The Wales Act 2014 (WA 2014) is a milestone in the context of Welsh devolution. For the first time, power to make primary legislation imposing taxes is being devolved to Wales. The Act also extends the borrowing powers of the Welsh Government. Both of these developments implement recommendations from the Part I Report of the Commission on Devolution in Wales (the Silk Commission). WA 2014 includes a few other miscellaneous provisions, which are also outlined below.
New devolved taxes
WA 2014 amends Schedule 7 to the Government of Wales Act 2006 to add ‘devolved taxes’ as a subject on which the National Assembly may pass laws. Initially there will be two devolved taxes, a tax on land transactions in Wales and a tax on disposals to landfill in Wales. The intention is that the equivalent UK taxes, stamp duty land tax and landfill tax, will be disapplied in Wales. This is currently expected to happen in April 2018. This means that the National Assembly will need to legislate to bring the new devolved taxes into operation by then in order to avoid a shortfall in revenue. This is important because the block grant payment from the UK to Wales will be decreased to reflect the fact that Wales will be able to generate its own revenue from the new devolved taxes.
WA 2014 provides that further devolved taxes may be permitted by the UK Parliament in the future.
Ability to set Welsh rates of income tax following referendum
WA 2014 empowers the National Assembly to set Welsh rates of income tax for Welsh tax payers. This power does not involve creating a new Welsh income tax. It merely involves changing the rates at which Welsh tax payers pay UK income tax. Subject to there being a yes vote in a referendum (see below), the National Assembly will be able to reduce the basic, higher and additional rates of income tax for Welsh tax payers by up to 10%, or to increase them without limit.
The power to set Welsh rates of income tax will not come into force unless this has been approved by a referendum of the Welsh people. Only the First Minister or a Welsh Minister can propose a referendum, and the proposal must be agreed by at least two thirds of the Assembly Members.
Any Welsh rates of income tax would apply only for a single tax year, meaning that the National Assembly would need to pass a new motion for each tax year in which it wished to vary the rates of income tax in Wales. Only the First Minister or a Welsh Minister would be able to propose a motion to set Welsh rates of income tax. If a motion was not passed for a particular tax year, the normal UK wide rates of income tax would apply by default.
Detailed rules have been added to the Government of Wales Act 2006 for the purpose of determining whether a person is a ‘Welsh taxpayer’ who would pay any Welsh rates of income tax.
Borrowing powers of Welsh Ministers
There are provisions in WA 2014 which, when implemented, will extend the Welsh Ministers’ borrowing powers. Firstly, there will be a new power to borrow funds to meet current expenditure, where this is required because of a shortfall in receipts from devolved taxes or the Welsh rate of income tax compared to forecast receipts.
Secondly, there will be a new power to borrow up to £500 million to fund capital expenditure, but only with the consent of the Treasury. The Secretary of State may increase this limit from time to time.
WA 2014 also does the following things:
- It increases the length of the term of the National Assembly (i.e. the length of time between general elections of the Assembly Members) from four years to five.
- It removes the restriction on a person standing as both an Assembly constituency member and an Assembly regional member.
- It prevents a person being both a Member of Parliament and an Assembly Member.
- It renames the Welsh Assembly Government as simply the ‘Welsh Government’.
- It adds a provision into the Local Government and Housing Act 1989 to allow the Treasury to place limits on the aggregate amount of housing debt which can be incurred by those local housing authorities in Wales that keep a Housing Revenue Account.
- It contains new provisions relating to the work of the Law Commission in relation to Wales. It specifically provides that it is a function of the Law Commission to provide advice and assistance to the Welsh Ministers. There is also a new obligation on the Welsh Ministers to report on how Law Commission recommendations have been implemented in Wales. More information on the work of the Law Commission in relation to Wales can be found here.