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bike on rough path | accountingweb | Scottish and Welsh Budgets 2023
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Devolved Budgets plan for rocky road ahead

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With the Scottish and Welsh Budgets published this week, Ian Holloway looks at the details and finds that devolved taxes can be a bit like riding a bike.

19th Dec 2023
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On 19 December 2023, the Scottish and Welsh Finance Ministers delivered their Budgets. The spending plans for the Scottish and Welsh Governments must be determined following the UK government’s Autumn Statement. The UK’s Autumn Statement allocates these devolved administrations’ monies as per the Barnett formula.

So, knowing how much they were allocated following the November 2023 Statement allows them to decide how to spend these funds on issues devolved to them such as health, public services and education. However, both devolved governments have tax-revenue-generating powers of their own. Scotland is not the same as Wales and nor are their tax-revenue-generating powers.

Devolved taxes

There is a fundamental difference with taxes that have been devolved totally from the UK government in Westminster to the devolved administrations in Holyrood and Cardiff Bay (there are no considerations for Northern Ireland – yet).

  • Revenue Scotland administers and collects the revenue raised from the devolved taxes in Scotland (Land and Buildings Transaction Tax (formerly Stamp Duty) and Scottish Landfill Tax (formerly Landfill Tax)).
  • The Welsh Revenue Authority administers and collects the revenue raised from the devolved taxes in Wales (Land Transaction Tax (formerly Stamp Duty) and Landfill Disposals Tax (formerly Landfill Tax)).

Income tax is not a devolved tax (though, Wales does refer to it as “partially devolved”). Administration and collection is the responsibility of the UK tax collection agency, which is HMRC. However, some aspects of the UK income tax regime are shared with Scotland and Wales (not Northern Ireland) on non-savings and non-dividend income.

  • In Scotland, HMRC may identify an individual as a Scottish taxpayer and, using the Scottish income tax system, the Scottish Government decides on the rates and thresholds that apply. Scotland has total discretion on which rates and thresholds to use and there is no obligation to replicate those that apply elsewhere in the UK.
  • In Wales, HMRC may identify the individual as a Welsh taxpayer and can use their Welsh income tates of tax (WRIT) powers. These powers mean they can vary the UK rates (the 20%, 40% and 45%) by plus or minus 10 percentage points. They cannot vary the UK income tax thresholds, which is sometimes referred to as those applying in England and Northern Ireland, though this is not strictly accurate.

It’s like riding a bike – if I am totally responsible for riding it then I am on a bicycle. If I share the responsibility for peddling then I am on a tandem. Riding a bike and riding with someone on a tandem are not the same!

Draft Budget in Wales

Unusually, the draft Budget was published (not presented) by Rebecca Evans, finance minister during the Senedd recess. Point 1.18 indicates that it does “not feature significant additional new investment in new activity” with the emphasis on enabling the delivery of public services. Indeed, the gloomy narrative is summed up well with the sentence: “The 2024/25 draft Budget has presented the most stark and painful Budget choices for Wales in the devolution era.”

The tandem tax (income tax)

Point 3.10 confirms that the Welsh government will not use its shared/partially devolved WRIT powers for tax year 2024/25. This is in line with Welsh Labour’s 2021 manifesto commitment that said the Welsh government will “not take more in Welsh rates of income tax from Welsh families for at least as long as the economic impact of coronavirus lasts”.

Not using the WRIT powers effectively means a Welsh taxpayer pays at the same rate on the same band of earnings as their colleagues in the rest of the UK (rUK). However, that is not the way payroll software will have to record this or how employers/advisers need to explain how the tax rate is calculated.

This should be expressed as follows, with no comparison to 2023/24 necessary as the thresholds and rates have not changed. Again, though, remember that the personal allowance is set centrally as it is not something that has been shared.

Band Threshold rUK rate Less Plus WRIT Effective rate
    % % % %
Basic  1 – 37,700 20 10 10 20
Higher  37,701–125,140 40 10 10 40
Additional  Over 125,140 45 10 10 45

No change means stability, something we always like. As the WRIT sharing powers are significant in terms of revenue generation, even I as a Welsh taxpayer do wonder why these are not used (and won’t we see Covid-19 economic impacts for years, at least until the next manifesto anyway). Perhaps, I would only like the Welsh government to use them so that it highlights whether all payroll software can calculate the rate of income tax that I pay!

The “bike taxes” (the devolved taxes) and other

The two devolved taxes are land transaction tax (LTT) and landfill disposals tax (LDT). They are just as complicated as their competitors on the other UK nations but, similarly, revenue-generating for Wales. Further, and pre-dating any devolution or sharing of tax powers, is non-domestic rates (NDR) so it is worthwhile pointing to the headline announcements.

  • Point 3.13 confirms there are no changes to the LTT rates and bands with the last changes to the main residential rates in October 2022 in the name of “tackling the impact of the prevalence of second homes in Welsh communities”.
  • Point 3.5 advises that LDT rates will rise in line with inflation for the period 1 April 2024 to 31 March 2025.
  • NDR (or business rates) are changing, with targeted help for the retail, leisure and hospitality sectors and a reduction in rates relief from 75% to 40%. This is similar, but not the same, as changes announced at the Autumn Statement for England.

There will also be a review of charges for NHS dental care, university tuition fees and domiciliary care. Plus, “Higher education” on page 37 indicates there will be a focus on supporting undergraduates rather than postgraduates from 2024/25. This should also be read with page 43, which talks of a review on Wales’s ability to meet its apprenticeship target.

A gloomy Budget perhaps aptly titled “A Budget to protect the services which matter most to you”.

Replies (1)

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By FactChecker
19th Dec 2023 20:17

Interesting analogy.

But for all their (devolved) differences, the “bike taxes” and the “tandem taxes” share a common infrastructure ... which might be thought as the "clown bike".
You know, the one which makes a lot of noise but that pieces keep dropping off without being replaced/mended - and is the b u t t of much laughter (in between occasional squalls of tears).

Sound familiar, HMRC?

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