Welsh begin to design for life with income tax power

Debate on Welsh rate of income tax

Minister for Finance Rebecca Evans said her officials are working with HMRC on the detailed arrangements for the administration of Welsh rates of income tax to ‘ensure a smooth and orderly transition’. Evans said: “It's not my intention to raise income tax levels in 2019-20. This will mean that Welsh taxpayers will continue to pay the same income tax as their England and Northern Irish counterparts. This will provide stability for taxpayers during a time of economic uncertainty and ongoing austerity.”

Plaid Cymru’s Llyr Gruffydd AM, Chair of the Finance Committee, said his committee must learn from what happened in Scotland, such as with forecasting. The final Welsh Budget shows a reduction of £40 million on the income tax forecasts due to personal allowance changes in the UK budget. And the protection measures afforded to the block grant this year protect the Welsh Government from this reduction, but ‘we must be mindful of these types of changes in future years’. He warned that anyone who is not identified as a Welsh taxpayer or a Scottish taxpayer will be, by default, an English or Northern Ireland taxpayer, and the result of that, is that income tax from anyone falling between the gaps will be allocated to Westminster.

Deputy Senedd Leader for Plaid Cymru Rhun ap Iorwerth AM said the Assembly should be creative to develop a Welsh method or means of setting taxes or tax rates not only to respond to the fundamental problems in the society of Wales but also, to be innovative in our ideas and ambitious in creating a taxation system that will be fairer for the people of Wales than the current one.

Speaking for the Welsh Conservatives, Nick Ramsay AM, asked about a possible Finance Bill for Wales, something that was not addressed by Evans at all. Ramsay is Chair of the Assembly’s Public Accounts Committee.

Concluding the debate, Evans said: “I have met with the heads of devolved taxes at HMRC, who have reassured me that they have learned lessons from the experience in terms of devolving income tax to Scotland, and it will be absolutely essential that HMRC fully recognises the different circumstances that we have here in Wales, such as those cross-border issues and compliance activity in particular.” She went on to say full and accurate identification of Welsh taxpayers is ‘understandably critical’, so the Welsh Government have sought and obtained assurances from HMRC that it has learned those lessons from its experience of devolving income tax to Scotland, and, more specifically, on the parameters of initial automated data scan of HMRC systems, which was behind the problem of omitting those 420,000 Scottish taxpayers. In Wales, they will be doing it by postcode, whereas they did it slightly differently in Scotland.

HMRC will continue to produce a public version of its key analytical data set: the survey of personal incomes. Welsh Government officials are working with HMRC to ensure this is produced in a ‘timely and useful way’, together with the Scottish Government, the Scottish Fiscal Commission and the Office of Budget Responsibility.  HMRC will also provide monthly reports on PAYE income tax liabilities via its real-time information system. This will not provide complete coverage of the Welsh rates but it will be a useful and timely indicator of revenue collection. It will also publish audited outturn information on the Welsh Rate of Income Tax (WRIT) as part of its annual accounts in July. The Welsh Government is currently in discussion with HMRC about the level of detail that it will be able to provide alongside that document. All of these arrangements and agreements in terms of data will be set out in a service level agreement between the Welsh Government and HMRC. The identification and maintenance of the WRIT taxpaying population will be formalised.

There was a debate on the Wales Budget 2019/20. The Welsh Government will be in control of the biggest budget since devolution, at over £16 billion by 2020.

Debate on the Final Budget

Minister for Finance Rebecca Evans opened the debate on the final Wales Budget. Evans said Wales has £850 million less to spend, in real terms, on public services in 2019-20 than in 2010-11, as a result of UK government cuts. If spending on public services had kept pace with GDP growth since 2010-11, we would have £4 billion more in 2019-20, she claimed. In the UK autumn budget, of the additional funding that Wales received, the majority of the already announced consequential funding was for the NHS.

