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1. What action is the Welsh Government considering and why?

1.1 The Welsh Tax Acts etc. (Power to Modify) Bill operates to provide the Welsh Ministers with power to make draft or made affirmative regulations in relation to the Welsh Tax Acts which can be used to ensure that changes can be made to the Welsh Tax Acts at short notice to respond to a number of external circumstances, such as:

  1. to protect against tax avoidance in relation to devolved Welsh taxes
  2. to comply with international obligations, where appropriate
  3. to respond to tax policy changes made by the UK government to ‘predecessor’ UK taxes (that is, one where we have an equivalent devolved tax - predecessor taxes’ currently refers to Stamp Duty Land Tax and Landfill Tax – the UK equivalents for the taxes that are now devolved taxes in Wales) which would impact the amount paid into the Welsh Consolidated Fund, and
  4. to respond to decisions of the courts/tribunals.

1.2 The primary intended effect of the Bill is to provide Welsh Ministers with a proportionate mechanism to protect Welsh revenues raised through devolved taxes, and to avoid adverse implications for businesses, the property market, the environment and the resources available to the Welsh Government. 

1.3 The following section outlines how the development of this legislation has adhered to the 5 ways of working as identified within the Well-being of Future Generations (Wales) Act 2015.

The Welsh Government’s commitment

1.4 The Welsh Government’s tax policy priorities align with the commitments in the Programme for Government 2021-26, to continue to demonstrate its commitment to creating a more equal, fairer and socially just Wales. Devolved taxation can be a powerful lever for influencing behaviour change, as well as generating revenue to support public spending to meet the needs of Wales, and enabling us to develop more progressive taxes. It also allows us to develop a more strategic approach to central and local taxation in Wales, ensuring it is better able to tackle the needs and priorities of citizens and businesses.

1.5 This primary legislation contributes to the national wellbeing goal of ‘a prosperous Wales’, recognising the core role of taxation in funding public services. The ultimate objective of the Bill is to provide Welsh Ministers with a proportionate mechanism to protect Welsh revenues raised through devolved taxes that are available for our essential public services in Wales, and to avoid adverse implications for businesses, the property market, and the environment. There is clear alignment between this objective and the five ways of working as set out in the Well-being of Future Generations Act.

1.6 The proposal has been development in alignment with the Welsh Government’s principles for tax policy in Wales, set out in the Tax Policy Framework:

  • Taxation should raise revenue to fund public services as fairly as possible.
  • It should help deliver wider fiscal and policy objectives, in particular supporting jobs and economic growth.
  • It should be simple, clear, progressive and stable, with legislative and administrative clarity and efficiency. 
  • Given the core role of taxation in funding public services, it will be critical to engage with taxpayers about the general and specific elements of Welsh taxes.

Prevention and the long term

1.7 The legislative proposals taken forward by this Bill are a preventative measure to enable Welsh Ministers to respond agilely when a change is required to the Welsh Tax Acts at short notice. It is ever-increasingly clear that this legislation is needed to protect revenues available for essential public services in Wales. At the moment, every time there is a UK budget cycle there is a risk that there may be a change which impacts on a devolved tax and has a direct budgetary impact on resources. This is particularly the case as recovery measures continue to be implemented.

1.8 The Bill aims to balance the need to address a gap in the short-term – that is the lack of a mechanism to respond to an urgent need to make a change to the Welsh Tax Acts - but also to meet long-term needs. The legislation also aims to fit within a longer-term context if there are future reforms to the fiscal framework. It can be viewed within the lens of a broader tax strategy, including the reforming and strengthening of relationships with UK government and other devolved administrations.

1.9 For example, the amount of secondary regulations generated as a result of this legislation will be kept under review as part of any future considerations as to whether a Finance Bill may also be an appropriate legislative vehicle for Wales. However, it is not an either or situation as it is considered that even if Wales has an annual Finance Bill, a mechanism to respond to events outside of that Finance Bill cycle will remain necessary to protect Welsh Government finances and Welsh taxpayers.

