Senedd 2021 and Tax Part 2: What the Manifestos Have to Say

Rhys ap Gwilym says the main parties’ manifestos bear out his fear that Wales’ politicians would be fiscally timid ahead of the Senedd election

In anticipating the main parties’ manifesto commitments on tax in a previous Agenda article, I crossed my fingers for some big ideas but feared that we might see few. As it turns out, those fears were well founded.

Income Tax

On income tax, all three parties appear to be too scared to break cover. The Tory manifesto falls well short of their promise in 2016 of a 2p cut to the basic rate, and a 5p cut to the higher rate. Instead, they have a highly caveated pledge to cut the basic rate by an unspecified amount at some future point in the Senedd term. The Labour manifesto commitments are equally opaque, promising to ‘not take more in Welsh rates of income tax… for at least as long as the economic impact of coronavirus lasts’, as if that constituted a meaningful timeframe. Despite its 126 pages, Plaid Cymru’s manifesto does not even mention income tax. However, its commitment to ‘explore ways’ to fund social care free at the point of need, with a ‘preferred option of using general taxation’, provides the greatest scope in any of the manifestos for justifying a significant change in income tax rates.

Local Taxes

All three manifestos are at one in taking swipes at the existing local taxes. Labour commits to ‘reforming council tax to ensure a fairer system for all’ but doesn’t provide any details on what might replace it. The Conservative manifesto includes the paradoxical promise to ’empower local communities’ by imposing a council tax freeze on local government. ‘Emasculate local communities’ would have been a more apt heading for that particular section. They also include a bizarre promise to ‘abolish business rates for small businesses’ even though the Small Business Rates Relief Scheme already exempts them from the tax. If they intend to extend the scope of that scheme, why not clarify the details? Plaid Cymru promise to ‘bring forward proposals for a… land and property tax, levied as a flat rate on owners not occupants based on up-to date values, to replace first business rates, and then, council tax’. In the meantime, they promise to reduce the regressiveness of council tax by undertaking a revaluation and increasing the number of bands at the higher end of house valuations.

New Taxes

The Wales Act (2017) provides scope for introducing new devolved taxes. The Conservative manifesto is crystal clear here, promising to ‘ensure no new taxes for the duration of the next Senedd term’. Plaid’s position could hardly be more contrasting. A new tax on junk food gets significant emphasis, but there is also reference to a windfall tax on large property developers and a determination to devolve road tax, fuel duty, the HGV levy and further tax powers (implicitly income tax and National Insurance) to fund the devolution of welfare. Combined with commitments to lobby the UK government on aviation fuel duty and VAT on tourism, a future Plaid Cymru government could well be spending a lot of time grappling with Westminster. Labour’s manifesto promises further consultation on a tourist tax, but it appears that the social care levy, vacant land tax and disposable plastic tax that they have been considering in this last Senedd term have now been dropped.

Timidity

The overall theme of the manifestos is one of timidity. If either Labour or the Conservatives are intent on implementing significant fiscal changes, then their manifestos are hiding the details. 

Adam Price’s manifesto for the Plaid Cymru leadership contest in 2018 was not short on radical fiscal proposals. It suggested cutting the Welsh rate of income tax from 10% to 1%, and introducing a land value tax in its place. By those standards, their prospectus for the current election is tame. But in comparison to their opponents’ offerings, Plaid’s promises are wide-ranging and deep. They pledge reform to local taxes – both short term and long term; increases in the overall tax take to fund social care, free at the point of need; new taxes aimed at behavioural change; and the mandate to challenge Westminster on further tax devolution. The timidity in Plaid’s manifesto lies not in the programme itself but in the lack of detail. We will need to wait for a commission to report on funding social care, and the proposed new land and property tax similarly remains to be elaborated.

The Tory manifesto commits to no new taxes, and a freeze on most current tax rates. The only reform alluded to is for Business Rates, but that is not laid out in any detail. Now that the power to do so resides with the Senedd, Andrew RT Davies’ previous commitment to ‘make Wales the low tax capital of the UK’ has vanished.

Whilst the lessons of the failure of Westminster’s austerity to cut public sector debt, and the changing circumstances of the pandemic, may help to explain the Conservatives’ volte-face; Labour’s timorous manifesto is harder to understand.

In contrast to the Conservatives’ pre-emption of income tax devolution, the Labour government was slow to embrace change. They justified delay on the basis of requiring a mandate before implementing significant changes to the tax system. In that context, the lack of detail in their fiscal proposals in this manifesto are a great disappointment.

The outgoing government has funded research into potential changes to local taxes, including reforms to council tax, the introduction of a land value tax (disclosure: I was one of the authors of this report) and the introduction of a local income tax. And yet there is no clear manifesto commitment to implement any one of those options. Similarly, it appears that the work that has been done on a potential social care levy has been discarded.

There is little in Labour’s manifesto to provide a mandate for the type of radical fiscal reform that many within the party seek.

Dr. Rhys Ap Gwilym is Senior Lecturer in Economics at Bangor Business School and a member of the welsh agenda’s editorial group.

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