Income Tax

1. Questions to the Minister for Finance and Local Government – in the Senedd on 15 February 2023.

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Photo of Hefin David Hefin David Labour

(Translated)

1. What assessment has the Welsh Government made of the potential impact of increasing the basic rate of income tax in Wales? OQ59146

Photo of Rebecca Evans Rebecca Evans Labour 1:30, 15 February 2023

Raising the basic rate would add additional costs on those less able to afford it at a time when the UK Government has frozen income tax thresholds, dragging lower earners into the income tax system.

Photo of Hefin David Hefin David Labour

I think the key point made by the Minister there is that, at the time, I think income tax is something that should be revisited in the future, but she's absolutely right to say that this is not the time for it. Last week, we saw an amendment to the Welsh Government's budget by Plaid Cymru that would have cost people on the basic rate £2.47 a week extra, during a cost-of-living crisis. Personally, my view is that the co-operation agreement should not have allowed that amendment to be put, given that it covers the budget, and it was disappointing to see that that happened outside the co-operation agreement. We should see Plaid Cymru taking responsibility for the power they have in the Senedd Chamber. Would the Minister be willing, though, to review this position in the future, should economic circumstances allow at some point?

Photo of Rebecca Evans Rebecca Evans Labour 1:31, 15 February 2023

I'm very grateful to Hefin David for the question, and for raising Welsh rates of income tax this afternoon. And I completely agree with his assessment that it is not the right time, in a cost-of-living crisis, to be asking those who are on the absolute lowest incomes, and indeed those who have been drawn into the income tax system for the very first time, to be paying more. And I think it's well established that, to raise any serious amount of money in order to boost the resources that we have, we would be required to raise the basic rate of income tax. I do think that it has to be done in a considered and strategic way. That said, every single year, we do assess our options, in terms of how we use the Welsh rates of income tax, and we would expect to look afresh again at this issue next year, both in terms of people's overall tax burden and contribution, depending on where things are with the UK Government, and, of course, the wider economic situation that people find themselves in. But, absolutely, it's something that we consider afresh for every budget.

Photo of Tom Giffard Tom Giffard Conservative 1:32, 15 February 2023

As we heard from Hefin David there, one of the perils of increasing income tax at a time of financial trouble is the fact that it would be something built on the back of working people across Wales. And it's quite apt, I think, on the day that Nicola Sturgeon resigned as leader of the SNP and First Minister of Scotland, to remember exactly where Plaid Cymru got this idea from, because they devolve a lot of their thinking out to a party from another part of the United Kingdom—the SNP. Because, in Scotland, they're proposing to add 1p onto the higher and top rates of tax, alongside reducing the top rate threshold, from £150,000 to just over £125,000. The Institute for Fiscal Studies has warned that that will spark an exodus of high earners across the border. Scottish business leaders have branded it a disadvantage for Scotland and made clear that it would make competing with the UK for talent much harder. On top of those increases, the Convention of Scottish Local Authorities has not ruled out a 10 per cent hike in council taxes there. In a survey, half of all Scots wanted the current system of council tax to end. Another survey showed that one in five Scottish households are currently living in serious financial difficulty, equivalent to 1.2 million people; in the UK overall, it's 17 per cent. That's Plaid's vision for Wales, Minister, and it's a vision that's built on the back of taxing working people. Do you agree with me that that's a totally wrong priority, at the wrong time, from a party that is increasingly out of touch with the people of Wales?

Photo of Rebecca Evans Rebecca Evans Labour 1:33, 15 February 2023

Well, I would gently remind the Member that, under the UK Conservative Government, the tax burden on people in Wales, and across the UK, is now at a 70-year high as a result of the decisions that that Government has made. But I do think that Scottish rates of income tax are very much a matter for the Scottish Government and the Scottish Parliament, but that doesn't mean that we can't learn from their experiences, which is why we're very interested in the work that HMRC is progressing in terms of developing a longitudinal data set. Now, that hopefully will allow us to have some more detailed analysis of the behavioural impacts of tax changes, including migration responses, and my officials are in frequent contact with HMRC to better understand the possibilities that that work might release.