Independent Commission on Funding and Finance for Wales

The Independent Commission on Funding and Finance for Wales, also known as The Holtham Commission, was established by Rhodri Morgan

Rhodri Morgan

Hywel Rhodri Morgan is a Welsh Labour politician who, as First Secretary for Wales, and subsequently First Minister, was leader of the Welsh Assembly Government from 2000 to 2009. A former leader of Welsh Labour, he was the Assembly Member for Cardiff West from 1999 to 2011...

(First Minister for Wales), Ieuan Wyn Jones

Ieuan Wyn Jones

Ieuan Wyn Jones, AM is a Welsh politician, who was the Deputy First Minister in the Welsh Assembly Government from 2007 until 2011. Jones is the current leader of Plaid Cymru and Member of the National Assembly for Wales for the Ynys Môn constituency...

(Deputy First Minister for Wales) and Andrew Davies (Minister for Finance and Public Service Delivery), of the Welsh Assembly Government

Welsh Assembly Government

The Welsh Government is the devolved government of Wales. It is accountable to the National Assembly for Wales, the legislature which represents the interests of the people of Wales and makes laws for Wales...

. The establishment of the Commission was a commitment in the One Wales

One Wales

One Wales is the coalition agreement for the National Assembly for Wales between Labour and Plaid Cymru agreed to by Rhodri Morgan, First Minister of Wales and leader of Welsh Labour, and Ieuan Wyn Jones, leader of Plaid Cymru, on 27 June 2007. It was negotiated in the wake of the preceding...

coalition agreement

Coalition agreement

In multiparty democracies, a coalition agreement is an agreement between the parties that form the cabinet. It codifies the most important goals and objectives of the cabinet. It is often written by the leaders of the parliamentary parties.-Examples:...

between Labour

Labour Party (UK)

The Labour Party is a centre-left democratic socialist party in the United Kingdom. It surpassed the Liberal Party in general elections during the early 1920s, forming minority governments under Ramsay MacDonald in 1924 and 1929-1931. The party was in a wartime coalition from 1940 to 1945, after...

and Plaid Cymru

Plaid Cymru

' is a political party in Wales. It advocates the establishment of an independent Welsh state within the European Union. was formed in 1925 and won its first seat in 1966...

in June 2007. Based in Cathays Park

Cathays Park

In addition to the large lawn in front of the City Hall, Cathays Park includes three formal gardens. All of the spaces are within conservation areas and many of the surrounding buildings are listed. The open spaces are very important to the image of the city. Several important buildings overlook...

, Cardiff

Cardiff

Cardiff is the capital, largest city and most populous county of Wales and the 10th largest city in the United Kingdom. The city is Wales' chief commercial centre, the base for most national cultural and sporting institutions, the Welsh national media, and the seat of the National Assembly for...

, the Commission completed its work in July 2010, publishing its findings in a final report: Fairness and accountability: a new funding settlement for Wales.

Remit

The remit of the Commission was to look at the pros and cons of the present formula-based approach to the distribution of public expenditure resources to the Welsh Assembly Government; and identify possible alternative funding mechanisms including the scope for the Welsh Assembly Government to have tax varying powers as well as greater powers to borrow.

Members

The Commission comprised:

Gerald Holtham (Chair), Managing Partner of Cadwyn Capital LLP and a visiting Professor at Cardiff Business School
Cardiff Business School
Cardiff Business School is a Business school in Cardiff, Wales. Part of Cardiff University, it was created in its current form in 1987 and opened by Queen Elizabeth II of the United Kingdom....

.
David Miles
David Miles
David Miles is a British economist. He is a Visiting Professor at Imperial College London and former Chief UK Economist of Morgan Stanley...

, Member of the Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...

's Monetary Policy Committee
Monetary Policy Committee
The Monetary Policy Committee is a committee of the Bank of England, which meets for two and a half days every month to decide the official interest rate in the United Kingdom . It is also responsible for directing other aspects of the government's monetary policy framework, such as quantitative...

and visiting Professor of Financial Economics at Imperial College London
Imperial College London
Imperial College London is a public research university located in London, United Kingdom, specialising in science, engineering, business and medicine...

.
Paul Bernd Spahn
Paul Bernd Spahn
Paul Bernd Spahn is emeritus professor of public finance at the Goethe University, Frankfurt am Main, Germany.He was born in Darmstadt, Germany....

, Professor Emeritus of Goethe University, Frankfurt am Main, Germany, and macro fiscal advisor to governments across the world.

