The 2012 Olympics and the Barnett formula: an end to the row

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 in earlier posts 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.  This decision was made by Andy Burnham 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 in October 2010 under Francis Maude’s chairmanship to consider it.  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 have 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 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?  What looked pretty unlikely a few weeks ago has become much more so now.



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

5 responses to “The 2012 Olympics and the Barnett formula: an end to the row

  1. Toque

    “The other big loser from this – not just in a financial sense – is Wales.”

    And the vast majority of England that’s fed up of money being poured into London?

  2. Lots of “ifs and buts” here, but assuming the following

    David Cameron is still the PM at and after the referendum
    George Osborn is still Chancellor and Dave’s best mate.
    The Treasury is still the most powerful department of government; a given I think


    The strategy to increasing the devolutionary settlement will, if the HM Treasury have anything to do with it, not involve any monies of substance being transferred to Scotland and and Devo Max alternative to independence will be an empty cloak. Window dressing will be applied and the vassal press will be pressed into overdrive to hail the positives and ignore the elephantine negatives.

    It seems that HMT have been taking;lessons in N I Unionist negotiation tactics; the man from del Monte says NO!

    If so, what a gift to the SNP, to know the game to be played against them and to be prepared for the propaganda front line by line.

    The Barnett consequentials are very much alive and well, but not in the way Mr Barnett and his fag packet thought they would.

  3. Mike Blundell

    The biggest loser from this is not Wales but places in England like Bristol which are not near London and border a non-English territory. Cardiff is hosting Olympic events whilst Bristol is hosting none. Despite this Cardiff will benefit from additional funding via this allocation and which is funded in part from taxes paid by people in Bristol.

  4. Pingback: Report shows how inter-government relations hinder Wales – Daily Wales

  5. Pingback: Spending Review 2015: a test the Treasury flunked | DEVOLUTION MATTERS

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