Senedd agrees to freeze Welsh rates of income tax

By Chris Haines, ICNN Senedd reporter

The Senedd agreed to freeze Welsh rates of income tax for the sixth year in a row.

Rebecca Evans, Wales’ finance minister, said Welsh taxpayers will continue to pay the same income tax as their English and Northern Irish counterparts in 2024-25.

The Welsh Government decides basic, higher and additional income tax rates that are added to UK rates – which were reduced by 10p in the £1 for Welsh taxpayers in April 2019.

Welsh rates of income tax – which are retained at 10p in the £1 for each band – are expected to raise more than £3bn for the Welsh Government in the next financial year.

Ms Evans told the Senedd now is not the right time to increase the overall tax burden.

She said: “Increasing rates now would add an additional tax burden on those least able to afford it and at a time when the overall level of taxation is at its highest for many years.”

‘Inherently limited’

Peredur Owen Griffiths, Plaid Cymru’s shadow finance minister, called for the Senedd to receive the same powers to set tax bands as those afforded to the Scottish Government.

He described Welsh rates of income tax as an inherently limited lever.

Mr Owen Griffiths said: “Once again we are forced to reflect on what might have been, if we had the powers to create an income tax framework tailored to the nature of our tax base.”

The South Wales East MS added: “Scotland has shown the way with their progressive approach to income tax – there’s no reason why we can’t do the same.”

The finance committee chair raised concerns about the UK’s spring budget, warning that tax cuts could entrench stark income inequalities and result in another bout of austerity.

‘Very unpopular’

Mike Hedges, a Labour backbencher, supported the decision to freeze the 10p tax rate and backed calls for greater powers over tax bands.

He told the chamber that raising the basic rate by 1p would bring in £250m to £350m – the equivalent of one health board’s overspend.

“It would also be very unpopular with the people wondering why they were paying more than in England,” he said. “Decreasing it by 1p would reduce the Welsh Government’s income and we know budgets are stretched already.”

Mr Hedges, who represents Swansea East, said increasing the top rate from 45% to 50% appears attractive but he pointed out there are only 500 additional rate payers in Wales.

He called for powers over dividend income to be devolved to Wales, warning: “This is the biggest means of avoiding taxation that exists.

“The Treasury and Welsh Government are losing billions of pounds by people being paid in dividends rather than being paid, as they should be, in income.”

‘Behavioural impacts’

Replying to the debate on March 5, Ms Evans told MSs that increasing tax at the very top end in Wales would only bring in an extra £5m.

She stressed that the Welsh Government is wary of behavioural impacts.

The finance minister said the Scottish Fiscal Commission has estimated that the behavioural effects of changes made in Scotland will reduce income by £118m.

She told the Senedd: “That’s even more relevant for us where we have a larger proportion of our population living along the border….

“I think it’s absolutely an important and interesting debate that we should be having, but I don’t think the case is yet made for that.”

The motion was agreed without objection, dispensing with the need for a vote.