Item 5 on the agenda this afternoon is a debate on the setting of the 2019-20 Welsh rates of income tax. I call on the Minister for Finance and Trefnydd to move the motion, Rebecca Evans. 

Motion NDM6915 Rebecca Evans

To propose that the National Assembly for Wales in accordance with section 116D of the Wales Act 2014, agrees the Welsh rate resolution for the 2019-20 Welsh rates of income tax as follows:

a) the proposed Welsh rate for the basic rate of income tax is 10p;

b) the proposed Welsh rate for the higher rate of income tax is 10p; and

c) the proposed Welsh rate for the additional rate of income tax is 10p.

Motion moved.

Thank you for the opportunity to open the debate on the Welsh rates of income tax, which will be introduced from 6 April 2019 and will apply to income tax payers living in Wales. Welsh income tax payers are defined as people who live in Wales for most of the year, regardless of where they work. The Wales Act 2014 provides a detailed explanation to address the range of possible situations, including AMs, MPs and MEPs representing constituencies in Wales, who will pay also the Welsh rates of income tax no matter where they live. 

While income tax will be partially devolved to Wales from April, it will remain a UK tax. Her Majesty's Revenue and Customs will continue to administer income tax in Wales and the UK Government will continue to retain full responsibility for income from savings and dividends. The Welsh rates of income tax will apply to income earned from employment or self-employment, taxable benefits and pensions. My officials continue to work with HMRC on the detailed arrangements for the administration of Welsh rates of income tax to ensure a smooth and orderly transition to the new arrangements. 

The rates were first announced in the outline draft budget on 2 October. 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. Together with the block grant, Welsh taxes will fund the vital public services that many in society depend on. From April 2019, around £2 billion of the Welsh budget will be funded by Welsh income tax receipts. This should and will change the nature of our debates about revenues and budgets in the future, and I look forward to these discussions. 

The Assembly is asked today to agree the Welsh rate resolution that will set the Welsh rates of income tax for 2019-20, and I ask Members for their support this afternoon. 

Thank you. Can I call on the Chair of the Finance Committee, Llyr Gruffydd? 

Thank you very much, and today is a historic day, of course, because we will vote today to set the Welsh rates of income tax in Wales for the first time in many centuries. Now, the powers in question expand on the tax-raising powers devolved in April of last year, and these powers, as we’ve already heard, should provide the Welsh Government with the ability to make important decisions and to have greater influence on the needs of Wales and the Welsh people, and so we need to effectively scrutinise these decisions. And the Welsh rates of income tax, as the Minister has said, will raise around £2 billion, so effective scrutiny has never been more important in terms of this institution.

So, as we scrutinised the draft budget as a committee, we did hear about the forecasting problems in Scotland on the Scottish rate of income tax. Whilst we recognise the protection afforded to Wales in this first year of Welsh rates of income tax, the committee does believe that we must learn from what happened in Scotland. We received assurances from the previous Cabinet Secretary that he was working to learn lessons from those experiences. But, as a committee, this is something that we will be monitoring in future as well.

Now, the final 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 do, of course, protect the Welsh Government from this reduction, but we must be mindful of these types of changes in future years. Now, one of the differences between Wales and Scotland in terms of income tax is the dynamic nature of cross-border movement between Wales and England, with around 100,000 people migrating back and forth each year. Now, we heard references to some comments that Steffan Lewis had to make on this particular issue in the previous tributes, and it's entirely right, of course, but the committee does believe that it is essential to ensure effective monitoring of the number of Welsh income tax payers in-year. The committee recognises that HMRC have been contracted to ensure accurate taxpayer identification, but we would urge the Welsh Government to undertake continual and robust oversight to ensure that the flagging system is fit for purpose on an ongoing and long-term basis, because this isn't a temporary measure. This will be an ongoing process. And the way that the system will work is 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, of course, is that income tax from anyone falling between the gaps will be allocated to Westminster.

I welcome the Welsh rate resolution before us today, and, as a committee, we are pleased that this motion links to the annual budget motion, to ensure, of course, full accountability of revenue raising and doing so side-by-side with the spending plans.

