Tax and spend

I don't suppose it was foremost in George Osborne's mind when he put together the Autumn Statement but his transformation of stamp duty has rained on the parade of the new Welsh treasury team.

Stamp duty is due to be devolved in three years and it was going to be the first high-profile Welsh-designed tax that would have been far more progressive than in England.

Now Osborne has gone and done it already.

It's difficult to see what other changes could be made to it now. The upshot will be in the long run that stamp duty is unlikely to vary much between Wales and England.

Ministers could in theory follow the Welsh Conservatives who have proposed that stamp duty is abolished for all properties under £250,000, but that will be a debate for the next Assembly elections.

Punches above weight

The Office for Budget Responsibility has also set out for the first time what the revenues would be for the Welsh government from the taxes that are due to be devolved.

By 2020 it would be around £3bn, that's under a fifth of its overall budget.

The vast bulk is made up of receipts from taking control of 10 pence in the pound of income tax, something that may not happen.

The money from stamp duty is relatively small, at around £250m. As a tax it's fair to say it punches well above its weight in the attention it gets.

The OBR projections don't include business rates which are being fully devolved next year.

Business owners are intensely interested in these rates but I think the significance of this change has largely escaped public attention.

The main point is that it means that for the first time the Welsh government will have a direct stake in the success of the Welsh economy.

Ministers in Cardiff Bay obviously want it to perform strongly but they've never been financially penalised if it fails to do that.

So this is how it works now and how it's going to change.

Business rates generate around £1bn a year.

They are already set by the Welsh government but that money doesn't go directly to it.

Instead, ministers in Cardiff Bay get their share of the proceeds via the Treasury which in the past has given them a buffer during the bad times when receipts are down.

That will now change and the Welsh government will receive it directly.

It's all part of efforts to give it an incentive to grow the Welsh economy.


So if you include business rates, 10 pence in the pound of income tax, stamp duty and landfill tax then under these projections the Welsh government would be responsible for more than a quarter of everything it spends by 2020.

And that exposes it to volatile revenues which can boost coffers but also leave it out of pocket.

Borrowing and forecasting will now become a central part of the way the Welsh government operates, hence the new treasury team being put together.

Regardless of your views on devolution, tax and borrowing brings a new dynamic to politics in Cardiff Bay.

For a start, the parties at the assembly can come up with policies to generate more or less revenue.

It also gives them the potential to hit people in the pockets which of course can make them hugely unpopular.

The challenge for AMs is to persuade people that making the assembly an institution that no longer just spends money will benefit people in the long run.