28 August 2015
Article by Richard Bettley, National Assembly for Wales Research Service
The Wales Act 2014 devolved specific tax powers to the National Assembly. The relevant taxes are stamp duty, landfill tax, a Welsh Rate of Income Tax (subject to a referendum) and aggregates levy (subject to legal challenge). It is expected that these tax powers will become active from 2018.
Section 116C of the Act allows for new devolved taxes to be created subject to the approval of ‘each House of Parliament and the Assembly’. In effect, the UK Government must therefore approve the creation of any new taxes in Wales.
The Wales Bill Command Paper (p22) sets out a clear list of the criteria against which any proposals for new taxes from the Welsh Government would be assessed by the UK Government. The criteria would include the extent to which the new tax:
- affects UK macro-economic or fiscal policy and/or the single market;
- may be non-compliant with EU legislation;
- increases tax avoidance risks; or
- creates additional compliance burdens for businesses and/or individuals;
- is aligned with devolved responsibilities.
Consistent with the process set out alongside the Scotland Bill, any proposal from the Welsh Government for a new tax would need to include full details on the following:
- the tax base (i.e. taxable activity);
- estimated revenue and economic impact;
- estimated impact on UK revenue or interaction with UK-wide taxes;
- expected impacts on business and individuals (including a distributional impact);
- assessment against all relevant legislation and directives, including the Human Rights Act, EU State Aid rules, Equality Act etc; and
- collection and compliance plans.
While there is scope to introduce new taxes, it can be seen that significant research and analysis would be required to support any Welsh Government proposal for a new devolved tax. It appears likely that several years of policy development and consultation would be required before the evidence is available, and the UK Government would still have the discretion not to support a proposal. Welsh Government are not currently proposing any new devolved taxes as they are focussed on implementing the taxes devolved under the Wales Act 2014. However, the Bevan Foundation is currently carrying out research into potential new taxes that are appropriate for Wales.