Work still to be done on Wales Bill

24 Mar 14
Eleanor Roy

Publication of the Wales Bill brings the Welsh government closer to raising some of the money it spends. But there are still some major issues to address before the legislation is passed

Greater financial powers for Wales moved a step closer last week with the presentation to Parliament of the Wales Bill. Although the bill shows some changes compared with an earlier draft, it falls short of addressing all the areas of concern raised during pre-legislative scrutiny.

The bill proposes an ambitious timetable for the devolution of the minor taxes, with non-domestic rates to be devolved by 2015 and stamp duty land tax and landfill tax by 2018.  Welsh Finance Minister Jane Hutt has welcomed this timetable, stating it is ‘ambitious but achievable’.

However, although non-domestic rates should be a simple matter and require no change to primary legislation, the devolution of the other taxes will involve further complexities.

Firstly, the Wales Bill itself must be passed and enacted, with this aimed to be achieved during the current Parliament. But legislation will also be required by the Welsh government to determine its policy in relation to these taxes.

The Welsh government has already begun to establish a Welsh Treasury, and a tax policy advisory group to help policy development in relation to tax devolution. It has also begun working on a bill to reform stamp duty land tax.  However, the development of policy and success of the proposed timetable are likely to depend on the result of the Assembly election in 2016.

The bill also provides for the devolution of income tax powers, subject to a referendum.  It retains the controversial ‘lockstep’ constraint, meaning that all income tax rates would have to rise or fall together, similar to that in the Scotland Act 2012. This constraint remains despite the fact that it has been criticised by all four party leaders in the National Assembly, as being unfit for purpose.

Details of how the block grant would be adjusted to account for tax revenues have also been set out, along the lines of those recommended by the Silk Commission’s  Part 1 Report.  For income tax this would be by ‘indexed deduction’ (ie linked to changes in the UK’s tax base).  Historically, the Welsh tax base has grown more slowly than that of the UK, and the lockstep constraint may lock in such slower growth.

Given the fact that income tax devolution is subject to a referendum, the retention of the lockstep constraint may mean that there is little political will to call such a potentially losable election, for a power that may fall short of providing a useful policy lever.  Undoubtedly, this will continue to be a major issue and subject to considerable scrutiny during the passage of the bill.

It is good to see that the bill has been amended to provide the National Assembly with the power to develop its own budgetary process, by amending Schedule 7 to the Government of Wales Act 2006.  This means that the Assembly will be able to determine its own budget process, which hopefully will link taxation, spending and borrowing plans to allow for adequate scrutiny of how the Welsh government proposes to raise and spend public money.

The Assembly’s Finance Committee is also planning to undertake an inquiry into budget best practice, which should help to inform the development of a new Welsh budget process.

Dr Eleanor Roy is research consultant for CIPFA Scotland

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