1. ITV Report

Welsh Government funding deal

Photo: ITV News Wales

The UK and Welsh Governments have reached an agreement on borrowing powers for Wales and changing how Wales' share of public spending is worked out. But it's very much an agreement in principle, the Welsh Government cannot yet raise any loans and there will be no immediate change on funding.

The UK Government says it accepts that the Welsh Government should borrow money for construction projects but there must be the revenue to pay for it. There will be no decision on tax raising powers until after the Silk Commission has recommended what taxes, if any, should be devolved to Wales.

Talks are continuing about how to pay for specific projects, notably relieving congestion on the M4 around Newport. Last year, the Chancellor suggested that toll revenue from the Severn Bridges could be used to repay a loan once the cost of building the Second Severn Crossing has been met.

Today’s announcement agrees in principle to devolved capital borrowing powers for the Welsh Government. This is an important step forward on the devolution journey for Welsh people, and will bring them significant benefits. I am delighted that the two Governments have worked closely together to deliver this good outcome for Wales.

– Chief Secretary to the Treasury Danny Alexander MP

The statement we are publishing today includes a new commitment by both Governments to review the path of Welsh relative funding at future Spending Reviews. I welcome the in principle devolution of capital borrowing powers, which should give the Welsh Government an additional lever to generate economic growth.


I hope that today’s announcement will reassure the people in Wales of the progress both Governments have been making on Welsh funding arrangements. In addition to the in principle capital borrowing powers, the UK Government has recognised the concern in Wales about long term convergence and is committed to investigating options to address it once it resumes. The commitments made today establish a strong basis from which to work with the Welsh Government after the Silk Commission reports to me next month.


In the long run, the deal heralds an end to the much misunderstood Barnett formula, It was devised at the end of the 1970s and initially was kept secret. Its purpose was to slowly reduce Wales' share of public spending by linking any increase to rises in expenditure in England. When public spending grew rapidly at the start of the twenty-first century, it became noticeable that the formula meant that is was rising less fast in Wales, what became known as the 'Barnett squeeze'.

Despite being in government for over a decade, Labour failed spectacularly to change the funding system for Wales. In two and a half years, Liberal Democrats in government have delivered more than Labour managed in thirteen – even when we are in coalition with a party that is reluctant to see powers and responsibilities leave London. The Welsh Labour Government must now understand that greater power involves greater responsibility. For too long this Labour Government has sat back and blamed Westminster for their own failings. This can’t be allowed to continue.

– Welsh Liberal Democrat Finance Spokesperson Peter Black AM

Nothing will happen immediately. As public spending is falling at the moment, there is no Barnett squeeze but the two governments have agreed that future spending settlements will be checked to make sure that the squeeze has not resumed.

Today’s announcement is a positive step forward for Wales. While it is clear there is much more work to do, this puts Welsh funding on the right track.It provides the reassurance we have sought and goes much further than anything Labour did in 13 years in power. The detail here shows what can be done when the UK and Welsh Governments work together. It is crucial that this continues for the benefit of Wales.

– Welsh Conservative Finance Spokesperson Paul Davies AM

The Shadow Welsh Secretary Owen Smith says the possible borrowing powers for the Welsh Government need to be seen in the context of cuts in capital spending imposed by the UK government.

The Welsh Budget has been hammered by the Tory-led government, in particular, the forty per-cent real-term cuts to the capital grant. The acknowledgement that borrowing is vital to kick-starting infrastructure projects and the economy is to be welcomed. Welsh Government has also impressed on the UK Government the importance of potential convergence as a result of the Barnett squeeze and we will be holding the Treasury to account on their admission that this has unfairly reduced the Welsh Budget in the past and has the potential to do so again in future years.

– Shadow Welsh Secretary Owen Smith MP

Meanwhile, the former Deputy First Minister, Ieuan Wyn Jones, who's now Plaid Cymru's finance spokesperson, summed it up as a deal to be ashamed of.

The Welsh Government entered into the bilateral discussions with the twin aims of securing borrowing powers and fixing the Barnett floor at 115% of spending in England. This statement shows that they have failed on both counts. Wales has already lost over 40% of its capital budget, and the economy is in crisis. We need to have borrowing powers immediately so that we can kick start the construction sector and boost jobs.

The Treasury’s weasel words on borrowing show that they have failed to grasp the enormity of the economic crisis we face with 50,000 young people unemployed. The statement doesn’t even tell us how much Wales will be allowed to borrow at some future unspecified date. The failure to agree a formula to fix the Barnett floor also shows that the Treasury is now clearly complicit in perpetuating the underfunding of Wales.

This announcement has the Treasury’s paws all over it, and I can’t understand why any First Minister of Wales would sign up to it. I would have been ashamed to have signed up to this weak and bland statement. There is no mention at all of the longer term need for a wholesale reform of Barnett.

– Plaid Cymru Finance spokesperson Ieuan Wyn Jones AM