Analysis: Silk Commission on Welsh government funding

Funding for the Welsh Government comes from a Treasury block grant

The Silk Commission announced on Tuesday has had a difficult gestation.

Seen by some as simply a throwaway line stuck into the 2010 coalition agreement between the Tories and the Liberal Democrats at the last minute, it could end up having profound implications on the way that Wales is funded and governed for many years to come.

It will have two parts. The first will examine whether the Welsh Government should take further responsibility for raising the money it spends - which at the moment comes from a single block grant from the UK Treasury. The commission is expected to report back by the autumn of next year.

The second part will follow on after the first, and examine whether any further powers should be devolved to Wales: That is, whether the scope of devolution should be widened. That should report by autumn 2013.

There will be a third track separate from the commission itself, and that is the process of discussion between the Welsh and UK governments about the future of the Barnett formula and borrowing powers. There's no formal timescale for this, but the talks are already underway at ministerial level.

When it comes to the first stage of the commission's work, I'm told nothing will be off the table for Paul Silk and his fellow commissioners. They'll look in detail at all forms of taxation to see whether they could be transferred to Wales.

It will raise some eyebrows that a Conservative and Unionist Party-led government should have drawn up terms of reference which could well deliver much greater financial autonomy to Wales. But to be surprised is to miss a fundamental recent change in the Tory mindset.

Conservatives of old would not have countenanced any such thing. The clue's in the name.

But the party's approach to this question has changed radically. They no longer see fiscal devolution as a threat to the union. Instead, the thinking is all about accountability. Why, they ask, should a national institution be responsible to the electorate for the way they spend money - but not for raising it?

That's why the commission won't be discouraged from making some pretty far reaching conclusions, not just on what one eminent economist scathingly described to me as "peanut taxes" such as air passenger duty, but around the big ones like income tax and corporation tax as well.

The reaction in the Welsh Government to any far reaching findings in this section is likely to be lukewarm. The first minister has indicated that he has little appetite for taking on responsibility for a portion of the income tax raised in Wales, for example.

This will have not been missed by the Wales Office and Downing Street, who are, it's fair to say, pretty fed up with some of the rhetoric coming from Cardiff Bay since the assembly elections earlier this year.

Moving forward

The issue of tax-raising powers was one of the most fiercely debated during the assembly referendum campaign earlier this year and those prophets of a "slippery slope" resulting from a Yes vote would no doubt say "we told you so" should the commission recommend major change.

After the fiscal minefield, the commission may have a slightly easier ride on the second part of its work over whether further powers should be devolved to Wales. The impression I get is that this is going to be carried out very much in the spirit of "what works best".

It is hard to foresee an agreement on the Barnett formula for funding Wales any time soon

For example, the commission may decide that Wales should have the final say on big energy projects within its borders - something the Welsh Government has been calling for for some time.

Its findings - although they're a way off yet - are more likely to be a tidying-up exercise of the current settlement rather than examining whether major new areas like justice and home affairs should be devolved wholesale.

On the other hand, a lot has happened in the last couple of years, and the political scene may be very different when the conclusions are drawn up in two years time.

On the third track, it's hard to foresee the two governments coming to any substantial agreement about changes to the Barnett formula any time soon. For a start, any worthwhile conclusion would have to be a settlement for the whole of the UK, and a settlement which led to substantial cuts to Scotland's budget would hardly be a prudent move with an independence referendum on the horizon.

Expect an earlier announcement on borrowing powers for the Welsh Government, however, ending a long running anomaly. It will enable ministers to claim that they're moving forward on the agenda at no cost the UK Treasury.

In the background of all this, of course, is Scotland forging ahead, taking on a comprehensive range of new fiscal powers through the Scotland Bill.

Developments there may shape the future for Wales as much as the commission's work, although they're setting off on an important - and potentially rocky - journey of discovery.