5 Ways Wales can lead the Way on Tax Reform

The campaign to form the next government in Wales is kicking off, with debates and hustings taking place and candidates being announced right across the country. The Senedd will formally dissolve on the 8th April, with the election taking place on the 7th May, alongside local elections in England and elections to the Scottish parliament.  

In Wales, the Labour party has been in power since devolution was introduced in 1999, and has been the largest party in Westminster since the collapse of the Liberals in the 1920s. This might all be about to change, with Plaid Cymru and Reform battling for first place, and the Greens and the Liberal Democrats looking to make gains against Labour. The Conservatives are braced for a difficult campaign having come second last time. 

A shattering defeat for Labour in Wales could very well mean a change of leadership in the national Labour Party – even if you don’t live in Wales the consequences could be felt right across the country. 

Tax Justice UK are calling on the next Welsh government to make use of its powers to implement progressive tax reforms that will make Wales a fairer, more equal country, as well as showing governments in Westminster and Holyrood that progressive tax reform is possible. 

You can read our full policy slate for Wales here, or read a summary of our positions below.     

1. Fairly reform council tax, with regular revaluations and a proportional property tax

Council tax is one of the most regressive, outdated and unfair taxes across the UK today, and is due a complete overhaul. Wales has an opportunity to build the most progressive property tax system in the UK – and show real leadership to the other UK nations on how this can be done. Property is one of the biggest sources of wealth in Wales, so reforming how it is taxed would be a major step towards taxing wealth more fairly. 

The current Welsh Government has committed to revaluing property tax bands in 2028, having last revalued them in 2003, following fair and progressive improvements last year. This will rebalance the system so owners of more valuable properties pay a fairer share. The next Welsh Government should complete reform of the system by replacing council tax with a proportional property tax, to make the system fairer. There is very strong support in Wales for taxing the most expensive properties more, with a range of different supported approaches. It would result in a net tax cut for the poorest 4 quintiles, whilst raising taxes on the richest quintile, according to the IFS. This should also include a fair funding formula, so that councils with lower value properties don’t lose out on essential funding. 

2. Rebalancing the Land Transaction Tax

Alongside reforming the Council Tax system, the next Welsh Government should seek to rebalance the Land Transaction Tax so that the richest people with multiple properties – and therefore the most wealth – pay more. Many parts of Wales face depopulation due to homes being bought up as holiday lets and second homes by wealthier people, driving up prices and depriving local people of a place to live. Second homes are currently charged 3-5 percentage point higher rates of LTT. We believe they should be charged a significantly higher rate of LTT – alongside holiday lets – so that wealthy property owners pay more to properly invest in the communities and public services they benefit from. A higher rate of LTT would not only rebalance the incentives towards more available housing, but also raise revenue to potentially invest into building more social housing, including council homes.

3. Reforming Business Rates

The UK government is in the process of reviewing Business Rates, and Wales should follow suit. In the current system, bricks-and-mortar SMEs often pay higher effective rates of tax than big multinationals like Amazon. The next Welsh Government should overhaul Business Rates so the tax system is a “slice” rather than a “slab” system, with regular revaluations to prevent cliff edge changes in tax take. There are several options to achieve this, including a land value tax for businesses, which won’t penalise firms for investing in their property, or a simple proportional property tax. The Welsh government should also reduce and simplify the number of reliefs and exemptions, which as noted by the CBI are often overlapping and confusing.  

This change would provide a big boost to Wales’s high streets and town centres, reducing cliff edges in tax rates and dramatic shifts in response to revaluations, which would give businesses greater certainty and stability.

4. Vacant Land Tax

In 2018, the Welsh Government requested the UK Government for powers to introduce a Vacant Land Tax. Almost a decade on, this has still not been agreed and implemented, so we urge the next Welsh Government to take swift action to progress this. The tax, based on similar taxes in the Republic of Ireland, would levy taxes on unused land with planning permission, which has been shown to incentivise efficient use of land in other countries. The Irish tax requires land owners to pay an annual charge of 3% of the market value of vacant sites which have been granted planning permission, but are not yet being made use of. 

In particular, it would encourage developers or wealthy individuals who have empty land to build homes or sell it to those who would make better use of it. This would support local economic growth, generating revenue for local authorities to invest in the community and public services. Since the tax would fall on landowners and developers with planning permission who haven’t made use of land, ordinary farmers, property owners and businesses wouldn’t be affected. 

5. Resourcing the Welsh Revenue Authority and HMRC

The Welsh Revenue Authority is responsible for collecting Welsh-made taxes. With an expanding number of devolved taxes, it is essential that it is properly resourced in staff, training and technology, to ensure it can perform its role effectively and collect tax owed, particularly from the super rich. HMRC should also receive more resources at a UK wide level, including in its Welsh offices, to ensure its share of the Welsh tax take is collected fairly and effectively. 

The UK’s official tax gap estimate sits at a huge £46.8 billion, and to make matters worse, HMRC has very limited understanding of the tax affairs of the super rich. According to the Public Accounts Committee, HMRC does not even know how many billionaires are in the UK, let alone how much tax they pay. Recent estimates suggest that at least £2.1bn extra could be raised by closing the wealthy tax gap, which experts suggest is most likely a significant underestimate.