- This paper seeks to provide Cabinet an opportunity to:
- consider the rationale for the Welsh Government to develop a more strategic approach to the way devolved and reserved taxes operate in Wales
- consider potential aspects and issues in relation to what people, businesses and other organisations in Wales might expect from their tax systems, and
- agree that officials explore this issue further with partners and stakeholders to coproduce an ‘agreement’ to deliver ministers’ aspirations.
Objective of the paper
- The Tax Policy Framework published in June 2017 set out the Welsh Government’s priorities for taxes in Wales, including how stakeholders, businesses and taxpayers will be engaged to deliver a clear, stable, progressive and robust Welsh tax regime. The framework also confirms that fiscal devolution provides a range of opportunities to develop a Welsh approach to taxation.
- The publication of an annual Tax Work Plan is an important part of the engagement process. The 2019 plan includes a commitment to “build the evidence base to consider whether the Welsh tax system could be more efficient and proportionate, delivering more for businesses, communities, citizens, wider public sector organisations and taxpayers in Wales.” This includes “considering the case for taking a more strategic and joined up approach to tax administration priorities across the medium term.”
- Currently there are 5 taxes in operation in Wales, collected by multiple tax authorities:
- Welsh Rates of Income Tax (WRIT) collected by HMRC, with appropriate revenues directed to the Welsh Government
- The 2 devolved taxes – Land Transaction Tax and Landfill Disposals Tax which are collected and managed by the Welsh Revenue Authority
- The 2 local taxes – council tax and non-domestic rates which are collected and managed by local authorities and by the Welsh Government.
- The Welsh Government is continuing to make the case for the devolution of Air Passenger Duty and is further exploring the development of a potential vacant land tax and environmental taxes relating to single-use plastics. We are also delivering a published programme of work, which we began in early 2017, to improve council tax and non-domestic rates in the short to medium term whilst exploring alternative approaches as part of longer term local government financial reform.
- Taxpayers in Wales also pay a range of reserved taxes, through policy choices made by the UK government. These are generally administered by HMRC.
- In addition, there are a number of other public charges and levies in operation which might be perceived as ‘taxes’, such as Natural Resources Wales or local authority licensing arrangements, which may benefit from a shared agreement on administration, but are not necessarily part of this work.
- Whilst there is clearly a range of administrative arrangements already in place, policy decisions in relation to the approach taken for each tax to-date have not been in relation to the coherence of the whole system. We intend to work with partners to co-produce a collective ‘agreement’ for a holistic approach to how existing and future taxes should operate to better serve Welsh needs and priorities. Whilst there will not be one way to deliver against such criteria, this should foster a culture where the Welsh Government and tax authorities own a shared vision of a better integrated taxation system. In addition, this approach should increase confidence in fiscal devolution and democratic accountability.
- We are not minded to produce technical guidance for tax authorities or a formal strategy. Rather the ‘agreement’ will set out expectations and ambitions from the perspective of people and businesses in relation to paying taxes. We will also consider how we will work with partners to continue to monitor, review and develop the implementation of the shared ‘agreement’ and assess future options for reform.
- This work will include engagement with local authorities via the Finance Sub Group of the Partnership Council for Wales, practitioner groups and the Welsh Local Government Association. There will also be a need to hold further discussion with HMRC representatives on this issue. Whilst HMRC have expressed a willingness to engage in further conversations, specifically on how WRIT forms part of any Welsh approach, we are also keen to explore how the approach taken to non-devolved taxes in Wales could potentially be encapsulated within the ‘agreement’.
- This Welsh ‘agreement’ will seek to steer and act as a point of reference for the various tax authorities operating in Wales. It will also support policy makers when undertaking changes to existing taxes and the design and establishment of any new taxes. Many of the principles that will be identified will likely already be recognised as good practice but will not have previously been collected and articulated in one place.
- Although we would hope to discuss these matters in significant detail with stakeholders in the coming months, we have already held some tentative discussions. These include an agenda item on tax administration at the Ministerial Tax Advisory Group on 14 March and a specific workshop at the Welsh Taxes Conference 2019 on 19 July.
Potential key principles and issues to be explored in the development of a Welsh approach to tax implementation are as follows. These would need to be set in the context of a policy narrative which sets out our aim to strike the right balance between the obligations placed on taxpayers and the need to fund the high quality public services which people in Wales value and depend on. It is everyone’s duty to contribute their fair share but we will make every effort to minimise the burden on people and to maximise the efficiency in how we collect those taxes.
Everyone should have the opportunity to understand how their taxes are being spent.
Whilst it is challenging to ascertain the appropriate amount of detail that people and businesses would wish to receive, it is clear that there is an expectation to understand how taxes are broadly spent. We are keen to explore how the correlation between taxes paid and the well-being outcomes identified in the Well-being of Future Generations (Wales) Act can be identified.
People and businesses should expect a relationship of high trust in relation to the way their taxes are collected.
