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3. Statement: The Tax Policy Framework

June 13, 2017

15 speeches by…

  • Ann Jones
  • Mark Drakeford
  • Nick Ramsay
  • Simon Thomas
  • Mike Hedges
  • Neil Hamilton
  • Adam Price

Ann Jones

Item 3 on the agenda is a statement by the Cabinet Secretary for Finance and Local Government on the tax policy framework, and I call on Mark Drakeford to introduce the statement.

Mark Drakeford

Thank you very much, Deputy Presiding Officer. The onset of tax devolution has inevitably taken a great deal of the time of the National Assembly. In 2015, responsibility for non-domestic rates was transferred to Wales. In March 2016, the Tax Collection and Management (Wales) Act 2016 reached the statute book. In December of last year, a new fiscal framework was agreed with the Treasury. Last month, the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017 received Royal Assent. Next week, landfill disposal tax will reach Stage 3 proceedings in the scrutiny process. Over the summer, Bangor University will be working on the first independent assessment of the Welsh Government’s tax forecasts. By 1 October of this year, I will announce the first set of rates and bands for the land transaction tax and the landfill disposals tax. At the start of April next year, the Welsh Revenue Authority will be in practical operation, collecting and managing those taxes in Wales. The intention is that the process of partial devolution of income tax will begin in April 2019. Dirprwy Lywydd, at that point, when that extensive timetable has reached its conclusions, decisions made in this National Assembly will shape the policy and practical actions to raise £5 billion-worth of revenue on which our public services, and the nature of the society we aim to be, will be founded. International best practice, endorsed by the OECD, suggests that responsibilities of this scale ought to be discharged within a clear policy framework, published openly to citizens, in all our different guises, with clarity about the approach being taken—in our circumstances, by the Welsh Government towards Welsh taxes. Dirprwy Lywydd, let me place on record again the fact that this Government sees no attractions whatsoever in the low tax, low pay, low investment, dog-eat-dog economy of the neo-liberal imagination. Taxes are the admission price that each one of us pays to live in a civilized society. And, Dirprwy Lywydd, every single adult in Wales—and many children, too—are tax payers, with our poorest citizens very often, and far too often, paying a higher proportion in tax of their inadequate incomes than those who have more money than they will ever need. That is why taxes are also an investment in our collective future. What we depend on today owes much to the taxes that have been paid in the past by our parents and grandparents. These public services are benefits that define our society and underpin its values. They would not be possible without taxation. Good taxes should be efficient and effective, producing maximum benefit for the cost incurred and they should acknowledge Wales’s position, both within the United Kingdom and be compatible with the UK and wider international taxation framework. The tax policy framework, which the Government has published, builds on the five principles previously set out for Welsh taxes, that taxation should raise revenue to support public services as fairly as possible; taxation should help deliver wider fiscal and policy objectives, including jobs and economic growth; taxation should be simple, clear and stable; taxation should be developed through engagement with taxpayers and wider stakeholders; and taxation should contribute directly to the Well-Being of Future Generations (Wales) Act 2015 goal of creating a more equal Wales. Wales’s new suite of tax powers will ensure that people here have a genuine choice—for the first time—both about the level of taxes paid and about the quality and quantity of devolved public services. My party’s manifesto included a commitment not to increase income tax during the lifetime of this Assembly. It will be for political parties to set out their plans for tax rates ahead of the next Assembly elections in 2021. In this Assembly term, we will carefully consider other tax rates and their impacts collectively, to ensure they continue to generate sufficient revenue to fund public services, while remaining fair and supporting economic growth. Taxation can also play a role, as we know, in influencing behaviour. We will consider whether new Welsh taxes can be introduced in an efficient way to operate alongside our existing or new policy tools. A debate on new taxes has been scheduled in Government time to be held before the end of this summer term. Dirprwy Lywydd, land transaction tax and landfill disposals tax will be collected and managed by the Welsh Revenue Authority, which becomes operational in 2018. The authority will work in partnership with local authorities across Wales and other tax authorities in the United Kingdom to build a comprehensive picture of the delivery of tax services, compliance and tax policy development. It will work to join up activity for the benefit of taxpayers. Delivering a tax policy for Wales will need a steady, consistent and informed approach. The main task for the Welsh Government in this Assembly, I believe, will be to embed the new tax arrangements and build the evidence base so that we can understand how we can best use our tax powers in the future. This will require input from a wide range of interested parties—from individuals, businesses, third sector organisations and, of course, from the National Assembly's own Finance Committee.The views of tax specialists and other professionals will be important to this work, but it will also be important to hear directly from citizens throughout Wales about what they think about the level and extent of revenue raising and taxation in Wales. To stimulate that engagement and debate, a work plan, which sets out the priority areas for the year ahead and some longer term research issues to inform tax policy in the years to come, has been published alongside the tax policy framework. I am also committed to an annual process for tax policy in Wales. Decisions about tax policy will be published alongside the Welsh Government's budget, reflecting the direct link between taxes and resources available to fund Welsh public services. Dirprwy Lywydd, our tax powers enable us, for the first time, to develop an approach to taxation which reflects the needs and circumstances of Wales. The publication of the tax policy framework and work plan is the beginning of this process. I look forward to hearing the views of Members in this Chamber today and to working with Members and the people of Wales in coming years as our tax powers develop. Thank you very much.

