Article written by Dr Tomos Dafydd Davies, Deputy Chairman, Welsh Conservative Party:
Tax doesn’t have to be taxing, or so claimed the man from the Inland Revenue in that famous TV campaign at the start of the noughties.
And nor should it be for the authors of the Conservative manifesto ahead of next year’s Senedd elections.
Whilst it would be ill-advised to make bold tax announcements until we have a fuller picture of the extent of the economic wreckage unleashed by Covid, it should be the stated ambition of the Conservative Party to aspire to lower the tax burden on businesses and hard-working families across Wales following next year’s Senedd elections.
Following the devolution of various tax levers in recent years, the Welsh Government and local authorities in Wales now control around £5 billion of tax revenues, equivalent to 30 per cent of their combined current spending. These levers include Stamp Duty (now known as Land Transaction Tax) and the partial devolution of Income Tax since April of last year, whilst Council Tax and Non-Domestic (Business) Rates are fully devolved.
With the devolution of significant new tax levers, we have a golden opportunity in Wales to develop an innovative and enterprising Welsh tax policy which can finally unleash Wales’ economic potential.
From the economic wreckage of Covid, a new economic model is attainable if only there was the political will to think imaginatively and to challenge prevailing orthodoxies.
As a proud Conservative, I believe there is both a philosophical case as well as a moral case for a low tax economy. Sadly, such centre-right thinking has all too often been suffocated by the socialist groupthink amongst the corridors of power in Cardiff Bay.
Ahead of next year’s Senedd elections, I hope the timidity that has characterised the political thinking in the Senedd over the past twenty-years will be superseded by big and bold ideas to kick-start the Welsh economy and to unleash Wales’ economic potential after years of languishing at the bottom of economic league tables.
But what might this bold and audacious centre-right policy agenda look like?
Business Rates Reform
Many Welsh businesses already reeling from this wretched pandemic will again be disproportionately bearing the brunt of the imposition by Welsh Government of a two-week national lockdown.
Today, many of these businesses will be gathered around their kitchen tables grappling with the agonising decision of whether to permanently close or to fight another day in the hope that these lockdown restrictions will soon be eased.
In the short term, Welsh Ministers need to urgently outline proposals to extend its Welsh business rate relief well into the new year, and not only to the hospitality and tourism sectors but to struggling SMEs across Wales.
But beyond this pandemic, it is time for a fresh approach to business rates.
Wales has the highest Business rates in Great Britain and many local traders pay thousands more than their counterparts across the border in England. These rates are rightly considered to be one of the main reasons that businesses cannot afford to trade on our besieged high streets.
It is not only time to abolish business rates for small businesses with a rateable value of up to £12,000, but to consider abolishing business rates for all small businesses with a rateable value up to £15,000. Wales is a nation of SMEs and we must ensure that we create a climate in which these businesses can grow, invest and hire new staff.
A new ‘Red Tape test’
Taxes stifle the ability of businesses across Wales to grow.
After the socialist experiment of the past twenty-years, Wales requires a new economic model that will encourage and reward business and allow entrepreneurial forces to flourish.
In that regard, Wales has much it can learn from our Celtic cousins across the Irish Sea. We can unleash our very own Celtic tiger, or as Boris Johnson might put it, “unlock the red dragon’s nostrils”, if we also vigorously pursued an agenda of reducing not raising taxes to boost economic opportunity.
To that end, I hope that a Welsh Conservative Government will forensically consider how each future tax and spend decision might impact Wales’ business community. Call it the “Red Tape Test” if you will, against which every future Government initiative or spending decision will be judged. If a proposed programme or initiative will increase the cost or burden of doing business or stifle innovation, there can be no possible justification for it and anonymous bureaucrats should be instructed to look again.
As recent polling for the Centre for Welsh Studies showed, a low-tax agenda commands broad public support across Wales, with overwhelming support for easing the tax burden on SMEs to incentivise economic growth and investment.
But it’s not just cutting business taxes that attracts universal support.
There is both a moral and economic imperative to cut personal taxation in Wales so that those families that have made the ultimate sacrifices during this pandemic, have just that little bit more spending power at the end of each month.
Sadly, the prevailing attitude amongst the Labour Party to date has been the higher the tax rate the better, regardless of whether a higher tax rate generates more revenue than a lower tax rate.
It is high time that we Conservatives took a sledgehammer to the prevailing groupthink and economic orthodoxies so popular with the Cardiff Bay bubble and we should have the confidence to boldly proclaim the case for cutting personal taxation.
My hope is to see Wales set a lower rate of income tax over the next five years, with the ambition of cutting 2p in the basic rate. I hope such an approach can be complemented by a renewed commitment from the UK Government to lift many more Welsh taxpayers out of paying income tax altogether, by increasing the personal tax-free allowance, which of course is not devolved. This would send a clear message that Wales is open for business and is the most attractive place to live, work and do business in the entire UK. In the long term, economic modelling has also shown that a cut to the higher rate would in fact grow tax revenues, which in turn can be spent on our precious Welsh public services.
As we enter a bleak and challenging winter for many businesses and families across Wales, I believe the vision outlined above, aligned with an ambitious programme of infrastructure investment and wider reform of our Welsh public services, is precisely the sort of economic blueprint which will give renewed hope and economic optimism to so many struggling to make ends meet across Wales.
So, what are we waiting for?
From the wreckage of Covid, let us once again proudly back the wealth creators and the workers of this country, and unleash the Welsh dragon’s roar.