Collaboration and involvement

1.10 Following the devolution of land transaction tax and landfill disposals tax in 2018, the Welsh Government has considered, with our stakeholders and partners, over the last 3 years what the right and appropriate tools might be to ensure we can make changes to the “Welsh Tax Acts” at short notice in certain circumstances. Collaboration on the development of this Bill reflects the technical nature of the proposals. The 2020 policy consultation Tax Devolution in Wales - Enabling changes to the Welsh Tax Acts received a small but reasonable nature of responses mostly from professional tax and accountancy bodies. Both the policy proposal and the draft legislative provisions are the result of close working and sharing of ideas and expertise with stakeholders. The Welsh Revenue Authority (WRA) has also been a key partner involved in developing the proposal and planning its delivery.

1.11 There is also ongoing wider stakeholder engagement on devolved taxation more generally, and specifically around the operation of the WRA, and wide-ranging internal stakeholder engagement. It is recognised that it is important to continue raising awareness of Welsh taxes, and we are focusing on major fiscal events, such as the Welsh Budget, to increase understanding of the implications of fiscal devolution for people and businesses.

1.12 We have strong working partnerships with the WRA and HMRC to enable quick and effective dissemination of key information through established operational channels. These include working with professional bodies and producing webinars and videos for tax professionals. The Tax Engagement Group enables us to discuss developments in tax policy with those who can represent the views of Welsh tax payers. Further details of engagement activity on tax more generally is provided in Section 13 of the Welsh Government's Welsh Tax Policy Report 2021, published on 4 March (Welsh Tax Policy Report March 2021). This remains a priority as set put in the Welsh Government’s updated Tax Policy Framework.

Impacts

1.13 The Bill operates to provide the Welsh Ministers with power to make secondary legislation in order to respond to a number of external circumstances. There are therefore limited impacts as a result of the Bill directly.  A separate impact assessment would be completed each time the powers are used to make regulations to effect changes to the Welsh Tax Acts.  The Welsh Government will consult on the content of the subordinate legislation where it is considered appropriate to do so. The precise nature of consultation will be dependent on the nature of the proposals.

1.14 Overall, devolved taxes raise revenue to fund public spending in Wales. Devolved taxation can be a powerful lever for influencing behaviour change, as well as generating revenue to support public spending to meet the needs of Wales, and enabling us to develop more progressive taxes. It also allows us to develop a more strategic approach to central and local taxation in Wales, ensuring it is better able to tackle the needs and priorities of citizens and businesses.

1.15 Alongside the costs and benefits presented in the draft regulatory impact assessment, a number of other potential impacts have been considered and an integrated impact assessment carried out. A summary of the impact assessments is set out below.

1.16 Ministers are required to have due regard to the United Nations Convention on the Rights of the Child when exercising any of their functions. The results of this assessment demonstrate that there are no potential negative impacts on children and young people arising from the Bill. In addition, no specific impacts have been identified in relation to EU Citizens rights that relate to young people up to the age of 18 as a result of this legislation. The full impact assessment is available at Annex 1.

1.17 An Equalities and Human Rights impact assessment concluded that there are no specific impacts of the legislation on people with protected characteristics under the Equality Act 2010. However, not implementing this legislation could result in future reduced revenue for the Welsh Government, which in turn would mean less resource to spend on public services in Wales. Arguably, any reduction in revenue is likely have a disproportionately large effect, or disbenefit, on lower income households in Wales, as those who benefit the most from public services tend to be those on below average income. Some protected groups are proportionally more likely to fall into this category. Therefore, introducing this Bill and protecting public service spend could be seen as an indirect positive action for these groups. A full impact assessment is available on request.

1.18 The compatibility of the Bill with the European Convention on Human Rights (ECHR) has been considered prior to the introduction of the legislation. That analysis has found that the Bill is unlikely to contain provisions that are incompatible with the ECHR. The Bill does include provision for retrospective effect. It is recognised that legislation that affects past transactions or events, even if not technically retrospective, may engage the rights set out in Schedule 1 to the Human Rights Act 1998 (“the Convention rights”). The Welsh Government considers that the Bill strikes an appropriate balance between the legislature’s role in scrutinising tax policy changes, the Rule of Law and the unique nature of tax policy changes and their immediate fiscal and economic impacts. There is a public interest in managing those changes to maintain revenue consistency and fund wider public services and avoid market volatility. The approach proposed is not unprecedented and we consider that the public interest arguments are clear.

1.19 A Data Protection Impact Assessment has been conducted and concluded the Bill does not produce any new requirements relating to privacy or the sharing of information. There will be no impact as a consequence of this legislation.