Nick Ramsay

Thank you, Deputy Presiding Officer. I thank the Cabinet Secretary for bringing forward this statement today and for advance sight, indeed, of the tax policy framework document. Rest assured I will try to steer clear of any dog-eat-dog, neo-liberal comments—not usually my style, but I suppose there’s always a first time—but, in the case of this document, there was a lot here that we can agree with and, of course, has to happen as taxes are switched off at the UK level. Can I also compliment the Cabinet Secretary or whoever drafted the foreword of this document? [Interruption.] Maybe it was the Cabinet Secretary. The opening is worthy of Shakespeare, I think; it does read like a Shakespearian sonnet. Someone clearly has a great love of devolved taxes, and it’s good to know that devolved fiscal policy is not always as dry as it sometimes seems that it has to be. This reads very well, anyway—the opening foreword. The April 2018 date for the devolution of taxes that you mentioned—for the initial tranche, at any rate—is fast approaching, and clearly much work needs to be done in advance of this. There is now, as you say, a growing debate around the use of tax policy to boost the economy, and we welcome and wish to be part of that debate. We clearly are on a steep learning curve and need to rapidly develop, I think we’d all agree, our capacity in relation to fiscal expertise, particularly in the area of forecasting, not just in the mechanical workings of institutions like the Welsh Revenue Authority. Cabinet Secretary, the tax policy framework repeatedly states that there should be no change for change’s sake—an adage that you have pursued and that your predecessor, Jane Hutt, 0pursued, and that Welsh taxes sit within a wider UK context. That’s something I would completely agree with. I think it’s good that we’re starting out with that maxim. In terms of it sitting within the wider UK and international context, what mechanisms are in place to see that there is a close dialogue with the UK Government when it comes to making tax policy decisions? Clearly, at the start of this process and with the establishment of the WRA, there have had to be UK-wide discussions. Beyond that, it will be up to us to set our own devolved taxes, but I think it is helpful that we do see those in the wider UK context. And, clearly, there aren’t just effects on us of UK policy, but there will be a certain degree of effect on the policy decisions that we take here in terms of tax across the rest of the UK as well, particularly when you consider the porous border and the number of people who live near the Welsh border in Wales—50 per cent of the population within 30 miles. I’m pleased that you’re honouring your commitment to bring forward details of rates and bands. I believe that that was the commitment you gave to the Finance Committee, with many of us, including me, and I remember Mark Reckless making the point that we would like to have seen the rates and bands on the face of the Bill upfront. You made your arguments for not doing that, and I remember you saying that, as a compromise, you would bring forward further details of the rates at an appropriate time. So, I’m pleased to see that coming forward and we will look at those with interest. The policy framework refers to new taxes several times. And, of course, the new fiscal regime does allow for the Welsh Government to introduce new taxes. I think it was when we had the Senedd at Newport and you came to an evidence session there, I seem to remember you saying that you thought it would be interesting to develop or look at developing some new taxes, or one new tax, I think you said, as a trial to see how that process would work, to test that process. Have you had any further thoughts on that, because, clearly, if, on the one hand—I’m being cynical for a moment—you are thinking of keeping the existing tax take with the existing taxes like stamp duty and landfill, et cetera, and keeping those relatively similar to where they are at the moment, if you bring in a new tax, then that is a way of surreptitiously increasing a tax take. So, I’d be interested to know if you had any further thoughts on developing new taxes. Can I ask you about the reform of council tax, which you do mention briefly in the framework document? Is this a precursor to a move or to a debate about potentially replacing that with a land value tax? There has been a lot of discussion between Assembly Members and also within Wales, outside within academia, about the relative merits of a land value tax. I know it operates in other parts of the world. Clearly a land value tax—I’m not going to enter the discussion about it now—has benefits for some, but, in rural areas, where there is more land ownership, then that could cause problems. So, I think if we are going down the line of looking at a land value tax, the sooner we initiate that discussion so that we can all have an input into that, the better. On the issue of income tax in general, obviously it’s different to the other two taxes—and I’ll finish with this, Deputy Presiding Officer—in that I believe that the responsibility for raising this remains with HMRC; it’s not something that’s going to be devolved here. So, how are you working to strengthen relations with HMRC in this respect to make sure that this process does run as smoothly as possible? But, thank you for bringing forward this framework today. I look forward to its development with interest.

