I'm pleased to be able to contribute to today's debate on the impact of variations in national and sub-national income tax. It's not something that trips off the tongue all too easily on a daily basis, but I welcome the Chair's excellent opening contribution, which I think explained the context within which this important piece of work was compiled.

This report was a very interesting one to be involved in, because it looks at an area key to devolution at the moment—the Welsh Government's new tax powers and what it actually means in practice, not just in the theory that we've been talking about for so long. As the report says, the Welsh border is densely populated, with 17 million people living within 50 miles of it. With 44 per cent of the Welsh population paying income tax, compared with 47 per cent of the UK's population, it was apparent to us on the committee that the Welsh Government must consider ways to develop the Welsh income tax base and maximise tax revenues.

If I can just turn to the recommendations briefly. In recommendation 1 we recommend greater collaboration between the Welsh Government and HMRC to improve Welsh data collection and to use HMRC's expertise in this area to support research. Meanwhile, recommendation 3 calls for an improvement in Welsh-specific data, and, of course, we all want to see that. The lack of Welsh data is a recurring challenge for fiscal devolution. In fact, how many debates do we have in this Chamber and on Zoom where the issue of lack of Welsh data doesn't come up? It comes up all the time, and there's a need across many portfolios for that to be improved.

Our report refers to research that was conducted by Cardiff University, 'A Welsh tax haven?'. That certainly makes interesting reading. That report concluded that changes in the basic rate have little effect on migration and tax yields, but changes to the additional and higher rates would have significant impacts. That reminded me—I'm sure it reminds Mike Hedges—of the work that Professor Gerry Holtham did some years back in this area, when he concluded that it was quite difficult in practice to change tax rates and have a positive effect, other than dropping the higher rate of taxation by around 10p in the pound that could encourage entrepreneurs and grow the Welsh tax base. And that is at the core of the economic problem that we face in Wales and have done for some time. Basically, the Welsh tax base is too small. I fully understand why, in earlier questions to the finance Minister and indeed in discussions with the First Minister, there's been a reticence shown in raising taxes, even though during the COVID pandemic there have been discussions about whether that might be inevitable at some point in time. Of course, within Wales, the tax base is weak enough as it is, so any increases would have to be very carefully thought out and could ultimately have a negative effect.

The OBR has already said that the gap between the UK and Welsh tax per person is due to Welsh taxpayers having lower average incomes. Well, 'A Welsh tax haven?' identified that the migration and revenue effects of a higher rate differential become stronger over a longer period, with a reduction in the additional rate from 45 per cent to 40 per cent probably having the biggest impact in increasing Welsh tax revenues by an annual rate of £55 million after 10 years. So, there is an accumulative benefit of tax cuts over time, but, of course, the flip side of that is that reducing the rates means that, at least in the short term, there's a reduction in revenues and public spending, which isn't particularly acceptable, particularly at the time of a pandemic.

Now, there have been some comparisons made with Scotland and modelling has been done up there to see the effect of differential rates of income tax north and south of the border, but the Finance Committee concluded that the Scottish and Welsh situations are simply too different for an effective comparison. Indeed, trying to draw conclusions from tax changes to other countries simply doesn't work. We need more Welsh-specific research in this area and that's going to take time to develop. But the fact we're having this debate today shows how far we've come and how far the tax system here has already evolved. And the current and future devolution of tax powers gives this Senedd a number of opportunities to use that system to encourage entrepreneurship, grow the tax base and stimulate the economy. In the case of lowering taxes, ultimately that could generate more tax revenues and should be looked at closely.

In conclusion, Dirprwy Lywydd, the pandemic clearly makes major changes difficult at the moment, but tax policy is and will continue to be key as we build back better beyond the pandemic. As far as I'm concerned, I think we need to keep taxes in Wales as low as possible and I hope that this is a report that will contribute to a growing body of work so that we have more Welsh-specific data and we can take the decisions in Wales we need to grow the economy and keep the tax base here efficient and effective.