11. Debate on the Finance Committee Report: Impact of variations in national and sub-national income tax

Part of the debate – in the Senedd at 4:59 pm on 23 September 2020.

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Photo of Rebecca Evans Rebecca Evans Labour 4:59, 23 September 2020

Thank you. And I thank the Finance Committee for undertaking this inquiry and producing its report. The inquiry considered some really important issues. Differences in income tax in different parts of the UK is a relatively new concept for us to contemplate, and we're just beginning to understand the possible impacts on our communities. Having this report, along with access to the relevant data and analysis, is critical to our evidence-based approach to policy making in Wales. 

To be clear, this Government has committed not to changing the Welsh rates of income tax for the lifetime of this Senedd. However, it is essential that we consider the evidence on the likely effect of any variations on Welsh taxpayers, and their possible behavioural responses, as we consider our future devolved tax policy.

The recent outturn and projected outturn for Scotland has shown that there are potentially big differences in revenue growth between different parts of the UK, largely concentrated at the top end of the income distribution. I therefore welcome the committee's report and accept all of the committee's recommendations in full or in principle. Indeed, as my written response to the committee makes clear, many of the recommendations in the report are consistent with the existing Welsh Government tax strategy framework and reinforces that our current taxation strategy principles are the right ones for Wales.

I recognise that much more work is needed to fully understand the likely impact of variations in income tax on the population of Wales. This is an evolving area of research in the UK context, and the Finance Committee's report will add to the growing body of evidence. The Welsh Government will continue to assess how the current arrangements in Wales perform, ensuring an appropriate balance between devolved tax levers and exposure to fiscal risk. The balance between investment in public services, the competitiveness of the Welsh economy and the impact on taxpayers will be at the forefront of decisions on devolved taxes. So will how we use taxes as a lever to advance fairness and equality, enabling us to tackle social issues, including justice and economic security.

So, turning to some of the specific recommendations, the Welsh Government continues to collaborate closely and constructively with analysts across the UK Government, including HMRC. The service-level agreement between Welsh Government and HMRC includes performance measures designed to ensure that there's a continued focus on identifying and maintaining an accurate and robust record of the Welsh taxpayer population.

The outturn data for the latest tax year—the first full year of Welsh income tax devolution—will start to become available from summer 2020-21, and a detailed data set for that year will be available in 2022. The Welsh Government is working closely with HMRC to ensure that that data can be provided in an accessible and useful way for researchers. Moreover, the Welsh Government is already undertaking research with HMRC into the possible effects of tax divergence. This work builds on the evidence already presented to the committee by Welsh Government officials for this inquiry.

As the report recognises, tax considerations are not the sole determinants of migration. Non-tax factors, such as wages, family, house prices and quality of life must and will form part of any future research on the impact of tax divergence across the Wales-England border. Therefore, part of our work includes consideration of a longitudinal data set to provide more sophisticated research into the behavioural impact of income tax changes and potential differences within the UK. By collaborating with HMRC, we will look to generate a data set that would be appropriate for both Government and non-Government researchers, while still respecting tax data confidentiality.

The committee recommends giving further consideration to the issue of devolving tax on savings and dividend income to Wales. I agree that this is something that should be considered. It is, of course, still early days for income tax devolution here in Wales, but, nevertheless, we should be open to further developments in tax devolution where the evidence suggests that there is a case for change.

The committee says that the current climate means difficult decisions on taxation will need to be made in order to aid economic recovery. The temporary increase to the land transaction tax residential starting threshold for homebuyers demonstrates our ability and our willingness to use our tax policies alongside other fiscal levers to aid Wales's recovery from the global pandemic.

So, as we go forward, the evidence contained in this report will help to shape future tax policies in Wales, and the role played by devolved taxes in exploring the opportunities and responding to the challenges that we face in Wales. Thank you.