Jane Hutt loses out to Treasury

John Osmond discovers that, in contrast to Wales, the Scottish Government finessed its budget to limit the damage caused by the Treasury’s funds clawback

Following my post yesterday about the scandal in which the Treasury reneged on a previous understanding with the Welsh Government and clawed back £385 million of under-spent money from last year’s Welsh budget, I’ve learned that once again Wales has been outplayed by Scotland.

In the case of Scotland the loss of what is termed ‘Accumulated End of Year Flexibility’ was limited to just £23 million. How could this have happened given the much higher level of public funding, about double, that Scotland receives compared with Wales? The sad truth is that the Scottish Government has proved much more agile and street wise when dealing with the Treasury and safeguarding Scottish interests.

The Welsh General Election

On Monday we will begin a series of special articles in the run-up to the forthcoming Assembly election on 5 May. Each day an expert will examine a particular issue in relation to the election, and the different circumstances under which it now takes place following the March referendum on further powers for the Assembly.

Over the course of the 2008-09 to 2010-11 Comprehensive Spending Review years John Swinney, the Scottish Finance Minister, did a deal with the Treasury that reduced most of the £850 million End of Year Flexibility stock that had existed at the start of the period. Thanks to this initiative Scotland ended up losing only £23 million when the Treasury clawed back the outstanding End of Year Flexibility stock at the time of the 2011 UK budget in March.

By the time of the beginning of the 2010-11 financial year Swinney had whittled the Scottish accumulated End of Year stocks down from the original £850 million to around £150 million. He  then did a further deal with the Treasury to change the size of the Scottish budget in 2010-11 to allow him to carry over most of the unspent resources into the current financial year. The result was to cushion the Scottish budget against the spending cuts.

John Swinney finessed his deal in collaboration with Michael Moore, the Conservative Secretary of State for Scotland. In a written answer on 15 March, Moore told the Westminster Parliament that the UK Government was allowing Scotland to carry forward £130 million of agreed underspend from the 2010-11 financial year into the current one. He explained how the Treasury was giving Scotland special treatment compared with spending departments in Whitehall in the following terms:

“The Government’s priority is to deal with the deficit, and the end-year flexibility system has led to accumulated stocks of around £20 billion across the United Kingdom which would further increase the deficit if they were spent. The Government have therefore committed to abolish this system and to replace it with a new system which will provide flexibility while strengthening spending control. However, in recognition of the unique situation of the devolved Administrations, the Government have allowed Scotland to carry forward £130 million of agreed under spend from this year into next.”

Note Michael Moore’s use of the plural when he referred to the “devolved administrations”. However, only Scotland was allowed to carry forward this spending. Why did the same not apply to Wales? Why is Scotland in a “unique” situation whereas Wales apparently is not? Where were the negotiations between Welsh Finance Minister Jane Hutt and the Welsh Conservative Secretary of State Cheryl Gillan that could have led to Wales being given the same favourable treatment as Scotland?

The answer must be that the Welsh case was not put, or if it was, ineffectively. Jane Hutt was left wringing her hands. On 10 February this year she put out a statement saying she was “extremely unhappy” that the (Scottish) Chief Secretary to the Treasury Danny Alexander was proceeding with plans to write off the Welsh Government’s £385 million of unspent money:

“This is our money voted by Parliament for Wales. It should be used to support investment in public services and in supporting the economic recovery, rather than retained by the Treasury. I wrote to the Chief Secretary on January 11, requesting that all of our accumulated stocks of End of Year Flexibility be released. The Chief Secretary replied to my letter on February 9, but he has refused to allow the release of our accumulated stocks with the implication that these stocks will now be written off. Our End of Year Flexibility stocks are all the more important given the unprecedented reduction in the Assembly Government’s Budget proposed by the UK Government. We will continue to oppose the UK Government’s plans to take away our End of Year Flexibility stocks and stand up for the interests of the people of Wales.”

The problem with this, of course, is that Jane Hutt was attempting to close the barn door after the horse had long gone. She should have been following the course set by her counterpart in Scotland and begun running down the Welsh Government’s end of year stocks by diverting them into a capital fund at the start of the Comprehensive Funding Spending review period three years ago.

Jane Hutt should also have ensured that the Wales Office and Cheryl Gillan were on side and arguing the Welsh case as strongly as was the Secretary of State for Scotland. Or is this just another example of the ineffectiveness of the Wales Office? As for Jane Hutt, rather than “standing up for the interests of the people of Wales” was she sleeping on the job?

John Osmond is Director of the IWA.

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