7. Plaid Cymru Debate: Income tax devolution

Part of the debate – in the Senedd at 5:45 pm on 8 February 2023.

Alert me about debates like this

Photo of Peter Fox Peter Fox Conservative 5:45, 8 February 2023

I understand that there is an important discussion to be had about how we fund services here in Wales and that varying tax levels is the go-to for politicians when looking to raise additional revenue, but we shouldn’t forget just how much of the Welsh budget, some £4 billion, is already raised through devolved tax levers; about £2.8 billion is raised through Welsh rates of income tax alone, as we know. These are substantial sources of funding and, before we look to gain more powers over taxation policy and inevitably look at increasing tax revenue, then we need to assess the tax base here in Wales, because what is missing from the motion is what impact that having full income tax-setting and tax-varying powers like Scotland could have on people’s incomes. We already know that, generally, a larger proportion of the Welsh tax base—over 90 per cent of the tax base—pay the basic rate. This is higher than the UK average. Whereas, in Wales, the basic rate accounts for 59.3 per cent of total income tax, it is just 34.9 per cent in the rest of the UK, excluding Scotland.

Now, the argument could be that a new, lower rate of income tax could be established in Wales if we had the powers to do so, and that is true. If we look at Scotland, we know that not all that shines is gold. The starter rate only accounts for people earning between £12,571 and £14,732, and the rate set is just 1 per cent lower than the basic rate. Meanwhile those in the Scottish intermediate rate band pay more than those within the UK basic rate. Indeed, someone earning £43,600 in Scotland is subject to an income tax rate that is an eye-watering 22 per cent higher than the equivalent person elsewhere in the UK.

So, there could be political promises that additional powers would result in fairer tax bands, but the political reality is often different. We know that Plaid’s current plans, as we heard yesterday, would be to raise Welsh income tax by 1p, hitting the pockets of the majority of Welsh taxpayers, and in particular those who can least afford to pay more. In fairness to the Minister, she has taken a clear position on this issue, though I do have questions about what the pledge to not raise income tax levels for as long as the effects of the pandemic continue actually means, and what threshold the Government is using to determine this.

However, the issue with the Welsh Government’s amendment is that it refers to its future tax plans, which include things like a tourism tax. The industry has made it clear that it sees such an idea as an unhelpful tool at a time of great difficulty for the tourism industry in Wales. There is a risk that it becomes a blunt tool, with businesses in areas that do not introduce the tax gaining an advantage over those in areas that do introduce a levy.

For both income tax and tourism tax, we need to view this with regard to the porous borders between Wales and the rest of England. Would raising income tax in Wales persuade people to move elsewhere, and we lose their tax revenue? Would a tourism tax encourage people to stay in accommodation in England and avoid paying, and then travel into Wales for holiday activities?

I know that the Welsh Government wishes to introduce other taxes as well, but we must consider what the possible disadvantages of these may be on the economy and communities as well, because, when a Government believes it needs a new tax, often the argument becomes one-dimensional, much like what we are seeing with the tourism tax.

To conclude, I believe that we need to make sure that we're doing all that we can with our existing budgets, and that we're spending it on priority areas before we start looking at introducing taxes. As I've said in this Chamber before, it, sadly, seems the default position for Plaid and for Labour is to just tax, tax, tax. We need to think about innovation and how we use the levers we have far better. Thank you.