A taxing question

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Everyone (except 'True Wales') is absolutely clear that giving the Assembly the power to vary taxes is not on the agenda for the referendum in March.  But most people also recognise that there is a problem for any body which can make laws and change policies in ways which affect spending without having to face the consequences of the impact of that on taxation. 

It's easy to understand why many would prefer to avoid any discussion of the issue of taxation before the referendum.  Or indeed, at all.  I fear, however, that simply leaves it as an unanswered question, and looks like a lack of honesty.  Taxation is an issue which isn’t going to go away any time soon, no matter how often some people avoid it.

Part of the problem in discussing the issue is the use of the word ‘raise’, with its two slightly different meanings.  ‘Raising taxes’ means setting the level of taxes and collecting them – it doesn’t necessarily include the other connotation of increasing the level of them.  Yet that is the connotation generally placed on the word by opponents of devolution – it’s a form of verbal sleight of hand in a way, to suggest that ‘devolution = more taxes’. 

In reality, having the power to ‘raise taxes’ also includes the power to set them at a lower level, and reducing some taxes might well be the best way of building a stronger economy in Wales.

It worries me that both Calman in Scotland and Holtham in Wales have concentrated their attention on the right to vary one tax only, namely income tax.  It is, of course, one of the largest and most easily collectable sources of revenue, but it’s also the most ‘visible’ of taxes.  It’s likely to be one of the hardest to vary significantly as a result.  Having one tax that it can vary does, of course, put the Assembly on a par with local councils – it does not, however, put it on a par with other legislatures, which can vary a range of taxes.

That isn’t just about perceived status differences.  Varying income tax does give some degree of fiscal responsibility to a body which is otherwise only spending its ‘allowance’; but it doesn’t give it the same range of options for varying policy.  The power to change income tax alone would be something of a poisoned chalice.  If we want to get to the stage where the Assembly Government can even begin to think about ‘transforming the economy’ as Peter Hain suggested it would do, then it needs to have a greater range of fiscal tools available to it.

At the moment, taxes are collected in the UK, and a portion is then allocated back to the Assembly for it to spend, on devolved matters, as it wishes.  It would surely be better for taxes to be set and collected at a Welsh level, with an agreed amount being passed on to the UK Government to pay for UK level services.  And it isn’t another step on a ‘slippery slope’ to anywhere – it’s a common-sense approach adopted by stable federal systems.

It would give the Welsh Government serious fiscal responsibility, as well as a much better opportunity to vary fiscal policy to achieve its economic objectives.  It would also clarify exactly how much we in Wales are paying for non-devolved services – and that would be no bad thing either.