Brexit, the welfare state and redistribution

My final academic publication is a contribution to a book coming out in June 2019 edited by Scott Greer and Heather Elliott, at the University of Michigan School of Public Health.  Federalism and Social Policy: Patterns of Redistribution in 11 Democracies is an attempt to explore how welfare states actually work in federal and decentralised states, what sorts of redistribution they do and how effectively, and whether and how much there are different welfare regimes at sub-state or regional level.  This comes from the chapter about the UK, which looks at how devolution is financed, and the working of policies relating to under-19 education, health services and pensions.  It should be a significant contribution to the academic literatures about both comparative federalism and comparative welfare states.  Details of the book can be found here. 

What appears below is an extract from the conclusion, about the impact of Brexit on the welfare state.  There has been much speculation about the sort of country that a post-Brexit UK may be, and some discussion, mostly short-term and very pragmatic, about the impact of Brexit on social policy, such as labour market problems affecting the NHS or social care.  It seems to me, though, that the divisions of the Brexit vote and its likely economic effects will have a grave effect on the future of a redistributive welfare state – generally, not just in territorial terms (though it has territorial dimensions too).  Due to space constraints and the fact this was a comparative project, not particularly concerned with Brexit or the UK, it’s rather brief and under-developed, but nonetheless is worth wider and earlier circulation than the published book permits.  This section was drafted early in 2018, but nothing that has happened since changes what I wrote then – indeed, the only change is that I would now probably put it more forcefully. 

Far more important are the effects of the UK’s vote to leave the European Union in June 2016, with departure to take effect in March 2019.  The significance of the Brexit vote can hardly be understated and is likely to reshape the UK in the years to come.  Its significance has three dimensions.

First, there is the deep social cleavage that the vote to leave the EU revealed, and which has deepened since the vote.  At least in England and Wales (which both voted by majorities to leave), ‘Leave’ voters were generally older (age 49 or older), less well-off and from less well-off parts of the UK, particularly smaller towns that were badly affected by de-industrialisation.  ‘Remain’ voters were younger, better off and lived mainly in larger cities.  (60 per cent of voters in London voted Remain; only slightly smaller a percentage in the West Midlands voted Leave.)   To a substantial degree, this was a vote by the losers from globalisation against the relative winners.  Since those ‘winners’ are also the most economically productive members of British society, who generate the income that is redistributed to those ‘losers’ in the form of public services and welfare benefits for which their taxes cannot pay, there has to be a question in the longer term of why they should continue to do so.  This goes to the heart of the social basis for redistribution through public services and taxation.  Add to this the difficulties younger people face, with very high housing costs, large levels of graduate debt, and limited occupational opportunities compared to their parents’ or grandparents’ generations in an economy that is growing more slowly than in the past.  If, as many expect, leaving the EU adversely affects the British economy for some time to come, these difficulties will be further compounded.  Younger people, faced with increasing difficulties, are likely to be more and more unwilling to see their stretched incomes taxed to pay for those who have made them worse not better off.

Why solicitors should worry about the Draft Wales Bill

This was first published as an article in the Law Society’s Gazette earlier this week, and can be found on its website here. 

Solicitors could be forgiven for being baffled about Welsh devolution, since it keeps changing. The latest episode started in October when the secretary of state for Wales published a new draft Wales Bill.

The draft bill proposed to put Welsh devolution on a ‘clear and lasting’ basis by delivering a ‘reserved powers’ approach to the national assembly’s law-making powers. The bill also proposed to devolve a limited range of further functions relating to matters such as planning for energy schemes or ports and harbours, and to give the assembly power to determine its own size, electoral arrangements and name. But the ‘reserved powers’ approach is at its heart. Seldom has what looks like a technical legal issue turned out to be more vexed or politically charged.

