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Welsh income tax rates come a step closer

Welsh ministers could soon share control over income tax raised in Wales Photo: PA, Dominic Lipinski

Political parties have begun setting out how they'd alter Welsh income tax rates, less than a day after a major change to the law was announced which is likely to speed up the transfer of power over the tax.

The Welsh Conservatives have repeated their pledge from 2013 that they'd cut the 40p rate for higher earners by 5p in order to encourage businesses to grow. You can read about the controversy that caused when first announced by clicking here.

Now the Tories say they'd also cut the basic rate of income tax by 1p. Their leader in Wales, Andrew RT Davies, tells me why in the clip below:

Labour has criticised the proposals saying that 'on its own it will do nothing to help entrepreneurs in Wales.'

If the Tories were serious about helping start-ups then rather than cutting income tax for Wales’ highest earners they would join our calls on David Cameron and George Osborne to honour their promises on infrastructure investment and electrification.

Welsh Labour’s economic approach has been built around four major pillars: Supporting the Welsh economy and our businesses, investing in Welsh infrastructure, improving Welsh skills for employment, and creating a sustainable, low carbon economy. The Tories approach seems to be nothing more than off-the-cuff gesture politics.

– Lynne Neagle AM, Labour

The Welsh Liberal Democrats have previously said they'd cut the basic rate by 2p, estimating in 2013 that reducing the rate from 20p to 18p would cost around £360m but would give the average worker an extra £750 a year.

Meanwhile there's controversy over the means of transferring the power itself.

In his Spending Review statement on Wednesday, George Osborne said that there'd no longer need to be a referendum for Welsh ministers to be given control over half of each income tax rate.

Currently the change would need the backing of voters in a referendum.

Plaid Cymru and the Liberal Democrats have long argued against the need for such a vote and opinion in the other parties has been shifting, even if there continue to be vocal supporters of a referendum within the Conservatives and Labour.

The Welsh Government is being cautious about the move because it has concerns balanced against the fact that it welcomes it in principle.

In fact I understand from UK and Welsh Government sources that only a last-minute failure to agree a deal on devolving Air Passenger Duty to Wales prevented Carwyn Jones from publicly backing the change.

Ministers in Cardiff are also concerned that the Chancellor's pledge to ensure overall Welsh funding doesn't drop below a minimum level - the 'funding floor' - is only valid for the lifetime of this parliament.

As one Welsh Government source joked, 'income tax devolution is for life not just for Christmas.'

UK Government sources say that no parliament can tie the hands of another. That's been given short shrift by the Welsh Government which points out that the recent Charter for Budget Responsibility vote was designed to do just that.

'New era for Welsh politics'

Plaid Cymru wants income tax power sooner rather than later Credit: PA Wire

Plaid Cymru has welcomed the decision to drop the need for a referendum but wants to know when the transfer will take place.

Plaid Cymru welcomes the announcement that income tax powers will be devolved to Wales – this is an important step in making the Welsh Government properly responsible and accountable to the people of Wales. Our proposals on tax policy will depend on when income tax is expected to be partially devolved. Previously this was not likely to happen for some years yet, the government should now clarify when it will be devolved. Plaid Cymru looks forward to a new era for Welsh politics where a combination of different tax levers can be used innovatively, and we are encouraged that finally the government has yielded to Plaid Cymru demands.

– Alun Ffred Jones AM, Plaid Cymru
UKIP's Nathan Gill condemns referendum move as 'frankly outrageous' Credit: PA, Gareth Fuller

On the other side of the debate, UKIP says that the move is 'outrageous' and denies the people of Wales a say over a significant change.

It’s frankly outrageous that Osborne has opened the door to devolve tax raising powers to Wales without a referendum for the people. We’ve been told time and again that these powers would not be slipped in through the back door and the people of Wales would be given a say. We now face a situation where the Labour ­run Assembly, which has overseen a continuous decline in public services since establishment, will now have the power to set income tax rates without any demonstration that they are fiscally competent.

– Nathan Gill MEP, UKIP Wales leader

What will happen now is that the UK Government will amend the Wales Bill, which is currently going through Parliament, to make the changes.

The Welsh Government insists that any legislation will need the consent of the Assembly.

It's not clear yet if that legislation will simply transfer the powers on a specified date or require a trigger vote from the Assembly.

That's what will be the focus of discussions between the Treasury, Wales Office and Welsh Government although I understand those conversations have yet to start.

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