend it on that? Is that not an inherent problem in all these discussions about capital and investment?

Dyfrig John: It is a difficult and complex situation. The point I was making between cash-flow type intra-year or intra-day positions and capital borrowing is that, by their very nature, they are different. Hypothetically, let us take a bridge that will take three years to build. Money, receipts, may not be received for that total sum so you have to borrow, but it may make sense to build the bridge. Whether or not you have revenue from the bridge is quite a delicate subject. You could put a toll on it.

Q31 Geraint Davies: Perhaps you do not want any revenue; pay people to go on the bridge, we say.

Dyfrig John: I do not have a view on that.

Q32 Nia Griffith: I would like to ask you a little about fiscal accountability and whether you have a particular way of defining it. We are very aware of the examples given in the Holtham report and the pros and cons mentioned there. Are there certain criteria that you would consider for deciding whether a tax was a candidate for some sort of devolution? How do you get round the idea that it is not just a collection mechanism? If you have an airport tax, for example, and x amount comes in, it is then deducted from what would have been the grant from Westminster. Is that not simply a collection or accounting mechanism rather than fiscal accountability?

Paul Silk: The Holtham Commission had a very good set of definitions of what was an accountable tax. It is a visible tax that is paid by a lot of taxpayers and is understood by them. That, of course, puts you in the territory of taxes like income tax and value added tax. We know that value added tax is a tax that cannot be varied inside member states of the European Union. Income tax is the most accountable of those taxes. In those terms, a tax such as airline passenger duty is not very accountable. Although it is paid by people who travel by plane, it raises a small revenue and is not a large tax. I have forgotten what you asked about APD.

Q33 Nia Griffith: What are suitable candidates to be considered, and how would they link in with the idea of fiscal accountability?

Paul Silk: We had a discussion at our very first commission meeting, as the minutes record, about what accountability meant. It is a subject that I know we will come back to later. As I said, the Holtham definition of an accountable tax was, for me, very persuasive. Small taxes and taxes not paid by ordinary people, such as the aggregates levy and so on, are not particularly accountable taxes in those terms. There are certain taxes that Calman and Holtham thought, for reasons of practicality, propriety or law, could not be devolved to Scotland and Wales respectively. You are then left with quite a small core of taxes, and we have not yet received evidence or assessed what people have to say about those taxes. We have not discussed the matter, but we are left with possibly national insurance contributions and income tax as the most accountable taxes, and I am sure that we will be discussing those at length in the months ahead as a commission.

Professor Lloyd: On the kind of taxes that are devolved to sub-national level, the Holtham Commission and the OECD gave broad outlines of what desired practice would be. There are some legal restrictions of course, but one is not to cause tax competition, for example, between jurisdictions. A whole list of issues would have to be taken into consideration when looking at any of these particular taxes.

Dyfrig John: One of the other considerations is volatility of taxes. Going back to the subject of borrowing, if you have highly volatile taxes, then it is very difficult to decide whether any one of them is appropriate as a way of repaying a borrowing. One that has not been mentioned is stamp duty on property. Of late, that has been seen as volatile. Historically, it was quite stable for a number of years, but we have seen volatility of late. I suppose that the list is quite long to start with, but it comes down fairly quickly.

Paul Silk: One tax that I could add to the list is council tax, although it is not charged by the Welsh Government but by local authorities. That is an accountable tax because everybody pays it and knows about it.

Q34 Nia Griffith: They also know how much it goes up by and so forth.

Paul Silk: Yes.

Q35 Mrs James: Bore da. I wish to turn to the more mundane matter of consultation. You are obviously going to have to take people with you on this, and you will need as much feedback as you can get. In one of your statements, Mr Silk, you said that you wanted to consult with the widest range of people as possible, both citizens and stakeholders, and that there was a danger that you might speak only to certain groups. Taking a creative approach, how will you ensure that you reach as many people as you can?

Paul Silk: We have tried to be as creative and to think as much about this as we can. We have put out a call for evidence, which was addressed to about 450 individuals and organisations. It is due to be returned to us by 3 February. The secretariat is very anxious that not many people have returned it. I tell people not to be anxious because I hope that it will be; I sincerely hope that many will send in their evidence by 3 February. That is the evidence- gathering part of the process.