1.20 Impact on the Welsh Language has been explored through a Welsh Language Impact Assessment and concluded that there are no specific impacts of the legislation on the use of Welsh Language or on Welsh Language communities. The Bill supports the effective operation of the devolved taxes, which can in turn help to achieve our Welsh language policy aims directly. A full impact assessment is available on request.

1.21 Consideration of the impact of the duty on biodiversity, climate change and natural resources concluded that there would be no negative impact on these areas. A Strategic Environmental Assessment and an Impact Assessment on Carbon Budgets is not required.

1.22 The statutory Justice Impact Assessment (JIA) summarises the outcome of engagement with the Ministry of Justice, The assessment concluded that the proposals are likely to have no or minimal impact on the justice system. The impact assessment is available in Annex 2.

1.23 The rural proofing screening assessment concluded there is no negative impact as a result of this legislation.

1.24 A socio-economic impact assessment concluded there is no negative impact as a result of this legislation. An indirect benefit of any future regulations enabled by the powers in this legislation is the protection of Welsh revenues and consequently public services in Wales.

Costs and savings

1.25 The financial implications of the Bill is set out in Part 2 of the Explanatory Memorandum, the Regulatory Impact Assessment, published as part of the Bill documentation at introduction.

2. Conclusion

How have people most likely to be affected by the proposal been involved in developing it?

2.1 The Welsh Tax Acts etc. (Power to Modify) Bill provides the Welsh Ministers with powers to make changes to the “Welsh Tax Acts” by regulation when it is considered expedient in the public interest to do so. People are generally only likely to be affected by the proposal if/when there is a specific issue in relation to the Welsh Tax Acts that Welsh Ministers choose to address through the introduction of regulations. A separate impact assessment, including costings, would be completed each time the powers are used to make regulations. The Welsh Government will consult on the content of the subordinate legislation where it is considered appropriate to do so. The precise nature of consultation would be decided when the proposals are formalised.

2.2 There are no real direct impacts on people (including people with protected characteristics under the Equality Act 2010; children and their representatives, and Welsh speakers) as a result of the Bill in isolation, and this, and the technical nature of the proposals, is reflected in how the public and stakeholders have been involved in the development of this Bill.

2.3 Prior to introduction of the legislation, a public consultation took place between 16 July and 15 October 2020, with the intention of gaining stakeholder views to inform further development of the legislation and to address any concerns. It was distributed to stakeholders electronically, via social media, and published on the Welsh Government website. 

2.4 Virtual external engagement events were held with representatives of stakeholder organisations. The consultation received a small but reasonable nature of responses mostly from professional tax and accountancy bodies. An analysis of the consultation responses was published on 20 December 2020. In autumn 2021, a stakeholder engagement session was held with key trusted stakeholders to provide an update on the policy changes that have been introduced since the 2020 consultation, and also to share sections of the draft legislation. We received continued support for the policy principles that underpin this legislation – in particular, of the current vulnerability of Welsh Ministers to be able to appropriately respond to tax policy changes made by UK government which impact on devolved taxes. The Welsh Revenue Authority has also been a key partner involved in developing the proposal and planning its delivery.

What are the most significant impacts, positive and negative?

2.5 The Welsh Ministers’ intended purpose in introducing this Bill is to enable changes to be made to the Welsh Tax Acts by regulations where the Welsh Ministers consider that such changes are required to have effect immediately or shortly thereafter. Those changes will be permitted in order to respond to a number of external circumstances, as set out in paragraph 1.1

2.6 This intervention is primarily needed to protect revenues available for essential Welsh public services. At present, for example, every time there is a UK budget cycle, the Welsh Government takes the risk that there may be a change which impacts on a devolved tax and has a direct budgetary impact on resources and which Welsh Ministers cannot react to in a timely manner. An intervention of this kind may also be appropriate where the Welsh Treasury and the Welsh Revenue Authority (WRA) need to promptly ‘close-down’ tax avoidance schemes or maintain compliance with international obligations. As set out at paragraph 1.5, this primary legislation contributes positively to the national wellbeing goal of ‘a prosperous Wales’, recognising the core role of taxation in funding public services.

