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Opinion

Why the Treasury should give more flexibility to Welsh Government reserves

05 Mar 2024 4 minute read
Financial reserves.

Mike HedgesMS for Swansea East

Every council in Wales, including community councils, can move money into and out of reserves with no external control. The Welsh Government cannot. Does that make sense to anybody?

Because it certainly makes no sense to me. Why is adding money to reserves a bad thing? Why is taking money out of reserves a bad thing?

As far as the Treasury should be concerned, if it is spent or saved should not matter, as it has already been given to the Welsh Government.

The Welsh Government has called for the indexing of its borrowing and overall reserve limits to inflation.

On the use of reserves and adding underspend to reserves, there is no fiscal reason to limit the movement into and out of Welsh reserves; the money has already gone to the Welsh Government.

Strict

In terms of future budgetary management, adding money into reserves is a good thing, why must movement into and out of reserves to be strictly controlled?

On borrowing limits, again, it does not make sense to me. The Government can use the mutual investment model which is a very expensive way of paying to fund capital projects.

Previously, the private finance initiative was allowed, which was an extremely expensive way of funding capital projects.

Councils can borrow prudently, which means that, as long as the section 151 officer (normally the chief finance officer) approves it, they can borrow. In Wales, there has not been the debt mountain created by gambling on the property market as has happened in England.

A total of 192 local authorities in England have debts exceeding twice their spending power. Forty-five local authorities have debt ratios exceeding eleven times their spending power, obviously control is necessary.

There should have been control on what local authorities did in England because they have left themselves in a very serious financial position, and, as we have seen some of them have, effectively, gone bankrupt.

Whilst the Welsh Government asking for it to be indexed would be progress and would reduce the amount of the expensive mutual investment model borrowing that the Government uses, there is another way of controlling capital expenditure between the gambling of the English local authorities and the straitjacket that the Welsh Government works under.

I suggest that any expenditure above the current cap would need the approval of the Office for Budget Responsibility or a similar organisation. Approved responsible borrowing would then be able to be made.

These rules should also apply to Scotland and Northern Ireland, we need a consistent devolution settlement.

I regret that the Welsh Government is dependent on UK Government decisions on timing and support the need for greater predictability and certainty of the Welsh Government’s funding arrangements to support its budget planning, Finance Committee scrutiny, and certainty for partner organisations, not only local authorities but also third sector organisations.

Often, the Westminster Government have additional funding for hospitals, but say there are no consequentials for Wales because of the way it is being funded. I am asking the Welsh Government, in collaboration with Scotland and Northern Ireland, to agree an appeals mechanism, outside the Treasury, regarding additional moneys to be paid or not paid to Wales, Scotland and Northern Ireland.

If the Treasury acts as judge and jury, there will be no change in the initial treasury decision. The Barnett formula indicates the minimum amount that Wales can have, and, as we have seen several times in Northern Ireland, including recently, additional money can be provided over the Barnett formula if the Westminster Government wants to provide it.

The apparently arbitrary decisions on what are England-and-Wales projects, such as HS2, which does not come into Wales but is treated as an England-and-Wales project, should not happen, and, if we had an appeals procedure, it would not happen.

HS2

No rational person would see HS2 as an England-and-Wales project. It is an England project, in fact, if I was up in Leeds or Newcastle I would say it was a Birmingham to London project, not a project for the north of England either.

There also needs to be a way of appealing decisions such as this to a body outside the Treasury. You cannot have the Treasury making the decision: ‘Oh, you don’t like our decision, well, appeal’, ‘Thank you for your appeal; we’ve decided our decision is the decision we want to make.’

That is a very strange way of working and a wrong way of working.


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