The Welsh Government is actively considering putting up income tax in Wales to manage the shortfalls in their budgets. Though the UK Government sets the rate of income tax the Welsh Government have free range on setting rates over their devolved slice of income tax – so the Welsh tax on each income band could be eliminated entirely (i.e. cut by 10p) or raised without (theoretical) limit
Mark Drakeford was recently criticised by Plaid leader Adam Price for not increasing public sector pay to match inflation. The First Minister argued that this wasn’t possible due to inflation and a reduction in the amount of money they were receiving from the UK Government. Mr Price responded that the Welsh Government should use their tax-raising powers to make up the shortfall and the First Minister responded that he was “powerfully considering” it.
But what could Wales raise through income tax and what would that mean for public finances? In First Minister’s Questions Mr Drakeford said that “every 1% rise in the pay bill across the public service in Wales costs another £100m”. So if the Welsh Government want to increased public sector pay by 4% more than currently possible through their block grant how much would they have to increase income tax to hit that £400m figure?
