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Tuesday, December 20, 2016

Treasury concede major principle in funding deal

That the Welsh Government have reached agreement with their UK counterpart on the fiscal framework around tax powers so quickly is a significant achievement. The Scottish took their negotiations right up to the wire.

According to the BBC, the agreement means that the Welsh Government can borrow for capital spending to pay for building and infrastructure work up to £1 billion, twice the current limit.

It means that the devolution of income varying powers can go-ahead, assuming that the Welsh Government is prepared to support a Legislative Consent Order for the Wales Bill. The LocalGov site sets out the details:

The new arrangement includes a new needs-based factor - set at 115% - within the Barnett formula to determine changes in the block grant in relation to devolved spending.

The framework also involves using the comparable model to determine changes in the block grant in relation to tax devolution. This takes into account the relative Welsh tax capacity and ensures population change is treated consistently within Welsh government block grant funding.

Cardiff’s capital borrowing powers have also been increased and a new Wales reserve will be created to enable the Welsh government to better manage its budget, including the new tax revenues.

This is Christmas come early for the Welsh Government.  It builds on the work of Danny Alexander, when he was Chief Secretary to the Treasury in securing a funding floor.

More importantly, the agreement is ground-breaking because after a decade or more of arguments the Treasury have conceded for the first time that funding for Wales should be based on need as opposed to population.

It is the beginning of the end for the Barnett formula. Treasury officials must be having kittens.
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