So, we now move to the short debate, and I call on Mark Reckless to speak on the topic he has chosen.

May I thank you, Dirprwy Lywydd? I'm speaking on tax devolution for Wales. I'm not sure if I've drawn the short straw in terms of the last short debate of the term, or whether the Minister has drawn it to reply to me, or perhaps you, Dirprwy Lywydd, in chairing us, but you are well used to that, so I thank you.

When we think about tax devolution for Wales, a key issue has to be how far should it go, and I've had two points in particular in mind in thinking about that. The first is the figure that the First Minister identified a while back as our 'fiscal gap', as he described it, of £13 billion, and I understand that as the difference between the tax revenue raised in Wales, whether from devolved or other taxes, and the amount of money spent in Wales. It's a very important figure. There's a very substantial net transfer of resources, basically, from England to Wales. That sum is somewhat different, conceptually, from the £13 billion, to the extent that we expect the deficit to be zero, over time, and that we might sustain a deficit that was a deficit, rather than a zero, but nonetheless the two sums, I think, have a certain convergence.

I think the more and more that we devolve tax and the greater the independence of our tax system, the more obvious that fiscal deficit becomes and the harder it becomes to have continuing consent to the level of that transfer. You see, in the debate in England at least, much more about Scotland than about Wales—sort of, complaints about what Scotland is able to do in terms of what's free there but isn't free in England, and I think a greater emphasis on a perceived unfairness in recent years' debate than was there before. I don't detect the same degree of emphasis on that fiscal transfer to Wales, but it is there, and the more and more we take control of our own taxes and raise our own taxes here, the more and more obvious that that transfer becomes, and I think that's an important point to bear in mind, and I think the basis on which devolution didn't happen in Wales in 1979, and the concern of many in the Labour Party, traditionally, about devolution and how equality across the United Kingdom and those transfers were more important and something that should be preserved. 

The other issue I consider in how far tax devolution should go is a desire for a stable settlement. I don't believe that devolution should forever be a sort of moving feast, let alone always, always in one direction. I would like to have a stable polity where there is broad consensus. Of course, it won't include everyone, but a broad consensus that these are the powers that we have in Wales and these are the powers that are exercised by the UK Government, and, in terms of tax, what taxation is raised here and what there. So, when we have supported tax devolution, it's been on the basis either that it's happened, or there is a settled view that it should happen. We had the Richard and then the Silk commission, and I sat on the Finance Committee both for the land transaction tax and for the landfill disposals tax and, in principle, supported them, because I felt they had been agreed through a sort of consensual approach, and while I'm not sure I would have argued from first principles for their devolution if it wasn't proposed, the fact that there was such agreement around that devolution convinced me to support them. Similarly with air passenger duty, where our group again decided to support the consensus, which we felt that the Minister rightly identified in that area. So, we add those to the devolution of the council tax and the business rate system and, from April this year, the Welsh rates of income tax.

We then looked at whether new taxes should be devolved. One concern I have in this area is the idea that somehow we should tax for taxation's sake, or we should tax in order to test the devolution machinery, and I first heard this from Mark Drakeford when he addressed the Finance Committee in Newport. Rather than saying, 'We should tax because we need that tax to fund those particular public services, and this is the best way of getting it,' it seemed almost as if the tax was seen as a good thing in itself. I understand that some taxes have behavioural impacts and, when people talk about a tax on plastic or a tax on vacant land, at least part of the reason for the tax is a desire to change behaviour. But, for me, that is a subsidiary issue to the primary one of needing tax to fund public services.

So, we were looking, I think, at—there were four of them. I have three of them. The plastics tax—I think perhaps we're looking at, if that is going to happen, it would be more on a UK basis, and I think that it would be particularly difficult for manufacturers and supply chains to do for a just-in-Wales basis. The tourism tax, I think, was very unpopular and not, in my view, a good idea, and we're now looking at this vacant land tax. It has, I think, links to the other property taxes we have—the council tax, the business rates, the land transaction tax—and I think that there certainly is an argument for having one type of taxation devolved so one can look at how those different taxes interrelate with each other, and try and make the right decision for Wales about how that should work. My concern slightly about the vacant land tax idea is I can understand, in principle and in theory, why it might be a good idea, but I worry as to how it would act in practice. In particular, I fear that it might lead to a perception that business taxes were higher in Wales; that it was harder to do business in Wales than it was in England. And, however useful the incentive effect of the tax might be in theory, I just wonder whether in practice that will always be the case.

