A theft the Treasury will live to regret

John Osmond says the new Welsh Government, after 5 May, will urgently need to reconstitute its relationship with Whitehall by seeking an end to the Wales Office

A structural deficiency with Welsh devolution is the dismissive and contemptuous attitude of the Whitehall Treasury to the National Assembly and Welsh Government. In short, Treasury officials regard the institutions in Cardiff Bay as just another department of state to which it can dictate terms or dispense with at will.

The latest, scandalous, instance is the way the Treasury recently pocketed the £385 million the Welsh Government had prudently put to one side in the last couple of end-of-financial-year periods, rather than spend the money in haste and regret at leisure. The Welsh Government sought and received agreement in advance from the Treasury to do this. Yet when the financial heat was turned on as a result of last year’s fiscal tightening and looming spending cuts, the Treasury simply reneged on the deal and walked away with the money.

In the long run this will prove a serious Treasury mistake, both politically and economically. Politically, the Treasury has committed an act of theft (no longer should they be allowed to chant ‘Taffy was a Welshman / Taffy was a thief…’). In economic terms what the Treasury has done is punish prudence and encourage a return to the bad old days of spending getting out of control as the end of each financial year beckons.

But more importantly than either of these, the Treasury’s action has underlined the urgent need for the new Welsh Government, following 5 May, to establish an entirely different relationship with Westminster and Whitehall.

For, of course, the National Assembly and its Welsh Government are emphatically not just another Whitehall department of state, to be pushed around at will by the Treasury. As the referendum on 3 March asserted in terms, and as the election on 5 May will demonstrate yet again, the National Assembly is the embodiment of the elected democratic national will of the people of Wales. This is a far cry from the essentially bureaucratic edifices of Departments of Health, Defence, Environment and their like in London.

It is fascinating to recall that this argument was at the core of the analysis undertaken by the cross-party Richard Commission back in 2004 in its compelling report that recommended (unanimously, apart from a grudging caveat by Labour’s representative Ted Rowlands) that the Assembly should acquire primary law-making powers. The key moment came when the Commission engaged with arguments put forward by Peter Hain, then Secretary of State for Wales. As things stood at that time, the Welsh Government had to argue its case with Whitehall departments for measures it wanted to be enacted at Westminster.

Each year the Welsh Government made bids for around five or six separate Welsh Bills, or attempted to insert Welsh clauses into English Bills going through Westminster. The Richard Commission concluded that the Welsh Government’s success rate had been limited, with many of its proposals having little chance of getting into the legislative programme because they were a low priority for the UK Government. However, it quoted Peter Hain, in the evidence he gave to the Commission, as rejecting this criticism. As Hain put it:

“There are lots of frustrated Secretaries of State around the Cabinet table who cannot get their Bills in the Queen’s Speech. There is always a big negotiation… as to what goes in and what there is legislative time for and so far we have a pretty good track record of Welsh legislation, Welsh-only legislation and Welsh clauses in legislation… It does not follow that because you cannot get everything tomorrow, the fundamental settlement has to be altered in a substantial fashion.”

The Richard Commission disputed this in a restrained single sentence, but nonetheless one that went to the crux of the argument, by presenting a completely different perspective on the essential nature of the National Assembly. As it declared:

“This views the Assembly as the counterpart of an individual UK Department, rather than the democratically elected body for the whole of Wales with responsibility for a broad range of policy matters.”

This is the message that now needs to be relayed to the Treasury. It needs to understand that if it pays fast and loose with the democratic will of the people of Wales, as expressed through the National Assembly and the Welsh Government that it installs, then it will reap a whirlwind in terms of undermining the integrity of the United Kingdom state.

I am not alone in arguing this case. No less an authority than the Holthham Commission on the Funding and Finance of the National Assembly drew attention to the anomaly. It recommended that property rights in voted funds should be explicitly stated in a new Ministerial Concordat between the governments in Westminster and Cardiff Bay. It said balances in the Welsh Consolidated Fund should be treated in the same way as those in the National Insurance Fund or the National Lottery Distribution Fund and invested in government securities in their own name. As the Holtham report put it:

“The Assembly Government should seek agreement with the UK Government for an arrangement to invest end-year flexibility funds in government securities under the auspices of the Commissioner for the Reduction of the National Debt.”

And it added:

“This arrangement would also put the finances of the Assembly Government on a different footing from Whitehall departments, and one more appropriate to a distinct tier of government.”

Which is exactly my point. But how can the Treasury be made to understand and act on this? The emphatic and unified nature of the nearly two-to-one majority in the referendum across Wales on 3 March has laid a good foundation. On that foundation the new Welsh Government should build an emboldened presence for Wales to ensure that the Treasury, and Whitehall more widely, get the message. Wales needs to establish a presence in the minds of English civil servants akin to that which they acknowledge to be the case in Scotland. One requirement is that we begin early moves towards establishing a distinctive legal jurisdiction for Wales, following those that already exist in Northern Ireland and Scotland.

