Wales politics

Tax and spend

It's a sign of the times that the biggest tax change announced by George Osborne in the Autumn Statement relates to a tax that will be devolved in a few years.

The changes to stamp duty across the UK kick in this week. It's being devolved in four years time.

The decision to remove the slab nature of the tax, where there are steep rises at set amounts like £250,000, was something being considered by Jane Hutt and her officials.

It was set to be the first high-profile Welsh tax introduced by the new treasury team at Cathays Park and the plan was to bring in something far more progressive than in England.

George Osborne has now rained on its parade. It's difficult to see what else it could do that would make it dramatically different to what's already been announced.

It could, in theory, follow the Welsh Conservatives, who have proposed that stamp duty is abolished for all properties under £250,000, but that will be a debate for the next assembly election.

Punches above weight

The Office for Budget Responsibility (OBR) has also set out for the first time what the revenues would be for the Welsh government from the taxes that are due to be devolved.

By 2020 it would be around £3bn, that's under a fifth of its overall budget.

The vast bulk is made up of receipts from taking control of 10 pence in the pound of income tax, something that may not happen.

The money from stamp duty is relatively small, at around £250m. As a tax it's fair to say it punches well above its weight in the attention it gets.

The OBR projections don't include business rates, which are being fully devolved next year.

They generate around £1bn a year. They are mostly devolved already, in that they are already set by the Welsh government and collected by councils.

Buffer

But that money doesn't go directly to the Welsh government.

Instead, ministers in Cardiff Bay get their share of the proceeds via the Treasury, which in the past has given them a buffer during the bad times when receipts are down.

That will now change and the Welsh government will receive it directly.

It's all part of efforts to give it a direct incentive to grow the Welsh economy. In other words, ministers will have much more of a stake in making sure business owners succeed.

So if you include business rates, 10 pence in the pound of income tax, stamp duty and landfill tax then under these projections the Welsh government would be responsible for more than a quarter of everything it spends by 2020.

And that exposes it to volatile revenues which can boost coffers but also leave it out of pocket.

New dynamic

Borrowing and forecasting will now become a central part of the way the Welsh government operates, hence the new treasury team being put together.

Regardless of your views on devolution, tax and borrowing brings a new dynamic to politics in Cardiff Bay.

For a start, the parties at the assembly can come up with policies to generate more or less revenue.

It gives them the potential to hit people in the pockets, which of course can make them hugely unpopular.

The challenge for the AMs is to persuade people that making the assembly an institution that no longer just spends money will benefit people in the long run.