24/10/2012 CF99

Good evening. Welcome to the Bay. Tonight we're looking at money.

The Welsh government has the right to borrow more in future.

But at what price? And as the Governor of the Bank of England and his team visit Wales,

what is the forecast for our economy?

Tonight we are joined by Ieuan Wyn Jones, Finance Spokesman and former Plaid Cymru leader in the Assembly,

Nick Bennett, Chief Executive of Community Housing Cymru Group

and former member of the All Wales Convention,

and Tory MP for Maldwyn, Glyn Davies is in our Westminster studio. Welcome, everybody.

-Thank you.

-It's not often that governments of different political colours

scratch each other's backs, but in a joint announcement today the British and Welsh government

has outlined changes to the way this country will be financed.

They have agreed in principle to allow Welsh ministers to borrow money

to pay for things like building roads.

In exchange, the ministers in Cardiff Bay will be responsible for certain taxes,

like stamp duty, but at a time when debt is a problem for governments worldwide,

is this wise? A question for our political correspondent Aled ap Dafydd.

When members of the Welsh and UK governments appear

side-by-side in more than one location at the same day,

usually a bargain has been struck - and this is it.

Giving the Welsh government the right to borrow

money from the British government.

A kind of credit card belonging to Carwyn Jones in order to raise a bigger budget.

Between 2011 and 2015 The Welsh government will see a drop of 1.9 billion in her budget.

This means a budget cut of 25%.

It helps us to create the best network and structure for Wales.

Of course, if you borrow money, it has to be paid back.

We understand that, so you have to be careful in the way you do it.

But it means we can develop, for instance, new transport plans in Wales

that wouldn't have happened otherwise.

Because at the moment, the situation is that England, Scotland and Northern Ireland

can borrow money, but Wales can't.

Following this announcement, Wales is in the same position

as Northern Ireland and Scotland.

But do you accept the deal on offered - that is, in return for these money-borrowing powers,

you have to take responsibility for raising some of your own taxes.

Yes, we understand that, and we state that publicly.

There are some taxes we'd be happy to take on, and some we wouldn't.

And income tax is one of them?

Our policy is that we wouldn't go after income tax -

there are several problems with income tax.

For instance, we know at the moment that we are not being financed at the level we should be.

If we took income tax on now, that would lock it into the system for ever.

The scheme to upgrade the M4 by the Brynglas tunnels would cost £500 million.

But investing in infrastructure is the key, say business leaders,

to injecting life into the economy.

With shops closing, less money circulating on the high street, and wages being frozen,

there is a warning the money the Government is borrowing should be spent responsibly.

It's important this money is used to build an infrastructure

to ensure we have a structure in the economy

to ensure businesses can come into Wales and that those businesses already hear can flourish

and to ensure that that essential structure happens in the Welsh economy.

This money shouldn't be used just to put more money in hospitals and education.

It's important this money works for the economy.

Any loans, of course, have to be repaid.

Could you weigh that for me, please?

-£2,000.

-Thank you.

But of course, Carwyn Jones doesn't have any gold hiding under his desk that can be used as a guarantee.

So the Welsh Government is keen to see money coming in

by taking responsibility for taxes like stamp duty and taxes for air passengers.

They're quite important taxes, but they're not like income tax,

which generates a substantial proportion of income for the Treasury.

So specific taxes.

We'll wait and see the capacity and the ability to raise money from these sources,

but they will be additional to those coming from the Barnett formula from Westminster.

Today's announcement by the Treasury and the Welsh Government's Finance Minister

has taken the wind out of the sails of the commission

which is looking at the way Wales is financed.

Their report comes out next month. There's just one question left to be answered.

Will these people recommend decentralising responsibility for income tax?

That is something that would certainly upset the consensus seen today.

Glyn Davies, a historic agreement according to Danny Alexander,

but how much of an agreement was there?

They're agreeing to discuss financing Wales.

An agreement to have some sort of loan system in place sometime in the future.

