Wales considering huge 25% income tax cut to tackle major crisis

The Welsh Government is reportedly considering introducing tax breaks to stop people leaving the country and helping to safeguard the native language.

It has been urged to take inspiration from the Castilla-La Mancha region in Spain where residents in rural areas are offered a 25pc income tax reduction to stay put, reports The Telegraph.

The Commission for Welsh-speaking Communities 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 public policy recommendations, the commission argued that encouraging people to remain in these areas would also support the preservation of the Welsh language, which is in decline.

Statistics indicate that 81 percent of young people in the western regions of Wales feel the need to leave rural communities in order to advance their careers.

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

Projections indicate a continued decline as young people increasingly move away. 

Over the past decade, more than 200 rural wards have experienced population loss, with more residents leaving for England than relocating to Wales.

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

It highlighted a law introduced in Castilla-La Mancha three years ago, which grants a 25 percent income tax reduction for residents in severely depopulated areas.

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

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

A report from the commission stated: “Such policies raise the question as to whether the tax system in Wales could be used to boost economic and social activity in areas facing outmigration.

“There is clear linguistic and economic benefit in trying to ensure that levels of out-migration among young people are reduced. But with the exception of occasional and small-scale programmes, there has never been a coherent strategy.”

Chris Etherington, of tax firm RSM, doubted whether tax breaks are the way to go. He said: “It’s clear that tax can be a significant motivator for people to move away from a country, so in theory the opposite could be true, but there is limited evidence to demonstrate this is effective. 

“Care would also need to be taken to ensure that any such policies are not subject to abuse and target the right people.”

Rachael Griffin, tax expert at wealth manager Quilter, warned an income tax cut could spark “unintended consequences”. She said: “There are complications related to pensions tax relief, which could make it difficult for individuals unfamiliar with detailed tax filings to claim the full relief owed. 

“Additionally, applying this policy exclusively to rural areas would necessitate zoning to define what qualifies as rural, adding another layer of complexity.

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