Tuesday, May 25, 2010


The key taxation policy in the Queen’s speech is a promise for a ''significant increase'' in personal allowances for income tax in next month's Budget, with a long-term goal of taking the first £10,000 of an individual’s income out of tax.

What effect would this have in Wales?

To find out, we would have to rely on the latest “Survey of Personal Incomes, HM Revenue and Customs”, which estimates the distribution of personal incomes across the regions of the UK.

This suggests that Wales will benefit the most of the four nations from this policy i.e. an additional 16.5 per cent of those working in Wales would no longer be paying tax on their incomes as compared to 15.9 per cent for Northern Ireland, and 15.2 per cent for Scotland and England.

This would mean that a quarter of a million additional people in Wales would no longer be liable for tax on their incomes.

Only two English regions would get a greater benefit than Wales from the implementation of this policy, namely Yorkshire and Humberside and the North East of England, where an additional 17.2 per cent of the population of each region would now pay no taxes. The regions that receive the least benefit from this policy in proportionate terms are the South East of England and London.

More importantly, if this tax cut is applied across the whole of the taxpaying population (utilising the data in the HMRC survey), this could mean a saving of around a billion pounds for Welsh taxpayers i.e. an additional billion pounds of spending power into the Welsh economy.

Most importantly, those benefiting the most are those with lower salaries - 20.4 per cent of the savings in tax are for those earning less than £10,000 in Wales as compared to 16.0 per cent for London and the South East of England.

Of course, there are those who will say that Wales is bound to do better than the other parts of the UK because we have lower salaries than the rest of the UK.

However, let's not forget that this is down to thirteen years of a Labour Government which has largely ignored the growing disparities in income between Wales and the rest of the UK.

For example, since 1997, Wales has experienced the lowest increase in average full time weekly earnings of any UK region.

Whilst UK workers have had an increase in their earnings of 58 per cent, it has only grown by 51 per cent in Wales. As a result, the gap between earnings in Wales and the rest of the UK has actually increased. In 1997, Welsh workers were earning approximately £1800 per year less than the average for the UK in 1997 but by 2009, this gap had grown to £4200 per year.

After only two weeks of a new government, we can at least take some comfort that this policy will start to address some of the inequalities in takehome pay amongst the lower paid.

Given today's negative headlines in the Daily Post, Western Mail and the BBC on the reduction in public expenditure, I wonder if anyone will be leading with this positive story tomorrow morning?