Wales and the 2015 Spending Review

The 2015 Spending Review makes two significant changes to the Welsh Government’s finances: it removes the requirement for a referendum before introducing the partial devolution of income tax, enacted in the Wales Act 2014, and it proposes to introduce a ‘Barnett floor’ for the overall envelope of devolved funding.

The referendum on the Welsh rate of income tax was a way of ensuring that devolution did not happen automatically (as is the case for Scotland) – a rare case of common ground between David Jones and Carwyn Jones. It never made much sense intellectually; if the rationale for income tax devolution was ‘financial accountability’, why should that be optional? And why should the body that would be made accountable get to choose whether it should be accountable? It made even less sense politically. A referendum campaign would be hard to stage and harder to win. It would mean asking voters to vote for potentially higher taxes, with no guarantee that they would even enjoy additional spending as a result given the lack of clarity about the mechanism for reducing the block grant as a result. There would be little chance of a cross-party consensus, so while Conservatives had a strong interest in seeing income tax devolution since it would enable them to offer a tax cut, they would struggle to find allies for a referendum campaign (unlike 2011). Abandoning the referendum had become the only way to create even a possibility of income tax devolution, and now has support from not just Conservatives but Plaid Cymru.

This does not mean that income tax devolution will automatically take place. Not only will it still need support from the Assembly to make the necessary changes, but the Assembly’s approval of the removal of the requirement for a referendum is also needed under the Sewel convention. The powers for the Welsh Government to trigger a referendum vote and for the Assembly to approve its calling by a two-thirds majority which it now has can’t be removed without the Assembly’s legislative consent.  So that means Labour needs to support it in the Assembly too.

The other side of the equation is the Welsh Government’s pursuit of ‘fair funding’ in the form of a ‘Barnett floor’ to the block grant and the overall envelope of funding. This has been a nostrum of Welsh political debate for years now. There have been offers of a mechanism with a process to follow (from Peter Hain in 2009), a mechanism with a vague promise of possible action but no clear outcome (from the Conservative-Lib Dem Coalition in 2012), and now a ‘floor’ with no indication of how it will work. Despite the 2012 commitment to ‘a joint review of the pattern of convergence by the two Governments’, it is far from clear if that actually took place – if it did, no-one is talking about it in public.  Moreover, slightly oddly, the floor is to be set a little below where Welsh Government funding presently is (at 115 per cent of per capita spending on comparable functions in England, while the Welsh Government appears to get 116 per cent at the moment). What we get now is simply a guarantee of an outcome, without any indication of how that will be achieved.

(As an aside, there are other ways of securing a ‘fair funding’ arrangement which are much simpler, now that Wales is pretty much at its needs-related figure. The best is not to worry about fiddling with the baseline of funding or the outcome of the sum, but to adjust the multiplier used – so that instead of the Barnett formula giving the Welsh Government 100 per cent of a per capita change in comparable spending for England, it gives it a needs-adjusted 115 per cent. This is scarcely a novel idea – the Holtham Commission discussed and recommended it in 2010, in chapter 3 of its final report. It has some advantages in the present circumstances, discussed below.)

All this looks like the beginnings of a political horse-trade, which is unsurprising for a highly political Chancellor who no doubt is trying to help his party colleagues in the May 2016 election. Indeed, the Welsh Conservatives have already committed to a cut in the standard and top rates of income tax.  The Welsh Government gets ‘fair’ funding – which, given the impact of austerity, may well not result in any extra money for it (so it gets ‘fairness’ compared to England but that’s all). In return, it’s expected to endorse income tax devolution. However, that not be enough as there’s no real sweetener for the Welsh Government to swallow this pill on offer publicly as yet, and the most that can be said is that the Welsh Government will be in a degree of political difficulty if it chooses not to move.  It can probably survive that political difficulty, which is pretty limited as matters stand.

What makes the Welsh Government’s life more straightforward is the Treasury’s ongoing silence about how the reduction in the block grant as a consequence of tax devolution will be calculated. This is the key issue in considering the ‘fiscal framework’ for Scotland, of which the Spending Review merely says discussions are ‘ongoing’. (In which context, this paper from David Bell and colleagues published by the Institute for Fiscal Studies is well worth reading.)  It is also a vital issue for devolution of corporation tax to Northern Ireland. There is a serious tension between a commitment to a Barnett floor and a reduction in the block grant, at least if the system is to be introduced with any degree of transparency and accountability. The Barnett floor is an invitation to governments to do a political deal. The problem with the reduction in the block grant is that unless the methodology is clear and agreed it will do the same thing. At least adding a needs-adjusted factor to the Barnett calculation would make the calculations simpler, more robust and more transparent.

