Assembly Calls for Tax Power Accountability

Although the above illustrates how much proposed devolved taxes would raise, the Assembly's Finance
Committee are taking a methodical approach to the issue of effective tax collection and management.
(Pic : BBC Wales)

Aggregates levy, stamp duty and landfill tax are set to be devolved to Wales from April 2018 as stipulated by the Wales Act 2014, which was passed by the previous UK Government and includes some of the recommendations of the Silk Commission Part I.

In addition, non-domestic rates (aka. business rates) were fully devolved earlier this year while partial control over income tax will need to be approved via a referendum. On the latter, it appears as though the First Minister/Welsh Labour are going to make a u-turn on the requirement for a referendum in light of extra powers being devolved to Scotland "without strings attached". I still believe a referendum is OK as long as it's on a general principle of tax-varying powers, not the specifics of income tax (Marching out of lockstep).

In December 2014, the Welsh Government published a white paper on tax collection (pdf), which outlined the exact process by which these devolved taxes would be managed. It included:

• Proposals for the establishment of a Welsh Revenue Authority.
• Ideas for which bodies should collect which taxes.
• Details on taxpayer obligations and how to deal with tax avoidance.
• Details on resolution of tax disputes.

The Welsh Government are also set to introduce a Tax Collection & Management Bill before the summer recess in July.

I'm a little late, but last week, the National Assembly's Finance Committee published their report into the future management of these taxes (pdf). The report is only 27 pages, so it's a relatively easy digest of what will become an important topic in the Fifth Assembly.

Here's a summarised version of the report's 11 recommendations :

• The Welsh Government should publish detailed costings for the collection of taxes alongside the Tax Collection & Management Bill.
• Until these costings are provided, the Committee are unable to make a recommendation on which organisation(s) should collect taxes. However, they recommend a "phased approach" to tax collection to allow the new system to bed in and to provide both stability and consistency.
• Responsibility for taxes should be within the Finance Minister's portfolio, even if taxes cross departmental boundaries (i.e. stamp duty and housing).
• The tax collection approach of the proposed Welsh Revenue Authority shouldn't differ from the UK unless there are clear reasons for doing so. The Welsh Revenue Authority should also be directly accountable to, and scrutinised by, an Assembly committee.
• The Welsh Government should consider making use of local government expertise in relation to tax recovery, and direct contact should be made with taxpayers before the Welsh Government considers taking action on non-payment.

Who should collect devolved taxes?

The WLGA have made a strong case for harnessing the expertise on tax
collection within local government - but it's not without its own pitfalls.
(Pic : Wales Online)

The 2014 White Paper proposed three systems for collecting devolved taxes.

• Welsh Revenue Authority (WRA) delegating a single organisation to collect taxes (i.e HMRC).
• Using multiple organisations to collect relevant devolved taxes (i.e Natural Resources Wales, local government).
• The Welsh Revenue Authority should manage and collect taxes itself.

The factors which would help determine the best method include : the current administrative burden on businesses, the administrative costs of tax collection and management, and maximising tax collection whilst minimising tax avoidance/non-payment.

The Welsh Local Government Association (WLGA) said they should collect the devolved taxes as, "They already have systems in place to undertake the management and collection of taxes and/or sundry debtors", adding that there was no shortage of tax expertise that could be tapped into – suggesting one local authority could collect taxes on an all-Wales basis, or one local authority per region could be delegated the task.

They did, however, warn there was no way they would be in a position to collect taxes from 2018, citing local government reform, short timescales and current lack of details on what would be required.

The Federation of Small Businesses (FSB) and the Chartered Institute of Taxation (CIT) both prefer a single national body, like the Welsh Revenue Authority, to collect the taxes. They believe this would limit confusion and ensure consistency.

Prof. Gerald Holtham believed taxes should be collected by an "existing organisation" – by which he meant HMRC – again citing the proposed local government reforms and the fact the devolved taxes wouldn't provide enough revenue to justify a completely new body (with the exception of business rates, which raise around £1billion annually).

There were no costings for tax collection and management, though HMRC said they were working with the Welsh Government to find out how much it would cost them to collect devolved taxes – something they've already done with the Scottish Government. As there were no hard costings, the Committee were unable to make a recommendation on who would be best placed to collect taxes. Although the Committee see a "clear benefit" for taxes to be collected by WRA, it shouldn't happen for the time being.
The Role of a Welsh Revenue Authority

The Welsh Government would like to emulate Revenue Scotland.
(Pic : Scottish Government)

In the same way the UK vests  tax collection and management powers in HMRC, and the Scottish Government want to do the same with Revenue Scotland, the Welsh Government want to do the same with WRA – meaning it'll be operationally separate from the Welsh Government as a non-ministerial department.

Many witnesses agree that the creation of WRA will be a significant event and should be approached as an institution lasting decades and with further tax devolution in mind. Again, many witnesses – including the WLGA – agreed that the WRA should be independent of the Welsh Government and accountable to the National Assembly.

Revenue Scotland have provided six-monthly reports to the Scottish Parliament's Finance Committee during its founding months/years and will provide monthly and annual data on tax collection to inform forecasting. As Revenue Scotland (and, presumably, the WRA) doesn't provide tax forecasts of its own, the Committee believe this underlines the case for an independent fiscal body (fiscal commission), and they called on the Welsh Government to consider the advantages and disadvantages of establishing such a body.

The FSB said WRA needs to be a "user-centric service rather than a bureaucratic service", in order to improve on HMRC's record with regard complaints, information, guidance and support.

Other witnesses, including Prof. Holtham, underlined the need for the WRA to have a strong brand so tax practitioners in England accept its authority when it comes to cross-border taxes. HMRC added they'll need to change their guidance to taxpayers, and will have to consider contacting taxpayers directly if income tax-varying powers are devolved in future.

Please Get This Right

The revenues might be small, but mooted reforms to stamp duty in Wales, plus business rates, could impact
ten of thousands of people each year. It's therefore essential the Assembly and Welsh Government get it right.
(Pic : Wales Online)

Bored?

If you're thinking of buying a home or starting a business within the next three/four years, it's certainly not boring as these changes and proposals will directly affect you.

I understand the appeal of doing all tax management and collection via the Welsh Revenue Authority, which would effectively turn it into a Welsh HMRC-lite. The WLGA do, however, make a strong case for local authorities to collect the taxes – they have the people and expertise already. The stumbling block is local government reform, which will happen at the same these taxes are devolved, potentially causing administrative constipation. That probably means it would be better to use a single body – whether that means delegating responsibility to a single local authority to collect taxes from the whole of Wales (as suggested) or HMRC.

The taxes themselves might amount to little more than pocket money in a £15billion annual budget, but it's much more important that the Assembly and Welsh Government get the collection and management side of things right. In many ways this "Welsh Treasury" is more important than the devolution of taxes itself and it's a "make or break" moment for devolution.

If our politicians and civil servants can't handle this, even I'll start questioning whether the whole thing has to come to an end before it does too much damage. That's why it's so important for this to have proper scrutiny and accountability as well as independence from the Welsh Government, lest the WRA becomes another Natural Resources Wales.

The auspices so far are good. I'm pleased both the Assembly and Welsh Government are taking a methodical approach to this. It would be tempting to call for the whole thing to be up and running by the end of 2016, but that would be lunacy. If they get this right, the underlying infrastructure would, in the medium-term, enable more taxes to be devolved and gradually build up the expertise needed to manage and collect them.

Make no mistake, although the taxes themselves are child-like, everything surrounding it is refreshingly  grown up stuff for the National Assembly.