No changes to income tax in Wales’ draft Budget for 2023-24

The details were confirmed in a written statement to the Welsh Parliament (Senedd) yesterday (Tuesday 13 December), published alongside the budget statement given by Finance Minister Rebecca Evans, who confirmed that:

• The Welsh Rate of Income Tax would remain set at 10p, thereby keeping the basic, higher and additional rates of income tax in line with those set in England and Northern Ireland (Scotland sets its own rates and bands of income tax).

(Under the devolution settlement, the UK government reduces rates of income tax in Wales by 10p and the Welsh Government can decide whether to set Welsh rates at 10p or higher)

• The rate of Landfill Disposals Tax will increase by RPI inflation, in line with changes made to UK Landfill Tax.
• There are no further changes proposed to Land Transaction Tax (the devolved replacement for UK Stamp Duty Land Tax), with changes to tax rates already announced in October 2022 following the September UK fiscal statement. These changes were to increase the starting threshold for residential transactions from £180,000 to £225,000, with tax charged at 6 per cent on the portion of the price between £225,000 and £400,000. No changes were made to other rates, including the higher residential rates.

In announcing the government’s tax plans for the year ahead, Evans also published the Welsh Government’s Tax Policy Report, which sets out the progress being made by the government to deliver its manifesto commitments to reform council tax and consult on plans for a tourist levy (at the time of writing, the report has not yet been updated on the government’s website).

In her oral statement to the Senedd, Evans warned that the budget had been “one of the toughest that we've ever made, reflecting the perfect storm of economic and budgetary pressures faced in Wales, none of which are of our making”.

In the debate that followed, Adam Price (Plaid Cymru) said that Wales found itself in a “financial and political straightjacket”, constrained by its inability to borrow money and the inflexibility of its tax raising powers. But he urged the government – with whom his party has a cooperation agreement – to consider using its income tax powers to improve the progressivity of the tax system.

Jane Dodds (Lib Dem) signalled her support for Price’s suggestion, urging ministers to undertake “some modelling on how we can look at the upper bands of tax and what that could deliver to your budget in Wales”.

But Mike Hedges (Labour) – who said he would like to see ministers increase the top rate of income tax in Wales to 50p – acknowledged that the border with England would make it easier for better-off taxpayers to switch their residency to England. He said:

“The problem we've got is our border with England. Lots of people who are very rich have houses both sides of the border, and sometimes they make a decision as to where their main residence will be. If we add 5 per cent, not many of them are going to choose their main residence in Wales.”

Jenny Rathbone (Labour) asked if the government would look at reforming the Land Transaction Tax regime to incentivise home owners to invest in decarbonisation projects, although this point was not addressed by Evans in her closing remarks.

Earlier, at First Minister’s Question Time, First Minister Mark Drakeford defended the government’s decision not to increase income tax. In an exchange with the leader of the Welsh Conservatives, Andrew R.T. Davies, Drakeford said that Welsh taxes were “higher than they have been for the last 70 years” as a result of UK Government decisions and that to raise them further would be inappropriate at a time when “people cannot buy food and they cannot afford to pay for energy”. The First Minister continued: “That is not a choice that a serious Government would make here in Wales”.

What’s next?

The draft budget will now be scrutinised by the Senedd’s Finance and policy subject committees. At the start of February, it will be debated by Senedd members and a final version published on 28 February. A final debate is scheduled to take place on 7 March, when the Bill is expected to be passed by members. The process can be read about here.

Chris Young, CIOT External Relations.