The following amendments have been selected: amendments 1 and 2 in the name of Rhun ap Iorwerth.

Item 7 is the Welsh Conservatives' debate on the Welsh rate of income tax, and I call on Nick Ramsay to move the motion—Nick Ramsay.

Motion NDM6921 Darren Millar

To propose that the National Assembly for Wales:                                                       

1. Recognises the vital importance of attracting people, businesses and investment to Wales as a means of growing tax revenue in Wales.                    

2. Calls on the Welsh Government to commit to not raise the Welsh Rate of Income Tax for the remainder of the Fifth Assembly.

Motion moved.

Diolch, Dirprwy Lywydd. I'm pleased to move this motion today, brought forward by the Welsh Conservatives. To quote Senator Bobby Kennedy in 1966:

'Like it or not we live in interesting times.' 

Well, like it or not, we again today live in interesting times, and devolved taxation, whether you like that or not, is with us. As we know, from April 2019, this institution will have the power to vary the rates of income tax, a powerful tool in addition to other new Welsh taxes—land transaction tax and landfill disposal tax. This is in addition to existing powers to raise and set business rates. In total, the Welsh Government is set to get around £5 billion in tax revenue from April.

So, how do we make this work best for the people of Wales? More importantly, how can we use these new taxation levers to generate growth in our economy? These are, of course, questions that we never needed to ask in Wales until now. They are big questions about how we manage the public finances, how we take people with us on this journey, how we develop a better relationship between Government and the people, a relationship fitting for the modern age, a relationship fitting to the new age of accountability for this Assembly.

It's been a privilege to be on the Assembly's Finance Committee over the last few years whilst these issues have been discussed at great length. A lot of good ideas have come forward from Members of all parties. That's how it should be. Tax devolution does not just belong to one party, one group, it belongs to all of us. It's our responsibility to get this right, in the areas where tax is already devolved and in the area of income tax as well, to make a success of the new powers, and as we so often say on Finance Committee, not just to make a success of it but to make Wales a beacon of best practice. 

How can we attract job creators, investors and entrepreneurs to Wales to set up new businesses, create new jobs and enrich our economy? Taxation can help us do all of this, but only if these new powers are used in the right way to attract support and nurture investment, rather than discouraging ambition and aspiration. Evidence shows that low-tax economies are more favourable to business start-ups, attract job creators, and can actually increase revenue because you're encouraging greater economic activity.

This means, at the end of the day, we have more money to invest in first-class public services. Let's be honest, our public services do need investment, we can't allow Wales to fall behind other parts of the UK in terms of how much we have to spend to invest in schools and hospitals. So, I want the Welsh economy to be more competitive. The Welsh Conservatives want the economy to be more competitive. I think every party represented in this Chamber would in their heart of hearts want that to happen. We need to be encouraging people to come here to set up new businesses and create those new skilled jobs we need. 

Professor Gerry Holtham was one of the first academics to look at what benefits devolved taxation could bring to Wales. He pointed out that making some minor adjustments to the basic rate of income tax would, aside from not raising huge amounts of money, actually have very little consequence for the tax base, since basic rate taxpayers tend to be less mobile then higher rate taxpayers. In fact, he concluded that the most productive change to taxation would be to drop the upper rates by 10p in the pound, since this could have the effect of drawing in higher rate taxpayers from across the border, as well as encouraging entrepreneurship and aspiration at home. 

One thing is clear, we need to fundamentally grow the Welsh tax base and improve its structure. Currently, we have just two thirds of the proportion of higher rate taxpayers in Wales compared to England, and just a quarter of the proportion of additional rate taxpayers. 

Will you take an intervention?

Yes.

Firstly, I'm sure you'd join with me in paying credit to the work that Steffan Lewis did in terms of taxation during his time here. The point I was going to make, though, is, yes, we have compared to England, but if you exclude London and the south-east of England, all of a sudden, we're not that different. We know that, in terms of tax raised, the south-east of England and the south of England are the only two net payers in.

I quite agree with both the points you made there, Mike. Firstly, on Steffan Lewis, he was an invaluable member of the Finance Committee since 2016 when he joined it. I know we all feel not just the sadness of his loss in this Chamber but also the sadness of the loss of that spirit he brought to the committee. He always had a different viewpoint, and in issues like the devolution of taxation, when we do get income tax devolved, his voice will be one that will be missing, actually, from an analysis of that debate, and that is tragic, and our thoughts are with his family at this time.

Secondly, you are right: if you look at the south-east of England separate from England then yes, it does distort the tax base across the whole of the UK. There was a difference between Wales and other parts of the UK as well, so that was the point I was trying to make, but you are right, it is not as great as if you include the south-east of England, and we're not going to have an economy like the south-east of England—we wouldn't want it, either—certainly not in the next few years. Both valid points.