The final Wales Budget includes a further £26 million to increase support for high street retailers and other businesses to help them pay their rates bills. The final budget includes a further £1.6 million which will be available in 2019-20 for the pupil development grant access scheme and an extra £0.4 million which will be used to extend the Fun and Food programme. Also in the final version is an extra £0.5 million to enhance support for music activities for young people, an extra £0.9 million to further reduce food waste and £3 million capital for Natural Resources Wales.

She reminded AM’s that the Welsh Government does not have a budget beyond 2021, that it faces a comprehensive spending review this year, and if the UK Spring Statement is updated to a full fiscal event ‘I am realistic that we may have to amend our budget plans’.

From April, more than £2 billion of the Welsh Budget will come from taxes raised in Wales. She said: “In line with our manifesto commitment, we have agreed not to increase the rates of income tax this year.”

Chair of Finance Committee, Plaid Cymru’s Llyr Gruffydd AM, complained that he only received the response of the Government to the committee’s report on the draft budget on the morning of this debate and his committee will be reflecting on the budget scrutiny in its meeting next week.

The Welsh Conservatives do not support the Budget. On the extra money for Natural Resources Wales, Tory spokesperson Nick Ramsay AM wants an assurance that this money comes with conditions, and that the Public Accounts Committee's recommendations will be fully implemented so we can ‘avoid some of the havoc that we've seen over recent years in that organisation’. Ramsay welcomed the final Budget’s extra £13 million on the local government settlement but added these are cash-flat settlements and ‘we’re not looking at real terms protection’.  He welcomed the innovative self-build proposals because of the need to increase the housing stock available in Wales, especially affordable housing, he added. In general comments, he welcomed the abolition of the Severn bridge tolls that he said will benefit the south Wales economy by over £100 million a year.

Plaid Cymru (PC) abstained in the vote, with PC’s AM Rhun ap Iorwerth complaining that this Welsh Government has a working majority by now, and so it is a government Budget without the ability to be defeated by the opposition parties. The core grant for local government has been reduced by 22 per cent since 2010 but the Welsh Government still fails to realise the depth of the difficulties of local government. He added that Wales needs a well-funded local government that can give the right support to social services in order to ensure that the health service is able to operate in a sustainable fashion, and ‘that is not the situation that we have today’.

Although he supports the Budget, Labour’s Mike Hedges AM sees no evidence that the Budget has been driven by either the programme for government or by the future generations legislation.

UKIP spokesperson Neil Hamilton AM said the UK’s Government's policy of retrenchment is not a political choice and he does not regard the current borrowing figure of two per cent of GDP as austerity. He said: “The only way we can do that [alleviate poverty and relative poverty] is to grow the Welsh economy by using the new tax powers that we have imaginatively to encourage wealth creation—to encourage more rich people to come into Wales, if you like—and to set up businesses and to expand existing businesses. Fifty years ago, Singapore was a small offshore island in Malaysia with an average income of $500 a year; this year, the average income in Singapore, the richest country in the world, is $55,500. That has not happened by accident; it's happened because of the policies of the Singaporean Government.”

In regards to the extra £5 million to take forward feasibility studies into a national art gallery and national football museum. Labour’s Huw Irranca-Davies AM spoke of the fine tradition in the democratisation of the arts to take the arts to the unexpected places. On the funding for local government, he urged the Welsh Government to continue to work with local authorities and to find not just funding ways but imaginative, creative ways that they can make all their resources go further.

The Finance Committee has indicated that they would prefer to continue the current practice of publishing the draft Budget ahead of the autumn UK Budget. Closing the debate, Rebecca Evans said that the Welsh Government has said that they're happy to consider suggestions from the Finance Committee if they prefer to do it in a different way, although in Scotland, for example, they publish their budget after the autumn statement. “Our concern would be that that kind of delay might make things more difficult for the partners that we have, but, irrespective of that, we do need to ensure timely responses to committees”, she said.

The Final Budget was passed in a vote (For: 28, Against: 15, Abstain: 9)

There was also a debate on The Local Government Settlement 2019-20, which passed in a vote (For: 28, Against: 23, Abstain: 0).

The debates can be found here.

By Hamant Verma.