Osborne sets new minimum funding level for Wales

25 Nov 15

The Welsh Government is to be given a 115% funding guarantee and powers to introduce income tax, the chancellor announced.

Wales has long complained on the raw deal it receives through the Barnett Formula, which distributes block grant between the devolved administrations. Finance minister Jane Hutt has for years been lobbying the Treasury for greater funding certainty.

In his Autumn Statement and Spending Review statement today, George Osborne said: “For years Wales has asked for a funding floor to protect public spending there. Now, within months of coming to office, this Conservative government is answering that call and providing that historic funding guarantee for Wales.”

This means that the Welsh Government will receive 115% of comparable spending per head in England.

He said the Welsh block grant would reach almost £15bn by 2019/20, while capital spending in the country is set to be £900m over five years.

In addition, income tax powers are to be devolved to Cardiff Bay without first being passed by a referendum.

Hutt responded: “Although today’s commitment towards a funding floor that will ensure that in future public spending in Wales is at 115% of the England average is welcome this is unhelpfully restricted to this Parliament.

“We haven’t got fair funding yet and it is essential that there is an inter-government agreement on the way forward. The devil is very much in the detail as to how this will work in practice.”

On Northern Ireland, Osborne hailed the success of political negotiations that allows the Stormont House Agreement to be implemented and opens the door to devolution of corporation tax. This is to be set at 12.5% in Northern Ireland – a “huge prize for business” in the province, the chancellor said.

He added: “Northern Ireland’s block grant will be over £11bn by 2019/20 – and funding for capital investment in new infrastructure will rise by over £600m over 5 years, ensuring Northern Ireland can invest in its long term future.”

On Scotland, the Spending Review indicates a notional real terms cut in revenue spending through the block grant of 5% by 2020, and a 14% rise in capital spending. 

The actual impact, though, will be determined by the fiscal framework underpinning the 2015 Scotland Bill, where negotiations between Holyrood and the Treasury have become bogged down. Osborne indicated that he hoped there would now be a swift resolution.

To cheers from the Conservative and Labour benches, he mocked the Scottish National Party over its demands for full fiscal autonomy leading to full independence, noting that on current projections North Sea oil revenues were running at 94% less than the levels on which the SNP predicated its economic arguments at last year’s independence referendum.

The chancellor’s change of heart on tax credit cuts also has important ramifications for Scottish politics. 

Labour’s Scottish leader Kezia Dugdale had promised to mitigate the effects in full if returned to power at Holyrood next year. However, Scottish finance minister John Swinney declined to match her vow until he saw the detail of Osborne’s plans, and there will be relief in the Scottish Government that he no longer needs to try to find that money.

However Stewart Hosie, the SNP deputy leader and Treasury spokesman in the Commons, warned that the chancellor remained committed to taking £12bn out of the welfare budget, and said that the cuts which were to have been made via tax credits would still hurt many of the same vulnerable people through reductions in payments like Housing Benefit.

 

Additional reporting by Keith Aitken

  • Vivienne Russell

    Vivienne Russell is managing editor of Public Finance magazine and publicfinance.co.uk

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