Welsh government given limited borrowing powers

BBC Wales' political editor Betsan Powys explains what the deal means, while Chief Secretary to the Treasury Danny Alexander says it is "historic"

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The Welsh government has reached agreement with the UK coalition allowing it limited powers to borrow money to finance major schemes.

The deal is conditional on the Welsh government getting a new source of income from taxes - something being examined by the Silk Commission into the future of devolution.

It follows talks between ministers in Cardiff and the Treasury over funding.

Plaid Cymru said the Welsh government had failed to get what it wanted.

Ministers in Cardiff have been calling for borrowing powers as a way to raise money for big capital projects, such as motorway improvements that could boost the economy.

As it cannot currently borrow and has no tax powers, the administration in Cardiff Bay relies on Whitehall for its budget.

'Step forward'

Analysis

Tomos Livingstone, BBC Wales political correspondent

For years the Welsh government has argued that it's being held back, unable to raise the money to pay for big infrastructure projects because it has no powers to borrow.

Today the Treasury said it agreed, in principle, to change all that.

Welsh ministers will be allowed to borrow, but only when a way can be found to hand over some tax raising powers to Cardiff Bay.

But which taxes exactly? That should become clearer later this month when an independent commission - the Silk Commission - publishes its suggestions.

At the moment the deal may feel a little lacking in detail - a bit like getting a mortgage in principle without deciding which house you want to buy.

No-one's talking yet about how much Welsh ministers will be allowed to borrow, or what they'll spend the money on.

Nevertheless the Chief Secretary to the Treasury Danny Alexander insists today is an "important step forward on the devolution journey".

Ministers, elephants, and carrots

Chief Secretary to the Treasury Danny Alexander said the in-principle agreement to devolve capital borrowing powers was "an important step forward".

"I am delighted that the two governments have worked closely together to deliver this good outcome for Wales," he said.

In another aspect of the deal, both sides will sit down at UK government spending reviews and conduct a joint assessment of how much Wales gets.

The committment is designed to stop a squeeze on Welsh funding.

Welsh Finance Minister Jane Hutt said it was the first time the Welsh government and the Treasury had agreed there was a risk of Wales losing out under the Barnett formula - the mechanism which adjusts funding for the devolved nations.

Thanks to a quirk of the system, known as convergence, Welsh spending has been falling compared to levels in England. The trend is unlikely to continue in coming years because overall public spending is being cut.

But the deal effectively rules out the prospect of the Barnett formula being scrapped in the near future.

Critics argue it should be replaced with a system that better reflects how much Wales needs.

Ms Hutt said Barnett reform was "probably our long-term goal".

She said: "I welcome the in-principle devolution of capital borrowing powers, which should give the Welsh government an additional lever to generate economic growth."

The Silk Commission is due to publish its first report on 19 November, looking at whether the Welsh government should be made more accountable for the money it spends by devolving tax-varying powers.

It is not yet clear how much the Welsh government will be able to borrow under any future arrangements.

First Minister Carwyn Jones has previously said his administration needs parity with Scotland.

Borrowing powers have already been devolved to the Scottish government, with a maximum of £2.7bn available every year.

'Wholesale reform'

Plaid AM Ieuan Wyn Jones, the former deputy first minister, said: "The statement doesn't even tell us how much Wales will be allowed to borrow at some future unspecified date.

"This announcement has the Treasury's paws all over it, and I can't understand why any first minister of Wales would sign up to it."

He added: "There is no mention at all of the longer term need for a wholesale reform of Barnett."

Welsh Secretary David Jones said: "It shows that by working together we can achieve so much more than if we pull in separate directions."

Shadow Welsh secretary Owen Smith welcomed the principle of allowing borrowing but claimed Wales was still underfunded and that the Welsh budget was being "hammered" by spending cuts.

Speaking ahead of the announcement, James Foreman-Peck, director of the Welsh Institute for Research in Economics and Development at Cardiff University, told BBC Radio Wales questioned the timing of granting borrowing powers.

"We've got UK national debt rising strongly, we've got Europe mired in its debt problem and here we're being told Wales is about to join the throng by getting more and more debt," he said.

Nick Bennett, chief executive of Community Housing Cymru - the body that represents housing associations in Wales - said: "We have to take responsibility for funding more of our infrastructure ourselves for the future."

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