With the end of this Senedd fast approaching, of course, the Finance Committee decided to examine the potential effects of having different income tax rates across the Wales-England border, particularly given the concentration of people living close to that border. I would like to thank all of those who contributed, and the Minister for finance for her response to our report and for accepting all of our recommendations, either in full or in principle.

The likelihood of becoming an income tax payer is lower in Wales than it is in the UK as a whole. According to the 2016-17 survey of personal incomes, 44 per cent of the Welsh population were income tax payers, and this compares to 47 per cent of the UK’s population—partly due to lower employment rates and lower average incomes as well. Growing the Welsh tax base is an important element in raising tax revenue for public spending in Wales and we believe that the Welsh Government should focus on implementing innovative strategies to develop this tax base.

We heard it may be difficult to predict behavioural responses in Wales from the various effects of tax changes in other jurisdictions, but there is a substantial body of literature examining taxpayers’ responsiveness, and that offers valuable guiding principles for us in this area. For example, international studies show that high income earners are particularly responsive to tax rates; that it's easier for some high-earning professions to be mobile; and that the stage of an individual’s career can influence their ability to relocate, too. So, the committee recommends that the Welsh Government develops policy options that will help to attract the most responsive groups to Wales, such as those high income earners and young graduates, of course, in order to boost its tax revenues.

We welcome the Welsh Government-funded research being undertaken to develop more complex economic models of the Welsh economy through which to understand better the potential effects changes in taxation rates might have. However, researchers have highlighted that the main limitation in constructing and developing their model is the availability of Welsh-specific data. We recognise that there are sensitivities, of course, surrounding the disclosure of tax data, but it is crucial that data are improved in order to understand the composition of the Welsh tax base and then to support the further development of economic models. Our report recommends greater collaboration between the Welsh Government and HMRC to improve Welsh data collection and dissemination, as well as exploring how the knowledge, analysis and intelligence division at HMRC could be utilised to support research into tax divergence. The Minister has indicated that, building on the evidence presented to the committee, the Welsh Government is undertaking research with HMRC to estimate the behavioural impacts of tax divergence, and we very much welcome this development as a committee.

Our report also identifies further areas of research that we believe the Welsh Government should undertake. We recommend that the Welsh Government should engage with academics to undertake a longitudinal study on the impact of tax rate divergence across the Wales-England border. The Minister’s response, which signals that the Welsh Government is engaging with HMRC and the Scottish Government to explore the feasibility of a longitudinal data set to measure the behavioural impacts of income tax changes within the UK, is encouraging.

Evidence gathered during our inquiry pointed to the influence of non-tax factors on where an individual chooses to live. These factors include house prices, the cost of living, employment opportunities, which are important, too, of course, the quality of public services, which is an important element, and the quality of life in general, which is vital. We recommend that such factors must be considered as part of any further Welsh Government research relating to the impact of income tax variations across the Wales-England border.

As well as examining the revenue implications of any tax policy changes, witnesses emphasised the importance of considering the spillover effects of tax policy decisions. For example, increasing the additional rate of income tax may yield revenue, but if it reduces the number of additional rate taxpayers in Wales, then that could lead to spillover such as lower wages or fewer employment opportunities. So, we do recommend that future Welsh Government research considers potential spillover effects of Welsh rates of income tax policy on disadvantaged people, such as, for example, those on low incomes and individuals paying income tax whilst being in receipt of universal credit.