An estimated 50,000 workers in Wales will no longer pay income tax and many more will see a £200 reduction in their income tax bill as a result of the Chancellor’s plans to raise the income tax allowance by £1,000.

Raising the income tax allowance was a key commitment of the Liberal Democrats during the General election.

Kirsty Williams said:

“Increasing the tax threshold to help people on low and middle incomes was one of our key policies during the general election and I was very pleased that we were able to see it in the coalition programme of government.

“The announcement by the Chancellor will see over 850,000 workers across the UK lifted out of paying income tax altogether and thousands more workers will see more of their hard earned wages staying in their pocket. For Wales, this means that an estimated 50,000 workers will pay no income tax and many more seeing £200 stay in their pay packet.

“We all know that difficult times are coming given Labour’s recklessness with our economy over the last 13 years and that’s why we want to make sure that those on the lowest incomes are protected during the years ahead.

“Given the state Labour left our economy, there’s no doubt that this will be a tough budget. But it needs to demonstrate it will be both tough and fair. We need to begin making our tax system fairer, with progress towards the Coalitions long term objective of raising the personal allowance to £10,000, ensure the tax and benefits system rewards work and ensure that the burden is spread fairly.”

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Chancellor Alistair Darling announced in his pre Budget report (PBR) that to pay for the increase in UK government spending to combat the downturn, value for money savings of £5bn would have to be found in 2010-11.

If all of this was passed on to Wales, it would mean a cut of up to £300m.

Underspends in the NHS capital budget in England are expected to reduce the Welsh NHS budget by around £75m in that year.

And bringing forward capital spending this year and next will have to be paid for by a £150m reduction in the 2010-11 budget.

The implications for Welsh public spending are expected to be severe.

Welsh ministers have been told that, at a minimum, they will receive no increases to their budgets for 2010-11.

Mr Davies has told the cabinet that the PBR has “set a challenge” for the assembly government.
With reserves already forecast to be low, there will be significant pressure to maintain the current level of services, let along paying for promised improvements.

And from 2011 onwards, the new assembly government will have to adapt to growing cost pressures with extremely low, or even flat budget increases.

Responding to the threat of further cuts, Welsh Liberal Democrat Leader, Kirsty Williams said: “This government has not prepared Wales for times of massive cuts like this. The issue now is for the Labour-Plaid government to reprioritise money into important front line services rather than wasteful gimmicks.

“By giving a proper and decent settlement to local authorities, the people who are bearing the brunt of this recession will not have to pay for the blunders of the Welsh and Westminster governments in higher council tax.”

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Meanwhile local Councils up and down the country are struggling with an inadequate budget settlement, high energy costs and reduced interest rates forcing them to make tens of millions of pounds worth of cuts inevitably leading to further job losses.

In both cases Labour and their Plaid Cymru allies have failed to pass on the 4.6% increase in funding they received to local councils or colleges despite the fact that the former delivers front line services that may well blunt the impact of the recession for many, whilst the latter offers education and training opportunities to those who have lost their job.

Skewed budget priorities by the two parties are set to make the recession worse for many.

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In the next spending review period (2011-14), the Treasury has pencilled in annual rises in overall UK public spending of 1.1% per year above inflation.

But the Institute for Fiscal Studies (IFS) says that this modest rise will be entirely wiped out by the increased social security spending as the recession deepens.

It would also present a series of difficult choices for the winners of the 2011 Assembly election, and would provide a stark backdrop for the proposed referendum on giving Cardiff Bay greater powers.

The most important impact of such austerity as far as the Welsh Liberal Democrats are concerned is that it will help focus the attention of politicians on essential services and how they can be preserved rather than the freebie culture currently favoured by the One Wales Government.

Manifestos for the 2011 elections will need to be realistic and concentrate not so much on how we can do things differently as on how we can meet the needs of Welsh citizens with limited resources. It would help considerably if the present Welsh government adopted that attitude now rather than build up budgetary problems for the future with its skewed priorities.

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