Income tax powers 'unusable', MPs are warned

Money Gerry Holtham said it was impossible to raise the top rate of income tax in Wales without losing revenue, as rich people would move away

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The UK government's blueprint for giving Wales some control of income tax is "unusable", MPs have been told.

Economist Gerald Holtham, an adviser to the Welsh government, warned that a referendum on whether to devolve income tax powers was also "highly loseable".

He accused UK ministers of treating Wales "as the runt of the litter" and refusing to offer Wales anything that had not been given to Scotland.

Mr Holtham was giving evidence to MPs on the Welsh Affairs Select Committee.

The committee is scrutinising the draft Wales Bill.

Start Quote

Basically, we get the hand-me-downs that other people have had and don't, for God's sake, ask for anything different”

End Quote Gerald Holtham Economist

Mr Holtham, who chaired a commission on the way the Welsh government is funded, said the refusal to allow the Welsh government to vary different income tax rates meant the power was unlikely to be used.

The promised control of stamp duty and landfill tax would raise sums "verging on the insignificant" and were "not more than a gesture", generating around £200m a year out of an overall budget of £15bn, he said.

The Bill would devolve some minor taxes to Wales and allow the Welsh government the power to set, within limits, income tax rates - after a referendum.

He said: "You're asking Welsh politicians to fight a highly loseable referendum. Tax isn't popular and to be frank neither are politicians at the present time - it's most unfair but there it is.

"So you're asking them to fight a loseable referendum for a tax power they can't use. It doesn't look like a high odds proposition to me."

'Runt of the litter'

Mr Holtham said it was impossible to raise the top rate of income tax in Wales without losing revenue, as rich people would move away.

"This is a power that is highly unlikely to be used," he said.

"There is a great flaw with this Bill which stems from the fact that the British government takes the view that Wales can't possibly have anything it hasn't already given to Scotland. We are the runt of the litter.

"Basically, we get the hand-me-downs that other people have had - and don't, for God's sake, ask for anything different."

The only incentive for the Welsh government to take control of income tax was that it would give ministers in Cardiff more borrowing powers, he said.

The incentive to hold a referendum would be increased if UK ministers offered to protect Welsh spending under a formula that meant the gap between public spending per head in Wales and in England would narrow if overall spending rose, Mr Holtham argued.

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