It is also worth noting that the Treasury appears to have adopted the figure of 115 per cent for Wales’s per capita relative needs without any analysis of its own, let alone a needs review.  It has simply taken that figure, which was more or less the mid-point of those the Holtham Commission published in 2010 without any published analysis of it at all.  This is not just a unilateral action, but one for which the only evidence base is a review conducted more than five years ago for a different government.  That compounds the degree to which these moves should be seen as first and foremost political in nature.

There remain strong arguments for tax devolution for Wales – not to advantage any political party or even to make the Welsh Government ‘financially accountable’, but to give the Welsh Government and the National Assembly the power to make real choices about policy and the relationship between spending and revenues in Wales.  To make that work, one needs to go much further than merely devolving 10 points of income tax, which just does not provide the room for manoeuvre that is needed.  It needs much more tax devolution, particularly in a place with a weak tax base like Wales, and that means a sequence of further changes.  We looked at this in our Devo More work for IPPR and that model still stands, for Wales as well as Scotland (where the tax proposals but not the other changes are largely being enacted in the Scotland bill).  Those changes include the administrative apparatus for managing finances, the calculation of the block grant, and the reduction from it, and all of them are more than the Treasury seems willing to contemplate.  What is on offer is no more than a modest half-step in the direction of a UK that combines meaningful fiscal devolution with state-wide equity.

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Filed under Devolution finance, Wales, Whitehall

Spending Review 2015: a test the Treasury flunked

The welter of responses to yesterday’s UK Spending Review and Autumn Statement have overlooked an important set of things the review did not do when it comes to managing the devolved UK. Despite proposals on the table for tax devolution for all three devolved governments (if not the English city-regions), we learned nothing about how this fiscally devolved UK will work. We got a new, updated edition of the Statement of Funding Policy (the seventh in all and the first since 2010) , but that remains essentially the operations manual for the Barnett formula it always was. Nothing substantial about the framework for managing devolved finances has been altered, despite recommendations for this from a variety of bodies including the Bingham Centre Constitutional Review, the Lords Economic Affairs Committee’s recent report on The Implications of Financial Devolution to Scotland and committees in all the devolved legislatures.  The devolved governments remain as entangled in the UK system of public finance as they ever were.

What the Treasury could and should have done was put the basis for devolution finance under the Conservatives on a clear and transparent footing, in particular by:

1. publishing its proposals for how reductions in block grant allocations are to be made as tax powers are devolved and the wider ‘fiscal framework’ for devolved taxation – an issue now for all three devolved governments, with high political stakes in Scotland and the need to comply with EU state aid rules in Northern Ireland emphasising its importance. This appears to be the subject of behind-the-scenes negotiations between governments but is of such fundamental importance that it needs to be in the public domain.
2. establishing an independent body to keep devolution finance under review, considering changes to the Statement of Funding Policy, the application of the Barnett formula to changes in public spending, and the working of the system more generally – a form of UK Finance Commission.
3. establishing an effective way of resolving disagreements and disputes, rather than trying to provide for informal resolution by inter-ministerial discussion followed by use of the (clearly ineffective) ‘disputes resolution’ format of the Joint Ministerial Committee. Some sort of impartial mediation is my preference, rather than an attempt at binding arbitration – but the important point is that it should be impartial and independent of all governments involved, and be able to impose some sort of meaningful sanction on the UK Government, even if that is only publication of an adverse finding.
4. Publication of better, more coherent data about how the UK’s territorial finances work – what taxes are raised where, how much is spent and where, and how that changes from year to year. This information is mostly available, but the data about tax collection are variable and scattered across various publication and documents.

For a government that has embraced devolution and is extending its scope, this is a major missed opportunity.  And it preserves the contradiction about the financial implications of English spending decisions that is the worm eating at the heart of the UK Government’s now-adopted proposals for English Votes for English Laws.

The new Statement of Funding Policy contains a number of intriguing if minor changes in comparability percentages (that is, the calculation of how much a UK Department’s spending is for the benefit of England versus for the benefit of the UK as a whole). Of the big spending departments, Work & Pensions remains almost wholly a UK-wide department with spending now being 1.4 per cent ‘comparable’ for Wales and Scotland (compared to 0 per cent in 2010). Health spending is now 99.4 per cent devolved (for all three governments) compared to 99.1 per cent in 2010, and Education remains 100 per cent comparable. Both Education (schools) and health spending have been sheltered from austerity in England, of course, which also has the effect of protecting devolved budgets compared to overall spending in England.

