Treasury blocks Welsh funding claims

Alun Trench finds Wales has lost heavily in a resolution of the row over financing the 2012 Olympics

There’s not much of a Christmas present for devolved governments in the deal over the missing Barnett formula consequentials for the 2012 London Olympics unveiled on Thursday.

To recap (and there’s more detail here and here), the Labour UK Government redefined the nature of spending on the London Olympics during the 2007 Spending Review, so as to exclude the spending on regeneration of the wider Olympic area as for the benefit of the UK as a whole rather than for England.  If it were ‘English’ spending, as all other regeneration funding is, it would have triggered such consequentials.

Andy Burnham made this decision when he was Chief Secretary to the Treasury, to avoid a potential over-run on the costs of the Olympics. The result was to deprive the devolved governments of several hundred million pounds of funding, which became a long-standing source of grievance for them.

The new protocol on dispute avoidance and resolution agreed in April 2010 was framed in response, and the issue of the Olympics consequentials was the first one referred to the new ‘disputes resolution panel’ of the Joint Ministerial Committee, which met to consider it in October 2010, under Francis Maude’s chairmanship. All three devolved administrations took part in that complaint, and in order to agree a common position adopted £330 million as the value of the missing consequentials. I’m told that this involved a substantially lower figure for Wales than the Welsh Government thought it should receive.

The JMC disputes panel failed to reach a resolution of the issue, as it’s a process of mediation rather than arbitration and HM Treasury simply refused to concede that the devolved governments had any valid claim for consequentials. The claim was left on the table at this June’s plenary JMC meeting, which resolved that there should be ‘further consideration’ of the issues. That further consideration has now ended.

The deal unveiled on Thursday 22 December is a pretty miserly settlement of the devolved administrations’ claims. The communiqué announcing it can be found on the Cabinet Office website here, and the Scottish Government’s here. There’s a less ample press release from the Welsh Government here. It seems that the Scottish Government will receive £16 million, the Welsh Government £8.9 million and the Northern Ireland Executive £5.4 million as a result.

This means the devolved governments have compromised a claim of at least £330 million for about £30 million, less than a tenth of the sum, which they thought they should get. In fact, the amount lost by the devolved governments is more than that – if the amount allocated in the SR 2007 period had been allocated at the proper time, it would have been added to the baseline of the block grant and so resulted in further increases in subsequent years. Effectively, they have forgiven UK Government for their claims for the way the Labour government handled the matter, and limited the claim to changes made to Olympics funding since the UK Coalition took office.

The reason given for this is that

“…there have been significant changes in public finances since this dispute first arose … [the four governments] should therefore not revisit decisions on the Olympics budget first made by the previous UK Government”.

This sounds very like making the best of a bad job, facing Treasury intransigence. What the devolved governments have got instead are assurances – applying to all governments in form, but actually aimed at Whitehall – reaffirming the importance of communication, co-operation and mutual respect, “learning lessons from all disputes” to avoid a repetition and so on. Again, this sounds like making the best of a bad job. It doesn’t avoid the fact that UK Government, having behaved badly in this episode, has managed to avoid most of the financial implications of it.

Assurances about future conduct would be more valuable if the UK Government had suffered a financial consequence. It would be more likely to do what it said it would if failure to do so were accompanied by having to pay a price. Words alone may not be an effective guarantee for the future.

On this basis, it would be reasonable to infer that Treasury has in fact won this round. They rewrote the rules of the block grant to suit them, unilaterally, kicked the issue into touch for four years and avoided paying a cash price for doing so. They also were able to use a change of government as a reason for wiping the slate clean – even though that has worked the other way when it comes to End Year Flexibility.

That assumption of a straightforward Treasury win would be wrong, though. The price of this particular win is to compromise the whole system of the block grant – the assumptions that Treasury will act properly and fairly, that financial matters will be dealt with according to the principles set out in the Statement of Funding Policy and the Memorandum of Understanding, and that funding will be allocated equitably. Treasury’s conduct in 2007, and intransigence since then, hugely undermine the idea that the financing of devolved governments should be managed from the centre. In fact, this is a case where Treasury has lost a wider struggle by winning one particular battle. From a Scottish point of view, this is all grist to the SNP’s mill for a referendum campaign.

The other big loser from this – not just in a financial sense – is Wales. Here was a case where the devolved governments had got together in common cause, with a very strong case. They were still unable to persuade Treasury to change its position, or to get other parts of UK Government to twist Treasury’s arm to do so. In the strongest possible ‘bilateral’ debate with UK Government on a financial matter, the devolved governments still lost.

Yet the Welsh Government has placed its hopes of securing ‘fair finance’ and securing ‘fair finance’ and borrowing powers in a purely bilateral, Welsh Government–UK Government, process . How can it reasonably expect to win in such a difficult negotiation, when the devolved governments collectively failed? That looked pretty unlikely a few weeks ago. Today there’s hardly any chance at all.

Alun Trench is a constitutional expert who writes on the Devolution Matters blog where this article originally appeared.

2 thoughts on “Treasury blocks Welsh funding claims

  1. I do look forward to Carwyn’s explanation as to how it is so advantageous for Wales to have a Labour administration in Wales, when they have one in London-after fiascos like this. If his own party ignore him in London, how exactly is ‘standing up for us’ going to influence the Libs and Tories?

  2. Said it before, say it again. Carwyn Jones is naive to play infantile party politics and antagonise the UK government at every opportunity when he is in a bilateral negotiation with them and he has the weaker hand. Too late to play Mr Nice Guy now. The only thing that would work now is something outrageous – like the entire Labour leadership in Wales saying there was no hope of fair treatment from the UK government, resigning and re-forming Forward Wales as an autonomy party. The boost to Alex Salmond would be immense and the UK government might panic. But a safe party career is more important to most politicians than ground-breaking gestures so the certainty is that Wales will continue to be treated with condescension and will get screwed.

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