So, it's important that we retain taxpayers and that we grow the tax base. The current situation is unsustainable, and I don't say 'unsustainable' in the way that we normally would in these debates, because clearly the tax take will be the tax take and it will be there, but if we want to have a tax take meeting our aspirations, matching our aspirations, then I think we would all agree that we need to increase that, and that means having competitive tax rates.

If we want to be a more prosperous country, we need a taxation system that encourages wage growth. I don't apologise for wanting people in Wales to earn more, because if people earn more, there's a greater tax take and more money for public services.

Now, today we've heard a lot of talk about raising income tax. That seems to be where most of the discussion has focused. But we haven't heard much about varying tax rates anymore, income tax rates, or indeed lowering tax rates. I think we need to hear a little bit more about the benefits of that from the Welsh Government, about how we can generate more revenue by offering attractive rates of tax so that people want to come and live in Wales, and those people here who want to invest in our economy have the money to do so.

Whilst I recognise that, this year, income tax rates are remaining static, and that's to be welcomed, there have been questions over the Government's commitment to this, despite a promise in 2016 not to raise income tax until at least 2021. The old arguments about putting up taxes to increase revenue to spend are, of course, simplistic and outdated. Anything that stifles entrepreneurialism ultimately harms the economy and reduces the tax take.

We have a very long and porous border with England, and if Wales has a higher rate of income tax over time, you would see a rise in people moving across the border, away from here, taking businesses, jobs and economic potential to England, and the tax would go to the UK Treasury, not the Welsh Treasury. Before Mike Hedges intervenes, if he's thinking of that, I appreciate that it's not quite as straightforward as saying that would happen overnight, but that would be the danger that we would risk over a medium-term, a long-term situation. None of us want that to happen.

When Scotland increased rates of tax in 2017 for both the higher and additional rates by a penny in the pound, thousands of higher and additional rate taxpayers left. There was a black hole in the nation's finances there. We need to avoid that here, and I appreciate that Wales isn't Scotland—I'm sure the Minister will make that point. Often, we say that Wales isn't England on this side of the Chamber, so I would appreciate where that point would come from. But nonetheless, Scotland has gone some way down this line. They are ahead of us by a few years in income tax devolution, so there are valuable lessons that can be learned and should be learned.

The devolution of income tax does, of course, fit into a broader landscape of tax devolution and greater accountability. LTT and LDT are already with us, and, of course, the Welsh Government is considering new taxes. We know a vacant land tax is in the pipeline to test the system; a tourism tax was jettisoned, but there's still an open door for local authorities to do that; a social care tax, we've had some discussion about that. So, there are all manner of taxes coming down the line, and I think it's important that we look at the benefits of low taxation as well as new taxes such as a social care tax, which may have some advantages over the longer term.

Deputy Llywydd, I'm looking forward to hearing what all Members have to give to this debate today. We've looked at the amendments, so, turning briefly to both the amendments, we'll be supporting amendment 1, which enhances, we feel, the motion. We will be opposing amendment 2—although we certainly support a mature debate about the issues—tabled in the name of Rhun ap Iorwerth. But we feel that, at this point, that amendment waters down our original motion, which is talking about the benefits of a low-taxation economy. So, whilst we support the spirit of that amendment, we will not be supporting it at the end of this debate.

So, let's have a mature debate about how we can use taxation levers to make the Welsh economy more dynamic and prosperous, and let's clear up any confusion about the Welsh Government's tax plans for the remainder of this Assembly term. I look forward to hearing what the Minister has to say in terms of hopefully sticking with that commitment not to raise tax rates, the Welsh rate of income tax, up until 2021, and hopefully keeping a competitive and low-tax economy beyond that.

Thank you. I have selected the two amendments to the motion, and I call on Rhun ap Iorwerth to move amendments 1 and 2, tabled in his name. Rhun.

Amendment 1—Rhun ap Iorwerth

Insert at end of point 1:

'but emphasises the priority of ensuring economic growth and increases in revenue through supporting indigenous businesses.'

Amendment 2—Rhun ap Iorwerth

Delete point 2 and replace with:

Promotes a mature civic discussion regarding how best to use new devolved taxation powers for the economic and social benefit of Wales.

Amendments 1 and 2 moved.

Diolch yn fawr iawn, Diprwy Lywydd. To throw Bobby Kennedy's quote straight back at you, Nick Ramsay—whether we like it or not, we live in interesting times. When it comes to the devolution of taxes, we like it very much on this side of the National Assembly, because these are historic times. 

These are historic days for us as a nation. They are historic times for us as a democratic body. There are uniquely Welsh taxes being levied for the very first time in modern times, and it’s an important step for us in terms of the maturity of this Assembly, the maturity of the Welsh Government and the need for a culture change—the need to think differently about the work of Government.

The Government is being forced to think more creatively and, in that regard, of course, we don’t have to change taxation rates in order for taxation powers to be valuable. As we heard from the Conservative spokesperson: increasing the tax base is what’s important. That’s the challenge now: to ensure that economic opportunities are created that create a greater tax base that can then, of course, be spent on Welsh services, and that is why we agree with clause 1 of today’s motion, recognising

‘the vital importance of attracting people, businesses and investment to Wales as a means of growing taxing revenue in Wales.’