I will begin my brief comments by alluding to the Holtham commission and the Silk commission. One of the most important recommendations outlined by them is the value and importance of taking financial responsibility and accountability, and, without a doubt, today we are a step closer towards that accountability and responsibility by being able to set our own income tax rates. We on these benches look forward to seeing how the current Government will use these powers in the ensuing years, and we certainly are looking forward to presenting our own ideas and contributing to that debate and actually being in Government in ensuing years.

As has already been mentioned, this is a historic moment for our Senedd. The people of Wales will now be able to see in real terms on their pay slips the importance of the Senedd and the Government of Wales and how our institutions have a direct impact on their everyday lives. We as a Senedd are strengthening and, therefore, as a nation, we are getting stronger and more mature.

As regards the rates that are proposed before us today, we tend to support the rates listed in this motion, as these are the first for the Government to set. We are laying the foundation for the future, and I am certain that we will see many changes in future as we grow in maturity and confidence as regards how to use these tax-raising powers for the benefit of the people of Wales. Because with these new powers, comes great responsibility, and that's a responsibility for us all as Members of our national Senedd and as members of our political parties, not only to respect these responsibilities but also to respond to the fact that we have been given these responsibilities and to use them in a responsible manner but also in a creative manner—in a manner that will 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, I hope, 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.

This is a historic day for Wales with, for the first time ever, before us, this motion to set income tax rates. If I can ask two quick questions of the Minister—I was about to call you Cabinet Secretary for a moment. First of all, you said in your opening comments that you don't believe that there should be any changes to income tax rates relative to England—I think you said up until 2020. Can you confirm that that is up until the next Assembly election, which I think is what the previous Cabinet Secretary said? And, also, does that continue to apply if there are variations over the next couple of years in the rates of income tax from the UK end—in other words, the base rate, whether that be up or down?

Secondly and finally, the way that this is being presented today in terms of the income tax debate that we're having now and the budget debate that we're about to have—is that how you will continue to proceed in the future? Because I know that in the past, the Finance Committee has looked carefully at the issue of a finance Bill and how you would actually present any possible changes in tax rates vis a vis the budget to the Welsh people.

Can I now call on the Minister for Finance and Trefnydd to reply?

Thank you very much for those questions and contributions to the debate. The Chair of the Finance Committee began by recognising how important scrutiny is, and I absolutely recognise that and I welcome that. Then he went on to talk about the experience of Scotland. So, I'll take this opportunity to inform Members that 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.

Full and accurate identification of Welsh taxpayers is understandably critical, so we have sought and obtained those 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. So, we have had those conversations and we are reassured that these issues will not apply in Wales, not least because our system collates that information about addresses in a different way. So, in Wales, we will be doing it by postcode, whereas they did it slightly differently in Scotland.

Obviously, that's important for forecasting, as too is good and accurate information more widely. So, 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 pay-as-you-earn 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 WRIT as part of its annual accounts in July. Welsh Government is currently in discussion with HMRC about the level of detail that it'll 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.

There were some questions about taxpayer identification. The identification and maintenance of the WRIT taxpaying population will be formalised, again as part of a performance measure, within that joint service level agreement that is being developed by our respective organisations and will certainly be in place in good time for when the taxes start to be collected. I was able, in our committee session just last week, to set out some of the ways in which HMRC is working to ensure that information about individuals is accurate and is collected in a timely basis throughout the year as well.

In terms of setting out those tax rates for the rest of the Assembly term, I would refer Nick Ramsay to the comments made by the First Minister during First Minister's questions today, where he did reiterate again our commitment, which was made in the Welsh Labour manifesto, in terms of not raising income tax levels. And he's been very clear, when he was in this role—through his evidence, which was given to committee—that any decision to change tax rates would clearly be a major decision that should be taken on the basis of evidence and a great deal of thought.

Thank you very much. The proposal is to agree the motion. Does any Member object? No. Therefore, the motion is agreed in accordance with Standing Order 12.36.

Motion agreed in accordance with Standing Order 12.36.