Pre-legislative scrutiny of the draft bill is coming to an end. The Welsh government and national assembly have considered it, and the Commons Welsh affairs committee is finalising its report. But the most detailed, non-partisan scrutiny comes from a major report by a group of lawyers, academics and former officials convened by the constitution unit at University College London and the Wales governance centre at Cardiff University. The report – Challenge And Opportunity: The Draft Wales Bill 2015 – sets out in detail why the draft bill needs to be fundamentally reworked if it is to live up to its promise.

‘Reserved powers’ means that the national assembly would be free to legislate for all matters save those expressly reserved to Westminster. At present, the assembly can only legislate 20 defined ‘subject areas’, including health, education and the environment. Using these powers, it has introduced ‘presumed consent’ for organ donation, looked hard at banning the smacking of children, re-established a body to set wages for farm workers, and is abolishing the distinction between residential leases and licences.

Its powers stretch a long way beyond regulating the public sector, but how far remains legally uncertain, thanks partly to a Supreme Court decision last February. The reserved powers approach is already used in Scotland and Northern Ireland (with modifications). Applying it in Wales would aid legal clarity and bring Wales more clearly into line with the other devolved parts of the UK (making it more straightforward for public lawyers). It would offer significant benefits, if done right. Done wrong, it would make matters worse, not better.

The bill has a number of flaws, but the initial one is simple. It starts by trying to graft the ‘reserved powers’ model on to the existing division of functions between Cardiff Bay and Westminster, without making any significant consequential changes. This has meant limiting the assembly’s powers, in some cases beyond what they are at present. As a result, the assembly could only legislate for matters affecting ‘private law’ – land law, contract and so on – when ‘necessary’ to do so, to give effect to legislation relating to ‘devolved functions’.

The increasing differences in law between England and Wales, which have to be reconciled within the shared legal jurisdiction of England and Wales, would be left to the courts to work out which body of law applies, case by case and ad hoc. All this is to preserve Westminster control of the legal system in general, and the shared legal jurisdiction of England and Wales in particular.

The results would be highly unattractive. The draft bill would result in a hamstrung, ineffective Assembly, which is in no one’s interests. When the assembly cannot act, Westminster would not be able to act either, so Wales would just end up badly governed. Critics may say that it will be a field day for lawyers, but not for many. Litigators might get some work, but others will be left with a complicated task of working out what the substantive rules are and which apply in what circumstances. Ordinary members of the public and small businesses will find it difficult to get legal certainty whenever matters of Welsh devolution arise.

Worse, a tightly constrained national assembly with a complex web of limits on its powers will struggle to make practical law that deals with problems in the real world. The tests the assembly has to pass will be adjudicated by the courts, so judges will have no option but to take an active and recurrent role in the management of Welsh devolution. Effectively, the Supreme Court (which does not have a ‘Welsh’ member) will become the second chamber of the national assembly.

The alternative to this is sketched out in our report. First, ‘necessity tests’ and constraints on devolved legislation affecting private and criminal law must go. Any such test – even a less demanding one, relating to the ‘appropriateness’ or ‘reasonableness’ of legislation – will make the courts key players in Welsh devolution, rather than elected politicians. The assembly needs to be able to use all the mechanisms the law offers to make its legislation effective, including those of reshaping private law and revising the criminal law. On the criminal side, some key offences might be reserved to ensure similarity of the criminal law, but even that creates problems. Reserving the law of homicide is one thing, but assault is another matter, if the assembly is to have the power to decide about banning smacking, for example.

Second, there needs to be a much clearer way to deal with conflicts of law issues – the fact that the law will be different between England and Wales. This could be done by a clear statutory ‘rules-based’ approach, setting down which set of laws applies in which circumstances. Alternatively, it could be done by establishing two distinct legal jurisdictions (of England and of Wales). ‘Distinct’ need not mean ‘separate’.

The same judges would sit, and lawyers practise, in both countries, but would do so in different capacities and would need to deal with different (though largely similar) bodies of law in doing so. Solicitors would be admitted ‘in England and in Wales’, rather than ‘in England and Wales’. Established rules for the conflict of laws would be used to determine what law applied in what circumstances, where there was a conflict. Again, that draws on experiences from Scotland and Northern Ireland.

