From April 2019, the UK government will reduce the three rates of income tax paid by Welsh taxpayers, in line with the system in Scotland under the Scottish rate of icome tax. As a result the basic rate drops from 20% to 10%; the higher rate from 40% to 30%; and the additional rate from 45% to 35%.

The Welsh government is then able to set Welsh rates which will be added to the basic rates. Estimates had suggested that putting 1p on income tax would raise between £200m and £210m.

However, in the Welsh Budget for 2019/20, which was approved by the Assembly this week, the rates were kept the same as for the rest of the UK (rUK).

Calling the decision ‘sensible’, Ritchie Tout, vice-chair of CIOT’s Welsh taxes technical committee said: ‘It is best to let the system of identifying Welsh taxpayers settle in for at least a year before giving any cause for further confusion among taxpayers by changing rates or bands.

‘Changes to the income tax structure for high earners or businesses carry a significant risk that decisions on where to locate will be based on tax. This is a threat to Wales with our long and well populated border with England.

‘The potential consequences, if the tax rates are increased, could be a reduction in the tax base due to migration or a large dead weight cost with no guarantee that it will be offset by an increase in the tax base if the rates are reduced.’

In future, Tout suggested the Welsh Assembly should consider a new approach to tax setting. 

‘Today the Welsh Budget process looks primarily at expenditure whereas what will be needed in the future is a focus on the detailed technical issues and on revenue raising.

‘This would be better dealt with in a Finance Bill process that scrutinises detailed technical changes. It would, in particular, provide an opportunity to make wider changes to the existing tax legislation than could be dealt with by regulations. A Finance Bill will be an opportunity to debate innovative new strategies for Wales,’ he said.

Report by Pat Sweet