The interesting shifts have come in departments that are ‘mixed’ and which have not been protected from austerity since 2010. At first glance, these mostly reflect protection of ‘UK-wide’ functions at the expense of ‘English’ domestic spending. Energy and climate spending was about 20.6 per cent comparable for all three governments in 2010; it’s now 1.8 per cent for Scotland and Wales, 15.3 per cent for Northern Ireland. Business, Innovation and Skills (which includes universities and the science budget) was 78-79 per cent comparable in 2010; it’s now around 66.5 per cent. Culture, Media and Sport was 96 per cent comparable for Scotland and Northern Ireland and 90.2 per cent for Wales in 2010; now it is 76.9 per cent for Scotland and Wales, 77.6 per cent for Northern Ireland. An exception (probably due to protection of police spending) is the Home Office, where spending is now 91.7 per cent ‘comparable’ for both Scotland and Northern Ireland, compared to 76 per cent in the 2010 Statement. (It was and remains 0 per cent for Wales.)

Transport spending has become somewhat less ‘comparable’ for Scotland and Northern Ireland, but more comparable for Wales; it has moved from being 73.1 per cent comparable in 2010 to 80.9 per cent. The main items that are not ‘comparable’ for Wales (but are for Scotland and Northern Ireland) are HS2 and Rail Projects generally. ‘Capital rail projects’ were treated as wholly comparable for all three governments in the 2010 version – so this has been reclassified to the Welsh Government’s disadvantage, although Wales now gets a larger overall share of changes to Transport spending (and those ‘Rail Projects’ will include electrification of the Great Western mainline to Swansea).

Overall and in structural terms, the Spending Review delivers a profoundly (small-c) conservative approach that maintains the Treasury’s dominance of tax and financial allocation decisions, even as it seeks to devolve aspects of both spending and tax-raising. Except for that maintenance of Treasury power, there is no attempt to take a UK-wide view of how the UK’s fiscal arrangements work. At the centre of these is a new version of the Statement of Funding Policy that in its essentials is very similar to its predecessors dating back to 1999. Ultimately (and probably sooner rather than later) the contradiction between purporting to devolve power and Treasury retention of it will prove unsustainable.



Filed under Conservatives, Devolution finance, Intergovernmental relations, Northern Ireland, Scotland, Wales, Whitehall

Legislative consent in Wales

The Sewel convention has rightly come to be seen as key to the working of devolution in the United Kingdom. It may have first been envisaged as a way of enabling Westminster to continue to legislate for devolved matters and maintaining something like the practical pre-devolution status quo in policy-making, when convenient and politically acceptable, but it was quickly understood to mean more than that.

One reason may be that devolved legislative powers are more far-reaching than was at first appreciated. More important, though, is the emergence of the ‘constitutional’ dimension of the convention. The wording used in the Memorandum of Understanding (first agreed in 1999 and not changed since then) may refer to ‘the UK Parliament … not normally legislat[ing] with regard to devolved matters except with the agreement of the devolved legislatures’, but Devolution Guidance Note 10 on Post Devolution Primary Legislation regarding Scotland has been clear that consent is also required where there are changes to the functions of the Scottish Executive/Government or Parliament.  This means that functions cannot be removed from the devolved tier of government without its consent.  It also means functions cannot be added without consent, meaning that the UK tier cannot get rid of inconvenient functions, or transfer them without adequate funding, if a devolved legislature objects.

How the convention applies to Wales has always been less clear than its application to Scotland. The formal basis is the same for all three devolved governments; that statement in the Memorandum of Understanding. The National Assembly for Wales had very limited legislative powers until 2007, of course, and in that circumstance had no formal right to approve changes to its functions, merely a generally accepted right to be consulted about changes made by Westminster legislation (which also explains why the Secretary of State for Wales had the right to attend and participate in Assembly proceedings and receive documents about those). With the assumption of law-making powers it was clear that the Sewel convention applied to Westminster legislation that affected substantively devolved functions and the Assembly began to consider legislative consent motions, and sometimes to reject them.

