Pocket money and paper rounds
- 19 June 2012
- From the section Wales politics
It seems that the debate over the way Wales is funded has reached something of an impasse.
Last week I interviewed Nick Clegg, who was in Wales to give what was described as a 'thinky' talk about the future of devolution. I sat down to interview him with some 'thinky' questions of my own but what he delivered - with gusto - was a striking message to the Welsh Government about taking much more responsibility for raising at least some the money it spends. It was the proverbial lecture to the stroppy teenager to stop relying on pocket money (from Westminster) and at least get a paper round. My thinky questions stayed in my pocket.
But for all Mr Clegg's "stop whining" rhetoric, he was far less keen on actually committing to giving Wales any sort of fiscal autonomy any time soon, or so it seemed to me. Borrowing powers? Can't do these things on a whim, he said. Tax varying powers? Well, yes - in the medium term. But he brought with him an awful lot of jam tomorrow as well as accountability today.
The Welsh Government have been talking to the Treasury for months now about their initial financial objective, which is to secure borrowing powers for Wales. Whenever Finance Minister, Jane Hutt, appears at a press conference, she knows one question is inevitably coming: when might the big conversation between Jane and Danny reach a conclusion?
She's been locked in discussions with Chief Secretary to the Treasury Danny Alexander to try and secure the right to borrow in order to invest in large infrastructure projects. And at every press conference, she sighs, smiles and tells us they're going well - but still no announcement.
A letter from Mr Alexander to the Finance Committee may give a clue as to why. Asked whether he believes it is possible to have borrowing powers without tax varying powers, he answers as follows:
"In principle, I believe there is an inherent link between borrowing powers and the ability to raise revenue independently to support borrowing for two reasons. First, borrowing powers can be appropriate and necessary to reflect and manage the increased responsibility for raising revenue.
"Secondly, an independent source of income can be adjusted as appropriate to support the costs of borrowing."
What the Treasury seem to be saying here is that they're uneasy about handing over borrowing powers to the Welsh Government when their only substantial means of paying it back is the income stream from the block grant - they'd like them to have the paper round as well as the pocket money. But the Welsh Government are adamant that they won't accept any substantial tax varying powers without reform of Barnett.
And so we go round again.
Meanwhile, Plaid Cymru have today published their calculations about the alleged underfunding of Wales according to the Barnett formula. They were at pains to stress that they were in no way undermining Gerry Holtham's final determination of a £400m underfunding for Wales, rather, they draw on more recent Treasury data to put the gap at closer to £540m a year.
How is that figure arrived at? Well the Barnett formula is infamously based on population, not need. Holtham's calculations are based on what extra funding Wales should receive in a needs-based formula.
The problem with demanding this gap be closed in Wales in the near future is that it assumes, politically and financially, that Barnett reform can somehow be done asymmetrically, that is, a fundamentally different formula can be applied in Wales as compared with other parts of the UK who do very nicely out of the current arrangements, thank you very much.
At First Minister's Questions, the Plaid leader Leanne Wood called on the First Minister to fight for a "Barnett floor" a guaranteed level of expenditure compared to England, below which the Welsh allocation will never fall. He had little trouble in agreeing this, since it's been a key demand of his government - but Ms Wood then went on to warn of a "Barnett floor" turning into a "Barnett ceiling", locking in the alleged underfunding.
If you feel as though the room is spinning now, well, that's devolved finance for you.
Gerry Holtham said in his report that a Barnett floor would be relatively cheap and easy to implement, particularly at a time of flat or declining budgets. Today's exchanges demonstrate why nothing is straightforward, and why the impasse may continue for some time to come.