The Commission looking at the future powers of the Welsh government and Assembly has recommended ministers and assembly members (AMs) in Cardiff be provided with powers which would see a quarter of the Welsh government’s entire budget funded by taxes decided and raised in Wales itself.
Publishing its first report on strengthening the fiscal powers available to Cardiff Bay, the cross-party Silk Commission recommended that decisions over business rates; stamp duty; landfill tax; capital gains tax; inheritance tax; vehicle tax; and alcohol and exercise duties should be among those set and decided upon by the Welsh Assembly.
Most eye catching of all, however, the Commission recommends a referendum be held over the Welsh government being given responsibility for setting income tax in Wales.
A proposal which would see new Welsh rates of income tax, collected by HMRC, which should, the report argues, “apply to the basic and higher and additional rates of income tax”.
The report goes on to state:
“The basic, higher and additional rates of income tax levied by the UK government in Wales should be reduced initially by 10 pence in the pound. Over time the Welsh government’s share could increase if there is political consensus.”
However, the report notes such a system could only be implemented:
“…upon resolving the issue of fair funding in a way that is agreed by both the Welsh and UK governments.”
The report goes on to recommend strengthened borrowing powers for the Welsh government to invest in capital projects, as well as a number of institutional changes to improve the financial accountability of the Welsh Government and Assembly.
Outlining the context in which the proposals have been made, Daniel Davies, BBC Wales political reporter, explained:
“Voters gave the Welsh Assembly more law-making powers in a referendum last year. That puts the assembly in a unique situation compared to other legislatures around the world, the Silk Commission says. It means AMs can make laws and spend money, but they can’t control how much we pay in tax.
“To remedy this “anomaly” it recommends another referendum, this time on whether we want the assembly to vary income tax rates. Opinion polls carried out for the Silk Commission suggest we like the idea.
“Income tax is the biggest source of tax revenue collected in Wales, accounting for about 30% of taxes collected. More than £4.8bn was collected in 2010-11, down from £5.1bn in 2007-08.
“Devolving income tax would be a “fundamental constitutional shift”, the Silk report says. Hence the need for another referendum. A bill allowing that referendum should be introduced in this parliament, it adds.
“If the Commission’s timetable is implemented, a new system where the Welsh and UK governments share the proceeds of income tax will be up and running in 2020.”
Declaring the proposals “historic”, the Commission’s chair, Paul Silk, said:
“Our package of recommendations meets the test of our Terms of Reference: to come up with recommendations which improve financial accountability, are consistent with the UK’s fiscal objectives and command a wide degree of support.”
“The Commission worked closely as a team over the past year and have all agreed recommendations which we firmly believe would benefit Wales and strengthen its democracy and economy. Our proposals would provide the Welsh government with an important set of fiscal levers and would enable political parties in Wales to offer people real fiscal choices.
“What we are recommending is significant and historic. It will give Wales its own tax and borrowing system for the first time. The Commission is delighted to present our agreed report to the UK government and we hope for speedy implementation.”
As the UK government pledged to give serious consideration to the report’s recommendations, across Wales there was widespread support for the report’s conclusions.
Expressing particular support for the recommendations over borrowing, which he declared to be “essential if we are to be given the tools to boost the economy in Wales”, first minister, Carwyn Jones, said of the report:
“Today’s report – coupled with the statement on funding reform that was published jointly with the UK government last month – provides a solid basis for delivering lasting reforms. We will now give the report careful consideration and will look to work with the UK government to make quick progress on this agenda.”
For Plaid Cymru, finance spokesman Ieuan Wyn Jones spoke of the report providing the basis for Wales to get rid of the “straitjacket of a block grant”.
Meanwhile, the Welsh Lib Dem leader, Kirsty Williams, called on Whitehall and Cardiff Bay to “work quickly and cooperatively to explore ways to implement the Silk Commission’s significant recommendations”, calling for a Wales Bill to implement the taxation proposals and for it to be brought forward within the current parliamentary term.
For the Welsh Conservatives, welcoming the report’s publication, the party’s shadow finance minister, Paul Davies, argued the devolution of some tax varying powers and greater capacity to borrow would “make Wales a more attractive place to do business and could fund major infrastructure projects”.