First steps towards tax powers

This morning Finance Minister (Jane Hutt, pictured) is meeting with representatives of the Welsh construction industry in Cardiff Bay to discuss the benefits of devolving Stamp Duty Land Tax to Wales. This has been recommended by the Silk Commission and is currently being consulted on by the UK Government, with next Tuesday being the closing date.

Jane Hutt should be pushing at an open door. Recently the Federation of Master Builders in Wales confirmed their view that devolution of SDLT was “vital” so that it could be tailored to the “needs of the Welsh Construction and business sector”.

UK Ministers should also be in favour of tax powers for the Assembly as they have constantly declared these are necessary for effective accountability. As Danny Alexander, Chief Secretary to the Treasury, told the Welsh Liberal Democrats Conference in Cardiff earlier this year, “We need a new model of devolution for Wales – a model in which additional responsibility for raising revenues strengthens responsibility.”

Welsh Secretary of State David Jones is also right to say that the level of power for an institution should be matched by accountability. Therefore you need to investigate what are the most appropriate taxes to devolve to the Welsh Government. And precisely because of its characteristics, SDLT is the ideal candidate for devolution.

SDLT is a tax on immovable objects, in other words, buildings. This means that the tax base is immovable, reducing the risk of tax avoidance for the Welsh Government.

Furthermore, the densely populated nature of the Wales-England border shouldn’t have much bearing on the devolution of SDLT to Wales. Research shows that transactions costs (in this case SDLT) only marginally influences where people choose to locate, whilst housing characteristics and the availability of finance are much more likely to influence a decision. Indeed, the Silk Commission itself notes that the potential for differences in the tax between Wales and the rest of the UK is unlikely to have a significant direct consequence on location decisions.  Additionally, there is no evidence to suggest that the devolution of SDLT to Scotland has had a material impact on the decision of business and investment to locate there. So what is the UK Government worried about?

As for the administration of the tax this is again a relatively straightforward matter for the Welsh Government. The characteristics of this tax means it’s a relatively easy one to collect. And before someone points it out, no Wales doesn’t have a Treasury function. But neither is it needed for the administration of SDLT.

As Silk recommends, the Welsh Government could easily come to an agreement with the HMRC via a service level agreement for the collection of the tax. The burden of collecting/paying the tax lies with the purchaser, which is usually done through a solicitor. There is no additional burden for the HMRC as SDLT returns require the local authority in which the transaction took place to be cited, thereby allowing HMRC to identify transactions undertaken in Wales. These transaction costs would neither be excessive for the Welsh Government.

But most importantly, the devolution of SDLT would sit well with the Welsh Government’s current responsibilities for economic development, construction and housing policies. Many reports have noted that SDLT is a “good-fit” in tax devolution terms for the Welsh Government, the words of many distinguished economists, not mine.

Now that SDLT has been devolved to Scotland, the impacts of different rates across borders shouldn’t be an issue. After all that is what devolution is mean’t to entail. It’s about decisions being taken more locally for the benefit of local people. There are different ways of delivering the NHS and Higher Education in Wales and England. Why shouldn’t tax regimes be any different?

The devolution of SDLT would incentivise the Welsh Government to create policies which would boost the construction industry and housing market in Wales since it would benefit directly from more transactions.

SDLT devolution could go a long way in helping develop Welsh economic and social policies, and the fact that it is a widely understood tax by the wider public, would pave the way as a popular and sensible tax to devolve. If the UK Government is to achieve its ambition of introducing more fiscal accountability to the National Assembly and Welsh Government, then SDLT is the best place to start.