Devolution of powers ‘gives Wales opportunity to reform council tax’

2 Jul 18

Council tax in Wales should be reformed at the same time as the nation gains new powers over income tax next year, according to academics.

A report from the Wales Centre for Public Policy cautioned that increasing income tax in Wales would not be a simple matter, but suggested it did present and opportunity to make council tax more progressive.

It highlighted some of the trade offs and effects even modest tax changes could have.

For instance, a 1p increase on the basic rate would raise £184m, just 2% of the current health and social care budget.

And any decision to cut the additional rate of tax on top earners would require a “substantial migration response”, with large numbers higher earners choosing to move across the border into Wales, if it was going to be cost neutral.

The report, The Welsh Tax Base: Risks and Opportunities after Fiscal Devolution, also advocated an integrated approach to tax reform, with all devolved and local taxes considered together.

Guto Ifan of Cardiff University’s Welsh Governance Centre and one of the report’s authors said: “Given the potential knock-on effects of any change in income tax rates in Wales, it would be sensible to reform council tax at the same time to create a holistic approach to taxation.”

Dan Bristow, director for policy and practice at the Wales Centre for Public Policy, said, once partial devolution of income tax was complete in April next year, the Welsh Government and local councils would control nearly £5bn in tax revenue, or 30% of public spending.

“With greater tax powers comes greater responsibility, and our report sets out what needs to be kept in mind so these powers can be used responsibly,” he said.

“There’s a limit to which tax policy should itself be used to achieve wider policy goals, as even small well-meaning changes could have profound effects on the amount of money brought in.”

The report noted that devolution of fiscal powers to Wales meant the performance of the Welsh economy and changes to Wales’s labour and housing markets would have a direct impact on spending.

It also highlighted that, over the next few years, the Welsh working-age population is projected to reduce, limiting the size of the tax base.

The Wales Centre for Public Policy was established in October last year to help improve policy making and public services in Wales. It is funded by the Welsh Government, Cardiff University and the Economic and Social Research Council.

  • Vivienne Russell

    Vivienne Russell is managing editor of Public Finance magazine and publicfinance.co.uk

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