First Minister's speech to the UK's Changing Union "Devolution and Future of the United Kingdom" Conference

"Wales, the Union, and the Future"

Speech by the Rt Hon Carwyn Jones AM, First Minister of Wales "Devolution and the Future of the Union" 

UK's Changing Union project, British Academy, 5 June 2015

Introduction

Good morning ladies and gentlemen.

I should begin by expressing my thanks to the organisers of today's event for their very kind invitation to address you. One of the co-hosts is of course the Wales Governance Centre, which has led the way in the study of devolution over the last three years with its Changing Union project. And the Constitution Unit's contribution over the last twenty years to thinking about constitutional issues generally is known to everyone here today. Professor Robert Hazell has led it with distinction over that long period of time, and his imminent retirement as Director of the Unit marks an important turning of the page. I know that he will go with all our thanks and good wishes.

I'm told that, back in 2012, at the first meeting of the Forum associated with the Changing Union project, there was lengthy and anxious analysis of the text of a speech I had recently made on the subject of a constitutional convention for the UK. It would be immodest to argue that that speech merited such careful attention, but I want to say just a little more later on about the idea of a constitutional convention, in the context of the future of the United Kingdom.

But first, what of Wales and its constitutional future?

And, of course I do that in the context of a Wales which remains committed to the Union; and if anyone needed any proof of that, the lack of progress made by Plaid Cymru in the recent General Election, notwithstanding the unprecedented access to national media enjoyed by its leader, provides it. Although we have long rejected the formula "For Wales, see England"; no-one should be deluded into thinking that it will soon be replaced by "For Wales, see Scotland"!

Wales in the Union

It is worth reminding ourselves that when that first Changing Union Forum meeting took place, the Silk Commission had not yet even published its first Report. In the event it emerged in October 2012. Although there have been frustrations along the way, considerable progress has been made in the two and half years since that publication. We now have a new Wales Act on the statute book, conferring new fiscal responsibilities on the Assembly, and we are on track to implement those from 2018. And, flowing from the second Silk Report in 2014, we have another Wales Bill in prospect, as was confirmed in the Queen's Speech last week.

This Bill seems likely to do three things.

First, and in line with the Smith Commission's recommendations for Scotland and the devolved institutions there, it will give some sort of recognition to the National Assembly and the Welsh Government as permanent features of the UK constitution; provide statutory underpinning to the Sewel convention; and make the Assembly much more of a self-governing institution.

Secondly, it will expand the legislative competence of the National Assembly in line with some, but by no means all, of the Silk Commission's recommendations; the Welsh Government will of course continue to press for full implementation of Silk.

And thirdly, and perhaps most importantly, it will recast the Welsh devolution settlement on a reserved powers basis, along the lines established for Scotland by the 1998 Act.

Now, today is not the time to review the respective merits of the conferred powers and reserved powers models of devolution. It is a matter of public record that the Welsh Government has supported a move to reserved powers, but let me make some general comments about the forthcoming Bill.

Firstly, as of today, neither I nor my officials have had sight of any draft clauses, and there has been no substantive discussion between the UK and Welsh Governments on the detail of the reservations to be included in the Bill. I accept that time is needed to get the details right, and that applies particularly to the reservations. But I do want to see detailed work by both Governments over the coming months to develop a strong set of proposals that will fairly meet the needs of the people of Wales.

It is essential that this work is undertaken with a mindset that recognises the new reality of the United Kingdom, and fulfils the UK Government's commitment to a clear, robust and lasting settlement. In a letter to the Secretary of State for Wales last autumn I referred to previous experience, under administrations of both political colours, whereby "the development of a clear and robust settlement [for Wales] has sometimes been hindered by a nit picking reluctance on the part of particular Whitehall Departments to acknowledge the case for further transfers of responsibilities". I imagine that members of the Scottish Parliament which examined the first draft clauses purporting to give effect to the Smith Commission's proposals will recognise that phenomenon!

If we are to make real progress with this agenda, Whitehall needs to recognise that what we are concerned with here is the place of Wales, and indeed Scotland, within the wider Union; this is about the remaking of the British constitution in the context set by the Scottish referendum, and should be approached in that spirit.

So, while the Welsh Government favours a reserved powers model, the reservations must be appropriate; Whitehall Departments will need to show good reason why particular responsibilities should be retained at the centre rather than be devolved to Wales. One test of this will be whether the proposed reservations place new and unwarranted limitations on the National Assembly's existing legislative competence. By the time the current Assembly is dissolved next year, we expect to have enacted nearly thirty pieces of legislation under the conferred powers model.

This growing body of Welsh law includes:

• action to tackle violence against women
• legislation to make organ donation a matter of "opting-out" rather than "opting-in"
• to raise housing standards and
• tackle homelessness, and so on.

