Facing tumultuous protests in the public sector, Mark Drakeford is striving to bring about meaningful resolution by finding additional funds. With tensions rising and people taking action, he's under immense pressure to devise creative solutions for giving both sides a satisfactory outcome.
Despite the Welsh Government's pleas for increased funding from the UK government, their efforts have been met with disappointment. As a result, they are unable to meet demands of public sector workers such as nurses in Wales - a situation further compounded by England's own pay disputes. The First Minister recently voiced his frustrations over this deadlock, suggesting it could be arduous journey until resolution is found on both fronts.
But Wales does have the ability to generate extra cash without going through Westminster. Every 1% rise in the pay bill across the public service in Wales costs another £100m whereas adding 1p to the basic rate of income tax would raise £220m in Wales.
Using Welsh Government estimates from the last financial year (for 2023-24) we can say that:
- For every 1p they add to the basic rate of income tax Wales will receive an extra £220m.
- For every 1p they add to the higher rate of income tax Wales will receive an extra £33m.
- For every 1p they add to the additional rate of income tax Wales will receive an extra £5m.
As Mr Drakefordrevealed, just months ago he seriously weighed the option of invoking Wales' powers to counter a possible income tax cut from London. In what seemed like an eternity under Liz Truss's helm as UK Government leader, she threatened to lighten wallets by reducing taxes for all citizens across Wales.
We held a thought-provoking discussion about raising the Welsh component by one penny, despite those living in Wales already experiencing taxation at its highest level over the past 70 years. I saw this as an opportunity for compromise; not only to keep people in Wales unaffected financially but also provide £200 million of support towards developing public services. An attractive proposition that would have given individuals more than what they faced beforehand - allowing them to experience greater levels of prosperity through investment and growth without additional burden on their wallets.
But this begs the question of why not raise taxes for higher earners? According to Mr Drakeford, the issue with this is that it wouldn't raise much money.
"The huge bulk of taxpayers in Wales are basic-rate taxpayers," he said. "You raise very little indeed by raising the higher additional rate. It is £5m and that's if everybody paid it and people are that end of the income spectrum are mobile and have accountants who help them to make sure their tax affairs are tax efficient and so on. They might have a second home somewhere across the border that they could register from. So you are not even guaranteed to get the £5m. To raise money of any significance you have to raise the basic rates and there you are talking about people who earn £12,500 a year."