However, the Assembly was initially reluctant to engage with the ‘constitutional dimension’.  This was the case even when the UK Parliament conferred functions directly on Welsh ministers without any engagement with the Assembly – a matter that drew the attention of the Assembly’s Constitutional and Legislative Affairs Committee in 2011-12.  Another odd feature of the 2007-11 term was that Assembly consent was required for changes to the Assembly’s law-making powers when made by legislative competence order, but not if that was done by provision in Westminster primary legislation (so-called ‘framework’ powers). A reading of the current (2012) version of Devolution Guidance Note 9 on Parliamentary and Assembly Primary Legislation Affecting Wales (available here in PDF format) confirms that the UK Government understands that the convention applies to changes to devolved powers and functions.  (The Note is hardly an example of clear drafting, but does note in paragraph 14 that the convention is triggered, inter alia, by provisions ‘likely to have an impact on the Assembly’s legislative competence or the Welsh Ministers’ executive powers’.)

Perhaps the key test regarding whether the convention applies in its ‘constitutional’ dimension applies in Wales arose with proceedings on the Wales Act 2014. The National Assembly considered the bill in some detail, with inquiries by both the Finance Committee and Constitutional and Legislative Affairs Committee.  Its legislative consent motion was approved on 1 July 2014, after completion of consideration of the bill in the Commons and formal introduction into the Lords but before Lords second reading. The Assembly has certainly asserted its right to consent (or not to consent) to Westminster legislation that changes its powers or those of the Welsh Government, and it is hard to see how that power can be denied given the general applicability of the commitment in the Memorandum of Understanding and the Assembly’s exercise of that right.  It’s clearly recognised in the explanatory notes to the draft bill, paragraph 10 of which notes the need for a legislative consent motion for the bill.

This has two implications for the current debate. First, when the Wales bill (published as a draft last week) is finalised and introduced into Parliament, this will require the legislative consent of the National Assembly as well. In effect, the National Assembly will be a kind of third chamber of Parliament, albeit without the detailed process of second reading, committee and report stages – just as the Scottish Parliament was for the Scotland Act 2012 and is for the Scotland bill it is presently considering. If the Assembly does not assent to the bill, the bill should not pass.

If the bill were to be enacted without consent, it would lead to a major constitutional crisis.  In these circumstances, there is no emergency that might trigger the limitation requiring devolved consent only in ‘normal’ circumstances, so the UK Government would be asserting Westminster’s sovereignty even when faced with opposition from the National Assembly.  That amounts to tearing up the constitutional fabric of devolution – and the very entrenchment of devolved rights that was agreed in the St David’s Day process and which the draft bill seeks to implement. Worse, such a move would make it clear that very different rules apply to Scotland and to Wales, with Wales plainly and visibly being a second-class devolved nation.  As a result, arguments about the UK being a diverse multinational union which accepts and even finds unity in that diversity, as we sought to argue in the Bingham Centre Devolution review, would be very hard to sustain.

The second implication is for the requirement for a referendum on the partial devolution of income tax set out in the Wales Act 2014. Any change to that would similarly need the consent of the National Assembly, even if the referendum has not yet been held. The powers conferred on the Welsh Government and the National Assembly (to trigger a referendum and call for it by a two-thirds majority) are clearly Assembly functions, and cannot be altered without the Assembly’s consent. Any idea of a ‘quickie’ referendum without the Assembly’s approval is similarly, constitutionally, a non-starter.

As the Trade Union bill shows, the requirement for devolved legislative consent is a complex area, made more complex by different frameworks for devolved powers. The complexity is likely to increase if it is put on a statutory basis, as the Scotland bill and draft Wales bill propose, as it will then become a possible subject for litigation. (That commitment will prove to be hugely problematic; the courts are profoundly ill-equipped to consider such matters, and the commitment runs directly contrary to the guarantee of Parliamentary immunity from having its proceedings questioned in any court under the 1689 Bill of Rights.) But the Sewel convention has huge value, to the point where it can be regarded as a piece of constitutional magic. It puts in place a powerful safeguard for devolved interests, but one which is consistent with the UK’s unwritten, political constitution. If devolved and UK interests are able to agree to a change in the framework, it can be made to happen; if they cannot, it will not. In the absence of a written constitution (with all the rigidities that brings), legislative consent provides as effective a solution to the question of constitutional protection and entrenchment as one is likely to find. It’s incumbent on UK Government and Parliament to ensure it is recognised and complied with.


Filed under Legislation, Wales, Westminster

Legislative consent for the Trade Union bill?

