At a time when the tax burden in the 海角视频 is at its highest, the new leader of Plaid Cymru proposed a significant change in Welsh taxation at a recent news conference. Advocating for higher earners to pay more, Rhun ap Iorwerth stated his aim to target individuals on higher wages, and to do so in a fair manner, citing Scotland’s tax system as a potential model for Wales.
Whereas the top rate of tax for the 海角视频 (and Wales) is 45%, it is higher for Scotland at 48%. In addition, people who earn more than £28,850 in Scotland - slightly above median earnings - already pay more income tax than they would elsewhere in the 海角视频, with those earning less than that amount paying slightly less.
To be fair, it is about time that we discussed the potential to vary tax in Wales, but whilst such aims are laudable and progressive in theory, would they work in practice here in Wales and raise more money for public services?
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To answer this question, it is worth examining a publication on tax collected in Wales which was released this week. It reveals that the share of Welsh taxpayers paying the highest rate of tax in 2021-22 was only 0.4% as compared to 1.5% for the rest of the 海角视频. Also, the average income tax paid by those paying the highest rate (£103,695) was only 70% of the rest of the 海角视频 or £50,000 less per individual. There are just 5,400 people paying the highest additional rate of tax in Wales, generating £278m, or 5.1% of the total income tax take.
This suggests that even increasing the highest rate of tax to 50% would generate only £30m in additional taxes. Given that it’s been estimated that the Welsh NHS may have overspent by more than £800m by the spring of this year, this additional tax on the highest earners would only pay for around two weeks of additional expenditure in Welsh hospitals.
This is under the assumption that high earners would stay and pay this tax, as any anticipated increase in revenue might not materialize if high earners alter their behaviour to minimise tax liabilities. Indeed, the Independent Commission on Funding and Finance for Wales, which conducted the most comprehensive analysis on tax powers for Wales, suggested that any increase in the higher rate of income tax could have a negative effect on the gross revenue raised.
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Higher taxes could also deter investment and discourage entrepreneurs, potentially stifling job creation and economic development in Wales and lead to a flight of talent and capital, as professionals and businesses might relocate to England.
Recent tax rises in Scotland have been criticised by the technology industry where the new ‘advanced rate’ band will apply a 45% tax rate on annual income between £75,000 and £125,140 and an additional 1p being added to the top rate of tax and the starter and basic rate bands. Sector leaders suggested that such increases would negatively impact the competitiveness of technology companies when it comes to attracting and retaining the very best talent and that Scottish businesses will face even greater pressure to increase salaries to compete with rival companies in England.
However, whatever your views on this, a proper discussion on taxation in Wales is long overdue and how it could or should be used to boost the economy as well as pay for better public services. If we are to look to Scotland for inspiration, it would be better to follow the advice of one of its top entrepreneurs, Sir Tom Hunter, who has called on the Scottish Government to make the country a 15% corporation tax zone for three key sectors - renewables, life sciences and big data - to stimulate its economy.
Such radical thinking is needed in Wales if we are to change the economic fortunes of the nation, especially as the data in this report reinforces the already known fact that Wales is not a wealthy country.
Taxing those who are higher earners may not yield the revenues needed to support public services and creating an additional 5,000 highest-rate taxpayers would bring in ten times the amount of additional taxes that would be generated by creating a 50p top rate of tax for Wales.
Given this, instead of increasing taxes, our politicians should instead focus on creating a strategy that encourages better wages, more entrepreneurship, and a wealthier economy in Wales.