Wales considers massive 25% income tax cut to tackle major crisis | UK | News

The Welsh government is reportedly considering introducing tax breaks to stop people leaving the country and help preserve the native language.

It has been recommended that inspiration be taken from the Castilla-La Mancha region of Spain, where rural residents are given a 25% income tax break to stay put, according to reports. The Telegraph.

The Welsh Communities Commission has suggested that targeted tax cuts could “stimulate economic and social activity” in areas facing depopulation.

Established by the Welsh Government in 2022 to provide policy recommendations, the commission argued that encouraging people to stay in these areas would also support the preservation of the Welsh language, which is in decline.

Statistics show that 81% of young people in West Wales feel the need to leave rural communities to advance their careers.

Ben Lake, Plaid Cymru MP for Ceredigion Preseli, told the House of Commons last week that depopulation was causing “the collapse of public services” in parts of Wales.

Projections indicate a continued decline as young people move further and further away.

Over the last decade, more than 200 rural constituencies have experienced population loss, with more residents moving to England than moving to Wales.

To counter this trend, the commission suggested that the Labour-led government could explore financial incentives.

He highlighted a law introduced in Castilla-La Mancha three years ago that grants a 25 percent income tax reduction to residents of seriously depopulated areas.

Implementing a similar policy in Wales could exempt basic rate taxpayers from income tax and significantly reduce the bills of higher rate taxpayers.

For example, a person earning £75,000 would see their annual income tax reduced by £13,723. Castilla-La Mancha also offers reductions on property and capital gains taxes.

A report from the committee said: “Such policies raise questions about whether the Welsh tax system could be used to stimulate economic and social activity in areas facing emigration.

“There are clear linguistic and economic benefits to trying to reduce youth emigration levels. But apart from small-scale, one-off programmes, there has never been a coherent strategy.”

Chris Etherington, of tax consultancy RSM, doubts that tax breaks are the answer. He said: “It is clear that taxes can be an important motivator for people to leave a country. In theory, the reverse could be true, but there is little evidence to show that this is effective.”

“It will also be necessary to ensure that these policies are not subject to abuse and target the right people.”

Rachael Griffin, a tax expert at wealth management firm Quilter, warned that an income tax cut could have “unintended consequences”. She said: “There are complications with pension tax relief, which could make it difficult for people unfamiliar with detailed tax returns to claim the full amount of relief due.”

“Furthermore, applying this policy exclusively to rural areas would require zoning to define what is considered rural, adding an additional level of complexity.

Ms Griffin also said such a policy could attract wealthy individuals, leading to “increased property prices if not carefully managed”.