We also realise that we have to get away from Cardiff. The first place we are going to is Swansea in March.

Mrs James: Good.

Paul Silk: That will be a little bit of an experiment to see whether what we do in Swansea works.

Q36 Mrs James: My colleague and I from Swansea would like to encourage as many people as possible to come. Would you remind us of the date?

Paul Silk: It will be on 15 March.

Q37 Mrs James: At the Liberty stadium?

Dyfrig John: I am not entirely sure where it is, but we will let you know.

Paul Silk: Thank you for that; any encouragement from you would be great. Later in March, assuming that what happens in Swansea works-whether or not it works, we might finesse what we do-we are going to have a progress. It will start in Aberystwyth and go on to Machynlleth, Caernarfon, Bangor, Llandudno, Wrexham, St Asaph and Welshpool. That will be an interesting arc of engagement in different ways. We will be using different techniques. For example, we are planning to have a business breakfast in St Asaph, inviting people who represent business both in Cheshire and in north-east Wales, but there will be other sorts of events. We will learn from those, and we will then do something like it in south-east Wales, mid-Wales and west Wales-further west than Swansea.

Q38 Mrs James: May I give you a little tip? If you want to reach anybody in Swansea, you will need to be in the Evening Post and on Swansea Sound or Bay Radio, because that is what people listen to. I mean no offence to national media, but in Swansea that is what people want to hear and you should get on to those.

Paul Silk: Thank you for that. We are planning to organise all of these events in co-ordination with the local media, ideally having the local media fully involved as part of the presentation.

Q39 Mrs James: In your terms of reference you say that you want to get as wide a degree of support as possible. What would that level be? What would be the level that you wish to achieve?

Dyfrig John: First, if you look at this at the individual level, some of the 450 we have contacted will be individuals. Secondly, there will be organisations that encompass views and make submissions. Thirdly, there are companies. Fourthly, there is the group that I would describe as being "not in Wales". It includes the CBI, which operates throughout the UK, to bring in those views of individuals and organisations along the border. We are looking at even more detail of how we get to those, because where do you end it? There is that point.

Do not think of it as just the usual numbers; we are really looking to getting underneath it. Small firms and the society that looks after SMEs and so on are particularly relevant to areas such as Swansea’s hinterland. We want to include that type of organisation, both in Wales and perhaps those that represent a wider brief outside Wales.

Q40 Mrs James: The cross-border aspect is important. For instance, with something like the First Great Western rail franchise, what happens in England affects us in Wales. At the moment, we are in a right tussle between the Department for Transport and the Assembly about funding rail electrification to Swansea. It is quite frustrating, because we need to deal with other things. Few people understand how important some of the things that affect us in Wales are the result of what is happening in England.

Professor Lloyd: May I pick up on that point? I reiterate the importance of having a wide range of responses, and we must do all that we can to stimulate that in umbrella bodies as well as in groups and individuals, but I take the point strongly about cross-border issues, which are important, and I know this from my personal background. We have to look very carefully at the effect of decisions in both directions. That is very much taken on board.

Paul Silk: May I add to that? We are very conscious of areas such as north-east Wales and I am also thinking of a town I know very well-Hay-on-Wye-where the border goes right through the town. If you have a different tax regime on either side of the border, that may be a cost for businesses and individuals.

Mrs James: Thank you; that is good to hear.

Q41 Nia Griffith: Are you involving county councils and the Welsh Local Government Association?

Paul Silk: Yes, we are. Indeed, we have also contacted all the councils that border Wales. We have asked for evidence from Shropshire, Cheshire and so on.

Q42 Jessica Morden: I was going to make a pitch on events in south-east Wales to take account of the cross-border question, but Siân has already mentioned it. To ensure that it is not just the great and the good when it comes to raising general awareness, what is your budget for leaflets? What kind of things do you have in mind in general, apart from the events?

Paul Silk: For each of those events that I mentioned in Swansea and that arc around the north, as well as individuals being invited, we will also issue a general invitation for members of the public to come along and engage with us. Some of the experience from the All Wales Convention and the Calman Commission show that those events do not always attract as wide as an audience as you want. We thought hard and long about what we might do. We hope we will be as innovative as we can, but any ideas that members of this Committee might have in helping us to do that would be appreciated. We may seem to be looking at abstruse questions, and in some ways much of the detail is very abstruse, but, if you are going to change the way in which people’s visible and accountable taxes are charged in Wales, it will affect every Welsh man and woman. We would like people to be able to express their views to us on issues that could affect them.