Mark Drakeford

Diolch, Dirprwy Lywydd. I thank Nick Ramsay for his broad welcome of the publication of the framework and its work programme. I did have a hand in the writing of the foreword to it. I think Mario Cuomo said that politicians campaign in poetry but govern in prose, and, generally, I think the job of a working politician is closer to limericks than sonnets. But I’m glad that he enjoyed reading it. Can I say that I think he very accurately summarised some of the key debates that lie behind the framework and the advice that we have had from stakeholders about continuity, in the earliest days of tax devolution, with a possibility of greater differentiation in the future and particular advice to us about the porous nature of the border and being attentive to the way in which decisions about devolved taxes made in Wales would have an impact upon cross-border activity. Nick Ramsay asked me a series of specific questions, Dirprwy Lywydd, which I will try and answer now. In relation to how we will continue to have a close dialogue with other component parts of the United Kingdom, I look forward to the continuation of the finance quadrilateral meetings involving the finance Ministers of the north of Ireland, of Scotland and the Chief Secretary to the Treasury. In a spirit of cross-party co-operation, let me put on record my appreciation of the work of David Gauke when he was Chief Secretary to the Treasury. He’s now been promoted, I would guess, to a more substantive Cabinet portfolio, but I always found him someone with whom it was possible to do business and to have proper conversations, even when we didn’t agree, and I look forward now to re-establishing that relationship with his successor. Can I confirm this afternoon, Dirprwy Lywydd, that I do intend to bring forward a statement in relation to rates and bands by 1 October as I agreed with the Finance Committee? As to new taxes, I think, Dirprwy Lywydd, it would be accurate to say that the new settlement allows the Welsh Government the potential to propose new taxes rather than to introduce new Welsh taxes. There are a series of hurdles set out in the command paper that led to the Wales Act 2014 that we would have to meet, were a new tax successfully to be proposed for Wales. I am very keen, as I said in Newport, to test the machinery that has now been established. And, as I said in my statement, a debate has been agreed in Government time before the summer recess, and I hope that the nature of that debate will be genuinely open. It’s not a debate on a series of propositions the Government intends to bring forward for people to endorse or not. It’s a debate in which I hope we will collectively pool all the ideas that we might be able to generate, all the considerations that we think we need to work through, and that it will be a debate in which, across the Chamber, we share the best ideas we have in order to allow us to test that machinery in the most successful way. Nick Ramsay asked about reform of council tax and whether it is directly linked to the longer term possibilities of replacing council tax. The answer, I think, to that is probably that they’re not directly linked in that way. I do hope to make some proposals for the reform of council tax as it operates in the here and now to make it fairer and make it more efficiently administered. At the same time, the work programme, as Members will have seen, commits us to work to look at, in an applied way, how alternatives to the council tax, including LVT, might impact, were they to be introduced, in Welsh circumstances. I think that’s a very important piece of work, and it will allow the Assembly in the future to make an informed decision as to whether or not there is a better way of organising local taxation arrangements, because we will have moved on in this Assembly term from a rehearsal of the theoretical merits of different models of local taxation to an applied piece of work that looks at what we would actually have to do and what the real-world impact of a shift might be. Finally, to confirm what Nick Ramsay said, administration of income tax, post the partial devolution of income tax, will remain with HMRC, not with the Welsh Revenue Authority, but a joint project board has been established and has met, between the HMRC, between the Welsh Government, involving the WRA as well. HMRC will draw on its experience of partial devolution of income tax in Scotland to make sure that it is in the best position it can be to take on these new-formed responsibilities for Wales.

