‘Westminster is foiling Wales’ ability to bring in new taxes’
THE Welsh Government believes that Westminster is hindering its ability to introduce new taxes and thinks there is little hope of change without a reform of the current arrangements.
In 2014 the law changed to make it possible for new devolved taxes to be created, so long as they were approved in advance by the House of Commons, the House of Lords and the Senedd.
The taxes involved could be existing UK taxes, which the UK Government devolves to Wales, or taxes newly created by the Welsh Government in areas of devolved responsibility.
A Command paper issued by the UK Government in 2014 alongside the Wales Bill of that year made it clear that Westminster would have the power to decide whether the Welsh Government should be allowed to introduce new taxes.
The Welsh Government has now said the system is not working in practice.
A little-noticed report issued last week by Finance Minister Rebecca Evans, just before the Senedd adjourned in advance of next month’s election, states: “In March 2020, following agreement at a Joint Exchequer Committee that Welsh Government proposals for a ‘vacant land tax’ were sufficiently developed to move to the next stage of the process, the Welsh Government submitted a formal request to the UK Government for devolution of the legislative competence in this area.
“This formal request was in keeping with the process agreed between UK and Welsh Ministers for the devolution of new tax powers to Wales, as provided by the Wales Act 2014.
“On August 19 2020, the Financial Secretary to the Treasury [Jesse Norman] responded that yet more detail would be required before the formal request could be taken forward.
“The Welsh Government’s experience of moving through the process has been protracted and challenging, with HM Treasury continually requesting detail relating to the specific operation of the proposed tax – which is a matter for Wales – rather than information related to devolving competence for legislation in a new area of taxation.
“It has become apparent there are serious flaws in the agreed process for devolution of further tax competence.
“As the process currently stands, it is difficult to envisage a scenario whereby the Welsh Government could successfully make the case for further tax competence.
“The process needs urgent review and reform.”
The 2014 Command paper set out the Welsh Government’s opportunity to introduce new taxes in Wales, describing it as “a new policy lever with which to raise additional revenue and/or affect behaviours”.
Proposals for new taxes would be
assessed against a range of criteria, including the extent to which the new tax affects UK macroeconomic or fiscal policy and/or the single market; may be non-compliant with EU legislation [no longer relevant]; increases tax avoidance risks; creates additional compliance burdens for businesses and/or individuals; and whether it is aligned with devolved responsibilities.
The paper went on to state that any proposal from the Welsh Government for a new tax would need to include full details on the tax base (ie taxable activity); its estimated revenue and economic impact; its estimated impact on UK revenue or interaction with UK-wide taxes; its expected impacts on business and individuals; an assessment against all relevant legislation and directives.
The paper stated: “The UK Government will work with the Welsh Government to assess any such proposals in a timely manner.
“If at the end of that process the UK Government decides not to grant powers to the Assembly to create a new devolved tax, it will explain its reasoning.”
Since April 2018, both the Land Transaction Tax, which replaced stamp duty for Wales, and the Landfill Disposals Tax have been the responsibility of the Welsh Government. Currently, the Welsh Government also has a limited ability to vary Income Tax.
The Welsh Government is also investigating four new tax ideas: a Vacant Land Tax, a Disposable Plastics Tax, a Tourism Tax, and taxation to fund social care.