We have this commercial property tax of—supertax, I call it—6 per cent above properties of over £1 million. I think that, combined with that, the tax regime gets higher. We've spoken, Minister, a number of times, I think, in various contexts about this tax and how it operates, as with the First Minister when he was in that role before, and I'm concerned that we don't yet have good evidence as to how it's working. The Minister rightly identified that, in many cases, it won't apply because a property of above £1 million will be owned by a company, and the way the tax is essentially avoided is by the transfer of that company from one company to another. And, given the tax rate, people are incentivised to form those companies. And, when it's residential property, it's seen as bad tax avoidance that a stop should be put to and, at UK level, with the annual tax on enveloped dwellings, as well as the stamp duty land tax rates, that has been the pressure. But, within the commercial field, it seems to be much more the norm that high-value buildings are owned in companies. Is that something that we're comfortable with, and to what extent are we monitoring how high that proportion is, and the change in any of that proportion in light of the move from the 5 per cent to the 6 per cent rate in Wales? I also wonder what impact it's having on the purpose-built student accommodation market, particularly in Cardiff, and the potential for a build-to-rent market to grow. Because, those transactions, it may be more attractive for them to be done through the multiple dwellings relief, rather than the commercial tax that can be elected for it.

The Minister has been very keen, when she argues with UK Government or makes the case for devolving a tax to Wales, not to say what she would do with that tax. And I'm not sure if I support or fully understand that approach. If we have a tax devolved, I understand why that's our business and it's not for Westminster to say what we should do with that tax, because it's devolved. But, when something is not yet devolved and you want to make the case to devolve it, would it not be helpful to the cause of doing that to explain to Westminster and Whitehall what the purpose of that devolution is? I think the vacant land tax—it could integrate very well with the other property taxes that we have. But, if we are to try and do it in Wales, and we've got a good idea how we would want to use it, why not explain that to Westminster? Because there may be benefits to the UK Government, for England or, indeed, for the Scottish Government, of seeing what we do with it. So, to persuade them to devolve it, why not make that case, including, say, what the direction of travel is and what we expect that to achieve?

The income tax devolution—the Welsh rates—is huge compared to what we've seen with land transaction tax or the landfill disposals tax or, indeed, with council tax and business rates, which are large in size too, but where we haven't diverged to a very significant degree from the system as it applies in England. And I worry that, because we're not proposing to change the rates, Members are not giving the attention that the Welsh rates of income tax deserve. Firstly, we talk about the 10p band, but actually that's the amount we may lower it by—we can take it down 10p, but there's no limit on the amount by which we could put it up. So, that in itself makes it a very large thing.    

But, since April, we've been on risk for this, and the concern I had about tax devolution, these Welsh rates of income tax, is they were devolved after a promise that that would be subject to a referendum, and, looking into the history of this, I had thought that there was perhaps a degree of collusion between Labour here and the Conservatives at Westminster, but I haven't seen evidence of that, and the Labour Government here doesn't particularly seem to have pushed it, and has said it should be subject to a fiscal framework that we believe works. You've got that, and it's at the Conservative end in Westminster where a promise was made only to devolve with a referendum, and that promise was broken and it was devolved without a referendum.

Now, I think there's an idea in Conservative circles, whether politically or more in the think-tank world, that the problem with devolution is we're only really deciding about spending, and, if you devolve substantial taxes that people care about, like parts of income tax, then that will push people towards the centre right, because people will be concerned about maintaining low taxes—or at least that is the theory. I'm not sure whether that's going to work, because the Conservative Government is seen to have promised a referendum, broken its word and then decided to give this power to a Labour Government—at least for now—in Wales, perhaps with a view to persuading people to vote for them. I think it's more likely to have the opposite effect.