Simon Thomas

As Chair of the Finance Committee, I’d just like to welcome the report from the Cabinet Secretary and just tell you about a few of the things that the Finance Committee are doing that go hand in hand, hopefully, with the Government’s intentions, and to give that scrutiny perspective to the work of Government. May I say at the outset that I want to say just how readable this framework is, and not just the foreword—the rest of it, too, is free from some of the complex language that we hear from Government from time to time? And that’s an important point, because many people in Wales still aren’t fully aware of the devolution of taxes that is happening, and certainly aren’t aware of the devolution of income tax. A referendum, of course, would have created that awareness. I’m pleased that there isn’t going to be such a referendum, but I also think that there’s a job of work for us all to inform people about this issue, and I would like to hear, perhaps, a little more from the Government as to what they are doing to promote this framework and to disseminate the message on the devolution of taxation. We should also welcome the fact that we have, in this framework, a purpose and a clear objective for taxation in Wales; principles that have been clearly set out. One could disagree with them—I don’t do so, personally, but one could disagree with them—and at least you do know what the Government’s purposes are in taxation, and that’s very different to some other Governments, including the other Governments of these isles. Now, the Finance Committee has already shown a commitment to scrutinise taxation policies and the further devolution that’s going to happen, and I think we’ve already seen the outcome of that work, with the two Bills that the Cabinet Secretary mentioned, and the work that the Finance Committee has done in scrutinising both of those Bills, for example leading to the commitment to provide a community scheme on the landfill Bill, has shown that there is work to be done jointly here between Government and the Assembly. And we, as a committee, also have a big interest in the establishment of the Welsh Revenue Authority, and as well as holding the pre-appointment hearing with the candidate for chair of the authority, we will continue the work of scrutinising the preparation for the establishment of the authority, particularly their digital activities, before they start or take on board their full functions next April. I think it’s also important to remind Assembly Members that a change is to be proposed next week to our Standing Orders to ensure that we do have new Standing Orders and a protocol agreed with the Finance Committee and the Government in order to ensure that we in the Assembly have the necessary tools to scrutinise Government as they introduce these new taxes, and that very interesting suggestion that we heard today from the Cabinet Secretary of a debate on new taxes, and I think everyone will be interested in looking at that. Just in that context, if I may ask the Cabinet Secretary: as the Finance Committee, as he already knows, is already enquiring into the possibility of building upon our new Standing Orders to move towards a parliamentary framework that would run hand in hand with the Government’s fiscal framework, does he have any work in the pipeline to look at processes such as a finance Bill or other processes? Because, at present, we do want to see how the Parliament can be strengthened in that regard. I welcome the fact that the framework talks of other taxes. It’s important to note that council tax and non-domestic rates are just as important to many people as the taxes that we’ve already seen devolved, and in that context, too, there is a very important paragraph in the framework—paragraph 49, I believe—which discusses how the Government will publish data and how it will gather data in moving forward. The Finance Committee is visiting Scotland this week, and on Thursday, we hope to have discussions with the Scottish Fiscal Commission. Now, I know that the Government isn’t going to establish such a commission, but the Cabinet Secretary mentioned the work that will be done by Bangor University, and I would also like to know how the Government is going to publish this information, and how it will ensure that we, as Assembly Members, but also members of the public, have the most recent data and the most up-to-date information in order to ensure that the decisions taken in the name of the Welsh Government, and in the name of the people of Wales therefore, are the right ones and are evidence based. This statement is to be welcomed, and the framework is to be welcomed, and I look forward—and I’m sure that all members of the Finance Committee look forward—to scrutinising this information in more detail, but also to work with Government in order to ensure that we have the best possible systems in place, in a parliamentary sense, over these new taxation powers.

Mark Drakeford

Thank you very much, Simon Thomas, as Chair of the Finance Committee, for your words this afternoon. Of course, I welcome working with the committee and we are collaborating on more than one piece of work. There are different methods of working as well, and I acknowledge that sometimes the committee will scrutinise the work of the Government, but I think that we can demonstrate that over the past year it has been possible to collaborate on some of the important issues for the people of Wales, and also to improve some of the things that have come before the committee. I look forward to working with the committee in that manner in the future. I agree with Simon Thomas that we have a great deal of work to do in trying to explain to the public what exactly we’re doing in the taxation field. We will publish a pamphlet for the public that endeavours to put on one page the most important features of the framework and we will then distribute that leaflet throughout the whole of Wales to assist people, to help them understand what we’re trying to do in Wales. We’ve pursued the principles that the OECD have published, and we’ve pursued those principles in the framework itself. But the OECD is also offering us some support in the attempt to get people to understand the new powers coming to Wales and what the Government is trying to do with them. I acknowledge the fact that the committee has the right to scrutinise the work of the Welsh Revenue Authority. And I know that the new chair is looking forward to the work that she is going to be doing with the committee in future. I’m pleased that it has been possible to agree the new process that will be coming before the committee next week to try and get the processes that we use in the process of funding and budget creation for our public services in Wales, with the new powers that we have. Government officials are proceeding to work on that new process and to see how other people do the same thing. I’m looking forward to learning from the work of the committee in this field, and I’m sure that there will be many things to learn in Scotland when the committee goes up there this week. Deputy Presiding Officer, I’m happy to confirm that the work that Bangor University will be doing will be published. It’s independent work and they will be publish it so that Assembly Members can see what they’re saying about the work that we are undertaking as a Government. I hope that, before the summer, or in the autumn, I will be able to publish long-term plans as regards how we’re going to get people here in Wales to do the work that the commission is doing in Scotland.