Findings and recommendations

The Commission began its work in autumn 2008 and published its first report in July 2009. In its first report, the Commission concluded that the Barnett Formula

Barnett formula

The Barnett formula is a mechanism used by The Treasury in the United Kingdom to adjust the amounts of public expenditure allocated to Northern Ireland, Scotland and Wales automatically to reflect changes in spending levels allocated to public services in England, England and Wales or Great...

lacked any objective justification and had survived for reasons of political and administrative convenience. The Commission argued that the formula has caused relative funding per capita for devolved activities in Wales to converge towards the average level of funding in England (the “Barnett squeeze”) despite relatively higher Welsh needs. The Commission recommended that in the future funding arrangements for Wales should be based on relative needs. As an interim measure, it recommended a modification to the existing formula that would place a “floor” under the block grant, preventing any further convergence towards the average English level of funding per capita.

In its final report, published in July 2010, the Commission recommended that:

the Assembly Government should pursue the introduction of a needs-based formula for determining the Welsh block grant
Block grant
In a fiscal federal form of government, a block grant is a large sum of money granted by the national government to a regional government with only general provisions as to the way it is to be spent...

;
the Assembly Government should acquire limited powers to vary income tax rates in Wales;
the Assembly Government should seek a discussion with the UK Government about the feasibility of devolving corporation tax
United Kingdom corporation tax
Corporation tax is a tax levied in the United Kingdom on the profits made by companies and on the profits of permanent establishments of non-UK resident companies and associations that trade in the EU. Prior to the tax's enactment on 1 April 1965, companies and individuals paid the same income tax,...

;
stamp duty
Stamp duty in the United Kingdom
In the United Kingdom, stamp duty is a form of tax charged on instruments , and requires a physical stamp to be attached to or impressed upon the instrument in question. The more modern versions of the tax no longer require a physical stamp.The scope of stamp duty has been reduced dramatically in...

should be devolved to Wales;
capital gains tax
Capital gains tax
A capital gains tax is a tax charged on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property...

on property and land should be devolved to Wales, if the administrative costs are not prohibitive;
the Assembly Government should consider the reform of Council Tax
Council tax
Council Tax is the system of local taxation used in England, Scotland and Wales to part fund the services provided by local government in each country. It was introduced in 1993 by the Local Government Finance Act 1992, as a successor to the unpopular Community Charge...

;
local authorities should be given discretion to levy a higher council tax on second homes
Vacation property
Vacation property is a niche in the real estate market dealing with residences used for holiday vacations . In the United Kingdom this type of property is usually termed a holiday home, in Australia, a holiday house/home, or weekender, in New Zealand, a bach or crib...

;
landfill tax
Landfill tax
A landfill tax or levy is a form of tax that is applied in some countries to increase the cost of landfill. The tax is typically levied in units of currency per unit of weight or volume...

, air passenger duty
Air Passenger Duty
Air Passenger Duty is an excise duty which is charged on the carriage of passengers flying from a United Kingdom airport on an aircraft that has an authorised take off weight of more than ten tonnes or more than twenty seats for passengers...

and aggregates
Construction Aggregate
Construction aggregate, or simply "aggregate", is a broad category of coarse particulate material used in construction, including sand, gravel, crushed stone, slag, recycled concrete and geosynthetic aggregates. Aggregates are the most mined material in the world...

levy should be devolved to Wales if deemed useful;
a procedure should be created to enable Parliament to confer power on the National Assembly to introduce new taxes in Wales when requested; and,
the Assembly Government should receive limited powers to borrow
Government debt
Government debt is money owed by a central government. In the US, "government debt" may also refer to the debt of a municipal or local government...

in order to finance capital expenditure
Capital expenditure
Capital expenditures are expenditures creating future benefits. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life extending beyond the taxable year...

;

Reception

Public Finance magazine reported that the Holtham Commission's final report was welcomed by Labour, Conservative and Plaid Cymru politicians - although Welsh Business and Budget Minister Jane Hutt

Jane Hutt

Jane Hutt AM is a Welsh Labour politician and a Minister in the Welsh Assembly Government. Hutt has represented the Vale of Glamorgan constituency since the National Assembly for Wales was established in 1999...

was said to have given a more "muted" response to Holtham's recommendation that the Assembly Government should gain tax-varying powers. Former First Minister Rhodri Morgan

Rhodri Morgan

opposed this idea, arguing that there was "no mandate" for tax-varying powers in the 1997 devolution referendum.

James Mitchell of Strathclyde University called the Holtham Commission's conclusions "remarkably bold... its proposals on income tax are, in important respects, bolder than those proposed by Calman" (the commission created in 2007 to review Scottish devolution). Mitchell noted that Holtham's critique of the Barnett formula, which he regards as advantageous to Scotland, "ought to be a wake-up call".

External links

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