Plaid Cymru manifesto: a response

David Phillips, an Associate Director at the Institute for Fiscal Studies and head of local and devolved finance, said:

“Plaid Cymru’s manifesto calls for higher funding for public services and investment in Wales, funded by tax increases at a UK level, increased tax devolution to Wales, and reforms to Wales’s funding settlement. It also reasserts a long-term goal of Welsh independence, but isn’t honest about the implications for public spending and taxation in Wales.

On UK-wide taxes, Plaid Cymru argues for increases in taxes on energy companies, the equalisation of capital gains tax rates with income tax rates, and investigating increases in National Insurance on higher earners and the introduction of a wealth tax. While not explicit, the manifesto suggests that Plaid Cymru would use enhanced income tax devolution to raise taxes on higher earners, as in Scotland. Using existing powers, they propose to reform business rates to reduce bills for ‘high street businesses’, which could ultimately see landlords rather than retailers gain.

The manifesto rightly highlights the arbitrary nature of funding for the devolved nations under the Barnett formula. But while a needs-based formula would be fairer, it wouldn’t necessarily mean more funding for Wales. Plaid Cymru’s assertion that Wales is funded based on population is incorrect, and moving to a needs-based system could actually result in a cut in funding for Wales relative to England. The latest estimates are that Wales receives about 20% more for devolved services than is spent on comparable services in England. The last assessment of needs commissioned by the Welsh Government - admittedly 15 years ago - found needs were 14% to 17% higher than England. If this remained the case, a needs-based system could see funding for the Welsh Government reduced by around £1 billion a year.

Plaid Cymru’s preference for needs-based funding does not extend to areas in which a population-based allocation would mean more money for Wales. This includes funding for rail investment and policing; crime is lower in Wales than in England.

Many spending pledges relate to areas controlled by the Welsh Government, including ambitions for free personal care, free childcare from 12 months, and free school meals for all secondary school children. Given the funding outlook, such measures would likely require the Welsh Government to make cuts elsewhere or increase taxation.

Some spending pledges would require change at the UK level or further devolution. This includes increasing child benefit by £20 per week per child. This would cost around £600 to £700 million per year in Wales, which if undertaken at a devolved level, would be roughly equivalent to 2% on all rates of income tax in Wales.”