Mike Hedges

Can I very much welcome the statement, as everybody else has done? Certainly, the framework, I think, is very helpful. Can I just say, I agree entirely that taxes are the admission price that each one of us has to pay to live in a civilised society? It’s taxation that provides the key public services that we all rely on. We cannot live in a country with Scandinavian-type services based on American tax rates, especially as corporation tax for multinationals is, basically, optional, as they can use internal transfer rates to move money and profit around the world, so that they can make their profits in the British Virgin Islands on money raised in Britain, because they’re paying internal transfer costs and they’re paying the costs of intellectual property rights. That is a serious problem, and although corporation tax is not likely to be devolved in the near future, I’d prefer to see a tax on turnover, rather than on profits, because the ability to move profits abroad or to low-tax or zero-tax places is having a very serious effect on the amount of money coming in, and we know that the amount of money coming in in terms of business taxes has reduced as a proportion of the taxation raised within this country. Whilst taxation rates in some areas are being devolved, of course you can’t deal with them in isolation, can you, because whatever tax rate you set on anything, somebody is going to say—people sitting next to me or people sitting opposite—they’re paying less in, or more in; please name the neighbouring or nearby country or place? So, I think that that itself does put constraints. And we know what happened in Scotland, don’t we? Scotland has the power to vary tax rates. They varied it in exactly the same way as the Westminster Chancellor varied it. The Westminster Chancellor moved it up, they moved it up; the Westminster Chancellor moved it down, they moved it down—in complete synchronisation. So, you have powers, but sometimes powers are things that exist in theory but don’t necessarily exist as a practical means of doing things. I actually have three questions. The first one is: as you know, Cabinet Secretary, a large number of taxes could not be devolved to Wales due to membership of the European Union and European rules. One of the things that seemed to be included was one that was meant to be devolved, which hasn’t, which was aggregate levy. What additional taxes does the Cabinet Secretary think should be considered for devolution, apart from the aggregate levy—not necessarily to be devolved but actually to be considered as part of the devolution settlement? The second question I’ve got is: at what stage do we have a Welsh budget covering revenue raised via tax rates as well as expenditure agreed by the Assembly as one overall budget? Must we reach some stage where that has to happen, like it does at other Parliaments where they raise all their money, or nearly all their money? At what stage do we actually do the two at the same time? And can I talk about local council tax? I think I might get agreement with this. Can we have increased upper bands put into the council tax bands? I think that the upper band covers far too large an area. I’d like to see some narrowing of the bands as well. I think that the proportion of the value of our property, paid by somebody who has a £30,000 house, as opposed to somebody who pays for a £2 million house, is substantially less for the person with the £2 million house. I think that’s fundamentally wrong, and the council tax system does have people in lower-cost properties paying a higher proportion of the value of that property in council tax than the very affluent. So, will you look at bringing in more bands and try and pick up—maybe not very many properties? I mean, the number of £1 million houses in Wales may well be well under 1,000, but there’s no reason why those people should not be paying their fair share.

