Constitutional consequences of Conservative tax cuts 

Victoria Winckler, director of the Bevan Foundation, looks at the implications of the Conservative leadership candidates’ proposed tax cuts 

Both Candidates in the Conservative leadership contest are promising tax cuts. The only difference is by how much and when. Sunak has pledged to cut taxes by about £23 billion a year over the next decade whereas Truss has pledged cuts of at least £38 billion a year. This is not loose change, and has huge implications for public services. It also has implications for Wales’ constitutional future. 

Cuts to public spending 

Tax cuts on the scale being mooted will bring swingeing cuts not only to UK coffers but also to the Welsh Government’s budget. Eighty per cent of the Welsh Government’s funds come from the UK Treasury, with the amount being determined by a percentage of whatever is spent in England. Cuts to spending on the NHS, local government or education in England automatically result in cuts to the Welsh Government’s funding. 

The Welsh Government had a mandate from the Welsh people in the 2021 election for expanding most public services. The Labour manifesto and subsequent co-operation agreement with Plaid includes some key and costly pledges such as universal free school meals for primary pupils and extending the childcare offer to two-year-olds. Cuts to the Welsh block grant could jeopardise these plans – and much more. 

Welsh income tax won’t offset cuts 

It’s unclear how Truss or Sunak will implement their proposed tax cuts – whether through raising the income tax threshold or reducing the rate or a combination of both. Whichever it is, the current income tax devolution arrangements mean there is little the Welsh Government can do to compensate for the cuts.

It cannot vary tax bands, and it’s limited to varying the tax rate by what’s often seen as as the maximum acceptable variation of a mere 2p in the pound. Even if the Welsh Government decided on a higher rate of tax, the revenue generated by a mere 2p in the pound is modest and is highly unlikely to offset the loss to its block grant. 

Will tax cuts increase calls for independence? 

The Welsh Government may well be faced with having to implement savage cuts to public services when it was elected to do the exact opposite. For once, pointing the finger of blame at Westminster for closing schools and queues of ambulances will be justified. 

We’ve seen in the past how changes imposed by the UK Government against the wishes of people in Wales have increased sympathies for greater separation between Wales and the rest of the UK. The scale of the Sunak or Truss cuts – on top of recovery from Covid and soaring inflation – could well tip public opinion in favour of independence. Already a YouGov poll is reporting that 30% of people in Wales would be in favour of independence if Truss wins – and that’s before people are faced with major cuts to public services.

Rash promises made to appeal to a tiny Conservative electorate may well have far wider consequences.