Clock ticking for coalition impact on Wales

John Osmond unpacks the implications for the Welsh Government of the Agreements between the Conservatives and Liberal Democrats

What do the coalition Agreements reached between the Conservatives and Liberal Democrats on Tuesday, and published yesterday, mean for Wales?

Most immediate will be the impact of the new Westminster government’s intentions to make “modest cuts of £6 billion to non front-line services” within the current 2010-11 financial year. It is estimated that the Welsh Government’s share of this figure is around £220 million.

Nowhere does the seven page Agreements document refer to reforming the population-based Barnett formula, which is used to calculate the size of the Welsh block grant. In the run-up to the election, as I wrote in my blog on February 25th,  Chancellor George Osborne stated in terms that the formula was unfair to Wales and should be changed.  On 12 February he told the Western Mail:

“My initial look at the formula suggests that Wales might well be missing out under the Barnett arrangements. I think it is in Wales’s interest that we have that needs-based assessment, which is independently done … My view is that you want to move on it pretty quickly, as soon as a new Government is elected.”

This was a commitment reiterated by David Cameron when he launched the Conservative’s Welsh manifesto during the election campaign itself. Gerry Holtham’s Independent Commission on Funding and Finance, which is due to publish its final report in July, calculated last year that Wales is losing out by at least £300 million under the current Barnett arrangements. So this should be a useful bargaining chip to set against that £220 million when First Minister Carwyn Jones has his first meeting with Cameron as Prime Minister next week.

During the campaign Welsh Conservative leader Nick Bourne said he had been given an assurance that the £220 million cuts could be deferred until the next financial year since the Welsh budget for this year had already been decided. However, although that would obviously help in terms of managing this year’s budget in terms of defending front-line services, it would mean Wales would face even more stringent cuts next year.

Since health spending is by far and away the largest component of the Welsh block there is some reassurance in the Agreements commitment on health spending: “The parties agree that funding for the NHS should increase in real terms in each year of the Parliament, while recognising the impact this decision would have on other departments.”

There is also a commitment to increase education spending which, given that it is the second largest component of the Welsh block, should also have a significant Barnett consequence: “We will fund a significant premium for disadvantaged pupils from outside the schools budget by reductions in spending elsewhere.”

Two commitments on taxation policy should disproportionately benefit Wales, given our relatively high number of pensioners and people living on low incomes:

  • “We will restore the earnings link for the basic state pension from April 2011 with a ‘triple guarantee’ that pensions are raised by the higher of earnings, prices or 2.5 per cent.”
  • “We agree to announce in the first Budget a substantial increase in the personal allowance from April 2011, with the benefits focused on those with lower and middle incomes.”

There are a number of commitments under the heading ‘Environment’ in the document, which should have significant longer-term implications for the Welsh economy. One is a commitment to increase the target for energy from renewable sources, opening up even greater opportunities for developing Wales’s indigenous renewable energy potential.

Another is “The establishment of a high-speed rail network” with its implication for electrification of the London to Swansea service, though no timetable is given.”

A third is more intriguing. This is cancellation of the third runway at Heathrow together with “The refusal of additional runways at Gatwick and Stansted”. Given the inexorably rising demand for air travel this raises the question where extra capacity can be provided outside the south-east of England. An obvious partial solution would be utilising the spare capacity of Cardiff’s airport. A longer-term and arguably more far-sighted approach would be to concentrate the capacity of both Cardiff and Bristol airports on a new facility close to the mouth of the Severn. This could then serve the whole of south-west Britain and the Midlands and develop an international profile comparable to Manchester.

Finally, of course, there is the constitution where the sole specific reference to Wales occurs in the document. This is “the offer of a referendum on further Welsh devolution.” Since taking office yesterday the new Secretary of State for Wales Cheryl Gillan has committed to taking forward arrangements for the referendum. And First Minister Carwyn Jones has stated there is more work to be done on drafting a referendum question “in the next week or so”. With AMs already having voted unanimously for a referendum back in February the rules, under the 2006 Wales Act, state she must approve or reject the proposal by mid-June. The clock is ticking.

John Osmond is the Director of the IWA

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