Mark Drakeford

Well, Mike Hedges’s opening remarks about perceived fairness of the tax system is very important to us in this framework. We put a lot of emphasis on conducting taxation in Wales in a way that Welsh citizens will regard as fair. Part of the reason that things happened in the way they did last week, I think, was a sense, on behalf of lots of people in Wales and beyond, that the way that the economy has been conducted in recent years has not been one in which the burden has been placed on the shoulders of those most able to bear it. Mike makes a very important point about powers and their usefulness and their usability, and we will see, over the next couple of years, the extent to which the powers that we currently have can be put to work in a way that differentiates them from use elsewhere as we try and match them with Welsh needs and circumstances. In relation to the three specific questions, I think the Silk commission said that VAT was not a tax—that it had considered the devolution because of European Union harmonisation rules. I have agreed with Adam Price recently, when he’s asked questions on this, that this is at least something that we now ought to be prepared to look at, to see whether there is anything there that can be more additionally useful without EU membership rules. The question of how we scrutinise the budget and put it together in a way that revenue raised and spending decisions made are aligned with one another: well, I hope that you will see that the proposals that will come forward next week go some way to doing that already, and the further work that the Finance Committee will do on further alignment will be a help in that. I think we’d have to recognise that there is a genuine difficulty in the UK Government’s decision that an autumn budget means the end of November. Because for both ourselves and for Scotland and Northern Ireland that inevitably means that we will have laid our draft budget, and, in the middle of the process of its being scrutinised, potentially significant changes could be made at the UK level that will mean that some of the assumptions we made at the start on revenue and on spend will be changed before the final budget can be laid. At the moment, that is a difficulty without a readily to hand solution. As far as the council tax is concerned, as I said in my answer to Nick Ramsay, we do intend to bring forward proposals for making council tax fairer, and the issue of bands and the proportion the council tax represents as a percentage of property values will be part of that consideration.

Neil Hamilton

It’s the misfortunate of somebody who comes this low in the proceedings that most of the intelligent questions have been asked already, but I’ll try and till a new furrow. I broadly welcome the statement from the Cabinet Secretary, although I must say some of the language doesn’t seem to bear the normal professorial detachment with which the Cabinet Secretary has added so much lustre to the various offices that he has held. I don’t know whether, in particular, the bottom line on page 1, which refers to the ‘dog-eat-dog economy of the neo-liberal imagination’ was specifically directed at me, but I’d like to assure him that there is nothing ‘neo’ about me—[Interruption.]—nothing ‘neo’ about me at all. As my exact contemporary, Jeremy Corbyn—we were elected to Parliament on the same day, the same age—[Interruption.] I, at least, have advanced in my station to the Welsh Assembly, to respond to the interruption by David Rees. Just as he is a paleosocialist, I suppose I’m a paleoliberal conservative, in financial and economic terms at least. But I’d like to raise what I think is going to be a growingly important issue in Wales. I’ve just read an HMRC publication called ‘A disaggregation of HMRC tax receipts between England, Wales, Scotland & Northern Ireland’. Table 4 of that provides statistics for what I think is a very disturbing trend—that, since the year 2003-04, in almost every year, the proportion of income tax receipts as a proportion of the total UK tax receipts has declined, year in and year out, which seems to imply that Wales is falling backwards in terms of income, nationally, relative to other parts of the United Kingdom. Therefore, although I am strongly in favour, personally, of the devolution of income tax and other taxes as well, given that we also have a reduction in the block grant from Whitehall as a consequence, there is a danger, unless we reverse this trend, that we are going to find that we are squeezed more and more, year in, year out, and, therefore, to develop a theme that Adam Price very often raises in this Chamber, what can we do to raise GVA relative to other parts of the UK in Wales? It seems to me that giving us the opportunity to compete in terms of taxation with other parts of the national jurisdiction is one means by which we can do that—by attracting more business into Wales to produce more wealth that can then be taxed. As has been pointed out in the statement, paying taxes is of course a badge of admission to a civilised society, although I’d be far from implying a direct relationship, and certainly I don’t take the opposite view that a high-tax jurisdiction is a more civilised society by definition. There are plenty of examples that we could cite to disprove that hypothesis. But taxes do affect behaviour. That is indisputable, and indeed is referred to in the framework document published by the Welsh Government itself. I don’t think that it actually adds to a sober analysis of the impact of taxation upon income and the generation of wealth to use the kind of ‘Tom and Jerry’ language of ‘dog-eat-dog’ that the Cabinet Secretary has used in this statement. In fact, although Mike Hedges referred in the course of his contribution to the United States, the United States is a relatively high-tax jurisdiction, especially if you take into account the combination of federal, state and local taxes. Ernst and Young have done a very interesting analysis of the American tax system in relation to the tax systems elsewhere, and the macro-economic effects of these high tax rates. They say, for example, that the high US corporation tax rate is beginning to have significant adverse economic consequences for the US economy and American workers, and suggest that the reform of the US corporation tax that includes a significant reduction of the rate would likely provide important economic benefits to the United States. Well, I would say that that's true in spades of Wales. Of course, corporation tax is not a devolved tax, and I think it would be a very good thing if, as the Holtham commission recommended, it were devolved to Wales, because it would give us the opportunity to attract more private investment into Wales, on the back of which we could then have, not just a higher GVA for the whole country, but a bigger tax base for the Welsh Government, which we could spend on all the things that we would like to spend money on but which we can't now afford. I know that the Cabinet Secretary has disparaged what he thinks are my views in relation to what he described in our last exchange as the Laffer curve, but, when we consider the experience of the Irish Republic, and in particular in relation to corporation tax, they have a corporation tax rate of 12.5 per cent, but they have a special 6.25 per cent corporation tax rate in relation to what they call the knowledge development box, that is, for genuine innovators employing highly skilled people. It seems to me that Wales has a far too high proportion of income created by the public sector. We need to increase the proportion that is generated by private enterprise, and if we deny ourselves the opportunity to use the tax system in order to encourage that then I think we're stabbing ourselves in the back. If we take the party political badinage out of this, there is a mass of empirical evidence to show that, whilst there isn't a direct relationship, obviously, between particular tax rates and economic growth or wealth in a society, there is, as the Cabinet Secretary will readily admit, a connection of some kind between the two, and lower taxes generally tend to produce higher GVA. After all, take the logical extreme of this, Singapore: it’s one of the wealthiest countries in the world with almost no natural resources and the lowest tax rates. So, that says nothing, of course, about the distribution of income in Singapore, but, nevertheless, the economy of the country and the wealth that it now enjoys, compared with the situation 20 to 30 years ago, speaks for itself. So, I would just like to make that plea to the Cabinet Secondary to be perhaps a little more flexible in his thinking about this issue.

