First steps towards tax powers

Lleu Williams argues that devolution of stamp duty would provide the Welsh Government with a tool to stimulate the economy

This morning Finance Minister (Jane Hutt, pictured) is meeting with representatives of the Welsh construction industry in Cardiff Bay to discuss the benefits of devolving Stamp Duty Land Tax to Wales. This has been recommended by the Silk Commission and is currently being consulted on by the UK Government, with next Tuesday being the closing date.

Jane Hutt should be pushing at an open door. Recently the Federation of Master Builders in Wales confirmed their view that devolution of SDLT was “vital” so that it could be tailored to the “needs of the Welsh Construction and business sector”.

UK Ministers should also be in favour of tax powers for the Assembly as they have constantly declared these are necessary for effective accountability. As Danny Alexander, Chief Secretary to the Treasury, told the Welsh Liberal Democrats Conference in Cardiff earlier this year, “We need a new model of devolution for Wales – a model in which additional responsibility for raising revenues strengthens responsibility.”

Welsh Secretary of State David Jones is also right to say that the level of power for an institution should be matched by accountability. Therefore you need to investigate what are the most appropriate taxes to devolve to the Welsh Government. And precisely because of its characteristics, SDLT is the ideal candidate for devolution.

SDLT is a tax on immovable objects, in other words, buildings. This means that the tax base is immovable, reducing the risk of tax avoidance for the Welsh Government.

Furthermore, the densely populated nature of the Wales-England border shouldn’t have much bearing on the devolution of SDLT to Wales. Research shows that transactions costs (in this case SDLT) only marginally influences where people choose to locate, whilst housing characteristics and the availability of finance are much more likely to influence a decision. Indeed, the Silk Commission itself notes that the potential for differences in the tax between Wales and the rest of the UK is unlikely to have a significant direct consequence on location decisions.  Additionally, there is no evidence to suggest that the devolution of SDLT to Scotland has had a material impact on the decision of business and investment to locate there. So what is the UK Government worried about?

As for the administration of the tax this is again a relatively straightforward matter for the Welsh Government. The characteristics of this tax means it’s a relatively easy one to collect. And before someone points it out, no Wales doesn’t have a Treasury function. But neither is it needed for the administration of SDLT.

As Silk recommends, the Welsh Government could easily come to an agreement with the HMRC via a service level agreement for the collection of the tax. The burden of collecting/paying the tax lies with the purchaser, which is usually done through a solicitor. There is no additional burden for the HMRC as SDLT returns require the local authority in which the transaction took place to be cited, thereby allowing HMRC to identify transactions undertaken in Wales. These transaction costs would neither be excessive for the Welsh Government.

But most importantly, the devolution of SDLT would sit well with the Welsh Government’s current responsibilities for economic development, construction and housing policies. Many reports have noted that SDLT is a “good-fit” in tax devolution terms for the Welsh Government, the words of many distinguished economists, not mine.

Now that SDLT has been devolved to Scotland, the impacts of different rates across borders shouldn’t be an issue. After all that is what devolution is mean’t to entail. It’s about decisions being taken more locally for the benefit of local people. There are different ways of delivering the NHS and Higher Education in Wales and England. Why shouldn’t tax regimes be any different?

The devolution of SDLT would incentivise the Welsh Government to create policies which would boost the construction industry and housing market in Wales since it would benefit directly from more transactions.

SDLT devolution could go a long way in helping develop Welsh economic and social policies, and the fact that it is a widely understood tax by the wider public, would pave the way as a popular and sensible tax to devolve. If the UK Government is to achieve its ambition of introducing more fiscal accountability to the National Assembly and Welsh Government, then SDLT is the best place to start.

Lleu Williams is Co-ordinator with the UK Changing Union Project, a joint initiative between the Wales Governance Centre at Cardiff University, the IWA and Cymru Yfory/Tomorrow’s Wales.

13 thoughts on “First steps towards tax powers

  1. Stamp Duty is not a popular or a fair tax – it has little or no virtue as a transaction tax on the economically active and it should be scrapped. That goes for Stamp Duty on share dealings etc. as well as SDLT on property. So the concept of devolving a bad tax to a ‘bad government’ is frankly moronic.

  2. It would be useful for transparency if you could also declare any political party links that contributers have. For example, Lleu Williams is an active member of Plaid Cymru and a former leader of it’s youth wing.

    Obviously those ‘in the know’ are well aware of the nationalist bias within the ‘Wales governance centre’ and ‘Cymru Yfory’. However, I think it would be useful to lay all cards on the table so that any passing traffic to the site isn’t under the false impression that they are politically neutral institutions/think tanks.