When we change tax rates, particularly income tax, there's a revenue effect of the increased revenue you get from the higher rate, but also an incentive or avoidance effect as people perhaps work less hard or structure their affairs in such a way as to pay less of the tax. Now, I think it's a question of evidence of what's the scale of those two things, and how they balance each other. I just worry the system we've been given in Wales is one where we get all the benefit of that revenue side, but only half the cost for the basic rate, or a quarter of the cost, when you look at the 40p rate. On the other hand, the UK Government may benefit from some of the changes people make, because people who avoid higher rates of Welsh income tax, if that's what they're to be, by moving to England—that clearly increases the UK tax base for use in England rather than here. Similarly, if people decide to incorporate, which is often a way of avoiding higher income taxes, that again would be a benefit to the UK Government, because they continue to take the dividend tax. So, I just worry if that may give a skew towards the tax debate on a higher rather than a lower direction.

What is the Welsh Government trying to achieve with tax devolution? What's the vision? You didn't particularly push for this income tax devolution. It was thrust upon you; you negotiated something you were happy with. What do you want to do about it? We know what the Labour manifesto said, but the First Minister tells us that becomes less and less important as you get further away from the election. Having seen what he's done on the M4, is there an active debate as to whether income tax rates may move next year? Could Labour go back on that manifesto pledge? Will you excuse it by reference to Brexit, or are you going to keep to your manifesto pledge? In the longer term, do you see this freedom over tax rates as allowing you to build socialism in one country—not just with that one clause, but can you have a different society fundamentally in terms of tax rates in Wales compared to England, or is the integration of the two countries so great as to preclude that, or is that not something you desire?

On the other side, is it really plausible to have a Singapore across the Severn sort of model? If taxes were cut, would the revenue loss be too great, or do we really believe that the increase in people who might come to Wales or make businesses here or increase their income would be sufficient to offset it? I think we could really do with a common way of discussing this. The Office for Budget Responsibility are coming in and it's not their job to say 'Party programme: this will be x or this will be y', but what they do do for the Treasury and what you do get at Westminster is an agreed objective view as to what the tax take is if you raise or reduce a tax by 1 per cent. Do we know what those equivalent numbers are for Wales? Is the OBR providing it? Isn't it important, when we go into the next election, that there is some sort of neutral arbiter that says, 'Well, if you change the tax rate by x, then the impact on revenues is likely to be y'?

I look forward to hearing the Minister's response, and also this conference or seminar we're having at Cathedral Road on Friday, where I look forward to hearing her there. And she has the summer to think about what we're doing in this area, because I think it does need work, and it's incredibly important that we know what's happening with these taxes and the sensitives, and that we monitor what's happening within the year. Because we're six months into the year—we should get a bit more evidence on what's happening on income tax. And I hope, once the OBR starts this autumn, we'll get into a regular pattern of reviewing those when we should. Thank you.

Thank you. I call on the Minister for Finance and the Trefnydd to reply to that debate—Rebecca Evans.

Thank you very much, and I thank Mark Reckless for bringing forward this last debate of term. It’s never the short straw to be talking about tax—I think we both enjoy it equally. Tax devolution has been one of the key enhancements to the Welsh Government and the National Assembly’s powers over the past two decades, and, in just a few years, new arrangements for fiscal devolution and the introduction of Welsh taxes have transformed the way that Welsh public services are funded. With the support of the Senedd, and in particular the Finance Committee, and with the considerable assistance provided by businesses, other organisations and communities, along with the expert support of our tax advisory group, we successfully introduced two new national taxes, established the Welsh Revenue Authority, and, earlier this year, introduced Welsh rates of income tax.

So, now some £5 billion is being raised for our public services through devolved and local taxes: Welsh rates of income tax, land transaction tax, landfill disposals tax, council tax and non-domestic rates. Alongside this, we’ve taken an important step to ensuring fair funding for Wales through the funding floor that we negotiated with the UK Government. And, in the last two years, the floor has begun to deliver additional money for Wales, and it will continue to do so in the longer term. However, this cannot counter the impact of nine years of austerity on our public services, and, in the future, we remain clear that a needs-based formula is the best way of ensuring that all parts of the UK receive the funding that they deserve.

Underpinning our work on devolved taxes, we’ve developed a tax policy framework that builds on international best practice and reflects our commitment to be transparent about the development of tax policy in Wales. We’ve established clear tax principles that contribute directly to the delivery of our well-being and future generations commitments, and ensure that our taxes help deliver wider fiscal and policy objectives, including jobs and growth.