There are many arguments for this, some of which have been articulated by First Minister Carwyn Jones who, by the way, was a barrister before he became a politician. As he put it a few weeks ago, following the referendum result, “I’m not aware of any other part of the world where two primary lawmaking institutions exist within the same jurisdiction, passing laws in the same areas of responsibility.”

That, in a sense, is the technical argument. Politically, we need our own jurisdiction to underpin our primary lawmaking powers to establish beyond doubt the effective sovereignty of the people of Wales in the domestic areas for which we are responsible. And so far as the Treasury matters are concerned, that includes sovereignty over our own money.

An enhanced legal personality should then embolden us to seek, in partnership with Scotland and Northern Ireland, a constitutional underpinning of the financial arrangements between the nations of the union. It is entirely anomalous in constitutional terms, that the way money is currently distributed, through the Barnett Formula, has no entrenched constitutional status. It was dreamt up on the back of a fag packet by Joel Barnett when Chief Secretary to the Treasury in 1978, and the attitude of Treasury officials towards it has reflected that provenance ever since. For them it is a useful device that can be massaged, ignored, and by-passed at will. In short it is treated with contempt. This can no longer be tolerated.

The other way we can focus the Whitehall mandarinate’s attention on the new political realities in Wales is by getting rid of the position and office that most directly symbolises the Treasury view of the Welsh Government as a Department of State – and that is the Wales Office in Gwydyr House in Whitehall and the Secretary of State that heads it up, still clinging on in embarrassed irrelevance at the end of the Cabinet table.

The Wales Office has passed its sell-by date. At a cost of around £5 million a year it is not worth the minimalist influence it represents. Its incumbents, more often than not these days, represent an English constituency or are not even Welsh. John Redwood had his day. But worse, the Wales Office remains as a fig leaf for the Treasury’s contemptuous treatment of Wales. It should go, and go soon.

This would leave the way clear for a proper inter-governmental relationship between Cardiff Bay and Westminster, in place of the current master-servant relationship between the Treasury and the Welsh Government, mediated by the perpetual cringe of the Wales Office.

John Osmond is Director of the IWA.

5 thoughts on “A theft the Treasury will live to regret

  1. The scandalous theft of £385m was almost as shocking as the lack of Welsh media interest in the story. Apart from an article in the Western Mail, there has been practically no coverage at all and it just goes to show how fundamentally weak the Wales media is.

    Digital media is one area where Wales is expanding and the more we can get people to read excellent sites like this, the better. However for the more tabloid media reading types (most of the population), maybe there is room for a more tabloid designed Welsh media website, to complement sites like this.

  2. I think the financial relationship between Wales and the UK Treasury can be encapsulated in attitudes during the first Government of Wales Bill when it was proposed that the profits from sales of items from the National Assembly Gift shop would automatically go to the Treasury… it took an amendment from Dafydd Elis-Thomas to permit the National Assembly to retain that revenue!

  3. Agree with Ian about this not being discussed; but politicians really aren’t either! Wales can’t really borrow money so the easiest way is to save money, yet with this action there is no incentive to do this! It is totally crazy, and I’m sure the Treasury will regret it. There really needs to be devolution of finance, as the Treasury I am told is far too powerful.

    On Barnett, this could’ve been written a decade ago. Yet there do not seem to be any reforms on the horizon. One thing that the IWA could look at out of interest is how/who decides what is Barnetted- is there actually a formal process. I read once that it is Junior Ministers, but wondering if this is true.

    The key flaws in devolution (in Wales) in my view is the patchwork of powers, non-financial devolution, Council (of the E.U) issues. And crucially if we ever get more power, there must be incentives for the Media to actually discuss Wales. As the majority of Welsh read London papers, they will never realise if there are NHS reorganisations in Wales, issues with Glastir etc.

  4. Typical of Westminster to show complete lack of respect to democratically elected devolved parliaments.

    I’m a Scottish visitor to this site, but stories like this can only encourage politicians to go back to the bad old days of largesse in March to spend the budget before the end of the financial year.

  5. Cheryl Gillan, though her passivity and inaction, has demonstrated that Wales can easily fare just as badly with no Secretary of State in the Cabinet as it does now with one who is more concerned with the proposed Railway line through her constituency than she is with any Welsh affairs.

    She has even threatened to resign her cabinet post – not on any Welsh issue – but on the HS2 line! Does she know what she is there for?

    Wales would do better with the Assembly having direct relations with Whitehall departments, and more formality in the funding arrangements.

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