Dyfrig John: You mentioned leaflets and things like that. The use of a questionnaire could be interesting. Some people may not want to stand up in an open forum and give their views, but, if we distribute questionnaires on the evening or prior to that, we may get some more detail on the consensus of views and so on. The use of questionnaires is being considered. I guess that leaflets and so on could help. The question is how many people have a reasonable knowledge of how taxation revenues are collected and spent in Wales. Perhaps something along those lines about high-level receipts and expenditures would help people to understand that debate.

Q43 Jessica Morden: My other question is how careful will you be with the language, in order to draw in as many people as possible?

Professor Lloyd: Can I respond to that and more generally in fact? We are looking at a whole range of mechanisms of engaging with people, and we will doubtless learn from our experience about what works and what is most effective. For example, questionnaires have to be designed very carefully. With the language, we obviously want to be as inclusive as possible. It goes without saying that we will welcome responses in either language.

Paul Silk: We had an interesting session with Professor Roger Scully of Aberystwyth university, who has done a lot of polling on these sorts of questions. We came away realising how complicated it would be to ask the right questions. Indeed, the questions have never yet been asked, and somebody would have to design them before they can be asked. It is not a matter of us just sitting down and thinking about questions that we might think make sense. If we are going to do it through a public polling mechanism, we will have to do a lot of research to get the right questions asked. They should be questions that people will understand and that they can give the right answer to-I do not mean the "right" answer but an answer that can be properly used in research as indicating what public opinion is.

Q44 Mr Williams: Can I add a note of caution on your innovative ideas of spreading the message? I would hate your excellent work to be undermined by, dare I say it, colleagues and friends in the media. Some of us are haunted by the spectacle of curry in Port Talbot; the message was communicated to many people, but in many ways it undermined the excellent work that was being achieved.

Paul Silk: We are not going to buy any curries.

Q45 Mr Walker: We talked earlier about the similarities and dissimilarities with the Scottish situation. You said that you are going to Scotland in April. To what extent does the debate about fiscal powers in Scotland provide a guide, or to what extent are you setting that aside?

Paul Silk: It is a very useful resource. It is obviously a close comparator to what we are doing. I recently read the report on the Scottish Parliament-both the main report and the dissenting report about the Scotland Bill’s fiscal powers. It is a very interesting document, with arguments rehearsed on both sides. A lot of useful material will be gleaned by us all from what is going on in Scotland, but I emphasise again that, simply because the Scotland Bill proposes one set of solutions for Scotland, we do not intend that they will be the right solutions for Wales. None the less, it is very useful that that debate is going on.

Professor Lloyd: I emphasise that it is an important input to our discussions not only to see what can work and what cannot but to take cognisance of the fact that the Wales-England and Scotland-England cross-border influences are really substantial.

Q46 Mr Walker: Absolutely. Will you be taking evidence from officials and parties in all the devolved Assemblies? Will you be considering Northern Ireland as well?

Paul Silk: We have not yet made any definite plans to visit Northern Ireland. It is something that has been mentioned, and it is quite possible that we will do so, but our only plan so far is to visit Scotland.

Dyfrig John: One reason why you may be asking that is because of what is being considered with corporation tax. That is an interesting development, because it is also a tax that has certain European restrictions on it. There may be things that we can learn from Northern Ireland, but I guess that we do not have to go there now; perhaps in a month or so we would be in a better position, and they will have developed that argument a little further. Certainly that is the one thing that distinguishes Northern Ireland from pretty well everybody else.

Q47 Mr Walker: It seems to me that there is a dichotomy between the situation in Northern Ireland, where you are talking about reductions in tax, and the Scottish situation, where it tends to be about allowing increased spending powers and so on. You will be taking evidence from many businesses that would probably rather see the former than the latter. How do you square that with the desire for the Government to spend more?

