Wales has lost £431m in HS2 funding so far, says Welsh Government

Martin Shipton

Cabinet Secretary for Finance Mark Drakeford has produced detailed workings-out that show Wales has been robbed of £431m so far because of the decision to classify HS2 as an “England and Wales” rail project.

The UK Government has so far refused to budge from this position, even though the route – whose first phase will go from London to Birmingham – is entirely in England.

If HS2 had been deemed an England-only project, the Welsh Government would have been entitled to extra funding from the Treasury in the form of “Barnett consequential” payments.

Transparency

In a letter to Peredur Owen Griffiths, Chair of the Senedd’s Finance Committee, and Llyr Gruffydd, Chair of the Climate Change, Environment and Infrastructure Committee, Mr Drakeford wrote: “There is considerable interest in HS2 and how much additional funding would have been available to the Welsh Government if there had been comparability with HS2 in the Barnett formula.

“In line with our commitment to transparency on this issue, I attach a technical note setting out the underlying calculations behind the Welsh Government’s estimates. As set out in the note, it is estimated that the Welsh Government would have received an additional £431m between 2016-17 and 2025-26 if it had comparability with HS2 in the Barnett formula.

“This is higher than the previous estimate of £350m because it is now possible to include 2025-26 in the calculations, following the UK Government’s October Budget. It is highly likely that the estimate will increase again once settlements are announced for the next few years in the UK Government’s Spending review on June 11 this year.

“We remain in discussions with the UK Government on the issue of fair rail funding and investment. This will form part of the UK Government’s considerations as part of the Spending Review.”

The technical note states:

1. It is possible to calculate the additional funding Welsh Government would have received since 2015 if it had comparability with HS2 in the Barnett formula. (HS2 was not separately identified at the time of the 2010 spending review or 2013 spending round, so there were no Barnett formula comparability issues.)

2. In aggregate the additional funding would have totalled £431m for years up to 2025-26, including changes up to and including the October 2024 Budget. The inclusion of 2025-26 explains the increase from the previous figure of £350m. It is not possible to say with any precision what the figure would be for years beyond 2025-26 but is very likely to increase over time.

3. The additions arise because the Welsh Government would have had a higher comparability factor with the Department for Transport (DfT) at spending reviews, and DfT has generally seen increases to its budget over the period. (The Welsh Government would also have received consequentials from changes outside spending reviews, including individual HS2-related allocations.)

4. The Welsh Government receives additional funding from increases to UK Government spending within Departmental Expenditure Limits (DEL) on programmes that are devolved to Wales. It receives the same change per head of the population, with an additional 5% needs factor.

5. At the time of a UK spending review there is some approximation in this process. The percentage split between devolved and non-devolved spending from a base year is applied. It is calculated by assessing whether each departmental spending programme is devolved or not. The spending in a base year on those programmes which are deemed to be devolved is added up and divided by the department’s overall budget.

6. The table shows how different the comparability factor with DfT would have been at each spending review and the impact this would have had on the Welsh Government’s Barnett formula consequentials. The difference in the final year of each spending review period is carried forward to future years.

7. The table also includes additional funding the Welsh Government would have received in relation to in-year changes to HS programmes.

Meanwhile a revealing exchange took place during a meeting of the Welsh Affairs Committee in Westminster between Ben Lake, the Plaid Cymru MP for Ceredigion Preseli, and Labour’s Rail Minister Lord Hendy.

Explain

Addressing the Minister, Mr Lake said: “You will be aware that our predecessor Committee, in its last report on rail infrastructure in Wales, did look at the matter of HS2 and its classification as an England and Wales project. I was a member of that Committee, and since then, I have tried very hard to explain to constituents how a railway project that doesn’t run through any part of Wales is classified as such. I was wondering if you could help me?”

Lord Hendy responded: “I probably can’t, actually. I can tell you that heavy rail is reserved in Wales, so any heavy rail scheme that the Department delivers should always be classified as England and Wales when applying the Barnett formula, and that’s why HS2 is included. Scotland and Northern Ireland are different because heavy rail infrastructure is devolved. This is consistent with funding arrangements for all other policy areas reserved in Wales but devolved in Scotland and Northern Ireland.

“Beyond that, I have to refer you to others in government who make these decisions. You can probably tell I’ve rehearsed this argument – in fact, I think every question I have ever answered about rail infrastructure in the House of Lords, [Plaid Cymru peer] Lord Wigley asks me about this – and I always endeavour to tell him the same thing.”