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Written Statement - Progress update on Welsh Taxes and fiscal reform

Jane Hutt AM, Minister for Finance and Government Business

Yesterday the Assembly passed the Tax Collection and Management (Wales) Bill – the first ever piece of Welsh tax legislation.  This was clearly another significant milestone in progressing Welsh tax devolution and as such, I think it is an  appropriate time to reflect on the wider progress we have made towards both implementing tax devolution and in securing fair funding for Wales, and also to look forward to what is on the horizon as we move hopefully towards a sustainable fiscal arrangement for Wales.

The TCM Bill provides for the Welsh Revenue Authority (WRA) and gives it the essential powers to undertake tax collection and management.  The WRA will be the cornerstone of our new devolved tax powers, as well as being the first Non-Ministerial Department to be established by the Assembly.  It will be separate from, but accountable to, Welsh Ministers and the National Assembly.  Importantly, however, Welsh Ministers will not be involved in the tax affairs of individuals – on such matters the WRA will operate independently.

I am grateful to this Assembly and in particular the Finance Committee for its work in scrutinising the TCM Bill.  During this process, considerable prominence was given to the need for the WRA to provide a quality service, for it to set service standards, provide services in both Welsh and English and, for it to have a Taxpayers’ Charter to support a constructive relationship between the new body and taxpayers and their agents.  There can be no argument about the importance of establishing the WRA on the right basis from the outset and I was happy to respond to suggestions aimed at enhancing the provisions in the TCM Bill.  The Bill places various duties on the WRA so that it provides services that are befitting of a revenue authority, helping taxpayers to pay their taxes and helping the wider public by protecting tax revenue for Welsh public services.

We are now looking to establish the Welsh Revenue Authority itself, enabling it to collect the taxes that are due to fund public services in an efficient and effective way.  Key to this is the appointment of Dyfed Alsop, who will be joining the Welsh Government from the Valuation Office Agency in England in Summer 2016 as the Implementation Director for the Welsh Revenue Authority.

I have launched an engagement programme “Welsh Taxes: A Conversation” to begin to engage with our stakeholders and taxpayers across Wales in the development of the Welsh Revenue Authority and the devolved Welsh taxes. This seeks to reach out to those people who will be affected by the tax changes ahead and included in the conversation is an e-survey about key aspects of the Welsh Revenue Authority.  This is already being completed with people contributing their views on what the vision and values of the WRA should include and on what a Welsh Taxpayers’ Charter and arrangements for redress might look like.  To date over 40 contributions have been logged on the e-survey site.  Feedback given through this exercise will help shape the WRA and a future Taxpayers’ Charter for Wales.

This is a significant step towards tax devolution, enabling the people of Wales to be more involved in the tax that funds our public services, and ensuring that the devolved Welsh taxes meet the needs and priorities of people in Wales.  It will be for the next Welsh Government to introduce a Land Transaction Tax and a Landfill Disposals Tax, and I anticipate this legislation  - the first Welsh taxes in 800 years - will be brought forward early in the next Assembly term.

The Wales Act 2014 also includes provisions for the National Assembly to introduce in the future Welsh Rates of Income Tax to replace 10p worth of the existing UK rates, and powers to introduce additional devolved taxes. The overall impact of the devolution of new tax powers could result in over £4 billion of devolved spending in Wales being dependent on receipts from devolved taxes - approximately 20% of Welsh Government spending.  

The Welsh Government has set out its own distinctive approach to future policy development through the Wellbeing of Future Generations Act 2015. This approach will guide how we use new tax powers and the Welsh Government is developing a tax policy strategy to manage tax revenue streams coherently, with recognition of relative financial burdens and policy priorities in Wales.

We need to look to the longer-term, and build a tax regime in Wales which not only recognises its position within the wider UK tax context but also seeks to underpin our policy priorities to meet the needs of people in Wales.  We need to ensure that we provide the opportunity for people in Wales to engage in the debate on levels and extent of taxation, as they already do with spending.  We will involve our stakeholders and taxpayers in the development of a more efficient, progressive tax system that better meets the needs of the citizens of Wales.

Alongside the development of our tax policy strategy, we will continue to negotiate for an appropriate long-term fiscal framework with the UK Government.  My recent Written Statement sets out the Welsh Government’s view.  It is important to be clear that, although progress has been made we will only proceed if it is clear that tax devolution will be in line with the ‘no detriment’ principle and will not impact unfairly on the future funding of Wales. In relation to the funding floor for example, further work is now required to establish precisely how the new floor will work, including the proposed "re-set" process in five years time.  This issue needs to be seen in the wider context of agreeing a clear and fair offset to the block grant, which takes into account the properties of our tax bases and the extent of our devolved responsibilities, and which does not expose the Welsh Government’s budget to risks that are outside our control. We will also take forward action to bring about an agreement on the borrowing framework that will sit alongside our new fiscal powers.  As part of the recent agreement on a Scottish Fiscal Framework, an independent review process has been built-in to consider the Block Grant Adjustments, and to ensure they are calculated and applied fairly.  This same degree of independence must also be employed for our own Welsh Fiscal Framework.

The progress we have made on tax devolution has been helped by our stakeholders – individuals and businesses who have given up their time and ideas, including the members of my Tax Advisory Group and the Welsh Government Tax Forum.

This has contributed to the overall approach I have taken to secure and maintain a Cross Party consensus in the National Assembly for Wales.  This is based on a shared commitment to deliver the recommendations of the 1st Report of the Silk Commission to secure fair funding, robust tax collection and management and a Welsh Fiscal Framework which can deliver maximum benefits and accountability  for the development of the Welsh economy and our public services.