Dyfrig John: Many businesses are indicating that business rates are quite topical as to whether they survive. A study is being done on that by Professor Morgan at Cardiff Metropolitan university. Perhaps we should wait for that before taking that particular angle forward. I do not think that many businesses would be looking at a broader corporation tax reduction. All the evidence that I have seen is that people are concerned that, if Northern Ireland goes down, then Wales and Scotland will go down, and you will be in a downward spiral. The total revenue collected from that is much less, so where do you get the revenue from then? That is the issue. It is one of those things that started in Ireland, and Northern Ireland feels the brunt of it. As I say, we are probably a month or two away from understanding that debate more, but that is the one about Ireland. For businesses, it is very much around rates at the moment.

Q48 Mr Walker: Your terms of reference are quite restricted as to the breadth of what you can look at, but do you have a view on whether further fiscal devolution threatens the integrity of the United Kingdom or, as Geraint mentioned earlier, it sometimes seems to be a one-way street?

Paul Silk: One of the requirements in our terms of reference is that we should look at things that are consistent with the fiscal framework of the United Kingdom. That is another term that we need to bottom out between us. We have not yet talked about it, but I think that we will have to be mindful of the fiscal framework of the United Kingdom. Any proposals that we come up with must not be inconsistent with that fiscal framework in the United Kingdom. We cannot simply come up with a proposal that might suit Wales very well but would have an adverse effect on Cheshire and other border areas, or indeed other parts of England, Scotland or Northern Ireland, which may be as much in need as Wales.

Q49 Stuart Andrew: In fairness, we have covered most of the points I was going to raise about cross-border issues, but may I enter a little plea? Many of my constituents in the pubs in my English constituency have plenty to say about the matter, so please ensure that they have that opportunity. That is particularly so for those who have lived and invested in Wales over many years and then moved over to England. They obviously have vested interests. I wonder how you might engage with them or identify them.

Dyfrig John: For the larger entities, I would expect the CBI to cover that aspect-both the CBI in Wales, on the one hand, and the CBI throughout the UK, on the other hand, which would be a London-based response.

I come back to the small firms’ organisations. Again, I am sure that they would make their own views known to both the Welsh and the UK one. When we looked at our original list of which organisations we should contact to ask for their views, one of the interesting debates was on which companies we should approach. You would be surprised to hear that there is not a definitive list of companies in Wales and the border regions; so we used two measures. The first is employment-the number of people employed. The other is turnover. I fully realise that that catches the bigger organisations-the Tatas of this world-but I would like to think that the small firms’ organisations will cover the high street and so on.

Professor Lloyd: As I said earlier, we should recognise the cross-border influence in both directions. We have to assess and learn from the experience of a whole range of other countries where there is a degree of devolution in order to understand what is going on.

Paul Silk: We would certainly like to hear the voice of somebody who represents the firm in Hay-on-Wye that employs 20 people, eight of whom live in England and 12 of whom live in Wales.

Q50 Mrs James: Someone famously once said that devolution was a process, not an event. We have heard some great things here today, but I am really worried how you are going to manage expectations. We have all this stuff happening in Scotland, but, if you talk to people on the street and ask them the simple question, "Do you want to be the same as Scotland?", they will all-180% of them-say yes. It is a difficult challenge for you. I represent a constituency-Swansea-where 48% of people work in the public sector. That is a very important consideration as well. How are you going to manage people’s expectations on what you will find and what influence you will have?

Dyfrig John: That is a question for the chairman.

Professor Lloyd: It is one of the most important questions.

Paul Silk: It is one that we have not yet debated and thought about, but, as you say, it is an important question.

Q51 Mrs James: Please be aware of it.

Paul Silk: Yes.

Q52 Geraint Davies: Are you going to consider the cost of uncertainty on inward investment and on individuals? If you have variability on business rates, income tax and perhaps other taxes, you might be Tata in the big world in terms of corporation tax-the question being whether you go to Port Talbot or to England-or you might be an individual who wants to know where to raise his children, whether the council tax will go up or the price of his house go down and whether his income tax will go up or down. In the past, wherever you were in Britain, those things were not variable. Will the fact of inherent variability and uncertainty perhaps intimidate inward investment and have an impact on where people live? Will you be thinking about those factors?

