18. Debate on the Finance Committee Report: Inquiry into the implementation of the Wales Act 2014 and operation of the Fiscal Framework

Part of the debate – in the Senedd at 5:02 pm on 24 March 2021.

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Photo of Rebecca Evans Rebecca Evans Labour 5:02, 24 March 2021

Thank you. I welcome the opportunity to support the motion before us. The introduction of Welsh taxes, the extension in borrowing powers, and the implementation of the fiscal framework have been significant developments for this Senedd term. The Finance Committee's report is a timely reflection of what has been achieved to date, and, more importantly, of what remains to be done. The report highlights a range of key and, in many cases, longer term issues. I am pleased to accept 11 of the 12 recommendations and to accept in principle recommendation 11, where delivery is the responsibility of HM Treasury.

Recommendations 1 to 3 address the challenging issue of raising awareness of Welsh taxes among citizens and organisations. While the 14 per cent increase in awareness of Welsh rates of income tax is encouraging, I agree that the Welsh Government should continue to progress this work, engaging, where appropriate, with HMRC and the Senedd.

As reflected in recommendation 4, there are important interrelationships between taxation and other policies, and one of the most critical is the way in which we strengthen the Welsh tax base. A summary of the Welsh Government's recent work in this area is summarised in my latest Welsh tax policy report, published earlier this month. However, this will remain an important consideration for the future.

I am pleased the committee agrees, in recommendation 5, that the Welsh Government should have the legislative powers to act quickly and where necessary to respond to tax policy changes. This flexibility should prevent the loss of tax revenues and distortions of economic behaviour. 

My written response to recommendation 6 provides an update on the work to explore the feasibility of replacing council tax and non-domestic rates with a local land value tax. Further detail is given in my report, 'Reforming Local Government Finance in Wales: Summary of Findings', which I published at the end of February.

I was pleased to set out, in my written response, the Welsh Government's view on devolving capital gains tax to Wales, as requested under recommendation 7. Concerns about unintended consequences, practical challenges, and the possible impact on Welsh revenues, together with our experience to date of the process of devolving new taxes, means that this is not a tax that we propose to seek to have devolved at this particular time.

In response to recommendation 8, we have been working with the UK Government and others on the design of a longitudinal income data set that would enable the tracking of the impacts of Welsh rates of income tax. We expect HMRC to take this forward in the next six months. I have provided a written response to recommendation 9 asking how we review HMRC's work to minimise coding errors. While I've been pleased to have seen the reduction in errors over the past year and a half, this will remain an important issue to monitor. Recommendations 10 and 11 reflect the important role and responsibilities of the UK Government in providing the Welsh Government with clarity and certainty about funding. We are continuing to make the case to the UK Government for multi-year spending reviews and for more certainty and notice about the timing of UK fiscal events, as set out in recommendation 10. I very much agree with the committee's recommendation 11 that there should be greater transparency over funding decisions. However, it is the responsibility of HM Treasury to meet its commitments to the Public Accounts Committee. In response to recommendation 12, I accept that the Welsh Government should publish its calculations about consequentials received from UK Government spending announcements. Although, as highlighted in my written response, lack of clarity from the UK Government can often make it difficult to estimate the impact outside of fiscal events.

I also welcome the five conclusions reached by the committee in its report. I endorse its commendation of the Welsh Revenue Authority, which has played such an important part in the process of introducing Welsh taxes, in particular the success of its technological investment. I am pleased to note the committee's consideration that the Welsh Government's tax strategy has ensured, on the whole, that Welsh taxes are fair to the businesses and individuals who pay them, and this is a key principle for Welsh taxes. I'm grateful for the committee's support for increasing capital borrowing limits, for greater flexibility in using the Wales reserve and for greater transparency in funding decisions made by the UK Government, and these are all areas that we've been pursuing with the UK Government.

I would also like to update the committee that I have yet to receive a response to my letter to the UK Government with regard to the establishment of free ports in Wales, which I sent on 4 February. The letter expressed the Welsh Government's willingness to engage constructively with the UK Government and set out the conditions that would need to be met. These include ensuring our commitments to fair work and that protection of the environment would be upheld and assurance that any free port in Wales would receive the same funding levels as will be provided in England, and I'm disappointed that I've yet to receive a response.

So, in closing, Llywydd, I am very grateful to the Finance Committee for its report and for the thorough and constructive way it has undertaken its role in scrutinising the implementation of the Wales Act 2014 powers over the past five years. Diolch yn fawr.