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Could new taxes really make Wales a better place to live?

July 4th 2017

AMs are set to debate the power to introduce new Welsh taxes in plenary today. Nisreen Mansour considers what this might mean for Wales, and what any new tax may look like.

This afternoon, AMs will debate a government motion on considering the case for new taxes in Wales, which proposes that the National Assembly for Wales:

  1. Notes that the Wales Act 2014 allows for the creation of new Welsh taxes.
  2. Recognises that it will be necessary to test this new aspect of the devolution machinery.
  3. Welcomes a wide range of potential ideas for use of this new fiscal possibility in Wales.

While it may be unusual to take such an open approach to a government debate, it might be just what’s needed to stimulate a broader discussion on this topic. There was little mention of it in the parties’ manifestos last year,  and there’s still no obvious front-runner for the first new Welsh tax.

Around two years ago we started a project which looked at the potential of new Welsh taxes. We were met with plenty of questions about whether Wales actually had this power, and poor awareness of the taxes that have been devolved. We hope that this has started to change since we published the project’s final report last June. Of course, a tax won’t always be the right approach – but it is an important policy lever  which could increase corporate accountability and improve people’s lives.

In theory, there are no restrictions on what the new tax could be:

There are many reasons why you might want to tax a particular product or activity. It could simply be about raising revenue, or it could be an attempt to reduce a ‘harm’ of some form by raising the cost of it. For example, we proposed the introduction of a tax on polystyrene packaging in the takeaway food and drink industry. The purpose was to reduce the incentive to purchase polystyrene packaging and give the biodegradable packaging industry a boost, in a similar way to how the carrier bag charge has changed behaviour.

But it is not necessarily straightforward, and . In the case of a packaging tax paid by the takeaway shop owner, it is difficult to implement on goods  bought in England or online. If the tax is passed on to the consumer, there is a case for it to be mandatory to offer a non-taxed alternative. And even the language used can come into question, as very few materials can be described as non-recyclable.

But it can’t have a negative impact on HM Treasury receipts:

While the Wales Act 2014 permits the introduction of new Welsh taxes, it does so with strings – lots of strings.  These make it unlikely that any new tax will raise a significant revenue for the Welsh Treasury, and is one of the reasons why our work focussed on how taxes could prevent the harmful behaviour of corporations and individuals instead.

The Command Paper states that any new tax will be assessed against a range of criteria, including the extent to which the new tax:

  • affects UK macro-economic or fiscal policy and/or the single market;
  • complied with EU legislation;
  • increases tax avoidance risks; or creates additional compliance burdens for businesses and/or individuals;
  • is aligned with devolved responsibilities.

So regardless of what new tax you wish to introduce, there will be a number of hurdles to overcome before you can do so – including the approval of the UK Parliament.

No one wants new taxes for the sake of it and, as the amendments to today’s motion highlight, no new taxes should go un-monitored either. But baseless assumptions about  attitudes to tax should not stop this new power being used for good, and so we need to keep this discussion going in Wales if we’re to make best use of it. We’ll be watching the session tomorrow afternoon with great interest, and look forward to hearing the range of views and proposals that this debate certainly needs.

The Bevan Foundation’s work on new Welsh taxes was generously funded by the Joseph Rowntree Charitable Trust. Find out more about it here.

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