But, indeed, we wish to add to that, because there is far more than that entailed in this. What our amendment says is that we need to emphasise

'the priority of ensuring economic growth and increases in revenue through supporting indigenous businesses.'

That is crucially important, of course, and I do hope to have support for that amendment.

Although we don’t necessarily need to change tax rates, we must be willing to think creatively about how we use powers to vary tax rates, and that’s why we can’t agree to support clause 2 of the motion, not because we as a party at the moment wish to increase income tax—we haven’t come to decisions on that as of yet—but because we think that insisting that the Government doesn’t use those powers sets quite an unfortunate precedent at the beginning of this period, as we adopt taxation powers for the very first time.

We must be ready to think creatively. We were established as a body that was a spending body, but becoming a body that also levies taxes is part of the maturing process that is part of the national journey that we’re on as a nation.  We didn’t legislate at the outset. We are now a legislature, and I hope that that has enabled us to develop, over time, a Welsh approach to legislation. We historically did have a uniquely Welsh way of legislating—I’m thinking of the laws of Hywel Dda, which were strikingly different to the legislation that has become characteristic of the modern United Kingdom—and there is nothing that should preclude us from developing taxation models that are different and uniquely Welsh. That is why I wouldn’t want to see limitations placed on the power of any Government to make decisions that could be of benefit to the people of Wales. What we say in our second amendment, which deletes point 2, is that we want to promote

‘a mature civic discussion regarding how best to use new devolved taxation powers for the economic and social benefit of Wales.’

And what we mean by that is that we are on a journey towards creating a uniquely Welsh taxation model, and I would also invite the Conservatives to do that.

If I can refer to the issue of raising taxes, which you mentioned. Raising taxes means to bring in taxes, of course, but all too often it's thought of as 'raising'—putting them up. Now, there are arguments for putting taxes up, and there are arguments, as we've heard from Nick Ramsay, on putting taxes down. What I want people to see in Wales in future, as we develop a tax system, is that people see that we are developing something that is fair. Now, we have limited tax powers currently. Over time, I hope and I’m confident that that will change. In a position where you have a whole host of tax and fiscal levers at your disposal, you can put some up and some down. It’s about finding a balance and making sure that people can see that the effort being made here is to have a system that is fair in terms of what is brought in, that the weight of responsibility on who pays most is fair, and that we are able to make a fair contribution, because of that tax system, into how we spend money on the public services. This is the start of a journey, and I don’t want to shackle this Government or any as we try to form that Welsh taxation system for the future.

Devolution was intended to significantly improve the economic performance of Wales. One of the arguments put forward in favour of devolution in the late 1990s was that Welsh interests were being neglected. We were told that the Welsh economy’s problems could only be solved by tailor-made solutions created here in Wales. And yet, Wales still has the weakest economy in the United Kingdom, Wales remains at the bottom of the gross value added league table for the UK home nations, and GVA in Wales remains well short of the original target of 90 per cent of the UK average. Earnings in Wales remain the lowest in the whole of the United Kingdom, and Wales, together with Northern Ireland, has registered the lowest growth rate of gross disposable household income per head in the last 10 years.

The devolution of powers to vary income tax in Wales from this April represents a significant milestone in the devolution process. It also represents a huge opportunity to radically change our economic development and environment. Government has no money of its own. Actually, taxation is the money raised by the Government to run the Government, as the Government finance their expenditure by imposing charges on citizens and corporate entities for the country, to Government to run by taxation and encourage or discourage certain economic decisions.

Government has no money, as we’ve said. Every penny that Government spends comes from the taxpayer. By allowing people to keep more of the money they earn, you allow them to make their own spending decisions. Low-tax economies are the most successful economies in the world. Cutting taxes boosts the economy, increases economic growth, and delivers higher living standards. Wales cannot afford a tax system that acts as a barrier to economic growth and aspiration. And increased tax burden on Welsh taxpayers increases the risk that it will restrain economic growth and cost jobs.

In its 2016 election manifesto, the Welsh Government made a commitment not to increase Welsh rates of income tax during their Assembly term. However, they have stated that they will carefully consider a tax rate to, and I quote,

‘ensure they continue to generate sufficient revenue’.

Just three months ago, the new First Minister said, quote:

‘I will not move away from our manifesto commitment unless I'm compelled to do so, but I don't rule out the possibility that circumstances could change in a way that do have that compelling impact.’

Quote closed.

