Welsh Government could be granted tax powers

Politics writer Ashley Bebbington reports on the Silk Commissions recommendation that the Welsh assembly be granted tax powers.

The highly influential Silk Commission has released a report into the way the Welsh Assembly should be funded, and has released a series of proposals that could signal a significant power shift from Westminster to Cardiff Bay by 2020. The report states that 25p of every £1 spent by the Welsh Government should come from taxes set and raised in Wales. If the plans laid out in the report are approved, the Welsh Assembly will be able to vary the rate of income tax for the first time since the creation of the body by the Blair Government in 1999. In contrast, the Welsh Assembly’s counterpart in Scotland  has held taxation powers since its conception in 1999.

The Commission on Devolution in Wales is headed by Paul Silk who previously held the post of Clerk to the National Assembly of Wales, the most senior non-elected position in the Welsh civil service. Former Welsh Secretary Cheryl Gillan created the Commission in October 2011 to investigate the case for the devolution of fiscal powers to the Welsh Assembly.

The plans have received support from all four main parties represented in the National Assembly for Wales, the legislative branch of the Welsh Government. Plaid Cymru Assembly Member Lord Dafydd Elis-Thomas highlighted that the Welsh Assembly is the only devolved administration that does not yet have tax altering powers, and approval  would help to better present Wales in an international context.

Peter Black, Liberal Democrat AM for South Wales West has called the report ‘empowering’, but voiced his support for a long-term timeframe for the plans which would give the Welsh Government ample time to learn how to deal with their new powers. Labour First Minister Carwyn Jones has stressed that the new powers would not necessarily mean that taxes would be raised, the main change would be that Wales would have more control over its own budget.

If implemented, these changes would be radical. Currently the Welsh government is funded by an annual lump sum of an estimated £15bn from the Treasury in London. If the Silk Commission’s plans were put into place a provisional system would be implemented whereby £2bn from the Treasury’s lump sum would be replaced with £2bn of Welsh income tax. This provisional system would be followed by a referendum in the latter half of the current decade, in which Welsh voters would be presented with the option to maintain these new powers. The Silk Commission highlights the fact that the provisional system, titled ‘assigned income tax’, would not give the Assembly the power to vary the tax rate and therefore does not require a referendum

Under the Silk Commision’s plans, the Welsh government would be given the responsibility of raising 10p of the 20p basic tax rate, with the other 10p coming from the Treasury in London.  On top of this, ministers in Cardiff would be given the power to alter their share of the tax rate as much as they want, so for example raising it by 1p would mean there would be an overall Welsh tax rate of 21p. They can also choose to lower the tax rate, but this would yield less money for the Welsh government.

Last year Welsh voters gave more legislative powers to the Welsh Assembly, meaning AMs can make laws in more areas, but not control how much the people of Wales pay in tax. The Silk Commission reports that this makes the Assembly anomalous, being the only legislature in the world that has no control over tax rates.

As well as income tax, the proposals suggest that the Assembly should have control over the aggregates levy, a tax on commercial exploitation of sand, rock and gravel, stamp duty paid by house buyers, landfill tax, and air passenger duty for long haul flights.

The proposals could have a strong impact on Welsh politics, allowing political hopefuls to run for office with promises of tax cuts, or spending backed up by a rise in tax rates. Money could become a serious issue in Welsh Assembly elections for the first time, as it would not simply boil down to what the Westminster lump sum should be spent on.

It is important to note, however, that the plans are not currently set in stone. For the referendum to take place it must be supported by two thirds of the Welsh Assembly, and both Houses of Parliament in London. Despite this, the Commission’s report is a big step forward for the Welsh Assembly, and could mark the most radical change in the legislature’s history.

Ashley Bebbington