Wales Election 2016

Income tax policies in Welsh and Scottish elections

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There are stark differences between the political parties' income tax plans in Wales and Scotland, writes Guto Ifan from Cardiff University's Wales Governance Centre.

"Don't spend it all at once!"

The guarded plea from every parent gingerly handing out the week's pocket money is not too dissimilar to the way that Westminster has funded Welsh public services since the start of devolution.

The Welsh Government receives an annual block grant of around £15bn from the Treasury and can spend this freely on the devolved public services it is responsible for.

But, unlike elected politicians at the UK level, members of the Welsh Assembly and the Scottish Parliament have had virtually no say over the overall size of the budget.

As a result, devolved election campaigns since 1999 have tended to centre on relatively small policy changes in how to carve up the devolved spending pie.

But in 2016, in both Scotland and Wales, fiscal devolution is beginning to change this.

In fact, tax has emerged as the defining issue of the 2016 Holyrood election campaign.

Image copyright PA
Image caption Tax has loomed large as in issue in the campaign for election to the Scottish Parliament

As the highest yielding devolved tax that is highly "visible" to voters, proposals put forward by the Scottish political parties on income tax have taken centre stage in the debate.

From next year, all income tax revenue (except for savings and dividends income) will be devolved to Scotland.

In Wales, income tax is also set to be partially devolved, with the Welsh Government assuming responsibility for a 10p share from each tax band, allowing income tax to feature in an assembly election for the first time.

However, because Wales and Westminster have yet to agree exactly how and when income tax will be devolved, this uncertainty has somewhat subdued the debate on income tax policy for this Senedd election.

Meanwhile, in Scotland, an imminent timeline and an agreed (if somewhat messy) fiscal framework are already in place, forcing each party to outline what they would do with the new powers.

Notwithstanding these differences, a comparison of manifesto pledges on income tax by parties in the two countries reveals some striking differences.

The election campaign in Scotland has centred on whether or not the next government should raise income taxes to offset public spending cuts from Westminster, and by how much, to further invest in public services.

By way of contrast, no Welsh party has yet ventured to suggest raising tax rates.

The differences between the positions of the UK-wide parties in their respective Welsh and Scottish manifestos are particularly striking.

Scottish Labour has attempted to outmanoeuvre the SNP by proposing to raise the basic and higher rates of tax by 1p, and the additional rate by 5p.

The leader Kezia Dugdale argues their plan is the "only way to end austerity" and invest in public services.

In contrast, Welsh Labour has given a firm guarantee not to raise income tax rates when the powers are devolved.

The most conspicuous proposals on income tax in Wales have come from the Welsh Conservatives, who have suggested they would cut 2p from the basic rate and 5p from the higher rate.

The Scottish Conservatives had similarly called for a reduction in income tax rates, but have since decided that cutting tax would be currently unaffordable for the Scottish budget.

Instead, the party has pledged to match UK tax rates and thresholds over the course of the next parliamentary term.

The Liberal Democrats in Scotland have pledged to increase all rates by 1p.

In contrast, Welsh Liberal Democrats will look to cut tax rates for low and middle income earners in the future, and have previously called for a 1p cut in the basic rate of income tax.

These policy differences may reflect the extent of powers being devolved.

After the full devolution of income tax, Scottish policymakers will have full control not only of income tax rates but over the levels at which taxpayers pay the higher and additional rates of tax.

A key election question that has emerged in Scotland is whether the parties will raise the higher rate income tax threshold as Chancellor George Osborne increases it for the rest of the UK over the next few years.

The Scottish powers also allow the restructuring of tax bands, such as the policy proposals made by the Scottish Greens.

In contrast, the Welsh rates of income tax set by the Welsh Government will apply to the thresholds set by the UK Government, providing less flexibility and adding another potential source of uncertainty to the costs and benefits of any policy rate change.

Image caption Agreement has not yet been reached on how and when income tax powers will be devolved to Cardiff Bay

Plaid Cymru's policy of creating a new "middle rate" of tax would appear to require moving towards a model similar to Scotland.

The prospective fortunes of the parties in both elections also strongly influence their income tax policies.

For example, as governing parties and the parties most likely to form the next government, it is harder for Welsh Labour and the SNP to commit to radical income tax policy changes which they would be bound to implement.

More generally, it could be argued the contrasting debates on income tax in both countries may point to a divergence in the perceived political centre ground of both countries, though it would be wrong to ignore the complexities involved and analyse the tax proposals solely in terms of being left- or right-wing.

The differences between the positions of the UK-wide parties also suggest the diminishing influence of centralised policy control.

Parties in Wales and Scotland have increasingly stressed the autonomous "national" dimension of their parties, opening the possibility for such contradictory policy stances.

In the political parties' choices over the tax policies they offer to a waiting electorate, there is another sign perhaps that the days of a uniform "British Politics" across these islands are numbered.

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