Tax Devolution — Mike Hedges AM
Council tax and National Non Domestic Rates (NNDR) have been devolved for some time. The Wales Act 2014 devolved certain other tax and borrowing powers to Wales. The Act enabled the Welsh Government to legislate in respect of Stamp Duty Land Tax (SDLT) and Landfill Tax (LT).
The Act also legislated for the partial devolution of income tax to Wales, the Welsh Rates of Income Tax (WRIT). Land Transaction Tax (LTT) and Landfill Disposals Tax (LDT) went live in Wales on 1 April 2018, and are administered and collected by the Welsh Revenue Authority (WRA). We have now reached the end of the First year of devolved Land Transaction tax and land disposal tax and it appears to have gone smoothly.
Land disposal tax raises very little money and the amount raised is reducing year on year. The aim of the tax, when first brought in, was to affect behaviour rather than to raise money and that is still the case. It was brought in to increase the cost of landfill disposal compared to recycling and thus make it not cost effective for people disposing of waste to continue to use landfill. It has worked as Wales is one of the best nations in the World for recycling.
Land transaction tax has the ability to vary enormously between years. Between 2007/8 and 2010/11 it is estimated to have halved. The only tax more volatile is capital gains tax. Outside of recessions it is remarkably stable and slow steady growth is predicted by the office for budget responsibility.
We are about to enter the first year of partially devolved income tax. The Welsh Government can vary the rate of income tax but have made a commitment not to increase it before the 2021 election. The Scotland Act 1998 transferred the power to legislate for local taxation and also the power to vary income tax by plus or minus 3 pence in the pound. This was not used by Labour or SNP led governments in Scotland.
I cannot foresee the income tax basic rate being varied in Wales. Increase it and there will be a voter backlash on paying more than England. Decrease it and there will be even greater cuts in public services.
One of the things I believe we have a duty to do, is to explain the partial devolution of income tax and that it will not currently affect the amount that individuals pay. Whilst 10p of the tax rate will be allocated to Wales and if the relative tax collection rate in Wales due to relative economic growth increases then Wales will have more money for public services.
Finally there is the opportunity to bring in new taxes and I consider four below, a combination of income generation and behaviour taxes.
A City tax, known more commonly as tourism tax is a small fee charged to visitors by the local Council. This goes towards financing and maintaining facilities in the area, producing brochures, tourist activities and modernising tourist attractions including museums and castles as well as disposing of the extra rubbish generated by tourists. It is however, usually up to each Council to decide how much they charge.
Prices vary between countries and even cities within the countries. Countries with a tourism tax include, France, Germany, Italy, Portugal, Spain, Switzerland, Greece, Belgium, Slovenia, Croatia and USA. Such a tax could be levied locally and it would be up to each council to set its rate and to collect it.
A bottle tax, which is common in Europe, where consumers pay between 8p and 22p extra for each bottle which they get back when they return their bottles. Deposit systems are already successfully operating in 38 countries around the world, producing average recycle rates for collected materials of 90 per cent and reaching as high as 95 per cent in Norway. The plans could involve a network of reverse vending machines, where people could insert their bottles — plastic, glass and metal — and be reimbursed. Of course those that do not return the bottles, having paid the deposit, will be making a donation to the treasury.
A “latte levy” on disposable coffee cups could be introduced in to reduce waste, UK ministers rejected calls for a 25p charge per single-use cup in the Autumn Budget, proposing a plastic packaging tax instead. Not-for-profit organisation “City to Sea” now wants the Welsh Government to take the lead, as it did with the 5p carrier bag charge.
Land value tax is a payment for benefits received and could replace council tax and national non domestic rates. Properly applied, Land Value Tax would support a whole range of social and economic initiatives, including housing, transport and other infrastructural investments.
The value of every parcel of land in Wales would be assessed regularly and the land value tax levied as a percentage of those assessed values. “Land” means the site alone, not counting any improvements and thus ends the situation where when a piece of land is improved the amount charged increases. The value of buildings, crops, drainage or any other works which people have erected or carried out on each plot of land would be ignored, but it would be assumed that all neighbouring properties were developed as at the time of the valuation; other things being equal, a vacant site in a row of houses would be assessed at the same value as the adjacent sites occupied by houses.
The valuation would be based on market evidence, in accordance with the optimum use of the land within the planning regulations. If the current planning restrictions on the use were altered, the site would be reassessed.
Mike Hedges is the Assembly Member for Swansea East.