In reality, it's just an agreement to continue talking, isn't it?

We know that today is the first step.

The next step is what the Silk Commission will say next month.

But what's important is that the government here in Westminster

and the government in Cardiff agree to the way to talk.

That's what's important.

We've seen one side not working and criticising the other,

that has happened.

We know that the way forward is complicated,

but both sides have come together today.

If we accept that it's a first step,

that agreement is what matters to me.

I seems to me that the

Welsh government has backed down on one important point -

that the power to borrow is tied to accepting responsibility for taxes.

As far as I know, Carwyn Jones didn't want that.

That's a victory for you at that end of the M4, isn't it?

I don't want to look at in terms of victory and losing.

Both sides have come together to talk.

Of course, before reaching an agreement,

both sides want a little bit more, and a bit of compromise.

When both sides have agreed on the way forward,

and I think because they've reached an agreement

That's the reason that today is very important, I think.

But we have to look upon today as a first step.

There's no point regarding it as the conclusion.

It's the first step, and the nest step is the Silk Commission.

Then greater steps will follow.

Ieuan Wyn Jones,

you said in the Chamber today that you were disgusted with this

agreement and that you would never put your name to it. Why?

Because it isn't an agreement, as Glyn has acknowledged. He said it's a first step.

It was decided right at the start,

when the Silk Commission was established, that these talks

and the right to borrow and the Barnett reforms would be separate.

Carwyn Jones insisted that they should be completely separate.

He thought he could get an agreement on those two things.

All he's had, as Vaughan explained, is an agreement to discuss further.

There is no deal here. We don't know.

But signing is the first step. This is about principles.

But that's not how Carwyn Jones sold it. He sold it as 'settling on an agreement that's going to

give Wales borrowing powers, and I'm going to get the Barnett reforms.'

Neither of those things has happened.

Maybe the Barnett reform won't happen immediately, but there is more to come, Glyn Davies said.

That's not the point.

The point is that the Assembly Government sold this saying there was a deal.

There is no deal. I think they've let Wales down.

What they should have done, at least,

was to give us a framework for the borrowing powers, for instance.

We don't know that. We don't know when they'll be introduced. We don't know the sum.

All we know is that the Treasury has won everything in this deal.

Can I just ask you one thing? I don't know if I understand properly.

It's not clear to me whether they're talking about borrowing powers

which is worth pound-for-pound and taxable value.

It seems to me that the kind of taxes Carwyn Jones is talking about,

airport taxes and so on, would not lead to much borrowing power at all.

Quite a substantial tax would need to be transferred.

To make it work the way the Treasury suggest, you have to be talking

about transferring responsibility for income tax.

The kinds of taxes they're talking about, stamp duty and so on,

raise hardly anything, as we heard on the item.

You have to have the powers.

If you're going to combine the two,

and I don't think that's necessary, but then the only way to do it

is to transfer responsibility for income tax.

I think, from what I've heard Carwyn Jones saying,

he accepts that by now, too.

Nick Bennett, something we often discuss on this programme

is that this place often has enough power but not enough responsibility.

This changes that, doesn't it, if the power to raise taxes comes here?

That changes the balance.

Yes, but today we've agreed to try

and move on and reach a proper agreement. It's significant,

especially if we consider that the Treasury is acknowledging for the first time

that Wales has been squeezed by the Barnett Formula. That's crucial.

I think in the next year or two we'll see some kind of

three-dimensional chess when we talk about borrowing powers,

taxes, and the Barnett reforms.

I can't see that happening until the referendum in Scotland is out of the way.

I think it's completely unrealistic to think we'd get any deal

regarding the Barnett formula before we know the outcome in Scotland.

But a Barnett floor was possible, wasn't it?

Now Nick is saying that the future of Wales depends on what's

happening in Scotland.

In fact, our case should stand on its own merits.

The Welsh government should be fighting for the best for Wales,

not for the second bargain, dependent upon what happens in Scotland.