It is clear that Welsh Government cannot be trusted to keep its manifesto pledges. Make no mistake, any tax increase would be aimed at and hit earners in the basic tax brackets. Most taxpayers in this situation would be forced to shoulder the burden of higher taxes. However, we should not underestimate the effect increased tax will have on outward migration. The Welsh Government-backed report ‘The Welsh Tax Base’ has acknowledged that there would likely be some behaviour response from taxpayers. These include individuals seeking alternative jobs, changing the number of hours worked, and migration out of Wales. We on this side of the Assembly are not the only ones with this concern. The CBI in Wales has rightly recognised that, in the code, raising Welsh income tax should be a last resort and not a first response, and in Plenary last month, Lynne Neagle spoke of her having to reassure constituents who had received a letter from Her Majesty's Revenue and Customs and were alarmed at the prospects of increasing tax in Wales. Minister, you have the power to put people's mind at rest. I ask you now: take this opportunity to reaffirm your election manifesto to promise and state clearly that income tax will not increase during the term of this Assembly. I know from this April that the basic rate reduces from 20 to 10 per cent, higher rate from to 40 to 30 per cent, additional rate from 45 to 35 per cent. It's a big impact that this is going to make, and there are certain areas, Minister—they are advocacy, broad base, compatibility, convenience, efficiency, restricted expenditure, exemptions, and simplicity—in taxation that are highly appreciated. I look forward to your response on these matters. Thank you.

Can I say how much I'm looking forward to joining this debate? The transition and the growth the National Assembly from a body that, largely, simply administered the public sector when it was established in 1999 to a Parliament that governs our country is one that will test all of us in different ways. And the Conservatives are to be commended in starting that test this afternoon.

I do not believe that the motion they've tabled meets the challenge of all the contributions we've heard this afternoon. I believe it is important that we do have a reasoned and a mature debate on taxation. We've just been through a budget round and we voted on the final budget of the Welsh Government, and what we heard on all sides of the Chamber, including my own side of the Chamber, were demands for additional spending. I can't think of a single contribution that was made, at any point in the debate on the budget, where any Member here asked for a reduction in expenditure. Everybody spent money with every speech and every utterance.

Will you take an intervention?

I will take an intervention.

I was just thinking, perhaps your salary might be a good place to start.

I'm glad that you're able to join us in this debate, Darren, and as I was talking about a mature conversation, Darren demonstrates exactly what I didn't mean. [Laughter.]

So, we've spent money and the Conservatives in this budget round managed something that not even the Welsh Liberal Democrats managed—I've offended Kirsty now—and that was to spend every pound twice and three times. Every debate we had here on the budget, the Conservative response to every challenge facing us wasn't to reform but to spend money. Everything has to have money thrown at it, but we won't reform. And that is a fundamental test of a Conservative character. The Conservatives know what they don't want, but they don't know what they do want. There's a consistency there at least.

And that means that we do need to have this debate. I don't have and I don't share the fetish for low taxation for low taxation's sake. I don't share that. I believe that we should have fair and reasonable taxation. Fair and reasonable taxation that allows us to invest in our people and in our country. A taxation system that reflects our values and our ambitions and our visions for Wales.

If our ambition is only to persuade people who wish to save tax pounds to move here and pay less tax, what does that say to a child growing up in Blaenau Gwent? What does that say to somebody—we had a debate earlier today on the rights of older people—the country we want you to grow old in—? [Interruption.] I can see you—in a moment. Give me chance to finish my sentence. The country we want you to grow old in is only interested in reduced taxation. We're not interested in the services that will sustain you and sustain your family.

I'm grateful to the Member for giving way—I hunch my shoulders, but thank you. I wonder, might it be that we're saying to them that by having lower rates and perhaps encouraging more people to come and live and pay tax in Wales that there might be more revenue to support their services?

You might be saying that, but I'm not sure it's an entirely convincing argument, but we'll have that debate.

So, what do we do as a response? I don't think it's good enough, quite honestly, for a Labour Government simply to make faces at the Conservatives and blame austerity for all our problems. One of the issues that we have to face and one of the tests that we have to face is to take responsibility for some of the issues that we face here today. It isn't good enough to say, 'As a Welsh Government, we want to spend more money on the health service, on local government, on education or whatever it happens to be. We've a power to raise that money, but we declined to use that power, but we still want to spend more.' That is no longer an adequate response to the challenges we face, and the challenges we face are greater than I think some people understand and realise.

When Theresa May stood in front of the Conservative conference in the autumn and said, 'Austerity is at an end', she was fundamentally wrong, and she was fundamentally misleading people, because if we take health spending at current levels and we assume that we will not be cutting the health service into the future, we will see reductions in expenditure in every other service in order to pay for that—every other service. And in Wales, we will see, as Nick Ramsay has pointed out and as Rhun ap Iorwerth has pointed out, a reduction in the tax base, which will further reduce our ability to tax in this country. So, we have to have a fundamental conversation about that and a mature conversation about that.

I wish the Welsh Government was accepting the two Plaid Cymru amendments this afternoon, because I think it does send a signal that we are willing to have that more mature debate, that we are willing to take responsibility, not simply to pass resolutions and make speeches, but to actually act as a Parliament, to say that, if we want better services, we will pay for those better services, to invest in our economy, to invest in our infrastructure, to do the things that a Parliament and a Government have to do and to do that based on our values.

