The Treasury is considering plans to give the Welsh Assembly taxation powers that would allow it to vary the rates of tax that apply to people who live and work in Wales in a bid to encourage more investment in the country.

The government is currently evaluating its response to the Silk Commission which reported in November last year and recommended that some tax-raising powers should be devolved to the Welsh Assembly, such as landfill tax, stamp duty, business rates and aggregates levy. It also said responsibility for income tax should be shared between Wales and Westminster.

According to the Independent Conservative sources now say they are in favour of devolving decisions on income tax to the Welsh Assembly, as this mirrors plans to give the Scottish Parliament power to vary tax rates due to come into effect in 2016.

In a speech later today Andrew Davies, the leader of the Welsh Conservatives, will suggest that his party would use the devolved powers to cut tax for those at the 40% per cent rate.

Davies is expected to say: 'Tax is one of the most important levers that any government has at its disposal. If some elements of income tax are devolved, it would be necessary to look at a period of reduced taxation for those paying the 40% tax rate. This would not only send out a strong sign to business in competing regions of the UK, but it would spell out that Wales is well and truly open for business.'

Currently the British government spends £18bn more a year on Wales than it gets back. Only one in 16 people come into the higher 40% tax band.

An opinion poll for the Silk Commission found that 64% of those living in Wales favoured income tax devolution, with 33% opposed. The poll also found that a majority believed that the Welsh government would 'work harder' to help the Welsh economy grow.