As of April 2019, the Welsh assembly will have the new power to set their own rates of income tax. It is estimated that just a 1p increase to the current income tax rates would generate £200-210m for the Welsh government. Any increase should affect both the employed under PAYE and people who are self employed. But will they break a manifesto promise to access this potential extra income for the country?
What are the options for the Welsh Assembly?
The 2016 Labour manifesto stated that there would be no changes to the Welsh tax system before the next Welsh Assembly election in 2021. The Cabinet Secretary for Finance, Mark Drayford, said during the draft budget this month, “I will not move away from our manifesto commitment unless I’m compelled to do so, but I don’t rule out the possibility that circumstances could change in a way that do have that compelling impact.”
As reported by the BBC, he does not rule out the possibility of needing to raise income tax rates in Wales, saying “I’m not going to say never is forever.” His description of the manifesto’s impact as “somewhat diminishing…over a five-year term” is understandable, especially when coupled with “And we have Brexit – a major difference that the manifesto never anticipated.”
But he also voiced concern over how some people would handle an income tax rise. He cites a member of his own Cardiff West constituency who told him that on her minimum wage she can’t afford her bills as it is.
So, nothing is set in stone, income tax increases are not part of the draft budget and no possibilities are being discounted for the future.
What do the Conservative party think about raising Welsh income tax?
Nick Ramsey, the Conservative finance spokesperson said: “Given the pressures on household budgets for families across Wales, Labour leadership candidates should stand by their 2016 pledge and commit to not raising taxes for the lifetime of this Assembly term.” He said that Mr Drayford’s discussion of anything else was “really disappointing”.
Why might Wales need the extra tax money?
During further discussion of the draft Welsh budget, worth £18bn, Mr Drayford explained that £130m is needed to repay Private Finance Initiatives (PFIs) and other loans supporting housing associations and councils. The main thrust of the budget seems to be increased health spending but further cuts to local council budgets. It confirmed that the land transaction tax will stay the same rate in the next tax year. In contrast to previous predictions, in the next two years the Welsh government is estimated to lose out on £20m from property tax.