And the final point I'd seek to make, with your patience, Deputy Presiding Officer, is this: I hope that fairness and sustainability will be at the heart of those values, because we have an opportunity through parts of this legislation to not simply move tax rates on income tax up or down, but to look at tax in a different way and to adopt and develop new forms of taxation and to change the model of taxation. And I think that that is a very, very exciting opportunity for us as well to not only invest in our people and our place but to do so in a way that reflects our ambitions and our values.

There's something about taxes going up and down that captures the nation's attention—VAT, petrol prices, alcohol duty, council tax, income tax, national insurance. They're mostly not devolved, of course, but regular stars of the UK budget's headlines. And it's that one point in the year when we focus on how a Government will be giving us back our money with one hand and then taking it back with the other. Governments need a tax take and, politically, of course, we have very different views on the purpose of taxation, but the pragmatic observation is that Governments need money so that the state can function, but how much it takes and who the winners and losers are affect how our society functions.

Tax budget headlines capture public attention in a way that the talk of millions of pounds for public services can't, and I think the same is true, probably, for benefits payments as well, because most tax or benefits payments affect us very directly and very personally. However complicated the detail proves to be, we know the effect in our pay slips or in our bills, and we feel, Alun, how fair that is in our own personal circumstances. It draws us to form a view on whether the money that we've given to Government for the common good has been wasted or not, and Welsh Government's use of its new taxation powers could be the action that finally gets the people of Wales to look closely and sustainedly at how the Labour Government spend their money, because that's what we are talking about after all, as Oscar said: their money.

Now, unlike me, some of my local party members disagree about these income tax powers coming to the Assembly because they simply don't trust a Labour Government with them. And I try and persuade them that this is the rock on which the good ship Labour will finally be wrecked and the nation's eyes will be opened, but they respond by saying that they'll sink the whole of Wales in the process and, because people don't distinguish between the Executive and us, the Assembly's reputation with it. But these risks aren't just to reputation. They are to this nation's ability to create greater wealth, which in itself can create a greater tax take, the subject of this debate. Conservatives, as we all know, favour a lower-tax environment, so I just want to revisit the axiom that making tax all about the wealthiest doesn't increase tax take. The fact that the top 10 per cent of taxpayers pay 60 per cent of the tax due to HMRC doesn't prove the contrary. It proves that there are more top taxpayers around—and we should be aiming to have more of them in Wales—and that Conservative cuts to the thresholds mean that basic taxpayers are individually and collectively contributing less.

Our warnings last year about the supertax on high-end commercial property sales went unheeded, and now the number of such sales has fallen. I know it doesn't fit some world views here, but the opposite has been true in Scotland, where they have a lower rate on those properties. Compare that, though, with Scotland's increase for higher rate income tax payers. They're £0.5 billion out on their maths because these taxpayers leave or adjust how much they earn. We have a much greater per capita cross-border travel-to-work area than Scotland has, and it won't just be a case of where business owners may want to locate; the decisions we make on tax may affect where some of our better-paid public servants choose to live too.

Now, Welsh Government has admitted that the basic rate is where the greatest potential returns would come from within Wales, and it's worth remembering that this is not just about employee earnings. We have a very considerable unincorporated micro sector. Even some larger operations are firms rather than companies, not least in agriculture, and any tax decisions must take into consideration the effect they would have on existing businesses as well as how they may attract the new. Not all start-ups can secure borrowing as new companies either, so let's resist taxation sterilising the soil on which we could be growing our new businesses.

A last brief word on land tax, should it tempt anyone in future. I know this has been of interest to the current First Minister. I just want to say that ownership is not a privilege, which are the words he chooses to describe it. It is a responsibility; it reduces demand for public housing underwritten by taxpayers, and it's a condition that's already laced with taxation: income tax on the earnings as you save your deposit, the interest on which is also taxed, land transaction tax before you buy, then council tax, then VAT on professional fees, materials and labours for maintenance. And then, potentially, depending how you do this, inheritance tax and even capital gains tax. And if you have a second property as a responsible investment for your future, perhaps to pay for your care costs in older age, income from that is taxed again, and, of course, you could be charged additional council tax, depending on the status of that property. A tax that drives down land values and depresses the number of sales and purchases brings diminishing returns and negative equity, and I'm not sure that you'd want to be proving my local party members right if you're considering land tax. Thank you.

I'm delighted to take part in this debate and to say that we broadly support the Conservative motion because we're a low-tax party as well, and whilst we accept that public services have to be paid for, what matters is the size of the cake more than the way it's split up. What we need to do is to grow the economy in Wales if we're to have better public services, and as we know, there are going to be growing demands for spending on health, as Alun Davies said earlier on. I welcome him to the freedom of the back benches. His great predecessor Aneurin Bevan, as Member of Parliament for Ebbw Vale, used to say that he liked to speak on the unpinioned wing, and I'm sure that Alun Davies is very much of that persuasion as well, and we look forward to many of his exhilarating contributions in the years to come.