What Wales – and the UK as a whole – needs is what the secretary of state says he wants: a robust, clear and lasting devolution settlement for Wales.  The draft Wales bill is emphatically not it. If enacted in anything like its current form, it would be a horrendous, unworkable mess that would need to be replaced within a few years – perhaps the shortest-lived of the sequence of interim arrangements Wales has had since 1999.

None of that is good news for anyone, least of all legal practitioners.  The way forward is going to involve more change, not less, and needs to be carefully thought through. But it offers the hope of a stable and lasting settlement which will benefit all the UK, not just Wales.

The Draft Wales Bill: analysing the specific reservations

As part of work on the Constitution Unit/Wales Governance project on the Draft Wales Bill leading to the report Challenge and Opportunity: The Draft Wales Bill 2015, I analysed all the specific reservations proposed in the new Schedule 7A in the draft bill.  The point of this analysis was to establish two points.  First, whether the reservations corresponded to reservations or exceptions for Scotland or Northern Ireland – some do, but many do not.  Second, in the absence of any explanation for the reservations in the Explanatory Notes to the draft bill, what the policy rationale for them might reasonably be – whether they related to other functions being reserved, for example.  This repeated an exercise I undertook for the earlier report on the general principles underpinning the ‘reserved powers’ approach.  This analysis underpins the discussion of reservations and their appropriateness in chapter 7 of Challenge and Opportunity.

The resulting table is long and complicated, and including it in the published report would have added hugely to the printing costs but not greatly to its argument or intellectual weight.  Nonetheless, we thought it should be available to those interested.  It runs to some 74 pages, and can be downloaded HERE as a PDF file.

Regarding use of the table, each numbered reservation in Schedule 7A has its own box.  Not all comments do – some apply to several reservations on the same overall matter.  There are some formatting gremlins that affect lay-out (for which apologies), but not clarity or legibility.  The table includes all exceptions from reservations, but in some cases lengthy interpretation clauses have been edited.

 

Not meeting the challenge: The failings of the Draft Wales bill

This blog post first appeared on the LSE’s British Politics and Policy blog, here. It also appears on the Constitution Unit’s blog, Constitution-unit.com, here, on the Edinburgh Centre for Constitutional Change’s blog, here and on ClickonWales, the blog of the Institute for Welsh Affairs, here.

I have forborne from commenting in any detail on the Draft Wales Bill before now, other than in giving evidence to the Commons Welsh Affairs Committee, because of my involvement in the joint Constitution Unit/Wales Governance Centre project. The report was published on Monday 1 February, and can be downloaded here as a PDF.

When the Draft Wales Bill was published in October 2015, it was described by Stephen Crabb, the Secretary of State for Wales as delivering on the UK Government’s commitment ‘to create a stronger, clearer and fairer devolution settlement for Wales’. This is badly needed; the history of Welsh devolution since 1998 has been one of short-term solutions that have needed to be revised or replaced within a few years. Hopes were high that the present round of constitutional debate – triggered by the appointment of the Commission on Devolution in Wales chaired by Sir Paul Silk in 2011 – would mark a departure from that established pattern.
Sadly, a close analysis of the Draft Bill shows those hopes to have foundered. A joint project hosted by the Constitution Unit at UCL and the Wales Governance Centre at Cardiff University has been looking at the Draft Bill in detail, and publishes its report Challenge and Opportunity: The Draft Wales Bill 2015 today. Our group has been chaired by Alan Cogbill, former Director of the Wales Office in Whitehall, and had Professor Rick Rawlings from UCL as rapporteur. Other members have included Sir Paul Silk and Sir Stephen Laws (formerly First Parliamentary Counsel), academic and practising lawyers from Cardiff, as well as myself. This work follows an earlier joint CU/WGC report published in September 2015, entitled Delivering A Reserved Powers Model of Devolution for Wales (available here as a PDF, and summarised HERE.) Our examination of the Draft Bill has found it to be flawed in many respects.
The first flaw is a conceptual one. The draft bill’s key commitment is to deliver a ‘reserved powers’ approach to Welsh devolution, like that used for Scotland (and with modifications for Northern Ireland). At the same time, it tries to avoid making wider changes to how Welsh devolution works while delivering that. The assumption that the ‘reserved powers’ approach can simply be grafted onto the existing division of law-making powers between Westminster and Cardiff Bay is wrong. The ‘reserved powers’ model necessitates a sequence of other changes, which were already in place for Scotland in 1998, and which need to be considered for Wales.