- Initial engagement with stakeholders has highlighted the importance of good customer service when they engage with tax authorities. Whilst there is an ongoing discussion as to whether taxpayers should be regarded as ‘customers’, it is clearly important that people and businesses have a positive and straightforward experience of engaging with tax systems. Tax systems should aim to ‘put the taxpayer first’ where possible.
- The Welsh Revenue’s Authority’s approach is based around the core principle of helping people to pay the correct amount of tax at the right time and has been widely welcomed. This has necessitated moving away from an approach of evaluating success based on yield, which is the amount of tax collected following enforcement activity.
- More generally, people and businesses should expect tax systems to strive to benchmark performance where it makes sense to do so and to be open about their performance. Taxpayers will also expect to be dealt with efficiently and effectively by confident, content, experienced and empowered officials, recognising the workforce retains high quality employees across Wales. This performance will clearly be within a context of tax authorities operating efficiently and providing value-for-money.
The Welsh Government should aim to support all tax authorities to effectively share better practice, breaking down organisational barriers.
Taxes should be predictable, stable and transparent.
- The Tax Policy Framework already sets out the ambition to establish a stable tax regime in Wales. We are keen to explore further what this means to people and businesses in practice whilst accepting that there will often be a need for taxes to be varied to respond to economic circumstances. The Federation of Small Businesses Cymru has indicated that its members are keen to have certainty about what their tax outgoings will be over the course of a financial year to aid planning.
Similarly, there appears a clear expectation that the process of determining tax levels, reliefs and exemptions should be transparent and accountable to the people of Wales.
Taxes should be convenient and easy to pay.
Linked to an efficient service, people and businesses expect tax systems to exploit the new opportunities presented by digital transformation. This includes the need to actively and collectively consider how digital platforms could be redesigned to be fit-for-purpose for the challenges tax authorities may face in the future. Resilience, stability and security should be at the forefront of any plans for digital transformation. However, such transformation needs to be proportionate and mindful of costs, and recognise the wide variety of channels involved in interactions with individual taxpayers, particularly people in vulnerable groups.
There should be a consistency and fairness of approach across individual taxes, including in relation to debt enforcement.
- Whilst fully accepting local government autonomy, there has been significant concern about the varied approaches local authorities take in dealing with council tax arrears. On 1 April, the threat of imprisonment for non-payment of council tax was removed in Wales. We are continuing to work with local authorities in Wales to embed a consistent, fair and proportionate approach to management of council tax debt and arrears.
- This has included the promotion of the recent Council Tax Protocol for Wales: Good Practice in the Collection of Council Tax, developed in collaboration with the WLGA. We have established working groups with local government practitioners to support the implementation of the Protocol and other strands of the work to make council tax fairer. This has underlined the need for continued collaborative working to achieve cultural change within the local tax regime.
Although issues of debt vary across taxes, the Welsh Government can set out an expectation for people and businesses to pay the tax they owe whilst also more generally reaffirming the importance of providing enhanced support where it is needed, including to people facing hardship.
Discussions could also further explore the complex issue of how and when information and data could be shared whilst still being protected.
Initial conversations suggest that people and businesses welcome the principle of authorities using their data responsibly to improve efficiency and avoid duplication. Whilst tax authorities express enthusiasm to share and analyse data to improve tax administration and strengthen the evidence base for tax policy decisions, in practice data protection concerns seem to frustrate this.
- Any approach to set out expectations in relation to the way different tax systems operate will need to be mindful of the responsibilities of HMRC and local authorities. It may be challenging to provide clarity in relation to Welsh Government expectations whilst still ensuring the political and financial autonomy of local authorities is respected and, if possible, enhanced.
- To achieve this both HMRC and local authorities will be key partners in the development of this work. Our experience with local government in delivering the local tax reforms tells us that solutions need to be co-designed for change to be effective and translated into practice.
- Working with stakeholders to better identify and express what people and businesses expect from their tax systems in Wales will form an important step in developing the Welsh approach to taxation as envisaged in the Tax Policy Framework. It should form part of a longer term and wider strategic approach to the development of fiscal devolution policy.
Communications and publication
- This paper will be published in 6 weeks. Following Cabinet endorsement, officials will seek to engage further with individual partners and tax authorities with a view to seeking representatives from across Welsh Government, the tax authorities and other relevant external stakeholders to form a working group to consider in detail each of the principles set out in this paper to coproduce our ‘agreement’. We aim that this working group will begin to meet early in the New Year to produce a draft agreement in the autumn.
Rebecca Evans AM
Minister for Finance and Trefnydd
Annex A: Finance matters
Finance requirements and governance implications
- There are no direct financial implications as a result of this Cabinet paper which simply seeks ministerial agreement to engagement with partners to consider this issue further. This engagement will be undertaken by Welsh Government officials, therefore costs are accommodated within existing administration costs budgets.
- Any financial implications emerging as a result of recommendations to develop a more strategic approach to the way taxes operate in Wales which arise following stakeholder engagement will be subject to further ministerial advice in due course.
- In accordance with Finance Notice 2019/01 Central Services Operations Team has cleared CSOT(19/20)-MA159. Strategic Budgeting has also reviewed and cleared SB/0732/05.