Over the years, we've had a huge variety of tax rates in this country. I can remember back in the 1960s when we had rates of income tax that went up to 83p in the £1, and another 15 per cent on top of that for investment income. And in the year 1966–67, James Callaghan—I think he was the Chancellor of the Exchequer then—imposed an extra 10 per cent surcharge. So, the top rate of income tax was actually 107 per cent. It's no surprise that that did not raise more revenue. In fact, it did precisely the reverse. In fact, all the historical evidence shows that, on balance, it's impossible to squeeze out of the British people more than about 35 per cent of national income in taxes of all sorts. The figures that are published and available on the Organisation for Economic Co-operation and Development's website for the last 20 years show that. In the year 2000, we were taking 33.8 per cent of GDP in taxes, this year it's 34 per cent. It went down to 32.2 per cent in the meantime, in 2009, but broadly it's bumped along on that level, whether there's a Labour Government, Tory Government, coalition Governments, minority Governments or majority Governments. The tax take has gone down as low as 31.6 per cent, and at its highest 37 per cent, but on average you can't get beyond 35 per cent. And the reason is obvious: people do change their behaviour to reflect the tax background in which they live.

If we go back to the eighteenth century, perhaps the most famous form of tax avoidance at all was of the window tax; people just bricked their windows up in order to reduce the amount of tax that they had to pay. Today, we have more modern forms of tax avoidance than that, and every country has to be competitive in the world if it's to maximise the amount of tax that can be raised for a given rate, because taxpayers have never been more mobile than they are today; nothing could be easier than to move to another part of the world. And, of course, within the EU, tax avoidance is maximised by the EU's pan-European tax rules, which can enable companies to base themselves in Luxembourg, technically, and pay very, very low rates of tax there, rather than the rates of tax that are obtained in the countries where they do the bulk of their business. So, as a former tax lawyer myself, who was involved in devising schemes to minimise tax for our clients, then I can say a massive industry existed in the 1970s, and a good thing it was, when we reduced dramatically the rates of tax, that that industry could make less money because there was less work to do. And intellects such as mine were put to more productive uses by doing other things.

We can, of course, borrow more money to pay for public services, but that merely shuffles off the responsibility for paying for what we consume today onto our children and grandchildren tomorrow, and there's a fundamental immorality about that, not least if we debase the currency in order to reduce that risk. In fact, in Britain, we have a situation, as Suzy Davies referred to, where those who are on highest incomes pay a very, very substantial proportion of income tax receipts—the top 1 per cent pays actually 28 per cent of all receipts in income tax, and that's actually gone up in the last 19 years. In the year 2000, it was only 21 per cent. The top 10 per cent, as Suzy pointed out, pays 60 per cent of all taxes and the bottom 50 per cent of taxpayers pay only—well, less than 10 per cent of the total yield. So, in fact, the rich are bearing the burden of taxes, but it doesn't mean to say that if you push up the higher rates of income tax any more you would raise any more revenue.

Now, I take a different view on the devolution of taxes from many in my party; I broadly welcomed the ability of the Welsh Government to raise part of its revenue from taxation, because I believe that that cements the leap between spending and revenue raising, which enables us to hold the Government to account. They can't just shuffle off onto Westminster the blame for whatever their failings are. But I do think that if Wales is to prosper in the years ahead, it has to be competitive, obviously with England, but with more international regimes of tax as well. As I've said constantly in these kinds of debates, we've got to devise a tax system that can raise the wealth-creating potential of Wales, and maximise our national income in Wales. That's the way in which we'll pay for the growing demands on public services in the years ahead.

Could I firstly apologise to colleagues for arriving late to the debate, and particularly to my colleague, Nick Ramsay, whose introductions are often as rousing as his perorations? So, I'm sorry to have missed that. I did hear Neil Hamilton's speech just now. I'd previously been aware that he was a lawyer, but I hadn't realised that he was a tax avoidance specialist until he revealed that just now, and considers that he has put his life to more productive use since then.

I heard Alun Davies's comments earlier and his scepticism that you could ever increase revenue by having a lower tax rate or vice versa. The Welsh Government seems to like new taxes—the idea of testing the system—and we do have this test bed. And the tax increase that they have put in has been on commercial property above £1 million; they now charge 6 per cent, rather than 5 per cent. I discussed this with the now First Minister before it happened and shared my fears and was assured that it would make more than a few thousand of difference—or none at all, we would hear from the back benches. But we actually have some figures now on this and I quoted before a survey by a company called CoStar, which monitors commercial transactions. They observed that, in the second quarter of the year, the first quarter of the land transaction tax, the amount of commercial transactions in Wales slumped to just £40 million. That compares to a quarterly average previously, over the past five years, of £180 million. 