Paul Silk: Absolutely. It was something that Holtham addressed, and evidence given to us and certain studies that I have read since starting this job have pointed to the need for businesses and individuals to have certainty about these things. That is certainly one of the factors that has to be weighed against the accountability argument.

Q53 Jonathan Edwards: Wales has had a history of very important reports being parked. We have had Richard and Holtham. Are you concerned that the Silk Commission report will be parked? Is it a parking exercise? If you manage to get a wide degree of support from all the political parties, have the UK Government given any indication when you can expect your recommendations to be enshrined in a future Government of Wales Act?

Paul Silk: On the last point, the Secretary of State laid out three possible scenarios when she spoke in last year’s debate on the commission. That is very satisfactory, and I can understand those three possible scenarios-a manifesto commitment, a referendum and so on.

Whether a report is parked depends on how persuasive it is and to how many people. If we can proceed in a fairly consensual way, bringing the four political parties with us in their diversity and persuading the two Governments, then it will not be parked. At this stage in our process, I cannot say that we will achieve it, but that is certainly my aim.

Dyfrig John: As a brief and practical adjunct to that, there are some taxation changes that will take time to be implemented, even if you used HMRC. At the moment, HMRC has the ability to change computer systems, procedures and so on, but there is a question mark over how long it will take. That is very much a practical matter, and I know that it is a secondary issue, but we are also taking views from the Treasury and so on of such things.

Paul Silk: And of the cost of those things.

Q54 Chair: You have contacted 450 individuals and organisations, asking them to give evidence. May I suggest that the vast majority of them will be on record as favouring more powers for the Assembly or will have done so at some point in the last five years?

Paul Silk: They have certainly not been chosen on that basis.

Q55 Chair: No, but they will have put on record their view that they have previously favoured more powers for the Assembly. Based on those 450 individuals and organisations, it will be hard for you to get the view of that one third of the population who voted no in the last referendum. Am I not right in thinking that?

Paul Silk: One of the problems with the referendum, as I remember it, is that there was not a body speaking on behalf of the no campaign, as there were bodies speaking on behalf of the yes campaign. In a sense, you are right to say that that will be replicated in the way in which evidence is given to us. Other than True Wales, there are no representative bodies that are sceptical about the devolution process. We have written to all elected members in Wales, at Assembly and Parliament level, and there are certainly some sceptics among them.

Q56 Chair: Could I suggest that we could save £1 million if you issued a report now calling for lots of extra powers for the Welsh Assembly, which is inevitably going to happen anyway?

Professor Lloyd: Our job is to look at the evidence. It is as simple as that.

Chair: Would anyone like the last word? I am tempted, but it might be abusing my privilege.

Q57 Mr Williams: I am very encouraged by what I have heard about your willingness to engage with the business community on both sides of the border. That is critical. Despite my concern about curry nights, you will be going out across the country; there is a geographic spread of meetings, and you have talked about questionnaires. It is not humanly possible to do more to engage with the population of Wales on this critical issue, and I wish you well, as many do.

Professor Lloyd: Thank you.

Q58 Chair: Would you like to engage with us again, perhaps at some point in the future and come back and tell us how you are getting on?

Paul Silk: Absolutely. This Committee is clearly a representative body for Wales, and we would want to engage with you as often as you want to engage with us.

Q59 Nia Griffith: The example of council tax is slightly illusory in some respects, in that the percentage of expenditure over which the local population has an influence is much smaller than many believe. People do not realise that 70% or 80% of the money comes from a central grant. Will that be an issue when you are discussing what might be done in respect of the Assembly?

Paul Silk: In what sense?

Q60 Nia Griffith: For many people, almost any examples would probably seem greater in reality to people than what they would be in terms of a percentage of the total revenue for Wales. Does that link in people’s minds about what they are paying concern you? It is about fiscal accountability. Will you be looking at that aspect?

Paul Silk: Do you mean in the sense that people over-blame their local authority for things that are not inside the local authorities’ control?

Q61 Nia Griffith: Yes, that is right.

Paul Silk: In the sense that they might over-blame the Welsh Government for things not under their control, yes, that is certainly something we should consider.

Chair: Thank you very much indeed to all the Commissioners for coming along today. We look forward to seeing you in the future.

Prepared 30th January 2012