There can be absolutely no question of going back on what is currently devolved. There must be more clarity, yes, but that clarity cannot be at the cost of limiting the power of the National Assembly in any way or constraining its ability to make legislation that is coherent, holistic and responds to the needs of the people who elected it.

And in that context, let me make one additional point on the new Bill. Ultimately, it will be for the National Assembly for Wales to give its Legislative Consent to what the UK Government is proposing.

Whitehall will do well to remember that.

I hope to be able to advise the Assembly that the Bill in final form is right for Wales, and that Consent should be given.

Finance

Let me now broaden the discussion, and consider Finance. The election result in Scotland provided a clear message: the UK Government needs to be thinking sensibly about devolution and doing so by thinking seriously about the Union. This is true for all aspects of devolution, but particularly on matters of funding and financial reform.

Before the election, the Smith Commission made a number of recommendations on devolving tax and spending powers to Scotland. The UK Government called its response to the Smith Commission "An enduring settlement……".

It lasted for approximately four months!

And now we have the Prime Minister considering new proposals from the Scottish Government as he rummages around for more sticky tape and plasters to hold the Union together.

The fiscal relationships within the Union have changed. As I have already said, the Wales Act that gained Royal Assent last year devolved new financial powers to Wales so that, in 2018, people in Wales will pay their first distinctly Welsh taxes for over 800 years. In Scotland people have been paying the Scottish replacements for Stamp Duty Land tax and Landfill tax since April.

As each devolved administration takes on greater responsibility for raising our own resources, the failings of the current system for financing the budgets of the devolved Governments, particularly in Wales, become increasingly apparent. It will not surprise you to know that I am not an advocate of the Barnett Formula, and everyone who has cared to look at it says it needs to be reformed. It underfunds the Welsh Government in a wholly unfair way, and when public spending increases again, funding per head in Wales will converge towards the average for England. It will not converge for any good reason, but purely because that is how Barnett works.

Reform is needed so that the distribution of resources across the UK takes account of the factors that influence the demand for public services. It is a simple construct. And the case for financial reform is even stronger when it forms the central element of a funding model with devolved taxes.

I am instinctively pro-devolution and I can see the merits, in principle, in different parts of our Union being able to decide on the balance between levels of taxation, including those on personal incomes, and the level of resources for public services. But I have been absolutely clear that until we have a fair funding settlement it is not in the best interests of Wales to have income tax devolved. The block grant will still be responsible for 80 per cent of our resources and this grant needs to put on a fair and sustainable footing.

In its St David's Day announcement which promised a new Wales Bill, the UK Government also committed to establishing a funding floor, so that the convergence property intrinsic to Barnett would be regulated for Wales in a fairer way. If we can secure satisfactory delivery of that clear commitment to a funding floor - and I have learned by now that the devil of course will be in the detail - one of my fundamental concerns about the devolution of income tax will have been largely addressed. This would help secure the cross-Party consensus that would be necessary to deliver such a significant reform.

Because I do believe that financial reform is in the best interests for the United Kingdom. Having the flexibility to set taxes to respond to the needs of Wales and the preferences of Welsh citizens within a fair funding model is a logical next step. I will always consider proposals providing they are fair to Wales.

I have said in the past that whatever proposals for further devolution to Scotland should be offered also to Wales. But I do not subscribe to the notion that whatever Scotland has, Wales must have too, without fully considering the implications. The devolution of welfare programmes to Wales, for example, is not something that we consider to be in the best interest of Wales. As a matter of principle, of social solidarity, we should all be entitled to an equal claim to our welfare state. The needs of citizens within the UK, wherever they live, should be equally met.

And I can see real dangers in the piecemeal approach currently being taken by the UK Government that risks the Union's stability and cohesion. We know that the UK Government promised to retain the Barnett formula for Scotland. I have outlined what I see as a short term solution to Wales within the constraints of retaining the Barnett Formula. But I believe, as further fiscal devolution for Scotland is worked through, and as devolution of a different type is extended through England, the failings of the current system will become ever more apparent.

The UK Treasury and the Scottish Government will soon be negotiating over how much to take off the Barnett grant to take account of the revenues from devolved taxes, then how much to add to the Barnett grant as welfare programmes are devolved to Scotland. Experts who know a lot more about this than me are already saying that, to satisfy what the Smith Commission called "no detriment", those adjustments will have to be extremely complicated. And those complicated adjustments are needed because of the constraints that retaining the Barnett formula at the centre of the model imposes. I fear what we will end up with is a funding system that will be analogous to Howard Hughes' Spruce Goose aeroplane - something that, given its design, couldn't fly successfully because of the weight of its own complexity.

So I believe there is merit in looking at the funding mechanism for the UK in a more fundamental way. I believe a future system should have the underpinnings of the Union - of fairness and redistribution - at its core. And this means having an independent needs assessment to align resources to needs that ensure equity across the Union. This should not be controversial, it forms the basis of funding settlements in many other countries.

