Welsh Government and Treasury must reset relationship to recognise and respect devolution

Peredur Owen Griffiths MS – Chair of the Senedd Finance Committee.

In his first week as Prime Minister, Sir Keir Starmer vowed to reach out to the four nations of the UK, in order to ‘establish a different and better way of working than we’ve had in recent years’.

Last week we saw two further developments on this front; the first meeting of the Council of Nations and Regions in Edinburgh, and the appointment of Sue Gray as envoy for the nations and regions.

Much has been made on whether these changes will lead to a closer working relationship between London and the devolved countries – it has certainly divided opinion – but it is safe to say that for devolution in the UK to work, effective intergovernmental relations is of utmost importance.

Unfortunately, today’s Senedd’s Finance Committee report shows that this isn’t happening.

Seeking parity

The Committee has been looking into how fiscal matters are dealt with by the governments of the UK, and we found that the UK Treasury consistently undermines the Welsh Government.

During our annual budget scrutiny work, we found time and again that the ability of the Welsh Government to make spending decisions is often hampered by structures, attitudes and processes that are outdated and not reflective of the territorial realities of the UK.

Today’s report finds that the ‘whims or personalities of Treasury ministers’ has been the overriding factor when it comes to communication between London and Cardiff. It’s clear that things have not been working as they should be.

It has been 25 years since devolution was introduced and it seems that, with the Welsh Government’s work reliant on the whims of Treasury ministers, there are major issues to resolve.

Structure for success

The answer to this is strong and robust structures which are essential for governments to work constructively and collaboratively. Fortunately, pockets of this good practice exists in the UK.

In 2022, the previous UK Government published its report on the Review of Intergovernmental Relations, which set out new structures and a new set of principles for collaborative working.

We welcome what has been implemented from this review and believe they are a significant improvement on what came before. This includes a new dispute management model that allows any devolved finance minister to escalate a disagreement.

This is progress from the previous process where the UK Government and the Treasury were able to deny the existence of a dispute and as a result act as judge and jury.

The review also established the ‘Finance Interministerial Standing Committee’ which includes all finance ministers of the UK and considers the impact of economic and finance matters affecting the UK. Hopefully, more stability in this area will allow this forum to flourish, leading to co-operation across the UK to improve.

However, whilst there have been improvements in intergovernmental relations, the churn in Ministers in the previous UK Government has meant that some of these new structures have yet to be tested.

Cultural shift

However, having the right structures in place is only part of the solution. It needs to be supplemented by a culture between governments in the UK, based on parity of esteem. Our report shows that recent interactions between the Treasury, and the Senedd and Welsh Government have often been unsatisfactory, and characterised by an undercurrent of mistrust: A far cry from the principles of mutual respect that should underpin relations in a mature democracy.

That is why we are calling for a cultural shift in the relationship between the Welsh Government and the Treasury. The demand is in response to a ‘lack of mutual respect and parity of esteem’ experienced by devolved institutions in Wales when trying to engage with the previous UK Government on financial matters.

This includes the Senedd’s Finance Committee, which has been ignored by the Treasury when we’ve requested Ministers and officials to give evidence to us. We urge the UK Government to take advantage of this opportunity to turn over a new leaf.

Transparency and greater flexibility

The Committee is also calling for better transparency from the Treasury when it comes to big spending announcements, to enable devolved institutions to plan ahead more effectively.

During our inquiry, we heard evidence that the UK is one of the only decentralised fiscal states that gives such short notice on future funding changes.

In practice, this means that when the UK Government makes a new spending pledge, the Welsh Government has little idea on what, or when, it’s coming. This is particularly concerning given the significant financial responsibilities of the devolved governments which are hugely influenced by UK Government spending commitments.

That is why our report also urges the UK Government to be more transparent with future funding announcements and clarify whether cash provided to Wales is “new money” or funding which has already been previously detailed.

In light of HS2 being treated as an England and Wales project, the Committee calls for the Welsh Government to have a greater role in the categorisation of projects, to avoid the Treasury making subjective calls on decisions that have significant impact on funding levels in Wales.

Fighting for flexibility

For some time we have called for increased budgetary flexibility for the Welsh Government, to enable it to make long-term strategic budget decisions rather than being forced into making short-term ones, and today’s report reiterates that view. One example of the current inflexibility is how the Welsh Government is currently unable to ‘carry’ funding across financial years.

This means that if the UK Government was to announce a big spending commitment before Christmas, the Welsh Government only has until April to spend this money, or it loses it. Getting rid of this rule would allow the Welsh Government to plan ahead and not be rushed into spending.

The Committee is also calling for the Welsh Government to be able to borrow more money each year to match the powers in Scotland. These are hardly revolutionary ideas, and not particularly contentious or complex to implement, but taking these pragmatic steps would allow the Welsh Government to respond quickly to emerging needs and to maximise the funding available for Wales.

Parliamentary co-operation

As a Committee, we have focused on developing interparliamentary working over the last few years. That is why we, along with counterparts in the Scottish Parliament and the Northern Ireland Assembly, have established the Interparliamentary Finance Committee Forum which has proved an effective vehicle for bringing together the common concerns of the devolved parliaments and a collective voice when raising these issues with the governments of the UK.

Despite these efforts to better connect the nations of the UK, our report is clear that there is work to be done. For too long, the relationship between the UK and Welsh governments has not worked, often leading the Welsh Government being hamstrung when it comes to financial planning.

A quarter of a century on from devolution we should already have efficient and effective structures in place to make sure that governments across the UK can plan for their financial futures. Unfortunately, this isn’t the case, and though it might not be obvious on a day to day basis, in the end it is the Welsh public who pays the price for this inefficiency.

Today’s report offers a blueprint on how the Welsh Government and the Treasury can reset the relationship and move to a future where devolution is recognised and respected – it’s the least that we deserve.