Mark Drakeford

I thank Neil Hamilton for the initial broad welcome he gave to the framework. I'll just try and respond to, I think, three different points that he made. The disaggregation work of HMRC in the table to which he referred—I think I’d draw a couple of different conclusions from it than he does. The reason that it shows declining income tax receipts from Wales is essentially because of rising thresholds at the bottom end of income tax distribution over that period. And because Wales has a higher proportion of its population that pays tax on the bottom band of income tax, if those thresholds rise faster than inflation, as they generally have over that period, there is an inevitability that income tax receipts in Wales decline relative to other parts of the United Kingdom with a different income tax distribution. Now, this was a very important consideration in the agreement of the fiscal framework. It's why we have an agreement that the Welsh economy for income tax purposes is compared separately at each of the three bands, and why the block grant adjustment will be taken into account separately against those three very different ways in which income tax is raised. So, I think it's an important point that he raises, and he’s right to point to HMRC's work, but I don't think its conclusions are quite as bleak for Wales as he suggested, and I think that our future ability to raise revenue in Wales and the fiscal framework will help to protect us against decisions that are made elsewhere over which we have no direct control but which have an impact on the extent to which income tax receipts are collected here in Wales. On the business of corporation tax, of course he is quite right to say that this is a non-devolved matter. Silk suggested that it should only be devolved to Wales if it were at the same time to be devolved to both Scotland as well as Northern Ireland, and I’m sure the Member would find it interesting to explore the Northern Irish experience to date, where the practical use of the devolution of corporation tax has proved much more difficult than originally anticipated. In particular, the Treasury’s refusal to take into account second-order effects of corporation tax devolution has meant that, from a Northern Ireland perspective, they will pay all the costs of corporation tax devolution with very few of the benefits. That’s why its introduction, I think, has been delayed there. On his final point, let me say this to him: I think he too often is in danger of falling into the ‘private good, public bad’ mantra of his youth, of his Thatcherite, palaeoliberal, was it, past. What I would say to him is this: I think we are very clear in our framework that we recognise that the way we discharge our fiscal responsibilities will have a direct impact on the future of the Welsh economy, and that we want to exercise these responsibilities in a way that helps to grow the Welsh economy and to create new sources of wealth and income for the people of Wales in the future. There’s no ambiguity in the Welsh Government’s position in that, and we will always have the interests of our economy at the forefront of our mind when we come to make the decisions that are now being devolved to us here in Wales.

Ann Jones

Thank you. It will please me if the next speaker, and the last speaker in this statement, could just ask a very brief introduction and a question, and then we can finish probably just five minutes over time. Adam Price.

