7. Welsh Conservatives Debate: Welsh Rate of Income Tax

Part of the debate – in the Senedd at 5:02 pm on 23 January 2019.

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Photo of Suzy Davies Suzy Davies Conservative 5:02, 23 January 2019

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.