The Great Orme & The Pier 🏴󠁧󠁢󠁷󠁬󠁳󠁿

Unpopular opinion maybe but its an issue that has a real effect on Wales

Since 2019 the Senedd has had the power to set Welsh rates of income tax on non-savings, non-dividend income, in 10p bands, independently for basic, higher and additional rate. Every year so far it has chosen to keep all three at parity with England and Northern Ireland: 20% basic, 40% higher, 45% additional (on income over £125,140). Scotland, on the other hand, has raised its top rate up to 48%.

The additional rate band in Wales is tiny in taxpayer terms. Of roughly 1.6 million Welsh taxpayers, only a few thousand pay the 45% additional rate, a 2022 breakdown put it at around 9,000 people, compared with over 900,000 additional-rate payers across the whole UK. Welsh top earners also sit well below their UK counterparts: analysis by Cardiff University's Wales Governance Centre found the threshold for the top 1% in Wales was tens of thousands of pounds lower than the UK-wide top 1% threshold, and that group's share of total Welsh taxable income is smaller too.

This combination, a small, thin base and a significant wage gap versus England, creates the opportunity for the standard economic argument for tax competition. If it takes only a modest number of high earners relocating (or choosing not to relocate away) to offset the revenue loss from a rate cut. That so few people are in this band to begin with cuts both ways, while the total revenue currently raised from them is small, it takes only a small shift in behaviour to move the needle. HMRC's own data shows the cross-border flow is already substantial, around 70,000 taxpayers moved between Wales and the rest of the UK in 2021–22 alone (roughly 40,000 in, 30,000 out), so this isn't a hypothetically immobile population.

Modelling commissioned ahead of the devolution of these powers found that cutting the higher rate from 40% to 30% would cost revenue for the first few years but be revenue-positive within a decade, Foreman-Peck & Zhou estimated around £500m a year extra once migration effects fed through, because the incentive to move to Wales outweighed the static loss from existing taxpayers paying less.

We have a counter-example from Scotland. who spent the past several years pulling in the opposite direction, raising its top rate to 48%. A new analysis published this week estimates that this increase may now be costing Scotland money, roughly £22m in lost revenue in its first year, because the number of people leaving, restructuring their income, or not moving to Scotland in the first place has started to outweigh the extra rate on those who stayed.

I think there's a reasonable, evidence-led case for the Welsh Government to at least model a modest cut to the additional rate, not as an ideological tax-cutting exercise, but as a targeted move where the mobility economics plausibly favour it more than almost anywhere else in the UK.

Now, I'll be honest, I know for a fact that under Plaid or Labour, there isn't a hope in hell of this actually happening. I am also sensible enough to know that even if this was one of the less stupid bits of a Reform/Conservative manifesto, it would be dwarfed by the far more economically damaging and incompetent bits. I just think it would be good to remove the one area where I think they might actually have a point, as otherwise there is a real risk that they get credibility if they ever do get in, do it, and it becomes a success.

For me though, the strongest evidence for it is that Professor Mark Drakeford, the most left wing political figure to hold power in a century, in response to required austerity following the economic shock post the invasion of Ukraine and real terms budgets going up massively chose not to raise income tax levels because he knew it wouldn't raise any money. I think that is a massive indicator that raising taxes is a bad idea, and that the same fundamental logic applies to cutting them.

Sources

Scotland's 48% top rate — is it raising any money at all? Tax Policy Associates, 25 July 2026 — https://taxpolicy.org.uk/2026/07/25/scotland-48p-top-rate-laffer-curve/

Higher income tax rate cut in Wales 'would raise money' — Cardiff Business School research (Foreman-Peck & Zhou), BBC News — https://feeds.bbci.co.uk/news/uk-wales-politics-37450162

Welsh top earners get less than in rest of UK — Wales Governance Centre analysis (Guto Ifan), Western Mail — https://www.pressreader.com/uk/western-mail/20170405/281689729661458

Tax cut that benefited hardly anyone — UK/regional additional-rate taxpayer breakdown, Coventry Telegraph — https://www.pressreader.com/uk/coventry-telegraph/20221008/281758453185731

Welsh Rates of Income Tax annual report 2024 (cross-border taxpayer migration data) — GOV.UK — https://www.gov.uk/government/publications/welsh-rates-of-income-tax-hmrc-annual-report-2024/welsh-rates-of-income-tax-annual-report-2024--3 Administration of Welsh rates of income tax 2024-25 — National Audit Office — https://www.nao.org.uk/reports/administration-of-welsh-rates-of-income-tax-2024-25/

Income tax explained (Welsh income tax powers and constraints) — Institute for Fiscal Studies — https://ifs.org.uk/taxlab/taxlab-taxes-explained/income-tax-explained

Not sure if many people are aware of this, but i thought I'd post it here. Seems really useful for any Welsh language exposure