Empowerment and Responsibility: Financial Powers to Strengthen Wales

Lord Rowlands Excerpts

Tuesday 11th December 2012 Grand Committee

[Lord Rowlands]

My Lords, I support a number of findings of the Silk commission. I support the proposed transfer of stamp duty land tax, of minor taxes and of business rates, as mentioned by the noble Lord, Lord Wigley. I also support the idea of additional borrowing powers. It is absolutely absurd that a Welsh Assembly Government cannot borrow when almost every other authority can. Apparently to do that one needs to service the debt. I assume and hope—perhaps the Minister will confirm this—that if you transfer the range of minor taxes, plus stamp duty land tax, it will bring in sufficient income to service any borrowing power. If that is the case, the package will be easy to introduce immediately. I also agree with all noble Lords who stated that it would be impossible to introduce major tax-varying powers unless the Barnett issue was addressed. There is little or no point in having tax devolution if such underfunding has not been addressed.

I will confine my remaining remarks entirely to one issue that I have raised before: my concern about the effect on low-income communities such as those I represented of raising tax rates by 3 percentage points or more. I hoped that the Silk commission would tell us what the impact would be on those communities of exercising such a power. I found the answer on two very difficult—in fact, almost incomprehensible—pages on estimates of the impact of income tax changes in Wales. There is a very complex equation and the introduction of the notion of the elasticity of taxable income. I hope that the Minister will translate those two pages into language that I can understand. It is essential to understand the impact the changes would have. If we will the power to a Government to raise the basic rate of tax by, say, 3p or whatever, we should understand the consequences for communities.

The most interesting in a wealth of tables in the report is that on income and income tax in Wales in 2009-10. It shows that of the 1,390,000 individuals who paid tax, 900,000—nearly two-thirds—had an annual income of between £10,000 and £20,000. Nearly 1.4 million people fell into that income tax bracket. I suspect that the percentage was bigger in Merthyr because the percentage of those on lower incomes will have been even higher. That substantial group of 900,000 or more would carry the additional tax burden if we raised the basic rate of income tax. Therefore, I am concerned that if we go down this path, it could lead to a regressive form of taxation. In constituencies such as the one I represented, we would be swapping—in fact, converting—beneficial public expenditure into a tax burden. That would be the effect of implementing additional rates of income tax. We must be honest. Politically it is highly unlikely that a future Welsh Assembly Government of any complexion will substantially reduce income tax and cut expenditure. The whole ethos of political life, among almost all parties now, would be against such a proposal.

If we will the power, we have to accept the consequence of it. I am not convinced, as the people on whom the burden of this would fall are those who should least expect to carry that burden. I keep an open mind, and am very supportive of all the other range of taxes, but I remain sceptical until I can find out exactly what the impact would be on the communities I represented of raising the basic rate of tax above the standard rate. We are not only talking about raising it 1p, 2p or 3p but, at this moment, have a very unfair tax anyway. The moment you come into tax and use up your personal allowances, which will eventually be around the £10,000 mark by the end of this Parliament, the tax on every pound then leaps from 0% to 20% because there is no middle band. I deeply regret the previous Administration’s abolition of the 10p band and have not been able to work out whether Silk recommends that a Welsh Government could actually introduce one. That would at least make an easier tax progression, if that was possible. I am sorry to end on a discordant note but, although it is now 10 years since I represented my former constituency, I still sense and feel that an injustice could be perpetrated if we started to raise the basic rate of tax on low-income communities and low-income families of the kind I represented.