4. What consideration has the Cabinet Secretary made of the Wales Centre for Public Policy report, 'The Welsh Tax Base: Risks and Opportunities after Fiscal Devolution'? OAQ52547

I thank Jack Sargeant for that question. The Welsh Government commissioned the report to which he refers and we welcome the contribution it makes to inform the debate on tax in Wales and to support the development of tax policy. The report adds to a growing body of work about Welsh taxes, including Professor Gerry Holtham’s recent report about paying for social care.

I'd like to thank the Cabinet Secretary for that answer. The Wales Centre for Public Policy report, which the Conservative spokesperson Nick Ramsay also brought up, also highlights that increasing income tax in Wales would not be a simple matter, but it did suggest that it did present an opportunity to make council tax more progressive. One opportunity highlighted would be to reform council tax at the same time to create a holistic approach to taxation. Now, you know as well as I, Cabinet Secretary, that local authorities have had to make some very tough choices in recent years and not least due to the decisions made in the UK Government. Could the Cabinet Secretary just clarify that he is considering the report and such reform and whether any discussions will take place between himself and the Cabinet Secretary for local government on this issue?

Well, I thank Jack Sargeant for that. It's an important part of the report that says to us that we must think about Welsh taxes in the round and that we must be prepared to think about ways in which decisions made on taxes on income can be calibrated alongside decisions made about taxes on property. There are some very interesting parts of the report that refer to the trade-offs that there may be between the one and the other. So, I can certainly give Jack Sargeant an assurance that we are looking carefully at that, that I do discuss it with Alun Davies, and that there is a set of work in hand to look both at short-term changes we could make to council tax to try to make it less regressive than it inevitably is, and then to look at some more profound reforms of local taxation to see if there is, in a practical sense, something different that we could use instead of council tax. I hope that that work will be completed during this Assembly term and available to the next Assembly.  

Diolch, Llywydd. Does the way in which income tax is being partly devolved to Wales skew the incentives for Welsh Government in a tax-raising direction, in that we have the revenue benefit of any increase in the Welsh rate of tax, but any offsetting reduction across the tax base due to changes in behaviour as people face higher taxes—between half and three quarters of that loss of revenue on that tax base—would be felt by the UK Government, which won't be taking the decision?

Well, that issue was well rehearsed, Llywydd, during the negotiations over the fiscal framework. The fiscal framework does pass certain risks to Wales. It does in compensation protect us from some other risks, and the form of devolution of income tax that we have—and there are many other models we could have had and others who argue that it should have been taken further—but one of the, I think, positive aspects of it in the short run at least, as we take on these new responsibilities, is that it does mean that we are not as exposed to some of the risks that we otherwise would be exposed to had we come to a different set of agreements in the fiscal framework.