Now, the First Minister criticised me for putting too much emphasis on one quarter's figures, and told me there had been one big transaction that had come through in the next quarter, and we now have those figures—at least, from this survey—for Q3, the second quarter of LTT, and there has been a slight increase to £54 million, so now we're only 70 per cent rather than 78 per cent below what we were seeing before. And if we multiply those rates to—[Inaudible.]—with his observation earlier, we will find that, over a typical six months of what was SDLT, we would have seen 5 per cent taken on £180 million per quarter. That would be £18 million over six months. Since then, on these numbers, we have seen £40 million plus £54 million—£94 million—and taking 6 per cent of that we get £5.64 million. So, that is, if my maths serves me correctly, £12.36 million of lost revenue thanks to that 1 per cent tax increase. And—[Interruption.] I'd be delighted to take an intervention.

How can you prove that? It's very difficult, because you don't know what would have happened otherwise. And have you compared it with what's happened in tax transactions in the rest of Britain? [Interruption.] No, the rest of Britain, which is different.

Well, we don't have the numbers from the tax authorities yet—at least not reliable ones—because the transactions can come in later. So, we have a survey on a consistent basis, and I think that gives useful information. In the previous quarter, in the last quarter before this happened, I think we had about £390 million of transactions, as people rushed to get their transactions through under the old SDLT regime rather than paying LTT to the Welsh Government, and those are the differences that we can see because of taxes. I agree that the land transaction tax for commercial large properties is likely to be more sensitive to these changes in rates than many other taxes will be, but I think it does go to the principle, and I think we need to be very, very careful with what we do with income tax. I hope the Welsh Government will support this motion today, because it's in line with their manifesto, and, whatever we think about the merits of the argument, I trust that politicians believe in keeping promises and keeping to their manifesto.

But if, in the future, income tax rates do change, what's the impact of that going to be? Because, we only have these 10 per cent bands, so, to the extent those raise, perhaps the UK Government will suffer some of the revenue loss on the portion that it's still taking. But I think, on the other side, there are concerns that should weigh at least as heavily, because, when people pay less income tax and find ways to declare what was previously declared as income as either capital gains, or to incorporate and pay corporation tax and dividend tax only when they take money out of companies, those taxes will go to the UK Government rather than to the Welsh Government. So, it may be that if we had a somewhat lower rate of tax and, say, for someone paying 40 per cent tax in England, if they were to pay 38 per cent in Wales, they might respond by paying that tax rate, rather than incorporating and paying a dividend tax or paying capital gains tax. And the benefit to us of that would be two fold, because it would be the UK Government that would no longer have the revenue from those other taxes, whereas that revenue would come in as income tax—new income tax base—to get the whole of that rate. So, I hope Members will consider this motion, support this motion, and keep taxes low in Wales.

Thank you. Can I now call on the Minister for Finance and Trefnydd, Rebecca Evans?

Thank you very much, and I do welcome today's debate, which I think has been very interesting. The devolution of tax powers provides the Welsh Government with a range of opportunities to develop a progressive approach to taxation that is tailored to Wales's needs. The tax policy framework, published in 2017 by the then Cabinet Secretary for Finance, and the tax work plans published since, have emphasised this Government's commitment to take a strategic approach to tax policy. This is now being delivered through our work to manage existing and newly devolved taxes, as well as our evolving approach to develop new taxes. The 2019 tax policy work plan, which I intend to publish in the coming weeks, will provide further details on our priorities this year. But, just to give a flavour of them, we will be considering wider policy around taxation of residential properties, promoting fairness and progressivity in tax policy through our local taxation work, progressing the work on devolving powers over a vacant land tax, as well as exploring how we make the best use of digital and digital services and technology to improve the administration of Welsh taxes.

Taxes are the admission charge that we pay to live in a civilised society. They're the investment that citizens and businesses make to fund the public services we provide and enjoy collectively, from roads and bridges to hospitals and schools, paying the wages of those who deliver these services, as well as the necessary infrastructure, equipment and resources required to support them. Taxes enable the people in Wales to achieve together the things that we can't manage alone. The decisions we make on Welsh taxes will have a direct impact on the Welsh economy.

The Welsh Government recognises the importance  of considering the impact of taxation on the overall competitiveness of the Welsh economy. That is why our tax policy framework includes a principle that taxes should help deliver strategic objectives and, in particular, that Welsh taxes should encourage jobs and economic growth. That is why we've introduced additional business rates relief for high streets and why we have set the lowest starting rates on taxes for residential and non-residential property transactions. Similarly, our tax policy principles commit us to engage with taxpayers to help inform our approach to developing tax policy. Nick Ramsay talked about the importance of taking people with us, and that's very much the approach that we're taking in terms of seeking to establish a new relationship with people in Wales.

We agree with what's set out in the second amendment to this motion put forward by Plaid Cymru, which we would otherwise support had it not had the effect of deleting and replacing part of the original motion with which we also agree, but we certainly don't see that these two parts of the motion are mutually exclusive, by any means.