  3. Wales may well not need a treasury function for this tax, but if this is devolved along with the other taxes considered in the Silk Commission, especially the proposal to give the WG powers of 50p in the pound of income tax, then surely some sort of tax authority for Wales would be sensible? With the Scotland Act 2012 and their further fiscal control, the Scottish Government will be introducing the body ‘Revenue Scotland’ soon, which will the tax authority for the Scottish devolved taxes (devolved taxes not dissimilar to the ones being proposed for Wales). Therefore, why not Revenue Wales? We need not establish a huge monolith treasury like the UK body, which is what people think of when Welsh tax devolution and treasury functions are mentioned, and neither would we need to. Wales would need some sort of body akin to Revenue Scotland.

  4. Ben,

    Is this a bit like when we were told prior to the ’97 referendum that devolution would not result in any new Welsh Assembly buildings being constructed? lol!

  5. It’s a bit rich of Belowlandsker to complain about transparency when he/she hides behind a pseudonym and has made it his life’s mission to argue against Plaid Cymru, often by ascribing unproven, incorrect and sometimes just plain false motives and hidden agendas to the party and its members – and, in this case, the Wales Governance Centre and Cymru Yfory.

    No doubt his/her concern for the fragile minds that make up CoW’s passing traffic would extend to compelling unionists and those of other political persuasions to present their credentials, too.

    I’ll save you the trouble of outing me and admit my Plaid Cymru membership.

  6. @Belowlandsker – Indeed. However, you and I are both observant enough to realise that devolution is ongoing, and with more responsibility come more institutions; unlike some I do not pretend devolution has an end or one final solution. As the historian John Davies puts it, devolution is a process not and event and as a nationalist I have never denied that.

  7. belowlandsker says:
    Is this a bit like when we were told prior to the ’97 referendum that devolution would not result in any new Welsh Assembly buildings being constructed? lol!

    “lol” yourself.
    It’s probably not a bit like how London’s Olympics were estimated at a cost of £2.3 Billion, which ended up at a final cost of more than £8 Billion, or how England’s HS2 was projected originally to cost £33 Billion, but is now estimated to come in over £70 Billion, or how about London’s Crossrail that started at at £10 Billion, but has risen to £14.8billion so far. …… I could go on… Milennuim Dome, Wembley Stadium…… houses of Parliament refurbishment……

  8. I’m fairly certain that whatever tax powers (if any) are devolved to Wales, no real power will be devolved.


    Re: party links. What about those, like yourself & me, who use a nom de plume? Not a practical suggestion

  9. Re. the weak minded or politically intolerant coming across nationalist opinions without a public health warning to allert them to the dangers of fresh thinking, how about Pliad members having a triple green triangle or a yellow flower before their names? Identifying minorities by making them wear pink triangles or gold stars has been used before and would make it very easy to root out these pernicious deviants.

  10. Where is the evidence that stamp duty deters house building in Wales? Last year 702 houses were sold in Blaenau Gwent and just 12% were eligible for stamp duty. In Bridgend the figure was 40%, in Merthyr 23% ,RCT 25% and even in Cardiff the figure was just 67%. As for the accountability argument how can a sales tax paid by so few have any effect on the link between the electorate and a political institution?The only taxes which improve democratic accountability are direct taxes . Something which if reports are to be believed Treasury civil servants understand even if it frightens some politicians in Wales.

  11. Apologies, when I said ‘contributors’ I meant article authors… not mere commentators such as ourselves.

    Duncan, Politics is not my job. I’m not a nouveau devo politico such as yourself so I’ll keep the anonymity if its all the same with you thanks . As for your comments regarding the Wales Governance centre and Cymru Yfory, well, if you can demonstrate that their membership at least loosely reflects the political leanings of the Welsh electorate as a whole then I shall stand corrected. I suspect you cant.

    lionelair, good point…. but none of those examples were for constitutional change based on a public vote. They were not facts/figures presented prior to a vote. They were simply estimates (for something that was already going ahead) that spiralled out of control. Telling the Welsh public that devolution would involve no new government buildings is akin to telling the UN security council that Iraq had WMDs i.e. it was presented as part of a package of ‘facts’ in order to influence a vote…. as it turned out, neither of these ‘facts’ turned out to be true.

    One can only wonder what would have happened to the 0.3% winning margin had they said devolution will involve 30 new government buildings constructed…. but that wont go down well here so forget I mentioned it.

  12. Belowlandsker,

    You’ve just played to the two things I’ve picked you up on. Firstly, you’ve attempted to paint me as a member of a gilded Bay class (ask around – I am anything but). And then you call on me to refute your claim. We live in a democracy – you made the allegation, you prove it.

    And there are plenty of non-politicos who go by their name (Stonemason is one). No doubt your justification is plausible, however…i

  13. The four questions on page 9 of the consultation document are general questions. Presumably, one can only give general, imprecise answers because there are ‘unknown, unknowns’. Accordingly, my response to the four questions takes the form of a blog – see below.

    I was also interviewed by BBC Wales. Please see the following links. This one and this one

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