Wales considers 25% income tax cut to tackle rural depopulation and ‘brain drain’

The Welsh Government is weighing the introduction of tax breaks to stem the tide of people leaving the country, particularly from rural areas, and to preserve the Welsh language.

Inspired by the Castilla-La Mancha region in Spain, where a 25 per cent income tax reduction is offered to residents in rural areas, the Commission for Welsh-speaking Communities has recommended a similar approach to boost economic and social activity in parts of Wales affected by depopulation. The commission, which was established in 2022, argues that such tax incentives could help prevent young people from leaving, which would support both the economy and the survival of the Welsh language.

A recent survey showed that 81 per cent of young people in western Wales feel the need to leave rural communities to advance their careers. Ben Lake, Plaid Cymru MP for Ceredigion Preseli, recently raised concerns in the Commons, warning that depopulation is causing a “collapse of public services” in parts of Wales.

Over 200 rural wards have seen population declines in the past decade, with many young people moving to England. To reverse this trend, the commission suggested that the Welsh Government could explore financial incentives similar to those in Castilla-La Mancha, where residents receive significant tax breaks to encourage them to stay. In Wales, such a policy would eliminate income tax for basic-rate payers and provide substantial savings for higher earners.

However, tax experts have raised concerns. Chris Etherington, of tax advisory firm RSM, noted that while tax cuts could be a motivator, there is limited evidence to show they are effective in preventing depopulation. Rachael Griffin, a tax expert at wealth manager Quilter, warned of potential “unintended consequences,” such as complications with pension tax relief and the potential for rising property prices if wealthier individuals were drawn to the area.

The Welsh Government has yet to decide on the commission’s 50 recommendations, which aim to tackle outmigration and bolster rural communities. A spokesperson said they are considering the findings and will respond in due course.

Read more:
Wales considers 25% income tax cut to tackle rural depopulation and ‘brain drain’