Resource Use

Wales could control its own landfill tax


The Welsh Government could soon be given powers to control around £3 billion of tax revenue, including that of landfill tax, following a review into the devolution of powers.

The UK government has accepted several proposals to bring about the devolution of several financial powers, as part of a move to ‘give the Welsh Government the tools to make the right investments in Wales’.

Details of the ‘new and unprecedented’ package of financial powers were published by the government today (18 November), and outline how the Welsh Government could claim control of its tax revenue, including the control of business rates, the ability to create new taxes, and some borrowing powers.

Details of proposed devolved powers

In its response to the Silk Commission’s recommendations on financial devolution, the UK government has outlined that the new financial powers for Wales are:

  • the ability for the National Assembly for Wales to hold a referendum so that ‘the people of Wales’ can decide whether some of their income tax should be devolved;
  • fully devolving landfill tax, stamp duty land tax and non-domestic business rates raised in Wales, so that the Welsh Government budget benefits more directly from growth in Wales;
  • the ability to create new taxes with the UK government’s agreement; and
  • creating tools to manage: the creation of a cash reserve that the Welsh Government can add to when ‘revenues are high, and utilise when revenues are below forecast’; and ‘limited’ current borrowing powers if there is ‘insufficient funding in the cash reserve to deal with revenue shortfalls’.

The report reads: ‘The fundamental proposal is that the Assembly’s funding should be re-balanced, with a larger proportion of funding being generated from taxes under its control. The Commission also recommended that the Welsh Government should have access to borrowing powers for capital investment. In its view, such an arrangement would retain the existing benefits of the system of fiscal transfers, while substantially increasing the autonomy and financial accountability of the Assembly and the Welsh Government.’

However, it adds that the UK government will ‘remain responsible for macroeconomic policy and the UK’s substantially unified tax system must remain fully integrated and coherent, so that it continues to work effectively for business and individuals and ensures the trade of goods, services and capital between Wales and the rest of the UK is unimpeded’.

Landfill tax details

In relation to landfill tax, the UK government said that it accepts the devolution proposals (with a corresponding deduction to the block grant), but that it will ‘keep the devolution of aggregates levy under review, with the intention of devolving in the future subject to the resolution of ongoing state aid issues’.

The report reads: ‘Landfill tax should be devolved to the Welsh Government with Welsh Ministers given control over all aspects of the tax in Wales. A fixed deduction should be made to the block grant with the value of this agreed between the Welsh and UK Governments taking due consideration of the declining taxable base…

‘For the taxes that are to be wholly devolved (SDLT and Landfill tax) and any new taxes, the Assembly will need to agree formal arrangements, for example a contract or accompanying service level agreement, with the body, either new or existing, which they decide to administer the taxes.’

Prior to the tax-raising powers coming on-stream, the Welsh Government will have ‘early access’ to existing limited borrowing powers to use for M4 improvements.

‘Government believes in devolution’

Formally presenting the UK response in Cardiff today, Chief Secretary to the Treasury Danny Alexander said: “I am delighted that my work with Jane Hutt, the Welsh Government Finance Minister, and close cooperation between our two governments has delivered this excellent outcome for Wales.

“The package of financial powers we have published today will be a powerful tool, bringing greater financial accountability and transparency to the Welsh Government. This is a good outcome for Wales.”

The Secretary of State for Wales, David Jones, added: “Through this package of powers we are announcing today, we are giving the Welsh Government the tools to make the right investments in Wales.

“Infrastructure investment is vitally important to delivering long-term, balanced economic growth across the UK. This package of powers will enable the Welsh Government to invest immediately in the areas of infrastructure it leads on, such as the key routes on the trans-European road network – the M4 and the North Wales Expressway.”

Jones added: “The government believes in devolution, and we’re determined to deliver. Accepting the Silk Commission’s key recommendations on financial devolution strikes the right balance and marks an important step in Wales’s devolution journey.

“These new powers will make for more accountable government for the Welsh people. It is now up to the Welsh Government to seize this once in a generation opportunity – to drive forward Wales’s economic development, and to use this opportunity to secure the growth and prosperity that Wales so desperately needs.”

Next steps

The UK government has said it ‘envisages introducing the necessary legislation as soon as parliamentary time allows, with a view to legislating in this Parliament’.

As such, it will publish a draft Wales Bill for ‘pre-legislative scrutiny’ in the current parliamentary session – before the end of March 2014 – which will include provisions to ‘implement those parts of the package (including tax and borrowing powers) that require primary legislation’ and include provision for a referendum to be held on the devolution of income tax (the date of which to be set by the National Assembly for Wales).

However, it added that some of the recommendations ‘can be implemented without legislation’ and will ‘give careful thought to the appropriate timetable for implementing each one’.

Before implementing any of the above proposals however, the UK government will have to consult the European Commission to confirm its detailed plans are compatible with EU state aid rules. These set out ‘strict criteria for the extent of devolution of taxes within EU member states’.

Despite this, the UK government has said it is ‘confident that its proposals are consistent with these criteria’, pointing to the fiscal devolution in the Scotland Act 2012, which will also see Scotland control its own landfill tax.

Read the government’s response to the Silk Commission’s recommendations on financial devolution.