Welsh Budget agreed by Senedd

Debate: Welsh Rates of Income Tax

Welsh rates of income tax (WRIT) raise around £2 billion each year towards the funding of the Welsh Government Budget. There was a debate on WRIT in which Senedd members agreed a motion that the Welsh rate for the purpose of calculating the basic rate of income tax is 10p in the pound, the Welsh rate for the purpose of calculating the higher rate of income tax is 10p in the pound and the Welsh rate for the purpose of calculating the additional rate of income tax is 10p in the pound. This means Welsh taxpayers will continue to pay the same income tax as English and Northern Irish taxpayers.

Welsh Finance Minister Rebecca Evans MS (photographed below thanks to Senedd) confirmed there would be no change to Welsh income tax levels in 2022-23. This would provide ‘stability’ for taxpayers at a time of uncertainty and wider global challenges, she said. Evans said that the UK Government's decision to increase national insurance contributions (NICs) on top of the tax changes it previously announced in its March 2021 UK Budget means that families already face a significant increase in their tax burden from April. This, the rise in the cost-of-living and the fact that we are still recovering from the pandemic also means ‘now is not the time to consider changes to WRIT’.

It is Welsh Labour policy not to increase income tax for as long as the economic impact of the pandemic lasts, the minister said. She said the first WRIT outturn figures for 2019-20 which were published by HMRC last year were close to the forecasts. The next outturn for 2020-21 is due to be published this summer.

Conservative Shadow Minister for Finance Peter Fox MS confirmed that his party supports the continuation of the freeze on the WRIT because it recognises all the pressures on families right now. Fox called on the Welsh Government to provide more clarity in indicating how it envisages using its taxation powers in the medium to long term, ‘to end the current uncertainty’, and to allow the Senedd to begin considering these plans and their potential impact on people's incomes.

Although backing the motion, Llyr Gruffydd MS, Plaid Cymru’s spokesperson, said the economic impact of the pandemic will be with us for many, many years and therefore is Evans suggesting that there will be no variation in the level of taxation during the years of this Senedd?  Gruffydd said the cost-of-living crisis and Ukraine crisis may mean that the Senedd will need flexibility to reduce taxes, perhaps, in response to the cost-of-living crisis, or to raise them to create extra revenue.

Evans closed this debate by saying there are many things happening, such as wind down of furlough, increases to energy prices, labour shortages and inflation, which mean it is not the right time to consider changes to WRIT. She said: “We need to consider the overall economic position and what that means for families and for taxpayers in Wales, but then also not to suggest that if we were to reach a certain point of the recovery it would automatically trigger an increase or a decrease because those things will be considered at that point.” In a swipe at Westminster, she added that we also need to be understanding of the overall tax burden on taxpayers, such as the UK Government increasing the tax burden on people and on households in Wales, and ‘this is really going to start to be felt from April onwards’.

The motion was agreed without objection.

Debate: Final Welsh Budget 2022-23

Finance Minister Rebecca Evans MS praised her Welsh Budget that provides nearly £2 billion of targeted green investment, ensures the Welsh NHS will receive £1.3 billion in direct funding, provides £0.75 billion extra for local authorities to support social care, schools and the other vital services, invests in the quality of school buildings through £900 million of capital funding and responds to the pandemic by including £7 million to continue to support vulnerable people and families across Wales through the discretionary assistance fund. This final Welsh Budget also includes an additional £184 million of financial transactions capital, allocations to further support the delivery of the Welsh Government’s priorities contained within the new 10-year Wales infrastructure investment strategy.

Looking ahead to the UK Spring Statement on 23 March, Evans said the key levers for tackling poverty, such as powers over the tax and welfare systems, are reserved powers, and they lie with the UK Government to utilise. She called on the UK Government to do more to respond to the crisis we face and urged the UK Government to provide the Senedd with replacements for EU funds, the loss of which has resulted in a cumulative gap of £1 billion in Welsh budgets.

Speaking as Chair of the Senedd Finance Committee, Peredur Owen Griffiths MS, Plaid Cymru, is pleased that the Welsh Government intends to run a campaign to raise the profiles of grants and schemes designed to address the cost-of-living crisis to ensure that the Welsh public are aware of their entitlements. But these campaigns must target the most vulnerable people to ensure they do not miss out, he said. Griffiths is disappointed that the final Welsh Budget does not increase the support for business rates relief, something which the committee had asked Evans to consider.

Griffiths is concerned about what he said is a lack of priority investment in digital infrastructure, or particular focus to supporting investment in digital infrastructure and help small retailers and other businesses to develop digital skills and an online presence. He is also disappointed that the Welsh Government has not clarified which specific Net Zero Wales commitments have been funded in the final budget. And it is not clear what impact inflation will have on Welsh Government costs, he added.

