Office of the Secretary of State for Wales
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Governments reach new agreement on Welsh funding

A joint statement outlining new commitments on funding in Wales has been published yesterday by the UK Government and the Welsh Government.

For the first time, both Governments have established a common position on how English and Welsh funding per head has converged in the past and the likely trend in the future.

The UK and Welsh Governments have also agreed that, in principle, the Welsh Government should have access to capital borrowing powers on the condition an independent revenue stream, such as tax powers, is in place to support them – as currently being considered by the Silk Commission.

Chief Secretary to the Treasury, Danny Alexander, said: “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.”

Welsh Government Finance Minister, Jane Hutt, said: “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.”

Secretary of State for Wales, David Jones, said: “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.”

Notes for Editors

1. The Barnett formula ensures that a particular change in public expenditure in England leads to a change in public expenditure in Scotland, Wales and Northern Ireland that is proportionate to their relative populations.

2. The formula does not affect the existing level of spending in the Devolved Administrations, but is only used to factor in changes in spending. The Devolved Administrations have higher existing funding per head of population than England. This means an equal cash increase per head for England and Wales represents a smaller percentage per head increase for Wales. So over time if spending increases, the gap between spending per head in England and Wales reduces. This is known as Barnett convergence. The faster the growth in public spending for England the faster is convergence, assuming the relative populations between England and Wales do not change. When English public spending per head falls the opposite happens – the percentage reductions are smaller for Wales than England (Barnett divergence). Because departmental spending in England is falling over the Spending Review period we would expect spending per head to diverge until at least 2014-15.

3. The independent Commission on Devolution in Wales (The Silk Commission) has been established to review the present financial and constitutional arrangements in Wales. It will carry out its work in two parts:

Part I: financial accountability To review the case for the devolution of fiscal powers to the National Assembly for Wales and to recommend a package of powers that would improve the financial accountability of the Assembly. The Commission will report its findings on Part I in the late autumn of 2012.

Part II: powers of the National Assembly for Wales To review the powers of the National Assembly for Wales in the light of experience and to recommend modifications to the present constitutional arrangements that would enable the United Kingdom Parliament and the National Assembly for Wales to better serve the people of Wales. The Commission will report its findings on Part II by the Spring of 2014.

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Link to HM Treasury press release:

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