1. Will the Minister make a statement on the Welsh rates of income tax? OAQ55207

Welsh rates of income tax of 10p per band were introduced last year and apply to income tax payers resident in Wales. On 3 March, the Assembly voted by 43 to one in support of Wales's rates remaining unchanged in 2020-21.

Thank you for that answer. Minister, your Government has made a commitment to not increase income tax rates during this Assembly term. What assessment have you made of the impact of increased rates of income tax on the Welsh economy and Welsh families, should a rise be instigated in the next Assembly?

The static costing of a potential rate change is relatively straightforward. For illustrative purposes, a 1p increase or reduction across all three bands in 2020-21, or in a future Assembly, would increase or reduce revenues by approximately £220 million, with the vast majority of revenues, of course, being generated through the basic rate. So, that would be the effect of a 1p change.

I think it is for all of us as Assembly Members, as we seek to develop our manifestos for the next election, to consider how and if we would use our Welsh rates of income tax, and also then to demonstrate to the people of Wales what the impact would be on their lives. So, for example: were there to be a reduction of 1p and a reduction of £220 million to the Welsh Government budget, it would be incumbent to demonstrate where those cuts would fall; and, equally, were there to be an increase of 1p and an increase of £220 million for the Welsh Government budget, it would be important to set out where that additional spend would be made.

Minister, you've just given a perhaps understandably clinical analysis—certainly at the start of your answer there—as to the effect on revenues of income tax changes. What you've said is, of course, totally technically correct, but increasing or reducing taxes does, of course, have other effects, which UK Government has been dealing with for a long time: behavioural changes, for instance. Increasing taxation may well bring more money into the coffers and allow you greater money to spend on public services; but at the same time, reducing taxation, as well as lowering the amount of revenue, may also of course stimulate, and almost certainly would stimulate, entrepreneurialism and encourage people to work harder, knowing that they're going to keep some of their money. So, all that has to be factored in.

I noticed, in the Chancellor's budget today, he mentioned that there was going to be a new Treasury office, or new Treasury officials, coming to Wales. I wonder if you could tell us what you know about that announcement at this early stage. And also whether, when it comes to making changes to income tax, you think there's potential for yourself and for the Welsh Revenue Authority to work closely with that new Treasury office, as a base of experience, so that when you do come to make these changes in income tax in the future, up or down, it's done with the best possible evidence, and we know full well what the effects are going to be on the Welsh economy.

I do think that any decisions should obviously be based on the best possible evidence, and this is one of the areas that we can explore in further detail in Finance Committee tomorrow, where I'll be giving evidence on what the potential impact might be of different exchange rates over the side of borders in the UK. But of course, we don't have much or any evidence, really, within the UK at the moment, because the Scots have only been collecting their own Scottish rates of income tax in recent years, and the first outturn data is due shortly. So, we actually don't have that evidence base to explore in detail. We can look at other areas of the world—parts of Canada, for example, have different rates of income tax in different areas—but those behavioural impacts I don't think will necessarily be read across. But as I say, there's lots of opportunity to discuss that in more detail in committee.

In terms of the Chancellor's announcement about a Treasury presence here in Wales, we don't have any detail as to what that might entail. It could be additional staff, perhaps, at the HMRC building. We're not sure what the detail is, but obviously we will be exploring that. We're really keen to work closely with HMRC and Treasury, because it's really important that we share information and ideas in order to give the best possible service to people in Wales. So, we look forward to more information on that posting. My only slight nervousness about it is the fact that we didn't hear anything today about the replacement of European funding, and of course we were hoping to hear a little bit about the shared prosperity fund. Now, whether or not the Chancellor sees a role potentially for that Treasury presence in administering that fund is something that causes us a little bit of nervousness, but we look forward to exploring it in further detail.