Agreement reached over Welsh borrowing powers
By Richard Johnstone | 25 October 2012
The Welsh Government is set to be given capital borrowing powers after the administration reached an agreement with Westminster over future funding plans.
A joint statement from Welsh Finance Minister Jane Hutt and Chief Secretary to the Treasury Danny Alexander also revealed that London and Cardiff will now jointly review Welsh funding before each UK Spending Review.
Yesterday’s agreement stated that the Welsh Government ‘should have access to capital borrowing powers on the condition an independent revenue stream, such as tax powers, is in place to support them’.
Proposals to devolve some tax powers to Wales are being considered by the Commission on Devolution in Wales, chaired by Paul Silk, the former clerk to the National Assembly.
The Silk Commission will report in November on ‘the case for the devolution of fiscal powers to the National Assembly for Wales’, including recommending a package of powers to improve the Assembly’s financial accountability.
Hutt said ‘the in-principle devolution of capital borrowing powers’ would ‘give the Welsh Government an additional lever to generate economic growth’.
She added that both governments were now committed to reassessing Welsh funding at every Spending Review, to ensure it is not being squeezed by the Barnett Formula.
The formula, set up as a temporary measure in the 1970s, ensures funding to the devolved nations matches per capita public spending changes in England. The original aim was to bring historically higher funding in Wales, Scotland and Northern Ireland closer to the levels in England, known as ‘convergence’. But as the formula is based solely on population numbers, and takes no account of need or geography, it can skew funding and is widely seen as unfair in all four nations. In 2010, the Independent Commission on Funding and Finance for Wales called for it to be replaced with a system based on need.
The joint statement of funding reform progress agreement stated that the Welsh Government ‘strongly believes that there is no case for further convergence in Welsh relative funding’. The Westminster administration said it ‘recognises that there has been convergence in Welsh relative funding since the start of devolution’.
Both governments have agreed there will now be a joint review of the pattern of convergence ahead of the next Spending Review. If it is forecast to occur, ministers will meet to discuss ways of addressing the issue.
Alexander said the agreement was ‘an important step forward on the devolution journey for Welsh people’.
He added: ‘I am delighted that the two governments have worked closely together to deliver this good outcome for Wales.’
Welsh Secretary David Jones said: ‘In addition to the in-principle capital borrowing powers, the UK government has recognised the concern in Wales about long-term convergence and is committed to investigating options to address it once it resumes.
‘The commitments made today establish a strong basis from which to work with the Welsh Government after the Silk Commission reports to me next month.’
The Scottish Government is already set to have capital borrowing powers from 2015/16, enabling it to finance extra capital investment of up to £2.2bn.