This is the last Welsh Budget for the current First Minister Carwyn Jones who steps down as leader of Welsh Labour on 06 December 2018 and First Minister on 11 December 2018. Professor Drakeford is the favourite to succeed Mr Jones in December 2018.
Although, for completeness, it is necessary to say that there looks as if there will be three contenders for Mr Jones’ First Minister role:
- Professor Mark Drakeford (Cabinet Secretary for Finance)
- Health Secretary Vaughan Gething (Cabinet Secretary for Health and Social Services) and, possibly
- Eluned Morgan (Minister for Welsh Language and Lifelong Learning)
Far more relevant for UK payroll and software developer professionals, the 2019/20 Welsh Budget is the first Budget in which the Welsh Government has the power to vary Income Tax for Welsh Taxpayers. The Welsh Rates of Income Tax (WRIT) is the power to vary each of the 3 rates of Income Tax payable, therefore, not like Scotland’s powers that can vary rates and bands (and add new bands, just as they did in April 2018).
In this regard, it was interesting to hear Professor Drakeford’s announcements on this (point 150 of the Assembly record). He said that he regarded tax year 2019/20 as a ‘transition year’ and, as such, there will be no changes to the rates for Welsh Taxpayers from the rates that exist at the moment (20%, 40% and 45%). This fulfils Welsh Labour’s 2016 Manifesto commitment that made a ‘guarantee not to increase Income Tax in the next Assembly term when these powers are devolved to the Welsh Parliament’.
By no means do we know that this is the final announcement. However, this announcement is likely to get approval, given that the minority Welsh Labour Government agreed a two-year Budget deal with Plaid Cymru in 2017. This agreement provides certainty for Wales and professionals – the 2018/19 Budget was passed under this agreement and the 2019/20 Budget will be passed.
As I said above, there is still a way to go, however, we have the first spoken indication from Professor Drakeford that there will be no change for Welsh Taxpayers in 2019/20. Yet, this does not mean that we can forget about WRIT as it is still extremely relevant:
Assuming the rest of the UK (rUK) Income Tax rates remain as 20%, 40% and 45%, these will be reduced by 10 percentage points each. Therefore, 20 becomes 10, 40 becomes 30 and 45 becomes 35. Without a Resolution, Welsh Taxpayers will see them pay less tax than they did in 2018/19. Therefore, the Resolution will need to set:
- Welsh Basic 10%
- Welsh Higher 10%
- Welsh Additional 10%
Cardiff Bay will only receive the Income Tax Revenue from the reduced rUK rates. The 10% is the part that is indirectly received from HMRC for people that they have identified as Welsh Taxpayers.
This is extremely important for Wales, as failure to identify a Welsh Taxpayer will directly impact the revenue coming into Cardiff Bay for spending by the Welsh Government. This is estimated to be about 12% of the Welsh Government’s total funding, the rest coming from the Block Grant from Westminster and revenue from the devolved taxes (Landfill Disposal Tax and Land Transaction Tax).
An issue we still have to consider is whether the UK Chancellor of the Exchequer will leave the rates of Income Tax as 20, 40 and 45. We know that he cannot raise them but there is nothing to say that he cannot lower them. The Welsh Labour 2016 Manifesto pledge is not to increase the Income Tax paid by Welsh Taxpayers. It does not pledge to reduce the Income Tax.
We have an indication of Wales’ intention for the WRIT in 2019/20 – C prefix tax codes and 10% Basic, Higher and Additional in the Resolution.
Look out for the UK Budget on 29 October 2018 and have a look at the Welsh Budget timetable for 2019/20.