The Enterprise bill: public sector pay-outs and devolution

Having made its way through the Lords, the Enterprise bill will get its Commons second reading next Tuesday. In many ways, this bill exemplifies bad post-devolution legislation, as it’s a portmanteau bill with provisions on a range of subjects including a Small Business Commissioner, non-domestic rates, late payment of insurances claims, regulatory reform and other matters. Some of these provisions relate only to England, some of them mainly affect England but have knock-on effects for devolved functions in various parts of the UK, some of the bill’s provisions are UK-wide or GB-wide and relate to reserved/non-devolved matters – but others are intended to apply across the UK or Great Britain while affecting devolved matters. To make matters worse, it extensively amends existing legislation, so working out exactly what it does is no easy task.

One clause that is particularly striking is clause 35, which deals with ‘public sector exit payments’ – redundancy and similar payments made to people leaving public sector employment. It covers not only redundancy and ex gratia payments but also contractual obligations such as pay in lieu of notice or for outstanding leave entitlements, and limits the sum total of such payments to £95,000. The bill delivers a Conservative manifesto promise to ‘end taxpayer-funded six-figure payoffs for the best paid public sector workers’.  These have been particularly notable in recent times with the shake-out of the public sector arising from austerity and also major reorganisations of services, which have often led to individuals taking a pay-off from one job and then moving straight into another.  Another side of the coin, for very senior posts, is how to remove a senior figure like a chief executive who cannot work with a changed political leadership, a common problem in local government. An amicable redundancy settlement has usually been the way to resolve that. (As an aside, putting the figure of £95,000 onto the face of the bill is unusual and likely to cause serious practical difficulties in future, as inflation erodes the value of that amount.)

Tax devolution and the block grant: a solution for Scotland that doesn’t work anywhere else?

This is a guest post by Gerald Holtham, who chaired the Welsh Government’s Independent Commission on Funding and Finance in Wales and is adviser on finance to the Welsh Government. The question he addresses – of how to manage a reduction in the block grant to allow for tax devolution while maintaining the Barnett formula – is a highly timely one, given the ongoing discussions about the ‘fiscal framework’ for Scotland (for which this is the key issue) as well as corporation tax devolution for Northern Ireland and moves on income tax devolution for Wales announced in the Spending Review.  (My own comment on this post can be found here.)

In all the discussions about tax devolution for all parts of the UK, a key issue has not been clarified. That issue is how to reduce block grants when a tax is devolved. Indeed there still appears to be no general agreement between the devolved governments and the UK Government about how to proceed. It is a particularly knotty question in discussions about income tax but also VAT and it has the capacity to delay devolution to Scotland and to stall it altogether for Wales.

There is little problem in the first year of devolution. An estimate can be made of the revenue foregone by the Westminster government, given prevailing tax rates, and that can be deducted from the block grant. Subsequently the deduction can be revised when actual revenues differ from the estimate. The difficulty comes for subsequent years when the deduction must be expected to grow with the economy and its tax base but must not be affected by changes in tax rates by the devolved administration – otherwise devolution of tax powers is not real.

Wales and the 2015 Spending Review

The 2015 Spending Review makes two significant changes to the Welsh Government’s finances: it removes the requirement for a referendum before introducing the partial devolution of income tax, enacted in the Wales Act 2014, and it proposes to introduce a ‘Barnett floor’ for the overall envelope of devolved funding.