I welcome the contributions that Assembly Members have already made to helping inform the tax agenda, and look forward to their continuing input to further develop Welsh tax policy, and I do place particular importance and emphasis on engagement. I look forward to hosting the Welsh taxes conference on Friday, where we’ll be discussing the latest developments; I understand the Chair of the Finance Committee will also be joining us at that event. Tax devolution has brought important decisions closer to the people of Wales, with new opportunities to tailor reforms to the specific needs of our economy, public services and society. And this gives us the ability to align taxation in Wales with our wider policy objectives, such as our ambitions for housing and the environment, and, in setting the rates for our new taxes, agreed by this Senedd, we’ve considered carefully the need for our taxes to be fair, simple and progressive. There remains, of course, one glaring omission to our package of powers, that being the devolution of air passenger duty, first recommended in 2012 by the UK Government’s own commission. And, of course, as we just debated recently in the Chamber, the Welsh Affairs Committee has recently called for APD to be devolved to Wales by 2021, and that was a position unanimously supported by the Chamber, and has very strong backing from the business community.

But I’d like now to turn to some of the specific points that were raised by Mark Reckless, and the first was the gap between the money that is raised in Wales and the money that’s spent in Wales. He’s right to say that the gap is in the region of £13 billion, and that equates to around £4,000 per head. And, of course, there’s an argument there when we talk about independence—which was raised in the Chamber earlier on today—and it seems that, certainly immediately, standards of living would decrease in Wales. But we’ll probably leave that for a fuller discussion on another occasion. Part of the challenge there and the key either way would be to improve our tax base, and that’s something that we’re very much focused on doing. The national development framework, which we had the opportunity to discuss in Finance Committee this morning, is currently being developed, and it will be going out for consultation. It'll come into force in 2020 and that does allow us to take that longer term look. I've been working with the Minister with responsibility for planning on that, because I'm very keen that our strategic priorities for the future are ones that help us grow our tax base and do so in a couple of ways, working across Government with colleagues in education, for example, to ensure that we upskill people in Wales and allow everybody to maximise their income potential, and also to attract people into Wales who are going to be wealth creators in order to, again, improve our tax base.

A lot of work has gone on in terms of new taxes. That importance of getting the system right and going around the track the first time and testing the machinery, as Mark Drakeford referred to it, is really important. 

Mark Reckless mentioned the Office for Budget Responsibility. I know in Scotland they've got a fiscal commission, which the Welsh Government decided would be a bit over the top—for want of a better word—in Wales. In terms of building up the Welsh Government's ability to better forecast the economic situation, which Westminster has been doing for a long time and Scotland are trying to do, what work has been done in this area to make sure our forecasts are as accurate as possible?

Welsh Government has an agreement with the OBR and we have a memorandum of understanding kind of agreement, which sets out what Welsh Government will require of them. Obviously, we do pay for their services, so we expect and receive a good quality service. They use the same mechanisms for undertaking their forecasting work and analysis as they do for other parts of the UK. I think it's important that we have the ability to compare across borders. I think that's very useful in helping us develop our proposals for taxes here in Wales. 

The process surrounding the new taxes and the devolution of them was set out in the Wales Act 2014, and it is really important that we take this first opportunity to check if it is a system that is fit for purpose. Why do we not tell the UK Government exactly what we would do with the powers were we to have them? Well, that's because we really do need to consult widely. So, we can't tell the UK Government, for example, at what level we would set rates of tax or provide exact details as to how those taxes would be applied, because it would have to be subject to consultation. But the first stage, as I say, is to negotiate the Act, to transfer the relevant powers, and those discussions are ongoing. We hope to have a discussion with the Exchequer Secretary to the Treasury after the final round of discussions between officials have taken place. I hope that that won't be too far off now.

The idea for the vacant land tax came about as a result of a call for evidence, which the previous finance Minister did, asking the people of Wales for their ideas for new taxes. He had more than 200 different taxes suggested to him, and the vacant land tax seemed like the right one to go with in the first instance, but there were another three that were narrowed down as areas that should be given some serious consideration, one of which was the tourism tax. So, we're currently looking at where it's been implemented elsewhere. The Scottish Government, for example, has committed to examining the arguments for and against a tourism tax there.