Devolved administrations would retain the revenues from devolved taxes and then combine pan-UK solidarity taxes to be shared to fund public services that citizens need. I can see such a "fair federalism" funding model overcoming many of the constraints that the current system has.

Such an approach would provide a clear link to what revenues are being raised and where - but have the equalisation of resources at the very core of the model.

We need to start talking about this now and not wait for another unprincipled, ad hoc tweak driven by short termism. This may be the way that things have always done, but it is not the way to preserve the Union, which the vast majority of us value so highly.

The Future of the Union

This takes me to the future of the Union itself. In a speech in Montreal last year I suggested that we in the UK have things to learn from the federalist tradition; and I mentioned the Swiss socialist Andreas Gross, who has spoken of federalism as

"implying a process of balancing power in a differentiated political order which enables unity while guaranteeing diversity". I said that enabling unity while guaranteeing diversity is exactly the challenge we face.

In the week following the General Election, Andrew Marr published a piece in the New Statesman in which he remarked in passing that a "a federal Britain is taking shape before our eyes".

Really? Contrast that with a striking observation by Professor Stephen Tierney, following a recent conference in Edinburgh:

"We seem now to be at a junction offering two directions: towards a UK where Scotland is treated as a separate entity in some kind of quasi-independent, confederal arrangement…., or towards a UK where devolution is reconfigured to include not only the dynamics of autonomy but also the imperative of integration".

Of course my very strong preference would be a reconfiguration of devolution which would, to use Andreas Gross' language, "enable unity while guaranteeing diversity", or, to use Stephen Tierney's, "include the dynamics of autonomy as well as the imperative of integration".

And my argument earlier for a new Whitehall mindset in its approach to the Wales Bill was advanced precisely with that perspective in mind; Wales needs that autonomy and scope for diversity, as much as the UK needs the imperative of integration.

But I do fear that matters may proceed in terms of Professor Tierney's first model, where Scotland becomes "a separate entity in some kind of quasi-independent, confederal arrangement". And of course the "full fiscal responsibility" for which the Scottish First Minister is now arguing would take us far in that direction. I know that the Prime Minister has ruled that out, but my particular concern is that the very way we have "done" constitutional politics in the UK in the past will push Scotland in that direction.

To explain that, let me go back to that speech of mine in 2012 which was so carefully scrutinised by the Changing Union Forum. In that speech, I noted with concern that "policy conversations about devolution have tended to take place in a series of bilateral exchanges between the UK Government and the relevant devolved administration, to some degree without reference to how devolution is developing in other parts of the UK".

Nothing has changed since then. The Smith Commission brought forward its recommendations for Scotland with just the barest nod in the direction of their implications for the rest of the UK. The UK Government has committed to taking these recommendations forward in a similar spirit of neglect of the Union, something which has earned it a magisterial rebuke from the House of Lords Constitution Committee. And it seems to me it is precisely this approach to constitutional reform, this failure to consider the Union as a whole when making policy on constitutional issues, that might in due time result in Scotland becoming the " separate entity in some kind of quasi-independent, confederal arrangement" with the rest of the UK that Professor Tierney has spoken of. After all, if that is to be a bilateral discussion, who will be in the room to argue for the "imperative of integration" across the Union?

My solution to this failure was of course to argue for a constitutional convention "primarily tasked with examining the full context of relationships between the Devolved Administrations and the UK Government, bearing in mind [our] joint enterprise of the governance of the UK". But rather to my surprise, much more attention was subsequently directed to the mechanism of a convention than to the purpose of the exercise, which was to facilitate that holistic debate on our territorial constitution by all the interested parties. It continues to be my belief, now more than ever, that such a debate about the future of the Union is vital; and if, in order to achieve that, we turn to some other mechanism, I would happily accept that, provided that it enables a wide-ranging debate with effective public participation.

Conclusion

What then should be my conclusion? The quotation from Professor Tierney which I have mentioned was taken from an article entitled "Can the Union Survive the Election?" In the short term, the answer is clearly Yes. Nicola Sturgeon has been commendably clear that the outcome of the General Election has nothing to do with the Scottish National Party's longer-term constitutional aspirations for Scotland.

But in that longer-term perspective, I cannot be so sure that the Union will survive. There may come a time when Scots will again be asked what future they see for their country. And they may not be persuaded to stay with us without a clearer vision than they had in 2014 of what the UK can offer them in the future.

I do not believe that that vision can be developed on a bilateral basis, and I continue to believe that we are all Better Together. So those who are committed to the Union need now to work together to develop a perspective for the UK which, in Andreas Gross' words, enables the unity of the UK while guaranteeing the diversity of its constituent parts. This is our urgent task. It is one that I, and I am sure other people in public life in Wales, will enter into with enthusiasm and commitment. I look forward to it.

Diolch yn fawr, thank you.