The referendum on the Welsh rate of income tax was a way of ensuring that devolution did not happen automatically (as is the case for Scotland) – a rare case of common ground between David Jones and Carwyn Jones. It never made much sense intellectually; if the rationale for income tax devolution was ‘financial accountability’, why should that be optional? And why should the body that would be made accountable get to choose whether it should be accountable? It made even less sense politically, if the aim was to make income tax devolution happen rather than ensure it could not. A referendum campaign would be hard to stage and harder to win. It would mean asking voters to vote for potentially higher taxes, with no guarantee that they would even enjoy additional spending as a result given the lack of clarity about the mechanism for reducing the block grant as a result. There would be little chance of a cross-party consensus, so while Conservatives had a strong interest in seeing income tax devolution since it would enable them to offer a tax cut, they would struggle to find allies for a referendum campaign (unlike 2011). Abandoning the referendum had become the only way to create even a possibility of income tax devolution, and now has support from not just Conservatives but Plaid Cymru.

Spending Review 2015: a test the Treasury flunked

The welter of responses to yesterday’s UK Spending Review and Autumn Statement have overlooked an important set of things the review did not do when it comes to managing the devolved UK. Despite proposals on the table for tax devolution for all three devolved governments (if not the English city-regions), we learned nothing about how this fiscally devolved UK will work. We got a new, updated edition of the Statement of Funding Policy (the seventh in all and the first since 2010) , but that remains essentially the operations manual for the Barnett formula it always was. Nothing substantial about the framework for managing devolved finances has been altered, despite recommendations for this from a variety of bodies including the Bingham Centre Constitutional Review, the Lords Economic Affairs Committee’s recent report on The Implications of Financial Devolution to Scotland and committees in all the devolved legislatures.  The devolved governments remain as entangled in the UK system of public finance as they ever were.

What the Treasury could and should have done was put the basis for devolution finance under the Conservatives on a clear and transparent footing, in particular by:

Improving intergovernmental co-ordination: better intergovernmental relations and better devolution

I’ve a report out today on the procedural aspects of intergovernmental relations.  This was commissioned by the UK Changing Union project through the Wales Governance Centre at Cardiff University, and can be found on their website here. Today was also the day when the plenary Joint Ministerial Committee met; it agreed, among other things, a full-scale rewrite of the Memorandum of Understanding.  As this post argues, such a rewrite is overdue. 

Intergovernmental relations are key to making devolution work effectively. The Scottish Parliament, National Assembly for Wales and Northern Ireland Assembly all operate in a wider context of governance across the UK, and how their functions overlap with those of the UK Government (and other governments) is vital for all four governments and all UK citizens. The Smith Commission’s recent report pays a good deal of attention to the need to ‘scale up’ intergovernmental co-ordination as part of the package of further devolution.

The UK Government is not very interested in managing intergovernmental relations, however. It put in place an attenuated under-institutionalised set of mechanisms in 1999, and has allowed that to weaken or fall further into disuse since then. The key institution is the Joint Ministerial Committee. Plenary meetings of that ceased altogether between 2002 and 2008; they have been more or less annual since then, but are characterised by grandstanding rather than productive work. The JMC’s ‘Domestic’ format has nearly ceased to function, as so few policy issues concern more than one devolved government. The only established format of the JMC which does meet regularly, and does more or less what it was expected to, is the EU format which helps formulate the UK ‘line’ for major EU Council meetings, though there are problems even there. In reality, most intergovernmental issues are bilateral, but with few exceptions they are dealt with in an ad hoc, casual way, out of sight of public or legislatures, and many important issues slip through the net.

‘Constitutional Futures’ workshop at Queen’s University Belfast, 10 October

Along with James Mitchell from Edinburgh and Aileen McHarg from Strathclyde, I’ll be taking part in a workshop on ‘The Direction(s) of Devolution’ in the law school at Queen’s University Belfast on Friday 10 October.  There is more information here, or the flyer can be downloaded here.  Capacity is limited; please email law-enquiries@qub.ac.uk if you’d like to attend.