5. Will the First Minister provide an update on any discussions with the UK Government regarding the devolution of taxes? OAQ(5)0063(FM)

I’ve made it clear that I will only support the devolution of further tax powers if there is a fair fiscal framework. Discussions are under way and I expect the UK Government to be good to their word and agree a fair and strong funding deal.

I’m getting predictable—you’ve anticipated my supplementary, First Minister. You mentioned in answer to the last question the challenges that face us in getting adequate funds from the Treasury. Certainly, following the devolution of taxes, it’s going to be crucial that that fiscal framework is in place so that any subsequent deductions from the block grant are actually not going to short-change Wales. Can you update us on your discussions regarding progress towards a fiscal framework?

I’ve made it very clear, when it comes to the Wales Bill, it’s absolutely crucial that the powers should not be devolved without the consent of this Assembly. The reason why I say that is that there should be an agreement on the fiscal framework. If it’s good enough for Scotland, it’s good enough for Wales, and it simply isn’t good enough for Wales to be told—to be imposed on with a fiscal framework, when there is a genuine discussion and agreement between the Scottish Government and the UK Government. We expect the same treatment to be given to Wales.

Of course it’s a huge gamble to have income tax devolved without either control of macro-economic policy or without protecting income. Welsh income tax is affected by decisions at Westminster. We know it fell by £440 million between 2007-08 and 2009-10, none of which was the responsibility of the Welsh Government. Does the First Minister agree that, if taxes are devolved, we need a mixture of cyclical and counter-cyclical taxes, and that, if income tax is devolved, we need protection from reduction in tax receipts from Welsh income tax caused by Westminster decisions?

The Member is right, and we have to make sure—we will make sure—that this is part of the decisions around the fiscal framework, which, to my mind, will need to be agreed with the UK Government. What is essential, to my mind, is that we have an agreement that’ll underpin our funding arrangements for the long term, and that means, of course, putting in place the safeguards that the Member has rightly raised, particularly when it comes to the partial devolution of income tax, so that Wales doesn’t lose out. We want to have a fair system of taxation, but not one that undermines the funding system that we’ve had thus far, flawed though it is, through the Barnett formula. So, it’s hugely important, and, indeed, it is the case that this will form part of the discussions that will be ongoing.

Can the First Minister explain the confusion that currently exists regarding air passenger duty? On 9 June Jim O’Neill, on behalf of the Treasury in London, had confirmed that the review on the devolution of the duty to Wales was ongoing, and then, just a few days later, Guto Bebb from the Wales Office stands up in the House of Commons saying that the decision has been taken not to devolve. Which is it? Is the First Minister surprised that the Welsh Conservatives seem to be more willing to listen to an airport in Bristol, which is owned by an Ontario pension fund, than they are to the Parliament of the people of Wales in this place?

Well, I cannot disagree with you. We have been arguing for some time that air passenger duty should be devolved. It has been devolved to Scotland.

The review that the Member alludes to is a review into the airports of England, and not Cardiff, to see what the impact would be on the airports of England of devolving air passenger duty to Scotland. So, Wales isn’t even part of the equation. There is no reason whatsoever why this duty should be devolved to Scotland and not to Wales. Guto Bebb said that this is something that he couldn’t agree with because it didn’t benefit north Wales. Well, there is a benefit to north Wales. There is a benefit to airports such as Hawarden and Valley, where there would be an opportunity to develop aeroplanes, to develop services, and to ensure that more planes or services come into those airfields. So, no—it’s not possible for me to explain the point of the view of the UK Government on this, but once again something is being devolved to Scotland and not to Wales, and that, in principle, is unfair.

It was recently estimated that, on a standalone basis, the Welsh budget deficit would be £14.6 billion, or 25 per cent of GDP—around 100 times greater than estimates of any transfer to or from the EU. The First Minister said he sees Scotland as the model, but does he not share my concern that if, in the long term, we continue going down the tax devolution route, particularly without a referendum, that that continuing transfer may be put at risk?

Well, I didn’t hear him advocate a referendum in Scotland for the transfer of far greater powers in Scotland, but my view is this: the UK’s tax system needs to be re-examined with, for example, a system where there is an element of the taxation system that provides the means to redistribute money across the UK to where it’s needed, while at the same time ensuring local accountability. We have it of a fashion with council tax. We have it of a fashion with community councils. It’s quite normal in most countries for there to be an element of locally raised income tax. We shouldn’t be afraid of that in Wales. But certainly I wouldn’t be an advocate of having a wholly self-contained taxation system in Wales. I don’t think that would be in Wales’s financial interest.