Wales considers 25pc income tax cut to tackle ‘brain drain’ crisis

The Welsh Government is considering introducing tax breaks to stop people leaving the country and 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.

The Commission for Welsh-speaking Communities said targeted tax cuts could “boost economic and social activity” in areas suffering with depopulation.

The commission, which was set up by the Welsh Government in 2022 to make public policy recommendations, argued that incentivising people to stay would also help the diminishing Welsh language to survive.

Figures show that 81pc of young people in the west of the country believe they need to leave rural communities to progress 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.

Forecasts show further decline is in the pipeline as young people continue to move out. More than 200 rural wards have suffered a fall in population in the past decade, with more people leaving for England than other locations in Wales.

To stem the flow, the commission said the Labour-run Government could consider financial incentives.

It outlined a law passed in Castilla-La Mancha three years ago which offers a 25pc income tax reduction to residents living in areas of extreme depopulation.

Such a move in Wales would stop basic-rate taxpayers from paying any income tax, while those on the higher-rate would see their bills drastically cut. The annual amount lost to income tax for someone earning £75,000 would fall by £13,723.

Deductions in property and capital gains taxes are also on offer in Castilla-La Mancha.

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”.

Figures show that the number of 15- to 64-year-olds in Wales fell by 2.5pc between 2011 and 2021.

The commission said “negative narratives and stereotypes” have fuelled the mindset that young people must leave rural Welsh communities.

It has issued more than 50 recommendations to the Government to consider, including exploring incentives for people to stay.

A Welsh Government spokesman said: “We are considering the findings and will respond in due course.”

Elsewhere, the Swiss village of Albinen offers financial incentives to attract new residents. A Swiss national who moves to the village can earn £20,400 per adult and £8,300 per child, as long as they stay for at least 10 years and invest a minimum of £162,800 in real estate.

The scheme was aimed at boosting the local population and economy by attracting younger families and individuals to the area.

Seventeen applications were approved as of April last year but the local council has been burdened with hundreds of applications each day.

Meanwhile, elsewhere in the UK, Torcuil Crichton, a Labour MP in Scotland, earlier this month said the Western Isles was experiencing a “depopulation crisis”.

Mr Crichton labelled it “frightening” during a debate in the Commons.