Last week, this Assembly took the historic step of setting the first rates of Welsh income tax. To help ensure an orderly and smooth transition to the partial devolution of income tax, Welsh taxpayers will pay the same rates as those in England and Northern Ireland in 2019-20. I have no plans to change income tax during this Assembly. It would be naïve, however, to say we would never raise taxes in Wales. There may be circumstances in the future in which there is a compelling case for fair, progressive change in Welsh taxes to provide the funding needed to continue to deliver the public services that people in Wales want.

I am mindful, however, that Wales and the UK are facing the most significant upheaval in modern times as we look ahead to the UK's exit from the EU. We face the very real possibility of a 'no deal' scenario, and, given this, coupled with the ongoing impact of continued austerity, it is right that we continue to monitor closely developments and assess their impact on our fiscal position. So, we're very happy to support the motion before us today, and we thank Members for their contributions.

I call on Mark Isherwood to reply to the debate. Mark.

Diolch. I'm still rapidly scribbling notes, because you've all said so much, and thanks very much to all the contributors. Nick Ramsay began by summoning the memory of Bobby Kennedy. We must remember his brother, JFK, when President, had argued that strong economic growth required lower taxes. Many in his own party disagreed with him, but, at the time, back in 1963, he was proved right.

He talked about how we need to make this work best for the people of Wales and use these new tax levers to nurture investment and generate economic growth in Wales in a new age of accountability for this Assembly and, of course, this Welsh Government to make the economy more competitive, to encourage more investors to come to Wales and create the better paid jobs that we need. And he talked about concerns about the Welsh Government commitment not to increase devolved income tax during this Assembly term, given the quotes, which he and others referred to, subsequently made by some Welsh Government members.

Rhun ap Iorwerth talked about the priority of ensuring economic growth and increased revenue by supporting indigenous businesses. Quite right: we agree with you, and we will be supportive of your amendment. You oppose, however, insisting that the Welsh Government not increase tax during this Assembly term—rather odd, particularly given that the Welsh Government themselves are going to be supporting this motion. Perhaps the public might note that Plaid Cymru are the only party perhaps proposing increased taxes during this Assembly term.

Will you take an amendment—an intervention?

Very, very quickly, yes. 

Just in order to say again what I said in my speech earlier—that we weren't opposing this because we wanted to increase taxes, but that we wanted to give Governments the flexibility to be creative for the good of the Welsh people, in whatever way that may be. You never know what crisis might come ahead of us because of Brexit, for example, in the next few years. 

Thank you. I'm sure that's helped the clarity of understanding of people in Wales. 

Mohammad Asghar said that at the time of the referendum—the devolution referendum—people in Wales were told that our economic problems could only be solved by devolution, but Wales still remains lagging at the back of the UK economic league table. He said that an increased tax burden on Welsh taxpayers would restrain economic growth and damage jobs, and he asked the Minister to reaffirm Labour's manifesto promise not to increase income tax during this Assembly term. I think we got that confirmation at the end. 

Alun Davies, well he bumbled along in his characteristic way. [Laughter.] In saying that nobody—[Interruption.] In saying that nobody called for reductions in expenditure during the budget debates, he perhaps exemplified the confusion between tax rates and tax revenues. But he was right when he called for fair and reasonable taxation that allows us to invest and reflects our ambitions, which is exactly what we're calling for in this debate also. 

Suzy Davies quite rightly said Governments need a tax take, but we're talking about the people's money, that making tax all about the wealthiest doesn't increase the tax taken, and the need to consider that Wales has a far greater cross-border travel-to-work population than, for example, Scotland. 

Neil Hamilton invoked the smashed glass, bricked-up impact of the window tax. He reminded us that people change behaviour to reflect the tax background of where they live and that Wales has to be competitive if it's to be prosperous in the years ahead.

Mark Reckless referred to a fall in revenue since the introduction of the Welsh Government's land transaction tax and warned that we need to be very careful what to do with income tax in this context. 

The finance Minister used the catch-all phrase 'progressive approach'. That can mean many different things when applied to taxation, but rightly she says that we need to recognise the impact on the Welsh economy, jobs growth and fiscal position, looking to fair taxes in the future, and that she'd be supporting the motion and we thank her very much for that. 

Let us remember that, since 2010, Chancellors at UK level have got more tax out of the rich than any of their predecessors. Let us remember that 58 per cent of tax across the UK is paid by the top 10 per cent of taxpayers. In Wales, the top 10 per cent are only contributing 44 per cent because there's so far fewer of them. Let us remember the research in 2016 by Cardiff Business School, which said that reducing the higher rate of income tax in Wales would raise additional revenue by attracting high earners. Let us remember that the Welsh Government itself has admitted that the most it would be able to get out of income tax would be to charge basic rate taxpayers, and the warning by the CBI that raising Welsh income tax should be a last resort, not a first response. Diolch yn fawr. 

Thank you. The propsal is to agree the motion without amendment. Does any Member object? [Objection.] We therefore defer the voting under this item until voting time. 

Voting deferred until voting time.

Unless three Members wish for the bell to be rung, I am going to proceed to voting time.