Government Expenditure and Revenue Wales (GERW) 2019 this week published comprehensive data which includes showing that the gap between tax revenue and public spending has decreased in Wales, using recent Office for National Statistics figures.
Although the current narrowing of that gap is not because people in Wales are earning more and paying more taxes, but rather because public spending has declined and is 10 per cent lower than in 2009-10, this can’t continue.
The report identifies how the tax base in Wales is different to the UK. Wales comprises 4.7 per cent of the UK’s population but only generates 3.6 per cent of UK tax revenues. Wales generates less money in taxes than it gets back from the UK Treasury.
The Government of Wales Act (GOWA) 2006 allowed the Welsh Government to make its own devolved legislation. The Wales Act 2014 amended GOWA to provide for the sharing of Income Tax from 2019/20. This allowed for the creation of Welsh Rates of Income Tax (WRIT) for Welsh taxpayers.
The same 2014 Act also fully devolved two taxes to the Welsh Government:
- Stamp Duty Land Tax renamed Land Transaction Tax; and
- Landfill Tax, renamed Landfill Disposals Tax.
The Act also gives Wales the power to create additional taxes on any area that is fully devolved to them.
In the UK the figures demonstrate that Income Tax is the largest source of government revenue. However in Wales it is VAT that generates the largest amount.
Whilst HMRC still collects income tax, Westminster no longer receives all of it. The basic, higher and additional rates of income tax have been reduced by 10p by the UK government - instead, that 10p and any additional payments (or future increases), go to the Welsh government as WRIT became a reality in 2019/20.
Mark Drakeford, First Minister stated that, 'closing the fiscal gap is a proper ambition for any Welsh Government', and there is growing debate surrounding the potential implications.
So, in this the first tax year that we have the WRIT and the PAYE tax C code, the question must be whether we will see an increase in WRIT at the next Budget. This is despite the commitment not to increase Income Tax rates for the duration of the current Assembly, which is due to continue until May 2021. Alternatively, could we expect something else?
Let’s not forget that a shared tax is not the same as a devolved tax, so the alternative is that we could we see additional taxes introduced. After all, Wales has significant devolution powers, perhaps greater after the UK's exit from the EU.