Wales politics

Welsh tax deal could change if Scots get more power

The UK government has said it could reconsider its plans to give the Welsh government income tax powers if Scotland gets more control over income tax there.

Wales Office Minister Baroness Randerson told the House of Lords that "the government remains open to re-visiting the arrangements for income tax devolution in Wales as any changes are brought forward in Scotland".

Lady Randerson, speaking during a debate on the Wales Bill which transfers more powers to Cardiff, acknowledged there was opposition to the so-called lockstep that would prevent the Welsh government from being able to vary income tax rates separately. Under the coalition's plans, any rise or cut in the top rate would have to be matched by a similar change in other income tax rates.

She said: "The government recognises that there are arguments for and against the lockstep mechanism but we continue to believe that the approach set out in the Bill is appropriate for Wales.

Given the porous border with England - nearly half the Welsh population and 10 per cent of the English population live within 25 miles of the border - the changes to individual income tax rates in Wales could potentially have wider effects than similar changes in Scotland.

"It would not therefore be logical to provide more flexible rate-setting powers in Wales than in Scotland. The government has therefore decided that the lockstep is the best system for encouraging the Welsh government to grow the overall tax base in Wales whilst safeguarding against the risks of damaging cross-border tax competition and increased tax avoidance."

But Lady Randerson said the government recognised that even a clear "no" vote in the Scottish independence referendum in September may lead to further income tax devolution to Scotland. All three main UK parties have proposed giving Scotland more control of income tax.

She added: "The government remains open to re-visiting the arrangements for income tax devolution in Wales as any changes are brought forward in Scotland but there are differences between Wales and Scotland particularly in the nature of their borders with England."

Some Welsh Conservative politicians have suggested that the lockstep could be removed if Scotland gets the power to set tax rate bands independently of each other.