Labour MS calls for end to £1bn Welsh borrowing cap

Emily Price

A Welsh Labour Member of the Senedd has written to the Chancellor, Rachel Reeves, calling on the UK Government to grant the Welsh Government prudential borrowing powers.

North Wales regional MS Carolyn Thomas says that expanded borrowing powers would allow the Welsh Government to invest in “vital public infrastructure” such as schools, hospitals, and social housing.

The Welsh Government is currently restricted by the UK Government to borrowing £1bn per Senedd term.

The Institute of Welsh Affairs has previously said that the cap gives the Welsh Government a “limited ability to kickstart major projects to improve people’s lives” and that reform would “better enable transformative policy making in Wales.”

‘Sub-optimal’

In her letter to the Chancellor of the Exchequer, Thomas highlights how the existing borrowing restrictions have forced the Welsh Government to rely on using private finance through the Mutual Investment Model (MIM) – which she describes as “sub-optimal”.

The funding mechanism was developed by the Welsh Government to finance major public infrastructure projects by partnering with private sector investors to overcome capital funding scarcity and to avoid traditional debt financing.

Thomas says that projects delivered through MIM often involve higher long-term repayment costs compared with direct public borrowing – meaning taxpayers ultimately pay more for the same infrastructure.

The letter says: “Investments in public infrastructure – whether that be hospitals, schools, social housing or railways – not only improve the wellbeing of the country, but also contribute significantly to economic growth, ensuring a long-term return on investment.”

‘Less favourable’

Thomas also says that the restrictions on Wales’ ability to access prudential borrowing place the country in a “less favourable position than local authorities” in the UK, who are able to use prudential borrowing to finance capital investments via the Public Works Loan Board.

Research from the Wales Governance Centre has shown that if the £1bn cap had increased in line with inflation since 2016-17, the Welsh Government’s borrowing capacity today would be more than £343m higher.

The letter goes on to say: “With prudential borrowing powers, Wales could accelerate investment in the social housing needed to tackle the housing crisis, provide more 21st century schools and modern hospitals, expand state-owned renewable energy generation, and strengthen public transport infrastructure.”

Devolution

The letter concludes with a request for Rachel Reeves to grant Wales prudential borrowing powers in order to allow Wales to make “long-term, strategic investments”.

The UK Government says the Welsh Government’s settlement is growing in real terms between 2024-25 and 2028-29 and is the largest in real terms of any settlement since devolution.

A spokesperson said: “The Welsh Government is receiving a record £22.4 billion per year settlement, with powers and flexibilities to borrow further capital funding each year through its fiscal framework.

“This ensures fair funding that helps it to invest in schools, hospitals, roads, and other key infrastructure that drives economic growth and opportunity for people in Wales.”