In a speech at the SNP conference in Aberdeen, Grahame Smith of the STUC has apparently argued that the impact of the Trade Union bill currently before the UK Parliament is such that it requires legislative consent from Holyrood under the Sewel convention – ‘a consent that I am confident would not be forthcoming’, so in reality a veto on the bill at least for Scotland. The bill is unsurprisingly under heavy criticism not just from the STUC but also the Greens and Rise. The UK Government does not believe that the bill needs legislative consent, however (see Annex A of the Explanatory Note, available here; the bill itself is here as a PDF document).

Constitutionally speaking, it’s hard to disagree with the UK Government’s view. Industrial relations and trade union law, like employment law more generally, remains a reserved matter under Head H1 of the Scotland Act 1998, beyond the powers of the Scottish Parliament. The criteria for legislative consent under the Sewel convention are set out in Devolution Guidance Note 10 on Post – Devolution Primary Legislation affecting Scotland (available here as a PDF). Consent is not needed for bills which do not apply to Scotland at all; which apply to Scotland but ‘relate to’ reserved matters and do not alter Scots law on non-reserved matters; or which contain provisions applying to Scotland and relating to reserved matters, though they may make incidental or consequential changes to Scots law on non-reserved matters.  Consent is only needed if the bill ‘contains provisions applying to Scotland and which are for devolved purposes, or which alter the legislative competence of the Parliament or the executive competence of the Scottish Ministers’.

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Filed under Legislation, Northern Ireland, Policy issues, Scotland, SNP, Wales, Westminster

A legal jurisdiction for Wales?

This post also appears on the Institute of Welsh Affairs’s blog, ClickonWales, here

The debate about whether there should be a legal jurisdiction for Wales, so that Wales would no longer share a system of law and courts with England, has rumbled on for some time.  Plaid Cymru issued its own paper on the subject in 2010.  In 2012, it was the subject of a consultation by the Welsh Government as well as a major inquiry by the National Assembly’s Constitutional and Legislative Affairs Committee.  The proposition received a conditional endorsement from the Assembly Committee, which noted the legal differentiation between England and Wales that was already underway and the implications of that for a shared England-and-Wales jurisdiction.  However, the Welsh Government’s enthusiasm for the idea had disappeared by time it submitted evidence to the Part 2 inquiry of the Silk Commission, when it said, ‘While it would not be appropriate to establish a separate legal jurisdiction for Wales now, such a development is very likely in the longer term and action can be taken which would help to ensure a smoother transition to such a jurisdiction in due course.’  More recently, support for a Welsh legal jurisdiction has come from Justice for Wales and from Plaid Cymru.  The relationship of a legal jurisdiction to a ‘reserved powers’ model (an issue that has concerned me since 2005, and previously discussed HERE (my evidence to Silk Part 2) and HERE) means it is now highly topical.

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Filed under Courts and legal issues, Legislation, Plaid Cymru, Wales, Westminster

Plaid Cymru and a Welsh legal jurisdiction

Plaid Cymru is, so far as I know, the only political party in Wales to have taken a position on the issue of a Welsh legal jurisdiction. (The Welsh Government has, but that’s a government not Labour Party matter.)  Responding to the recent WGC/Constitution Unit report, Leanne Wood said such a jurisdiction was ‘essential’.

This is not policy-making off the cuff.  In 2010, Plaid Cymru held an internal discussion about the establishment of a Welsh legal jurisdiction and the form it should take.  As their ‘consultation paper’ from that exercise isn’t otherwise available, and given the developing debate about this issue, with Plaid’s permission I’ve uploaded the paper in PDF format.  The English version is available here, and the Welsh one is here.


Filed under Courts and legal issues, Legislation, Plaid Cymru, Policy issues, Wales

Justice for Wales’s pamphlet on a Welsh legal jurisdiction

The Welsh legal group ‘Justice for Wales’ published its pamphlet on the case for a Welsh legal jurisdiction, and extensive devolution of the legal and justice system, last week.  There’s news coverage of it from the Western Mail here and BBC News here.  I don’t necessarily agree with their arguments (and I’ll have more to say about questions of a Welsh legal jurisdiction shortly), but their ideas certainly ought to be considered seriously.

As Justice for Wales doesn’t have its own website, readers may wish to download their pamphlet from this blog.  The PDF of the Welsh version is here, and that of the English one is here.




Filed under Courts and legal issues, Policy issues, Wales