Welsh Conservative Peter Fox MS said his party will vote against this Welsh Budget because there are several structural issues that will continue to hamper our recovery from the pandemic, in his view. But he did welcome the changes made in the final Welsh Budget, which recognise the need to take actions to ease the current cost-of-living pressure, ‘many of which we on this side have called for’.

Fox did not outline Welsh Conservatives’ economic policies in his short contribution but they can be found in its manifesto - here. They include abolishing business rates for small businesses and reform the ‘outdated tax on growth’, helping people with the cost of living pressure, by delivering a council tax freeze for at least the next two years and building 100,000 new houses in the next decade to kickstart the Welsh economy.

Plaid Cymru spokesperson Llyr Gruffydd MS welcomed the Welsh Government pressing the UK Government for greater flexibility, for example, around carrying over funding from one financial year to another, and for greater powers around borrowing. He also supported the Welsh Budget’s greater use of reserves in the coming year and the over-programming of capital plans – but this must come with more regular updates from the Government and greater scrutiny as well from the Finance Committee.

Separately, Gruffydd said if funding to Wales had kept pace with inflation, ‘we'd be talking about at least £3 billion more today in this budget’. He added that the Welsh Budget delivers many Plaid Cymru’s manifesto pledges, such as free school meals, extending childcare to two year-olds, flooding control investment and creating Unnos, which is a national construction company to tackle housing problems.

Although supporting the Welsh Budget, Welsh Labour’s Mike Hedges MS said this debate would really be improved if we had alternative proposals, even if only at the level of ministerial budgets, from the Conservatives and Plaid Cymru. Hedges would have liked an increase in support for education, training and university innovation, and reduced expenditure on attracting inward investment. He said: “Provide the research capacity in the universities, provide a highly skilled workforce and the investors will come.” We need to solve the problem of operational management in the public sector to improve efficiency and effectiveness, he added. We need to concentrate on outcomes, he said, because the money we spend is public money that has been paid in taxes at different levels by people.

Welsh Lib Dem Leader Jane Dodds MS welcomes the additional investment in the pupil development grant, free school meals, £20 million for care leavers and the universal basic income pilot being funded ‘at last’. Dodds regrets what she sees as missed opportunities with the Welsh Budget regarding support for small business, on mental health and on community energy generation. She lambasted the UK Government for a loss of £1 billion to Wales by 2024 because of its failure to match EU funding commitments, a funding shortfall of £100 million for farmers, a loss of £5 billion of rail infrastructure investment because of Wales not getting HS2 consequentials and, ‘shamefully’, the £20 a week loss in universal credit for families.

Unlike Scotland and Northern Ireland, Wales does not receive Barnett consequentials directly from spending on HS2 because national rail infrastructure in England and Wales is reserved to the UK Government and for this reason the UK Treasury has assessed HS2 as a ‘national project’ which benefits both countries. Wales, however, has received increases in funding indirectly from increased spending on HS2 where the project has driven increases in the Department for Transport’s budget.

Welsh Conservative Janet Finch-Saunders MS countered by reminding Senedd members of the UK Conservative Government's 2021 Budget announcement of an extra £2.5 billion per year, on average, for the Welsh Government through the Barnett formula over the spending review period. And that this is on top of its annual baseline funding of £15.9 billion, she said.

Finch-Saunders was unhappy that the Welsh Government will use some of this money on paying for school meals for some children of parents on very high incomes, ‘wasting’ £20 million on a universal basic income pilot and reducing the capital budget for health and social care. Wales is ‘sadly lagging behind’ much of the UK when it comes to the installation of fast charging points for elective vehicles, she said, and Natural Resources Wales is actually receiving a real terms cut in its funding, she complained. The Welsh Budget does nothing to extend the rates relief for small-scale hydro plants, to encourage investment in such projects, she argued.

Welsh Labour MS Jenny Rathbone is pleased that the children's commissioner's budget has been given an uplift.

Responding to the debate, Rebecca Evans claimed that the Senedd members as a whole acknowledge that the Welsh Government has maximised its available funding to respond to both the short-term and longer term challenges that Wales is facing. She said: “The reason why we were able to provide a larger package of support here in Wales is because we've managed our money better. Through the course of the pandemic… we took very great care and diligence in the support we were providing to businesses and, as a result, again, you don't see these big write-offs of fraud that you see across the border.”

The final Welsh Budget was passed - 28 For, 14 Against with 12 Abstaining.

By Hamant Verma, CIOT Senior External Relations Officer