2.7 The primary legislation will have minimal impact on people and communities, Welsh language and the environment. Any impact on people and communities would only be evident if/when there is a specific issue in relation to the Welsh Tax Acts that Welsh Ministers choose to address through the introduction of regulations. In this instance, the type of impact is likely to be restricted to particular groups of individuals. This could vary from those seeking to avoid or evade tax, to tax-payers who are seeking to buy a new residential premise. A specific impact assessment which would include consideration of impacts of people and communities, the Welsh language and environment would be undertaken on any regulations introduced.

In light of the impacts identified, how will the proposal:

i. Maximise contribution to our well-being objectives and the 7 well-being goals; and/or,

2.8 The Welsh Government set out in the 2020 Tax Devolution: Enabling changes to the Welsh Tax Acts consultation 3 key benefits in relation to the introduction of the Welsh Tax Acts:

  • Improving the efficiency and effectiveness with which public resources are used in Wales
  • Boosting the resources available for public bodies in Wales to invest in improving well-being, and
  • Delivering enhanced fiscal levers for Welsh Ministers and using these levers to improve outcomes for the people of Wales.

 2.9 These benefits are aligned to the requirements of the Well-being of Future Generations (Wales) Act 2015 which came into effect in April 2016. The Act seeks to improve social, environmental, economic and cultural well-being in Wales and help to create a country that we all want to live in, now and in the future.

ii. Improving the efficiency and effectiveness with which public resources are used in Wales

2.10 The legislation is intended to provide an additional tool to quickly close down identified avoidance activity, ensuring that those liable to the Welsh devolved taxes pay the amount of tax, and at the time, the Senedd intended when passing the Welsh Tax Acts. This will enable the Welsh Government to protect its finances in order to fund public services. The costs of not being able to halt avoidance activity as quickly as possible will depend on the activity targeted. It could amount to significant amounts of lost tax revenue.

iii. Boosting the resources available for public bodies in Wales to invest in improving well-being

2.11 The legislation supports the aim to adapt a tax collection and management system to meet Welsh priorities. It provides an additional tool to ensure Welsh Ministers can make changes to the Welsh Tax Acts in a flexible and proportionate way, particularly in response to the UK government making changes to predecessor taxes which may have impacts on the Welsh Government’s overall resources. This will enable the Welsh Government to protect its finances which are used to fund public services, or provide tax reductions to taxpayers depending upon the circumstances.

iv. Delivering enhanced fiscal levers for the Welsh Ministers

2.12 The Bill aims to provide Welsh Ministers with an additional fiscal lever to respond to external circumstances and make changes via secondary legislation (using either the draft or made affirmative procedure) in areas of the Welsh Tax Acts where currently the only option would be to either introduce primary legislation, with longer timescales, or emergency legislation (or in some cases the already existing draft affirmative powers but where the change is deemed to be necessary immediately).

2.13 A key feature of using the made affirmative procedure in some circumstances is that the effect of the changes can be brought in with immediate effect thereby increasing revenues, or decreasing where the Welsh Government’s policy is to do so. This will provide clarity to taxpayers and their representatives. Enabling the Welsh Government to make immediate changes to the devolved taxes will also minimise the potential impact on the Welsh Government’s overall resources. Enabling legislative changes to have immediate effect also ensures taxpayers can benefit from those changes as quickly as possible. This gives Welsh Ministers better control over the budget for Welsh public services. This is in line with the well-being goal to create a prosperous Wales, allowing Welsh Ministers to use enhanced fiscal levers for Welsh Ministers to improve outcomes for the people of Wales as timeously as possible.

2.14 This enhanced fiscal lever will enable Welsh Ministers to have a greater degree of parity to the UK government, as the UK government already has the ability to make changes to existing taxes with immediate effect through the Provisional Collection of Taxes Act 1968.

2.15 The Welsh Government has considered the positive and negative impacts of the Welsh Tax Acts (Power to Modify) Bill and the processes that can be put in place to mitigate the negative impacts. On balance, our view is that our approach to implementing the Bill supports our legitimate aim to help protect Welsh Government revenues.

How will the impact of the proposal be monitored and evaluated as it progresses and when it concludes?

2.16 The Bill provides powers for future use through secondary legislation as and when required. This means that nothing will be implemented when the Bill receives Royal Assent or is commenced. However, the effect of this Bill and associated regulations may be assessed in a number of ways. Although it is possible to set a specific timescale for review, this would need to take into consideration that the powers may not have been utilised, or may have been utilised very infrequently by the time of the review.

