Additional funding for Wales, thanks to the DUP?

Eurfyl ap Gwilym explores the possible financial aspects of a deal between the Conservatives and DUP, and looks at whether or not Wales and Scotland may gain






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There is much speculation regarding a possible agreement between the UK Government and the DUP whereby the DUP would support the UK Government on a confidence and supply basis in return for measures which would, in the DUP’s view, be of benefit to Northern Ireland. One such measure being mooted is a possible financial deal whereby Northern Ireland would gain additional funding over and above that which it already receives. This possibility has understandably sparked hope in Wales and Scotland on the basis that what is good for Northern Ireland could be good for the other devolved nations. Is this hope realistic?

To set the context let us compare identifiable public expenditure per capita in Northern Ireland with that In Wales and in Scotland using the most recent analysis from the ONS (Table 1). Identifiable expenditure is that expenditure which is of direct benefit to each nation and excludes non-identifiable expenditure such as: defence; foreign affairs; overseas aid; and interest on the national debt which is not allocated on a territorial basis and is deemed to be of benefit to the UK as a whole. It is important to note that identifiable expenditure includes both devolved and non-devolved spending.

TABLE 1: IDENTIFIABLE PUBLIC EXPENDITURE per capita (£) in 2014-15.

    Wales N. Ireland    Scotland
Economic Affairs      757           902    1,004
Housing      192             445       337
Health  2,084        2,125    2,160
Education  1,329       1,576    1,440
Social Protection  4,528        4,684    4,214
Public Order     438             699       502
Other     576            675       717
Total Identifiable  9,904     11,106  10,374

 

As can be seen identifiable public expenditure per capita in Northern Ireland is materially higher than in Wales and Scotland. It is often argued that identifiable public spending in Northern Ireland is higher because of the understandable need for greater spending on security but as can be seen additional expenditure on public order, which includes policing, of £261 (£699 – £438) or 22 per cent per capita is only one element for the big difference in total identifiable spending of £1,202 between Northern Ireland and Wales. (It should be noted that defence spending in not included in identifiable expenditure.) Other noteworthy differences are higher spending on: economic affairs; housing; education; and social protection.

Another way of analysing the data is to ask how much more funding would Wales receive if identifiable spending per capita were the same as that in Northern Ireland (Table 2).

Table 2: Additional Identifiable Spending in Wales if on the same per capita level as Northern Ireland.

Difference  
Economic Affairs    £450m
Housing    £784m
Health    £127m
Education    £766m
Social Protection    £484m
Public Order    £809m
Other    £306m
Total Identifiable Expenditure  £3,726m

 

Thus, in seeking additional public spending the DUP has a weak case on any basis of fair allocations but fairness, of course, is not a characteristic of the way in which public spending in allocated across the UK. The Barnett Formula introduced by the Labour Government in the late 1970s embedded existing imbalances and these have continued during the tenure of successive UK governments over nearly forty years.

Optimists hope that if Northern Ireland receives additional funding this will have a knock-on effect on the funding of Wales and Scotland but if this is based on the assumption that the Barnett formula will be used as the ’vehicle’ for such increases such a change would be very costly: for every additional £1 going to Northern Ireland there would have to be an additional ~£34 allocated to the rest of the UK with Wales receiving an additional £1.67, Scotland £2.90 and England £29.43. Thus, if Northern Ireland were to receive an additional £500 million (say) then public expenditure across the UK would have to be increased by £17,500 million. It is difficult to see this happening. If the additional funding were limited to the three devolved nations this is unlikely to be acceptable in England.

A more likely approach is that of using the so-called ‘Barnett by-pass’. There have been a number of examples of this in the past whereby additional funding has been made available to Scotland over and above the Barnett consequential increase as the result of special pleading and horse-trading in Westminster and Whitehall. As attested to by a number of former Conservative Secretaries of State for Scotland, the Scots have often used Scottish exceptionalism and the threat of the SNP to leverage higher funding for Scotland. Given the emergence of a more assertive Conservative Party in Scotland it will be interesting to see how Ruth Davison and her parliamentary team will react to any financial deal with the DUP which does not result in additional funding for Scotland. Sadly, past Secretaries of State for Wales have not been successful in winning extra-Barnett increases.  Brecon and Radnorshire Conservative M.P. Chris Davies is quoted in the Western Mail as saying that Alun Cairns will be pushing for additional funding for Wales if Northern Ireland gets more. Let us wish Mr Cairns well in his endeavours.

 

Technical Note.

The data in the Tables refer to identifiable expenditure only and not to non-identifiable expenditure such as: defence, foreign affairs, overseas aid and debt interest. As such they differ from the recently published ONS figures for total public expenditure where non-identifiable expenditure has been allocated by the ONS to the nations and regions of the UK.

 

 

 

Dr Eurfyl ap Gwilym is Plaid Cymru's Chief Economic Advisor