Glyn Davies, some academics have responded by saying this

isn't the time to encourage people to borrow.

Your government in London doesn't want to borrow right now

and warns against that.

Is it a good time to borrow in the present climate?

That's a matter for the Assembly Government, of course.

But many people in Westminster in the opposition parties

are trying to persuade this government to borrow more.

The Chancellor doesn't want to do so at the moment -

he's trying to deal with the deficit on the loans.

But if he gives a bit more responsibility to

the Assembly Government in Cardiff, it's a matter for them.

I don't want to say if it's a good idea or not. I know what I think.

Whatever the government in London do, I support the policy here.

But I don't want to say exactly what the government in Cardiff should do.

-Nick, can I raise something...

-Well, to answer that question, I think it's a perfect time

for the Welsh government to start borrowing.

We don't have the costs that Northern Ireland nor Scotland have, because

they've borrowed so much more than we have during the past few years.

-We need that expenditure.

-What if interest rates go up?

Whatever happens with interest rates, you have to ensure you have plans

for the future and we have to plan for that.

But going back to Ieuan's point, fair play,

we have to accept the world as it is.

Nobody, and certainly nobody in the Treasury,

with a Scottish constituency,

can offer Wales something that can't be given to Scotland at the moment

- not this side of the referendum.

So to some extent, nationalism is stopping us

from having a system and a fair deal throughout Britain.

Let me ask you something else.

Have we reached a rather strange political system here,

where the Westminster government, the Tories

and the Liberal Democrats, seem as though they're keen to give

more power to Cardiff than a Labour government in Cardiff wants.

Well, it was very interesting to see the three parties coming

together today and agreeing to the principles and I'm sure that it

gives Ieuan and his party the perfect opportunity to say fine, we

welcome this potential, but we want to ensure that you're accountable.

That means that we see a deal within the next few years that works

with regard to how much Wales can borrow,

are we going to get the same level as Scotland, how do we raise taxes,

is that sustainable, and of course, will we get a new formula

with a floor that ensure Wales isn't squeezed in future

and that we have a structure that reflects a social and economic need.

If I thought that that had happened in the agreement today,

I'd have welcomed it.

But what the Treasury has said is that when we consider

the next step to finance Wales in about two years, we'll look

to see if there's anything we can do - without any promise whatsoever.

It does open a door,

doesn't it - in the same way that a head of department

in Whitehall can go in and argue his case before the Treasury.

It gives the Welsh Government the right to do that

and say we don't have to follow the formula to the letter.

The only thing I would say... Let me be clear about this.

What Carwyn Jones said is that he would be willing to accept

borrowing powers as seen in Scotland.

That's not happening.

Secondly, he said he wanted a Barnett Formula

and that hasn't happened.

What I'm asking for is that when the money starts coming in,

and I accept the point Nick is making, that it's not working,

but I want to know where the formula is being set.

-Nick can't tell me that.

-If we had that now, we would lose money.

The point is, this is where we are now.

If we had the Barnett Formula now, I thinks we would lose money.

Now is the perfect time for the Barnett Formula.

What we need is assurance for two years' time.

Glyn Davies, what if Carwyn Jones says he doesn't want the income tax.

We'll have the smaller taxes like stamp duty, what will happen then?

Well, Vaughan mentioned earlier that some MPs like myself

would like more powers for the Assembly

and more accountability.

I'm very happy to see income tax.

We'll have to wait for the Silk Commission.

It's very important. Today is the first step.

I think that the next step is very important.

We'll have to see how it works together.

Thank you. We must move on.

The latest GDP figures are likely to suggest

that the economy is slowly improving.

David Cameron suggested that,

although he could be in trouble for saying so.

On a two-day visit to Wales, the Governor of the Bank of England,

warned that the economy here remains fragile.

Recovery and rebalancing of our economy

remain the principle challenges of economic policy.

Here in Wales,

despite impressive improvements to the infrastructure,

not least the remarkable regeneration of Cardiff Bay

and the magnificent monument to Welsh culture

in this Millennium Centre.

