Wales' income tax powers set out by the Treasury

The Chief Secretary to the Treasury Danny Alexander spoke to BBC Wales political editor Nick Servini

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Wales will not get the power to vary individual income tax bands - even after a referendum, the Treasury says.

It means changes to the basic rate would also have be made in tandem to the higher rates.

Earlier this month Prime Minister David Cameron said Wales would be offered some control over income tax subject to a referendum.

Meanwhile, the chief secretary to the Treasury has announced business rates will be devolved in full.

The announcement came after the Silk Commission, set up by Westminster to look into devolved powers, said Wales should be responsible for raising some of the money it spends.

In June, the commission recommended the Welsh government should have the flexibility to move each tax band independently of each other.

But the UK government will only allow what is called a "lockstep" system.

Cut in higher rates

Under this system, every band has to be moved in tandem, so a 1p cut in the basic rate would also mean a 1p cut in the higher rates.

Scotland has never used its current income tax varying powers. Its "lockstep" powers do not come into force until 2016.

UK officials also decided against devolving Air Passenger Duty to Wales.

Chief Secretary to the Treasury Danny Alexander also announced that business rates would be devolved in full to Wales and also confirmed early access to borrowing powers.

Analysis

Two commissions - one conclusion.

Both Gerry Holtham and Paul Silk were tasked with examining how some income tax powers should be devolved to Wales.

Both came down firmly against importing the Scottish 'lockstep' model - so called because under this system, all three rates have to move in tandem, severely limiting policymakers' ability to deliver targeted tax cuts or rises.

Instead, they said each of the three should be independently variable to deliver maximum flexibility.

Taking their cue from Holtham and Silk, all three opposition parties in Cardiff Bay have already floated proposals for changes to individual bands.

But it seems even after a referendum, these are likely to remain a pipe dream.

Today, the Treasury's announced that the "lockstep" model is to be offered to Wales, ruling out the more flexible system.

This has important implications for the Welsh parties. It means that income tax cuts or rises will become a very blunt instrument, and the cost of a tax cut of 1p in the pound or more will run at least £150m, because it would have to cover all income tax payers in Wales.

Chief Secretary to the Treasury Danny Alexander said while the UK Government was keen to offer the Welsh government powers over income tax, the "progressivity" as he put it of rates between bands should remain a matter for him and his colleagues at Westminster.

Scotland have never used their income tax varying powers.

It will take a brave politician in Wales who would shift the whole income tax system up or down under the lockstep system - no matter how popular a tax cut might be with Welsh voters.

He said: "Since the formation of the Welsh Assembly 15 years ago, it's been in a unique position and not necessarily for the right reasons.

"It's been able to spend money and make laws but it has never had any control over how it raises through tax.

"For too long Westminster hasn't been treating the Welsh Assembly like an equal partner.

"Today's detailed response to the Silk Commission represents a major step forward of Wales within the United Kingdom.

"We are delivering tax and borrowing powers to the people of Wales to help their nation flourish in partnership with the rest of the UK.

"We are providing twin tools which can drive investment, rebuild infrastructure and secure a more prosperous future.

"These are decisions that demonstrates that all parts of the UK benefit from working closely alongside one another and another demonstration that we are better together."

A referendum will ask the people of Wales if they would like to see a "lockstep" system introduced.

The Welsh Secretary David Jones urged the Welsh government to hold a referendum soon. He said his party would campaign for a "yes" vote in order to cut tax rates by 1p or more.

Paul Silk, chair of the commission, said he was "pleased" the majority of the recommendations had been taken forward by the UK government.

Strong case

"In our first report we presented a strong case for allowing the Welsh government to set the rate for each band of income tax separately. We note that income tax devolution will be taken forward based on the Scottish model and look forward to the debate that will follow.

"Today's response is an important step forward. The implementation of our recommendations will bring the empowerment and responsibility we believe is necessary for devolved government in Wales."

Since the Assembly was formed in 1999, there has been growing calls for its powers to be expanded.

In 2011, a referendum was passed giving the institution the ability to pass its own laws in 20 areas - without having to get permission from Westminster first.

Five months later, the Silk Commission was set up.

Start Quote

The Silk Commission and the Welsh government put forward strong cases in favour of the tax being devolved”

End Quote Jane Hutt Wales' Finance Minister

Wales' Finance Minister, Jane Hutt, said she was pleased with the devolution of non-domestic business rates to Wales.

Ms Hutt joined Mr Jones and Mr Alexander at the press conference in Cathays Park, Cardiff.

She said: "This is another important lever to support the economy.

"It will give us the same flexibility already enjoyed by Scottish ministers."

However, referring to long-haul air passenger duty, Ms Hutt said she "could not pretend" that the Welsh government had got everything it asked for.

She said: "The Silk Commission and the Welsh government put forward strong cases in favour of the tax being devolved.

"It has already been devolved to Northern Ireland, so I will continue to press this case."

Ms Hutt also said it would be a Welsh government priority to get the income tax referendum "on the statute book".

She added: "I've always been clear that any new powers coming to Wales should be for a purpose - to help create jobs and support the economy."

Paul Davies AM, shadow Conservative minister for finance, welcomed the announcements.

"Under these plans, the Welsh government will be made fully accountable for its spending decisions for the first time and forced to deliver value for money for taxpayers," he said.

"We back the enabling of a referendum on the devolution of income tax and look forward to working with other parties to set out a clear roadmap to giving the people of Wales their say."

Mr Davies said the proposals would "bring an end to the Welsh Labour government's culture of whingeing and blaming Westminster for its problems".

Kirsty Williams, leader of the Welsh Liberal Democrats, called it an "important step forward" for the country.

"At every stage we have been pressing, and we will continue to press, to bring more accountability and responsibility to the Welsh government," she said.

"We want Wales to have further powers to drive forward Wales' economic development, creating jobs and prosperity for our people."

Plaid Cymru leader Leanne Wood called for the UK government to reconsider and follow the commission's recommendations in full.

"The Silk Commission's recommendations were a package which should be accepted by everybody and not cherry-picked," she said.

"It was recommended that Wales should have income tax varying powers that would allow us to change the three rates of income tax according to what is best for Wales, rather than the UK Government's lockstep that would force us to raise or lower all rates together at the same time."

On the devolution of business rates, the Federation of Small Businesses in Wales said it had been "consistently and forcefully" campaigning for it.

"The full devolution of powers over non-domestic rates to Cardiff Bay now opens the way for the reform of the current Welsh business rates regime, which is the most onerous for small businesses in any constituent nation of the UK," said the FSB's Iestyn Davies.

CBI Wales director Emma Watkins added: "Businesses will hope that full devolution of business rates will encourage the Welsh government to support development and attract new investment."

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