Adam Price

This is my ‘Mastermind’ specialist question, Dirprwy Lywydd, but I’ll be as brief as I can. I welcome the framework and the general principles. I recognised from my GCSE—or O-level economics, actually, let’s be honest—Adam Smith’s canons of equity and certainty there. So, two out of the four canons—not bad at all. I will just focus very briefly if I may on the tax policy work plan. I should pay credit to Ben Lake, who joined us in the finance liaison committee and made a huge contribution here, and will be making a huge contribution somewhere else as well over the years to come. The work plan refers to a review of small business rates relief, which will be happening soon. If the Cabinet Secretary could say a little bit about that—obviously you set out the policy of the Labour party at the Assembly election, but, seeing as it’s a review, presumably they will take input from other parties beyond that stated outline position. He mentioned air passenger duty. Can he confirm—? There was an implicit recognition that this is Labour party policy at a UK level to devolve this to Wales, but it wasn’t quite explicit, so if he could set that on the record. I followed the debate with interest about the Laffer curve, which we often have here, but would the Cabinet Secretary accept that actually one method of using corporation tax, obviously, to close the prosperity gap is to devolve? There are attendant issues with that, which he referred to, in terms of block grant reduction in the case of Northern Ireland. There is a different method, of course, which was actually referred to in the Holtham commission report, which is actually to have the central Government set variable rates of taxes like corporation tax, but it could also apply to APD—I understand that that’s what the DUP are trying for in their negotiations—as Nicholas Calder did with selective employment tax in regional policy in the 1970s. So, this isn’t a race to the bottom now. This is the centre saying, ‘We will reflect the different levels of economic prosperity by having discounted rates of certain taxes in those areas like Wales that could benefit from something of a boost, without that then leading to a hit in terms of the block grant. I have much more to say, Dirprwy Lywydd, but, out of deference to you, I will sit down.

Mark Drakeford

Thank you very much, Deputy Presiding Officer. May I thank Adam Price too for what he said about the work programme? The work programme is a very important publication alongside the framework. I hope that Members of other parties here will see that, where some specific commitments have been made by the Welsh Government to include items in the work programme, you can see them there. That includes the energy rate relief possibility that Adam Price mentioned. There is a regulation-making power in the land transaction tax Act that allows the Welsh Government to introduce new reliefs using that regulation-making power. There are three criteria that I have tried to set out every time we’ve talked about new reliefs as far as LTTA is concerned. There would have to be an agreed policy purpose—and I think energy relief meets that, because we are looking for environmental benefits there—they have to be affordable, and thirdly they have to meet their intended audience. That’s probably the key thing—the key test that has to be passed as we look at a potential energy rate relief. Because there was such a relief introduced between 2007 and 2012, and it was abandoned, essentially, because the empirical evidence showed that the relief simply hadn’t reached the people for whom it was intended, and it hadn’t had the policy impact that had been hoped for it. But it’s there in the work programme in order to allow these things to be tested further, and I’m very keen that we do that. I think Members opposite will also see in the work programme a specific commitment to the publication of data by the Welsh Revenue Authority about the higher rate for second homes and whether there is a regional impact of that in Wales, to allow local authorities that might wish to make a case to the Welsh Government for differential arrangements in the future to have the data that they would need in order to be able to mount that case effectively. Can I echo what Adam Price said in relation to the new Member of Parliament for Ceredigion? I always felt that he played a very constructive and helpful part in the discussions that have gone on between our two parties, and I obviously congratulate him very much on his success there last week. As far as APD is concerned, this really is an area where the record of the UK Government does not stand up to examination. It demonstrates an entirely haphazard way of making tax policy across the United Kingdom. Its own Silk Commission recommended at least the devolution of APD for long-haul flights. The refusal of the UK Government to publish the evidence that they say they have drawn on in denying the devolution of this tax to Wales cannot be sustained. We will carry on working, as the work programme says, to demonstrate our belief that proper devolution of this piece of taxation would be to the benefit not just of Wales but to economies close by to us as well. The issue of corporation tax devolution has been raised a number of times here this afternoon. I’m aware of the Holtham variation on corporation tax devolution, and I read with interest the recent article by Eurfyl ap Gwilym that returns to that idea. My own view is that it remains something that we ought to continue to debate. I’ve said here in the past, Dirprwy Lywydd, that I do have a concern about a race to the bottom in corporation tax devolution, but there are ways, maybe, that that could be mitigated if it was done in particular ways. I noticed that Eurfyl ap Gwilym says in his paper that this variable setting of rates in different parts of the United Kingdom by the UK Government would be politically palatable. And I could not help believe that it would be one of those ideas that would be politically palatable to those who benefit from it, and maybe slightly less palatable to those who would not. But it’s a debate for another day. I’m very grateful to all Members who’ve taken part this afternoon in what has been, I think, a very useful discussion of these very important new responsibilities.