Edinburgh council has already demonstrated its support for tourism taxes and has consulted on introducing an Edinburgh transient visitor levy—67 per cent of respondents to that thought it should be introduced at the cost of £2 a night for accommodation. Venice has a different approach; they have an entry fee of up to £9 or €10 for short-stay tourists. In New Zealand, they're also looking at the potential for a new tourism tax, but their primary aim would be to cover the cost of improved infrastructure and conservation. So, we've been clear that, at least in the first instance, our proposals that we want to consult on would be for a tourism tax, to potentially be levied at a local basis, so a local authority could decide whether or not it's something that they would wish to pursue, and then obviously we'd want to see that money ploughed back into the tourism industry then, to continue to make those areas more and more attractive to tourists.

My colleague Vaughan Gething will be updating the Senedd in the new term on the work that's going on in terms of developing the social care levy proposals. I think this is an area where colleagues across the Chamber have a strong interest. We all recognise the serious challenges that are facing us with the increasing demand for social care, and the increasing costs of social care, and it's something where we're keen to share the information and our thinking with others, so that when we do come to setting our manifestos for next year, we're all able to do so in a well-informed way. So, there'll be a statement from Vaughan Gething in the new term, and then I'll be providing a further statement later on this year that looks at specifically the financial aspects of that.

Disposable plastics tax—that was another area that we're currently continuing to work, in the first instance, alongside the UK Government on, and then there was the final tax of—. I think I've covered all of our taxes, actually, that we're currently looking at. I know that Mark Reckless has a particular interest in land transaction tax, particularly at the higher rate for non-residential. As he says, we don't have enough evidence yet to have any idea about the impact of having set the higher rate at the level at which we have set it, but over the course of time we will obviously have more evidence, and we will always give some real thought to the impact of decisions that we make.

Of course, there are different reasons why businesses would seek to locate themselves and buy properties here in Wales, partly to do with the skills that we offer. Overall, land and properties are cheaper here in Wales, and that will all be part of the considerations that businesses make when they're considering where they locate themselves and which properties they buy. On the issue of the Welsh rates of income tax, Mark Reckless is right—this is a really big deal for Wales, and it probably doesn't get the attention that it deserves yet, but I think there's still lots of work to do in terms of communicating those messages with the public.

We spoke yesterday about the wage numbers that have come out at a UK level—about 3.6 per cent growth, higher than expected. The Minister rightly talks about public sector wages, but does she also recognise that those higher wages are likely to lead through to a higher take from the Welsh rates of income tax? At the supplementary budget, we got six months more of information. We knew what the last year was fully rather than being a projection, and we've got the beginning of this year's numbers. Isn't it surprising that there was no change in the forecast for Welsh rates of income tax, and perhaps does that reflect not yet having systems fully in place in terms of the integration with the OBR and the iteration of the forecasts?

We wouldn't expect to see changes at this point in the year, because obviously, as you say, we don't have the level of detail that we have, and we've set our Welsh rates of income tax at the same level as they have in England. We've been really clear, and I'll reiterate it in the Chamber today, that we would have no intention of changing those Welsh rates of income tax between now and the Assembly elections. I think it's for all of our parties to consider what our offer is to the people of Wales. Mark Reckless asked about what the change would be in terms of a 1 per cent change in the basic rate, for example. Well, for every 1 per cent we're looking at £200 million, so if you were to reduce tax by 1 per cent, then it would be a £200 million cut, or increase by 1 per cent, a £200 million increase. Then I think there are debates to have with the public then as to what people are prepared either to lose, or what they would be prepared to pay for to gain. I think that that will add a certain new element, definitely, to our Assembly elections next time.

Then, finally, I suppose, what is the vision for Welsh taxes? Well, we set out the vison, certainly in the early years, in our tax policy framework, which is underpinned by principles about revenues being there to support our public services, and to do so in as fair a way as possible. Taxes should always be as simple and clear and stable as possible, and of course they should link directly and contribute directly to our well-being of future generations Act goal of creating a more equal Wales. If Members are keen to know more of the detail of that, then we have our tax policy work plan, which is part of an annual policy development cycle, and in February we announced the plan for this year. But at all points throughout the year we're really keen to engage with anybody who has an interest in taxes in Wales in order to continue to develop our thinking and explore new ideas, and always seeking to improve the things that we're already doing.

I think I've just about used up my time talking about tax, and, as always, it's been a pleasure. 

Thank you very much. Thank you, Minister. That brings today's proceedings, and in fact the term's proceedings, to a close. Thank you.

The meeting ended at 18:40.