2.17 The Land Transaction Tax and Anti-avoidance of Devolved Taxes Act (Wales) 2017 provides at Section 77 that Welsh Ministers must make arrangements for an independent review of land transaction tax to be completed within 6 years - that is by May 2023. This review will encompass all of the subordinate legislation made under the 2017 Act. A commitment was also made during the passage of the Landfill Disposals Tax Bill, for an independent review of landfill disposals tax legislation to be carried out alongside similar timings.

2.18 It is unlikely that any regulations will have been made using the powers in this Bill in time for the completion of the independent reviews of LTT and LDT. However, the regulations would be considered as part of any future review of devolved taxes after this date. In addition, review of this legislation, and the regulations made using it, could be undertaken as part of ongoing consideration of the feasibility and appropriateness of a future annual Welsh Finance Bill.

Annex 1: Children’s rights impact assessment

1. Describe and explain the impact of the proposal on children and young people

1.1 The Bill provides for implementation through enabling the Welsh Ministers to make subordinate legislation. There are, therefore, no direct impacts as a result of the Bill itself, and the Bill in isolation is likely to have no impact on children and young people. The Welsh Government will consult on the content of any future subordinate legislation where it is considered appropriate to do so. The precise nature of consultation will be decided dependent on the nature of the proposals. A separate impact assessment would be completed each time the powers are used to make regulations to effect changes to the Welsh Tax Acts, including consideration of the impact on children and young people.

1.2 The primary intended effect of the legislation is to provide Welsh Ministers with a proportionate mechanism to protect Welsh revenues raised through devolved taxes, and to avoid adverse implications for businesses, the property market, the environment and the resources available to the Welsh Government. Devolved taxes raise revenue to fund public spending in Wales, including provision for services for children and young people.

1.3 Not implementing this legislation could result in future reduced revenue for the Welsh Government, which in turn would mean less resource to spend on public services in Wales (including, for example, schools, health services, early years provision), this Bill and protecting public service spend is an indirect positive action for children and young people.

1.4 The 2020 Tax Devolution in Wales - Enabling changes to the Welsh Tax Acts consultation was a technical consultation aimed at tax and accountancy practitioners. Children and young people were therefore not specifically targeted and no responses were received from specific organisations representing the rights of children and young people.

1.5 No negative impacts on Children and young people have been identified as a result of this Bill.

1.6 No specific impacts have been identified in relation to EU Citizens rights that relate to young people up to the age of 18 as a result of this legislation.

2. How does your piece of work support and promote children’s rights?

2.1 The Bill itself does not impact on children and young people as its primary function is to provide a regulation-making purpose which may be used by Welsh Ministers to respond to specific circumstances. The regulation-making power provided by the Bill has the potential to indirectly positively support many of the articles within the UNCRC as the primary aim is to protect Welsh revenues which are used to fund public services benefitting children and young people. This could include, for example, schools and hospitals or early years provision.

Annex 2: Justice impact assessment

1.1 The Welsh Government’s assessment of the impacts of this legislation on the justice system is that it has No or negligible potential impact.

1.2 This is because:

  • The Bill operates to provide the Welsh Ministers with power to make secondary legislation in order to respond to a number of external circumstances where a change to the Welsh Tax Acts, or regulations made under those Acts, is required to have effect immediately or very soon thereafter.
  • There is therefore no impact on the justice system as a direct result of the Bill.
  • A separate regulatory impact assessment, including the impact of any secondary legislation on the justice system if relevant, would be completed as and when the powers provided by the Bill are used to make regulations to effect changes to the Welsh Tax Acts.
  • The rest of the JSII form has therefore not been completed.

1.3 The Bill enables such changes to be made by way of regulations made by Welsh Ministers, which may potentially, on rare occasion, include retrospective provision, depending on the legislative requirements of the situation. There is no impact on the justice system as a direct result of the Bill.

1.4 The intended effect of the Bill is to provide Welsh Ministers with a proportionate mechanism to protect Welsh revenues with immediate effect to avoid adverse implications for businesses, the property market, the environment and the resources available to the Welsh Government. Without this option, the Welsh Government could be in the scenario that it either needs to operate with a reduced budget or find alternative ways of raising such revenues to maintain existing resource levels.

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