Your economy too is suffering with total production

well below its peak in 2007.

Sir Mervyn King last night in Cardiff last night.

Ieuan Wyn Jones, David Cameron in Westminster today

suggested that there was good news on the way.

He's seen these GDP figures, but he can't tell us anything.

Were you able to see them as a Minister?

We saw some figures, of course,

but on condition you didn't mention their contents.

-You weren't a naughty boy, then?

-A naughty boy?

Can you see any signs of improvement?

I think there are some good signs.

We all know that the economy has shrunk this year,

but the final quarter will show some growth,

but we're in a difficult position.

I think Nick is right.

We spoke earlier of borrowing money

so that the economy can move forward.

That's all the Welsh Government can do.

Borrow money to build hospitals and schools

and make sure the jobs are created

that's what the Government must do.

I don't want to go back over old ground

but talking about those borrowing powers making any impact

in the future, is complete nonsense.

This is the first step. There's nothing the Government here can do

that they're not already doing.

There is. Even if we get these powers from the Treasury,

it won't be enough.

We're losing hundreds of millions. We need that money.

I'm representing housing associations

that have borrowed over a billion-and-a-half.

So should the Welsh Government be pressing on local authorities

and bodies like housing associations and so on to invest?

It has been happening, there was an agreement between local government

and Westminster to ensure further spending.

But there is potential for us to do so much more,

and I think it returns to priorities and moving forward.

Glyn Davies, your Government will be delighted

if David Cameron can stand up tomorrow

and say that the recession is over,

but isn't it some kind of post-Olympics bounce?

It's temporary, isn't it?

I don't know what David Cameron will be saying tomorrow,

but what I'm hoping is that it will be an improved situation,

but I don't think he'll be saying that the recession is over

and talking about green shoots.

Those are dangerous words, but what I want to see is things improving

and moving forward, and that's what I expect.

I don't know how much it is moving forward.

I've seen what is in the papers, and hopefully it is.

We've seen a lot of good new jobs being created, many in Wales.

Things have changed. Let's wait till tomorrow.

Germany is often held up as a special model.

There is a slide there.

You could argue that George Osborne's plan is starting to work.

I wouldn't say that.

On the whole, unemployment of young people in Wales is horrific.

We haven't seen figures like this since the '80s.

I know some new jobs have been created.

We know employers find it difficult.

We're starting to see public sector jobs going in Wales.

It is an awful situation. It is a difficult situation.

But what we need to do is use the powers the Welsh Government

has to do what they can.

But we'd hope that Westminster would change their course.

Wales is a small boat, and so is the UK as far as that,

and we're travelling through stormy waters.

The Chinese economy is slowing down. There are question marks over India.

We don't know what's happening under the euro.

No-one can be sure what needs to be done.

No. I've said that before. There are two types of economists.

Economists who don't understand economics

and those who know they don't understand economics.

We have seen odd figures. GDP falling. Jobs have been created.

But there are jobs being created. 50,000 last week.

I hope we will see growth.

The IMF message was the most difficult to swallow.

Generally and internationally we need a plan B.

We have seen that austerity doesn't work in the end.

we don't know what some of these figures mean.

We've seen an increase in the number of businesses,

but are those people with no other choice?

The reality is the economy isn't something that's static.

It produces new businesses all the time.

The problem is, if you're losing more than you're establishing,

you're in trouble.

The economy is always shifting. More jobs are being created,

and also, some sectors are succeeding.

Glyn Davies, the Chancellor's statement to come for the Autumn,

change of course?

I don't think there will be.

The Lib Dems and the Conservatives

are together to deal with the deficit.

The opposition party wants to spend more and borrow more,

and we think that's the wrong way.

I think George Osborne and the Westminster Government

will keep with their plan A.

Thank you very much for joining us.

That's it for tonight.

There's no programme next week due to the half-term recess.

We'll be back in a fortnight's time.

-Thanks for joining us. Good night.

-Good night.