Category Archives: Whitehall

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, if the aim was to make income tax devolution happen rather than ensure it could not. 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’ before each subsequent spending review, 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 means further convergence will not happen, whatever happens to changes in ‘comparable spending’ for England.  It 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 (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 just 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 so much to advantage any political party or even to make the Welsh Government ‘financially accountable’, but to give the Welsh Government and the National Assembly greater 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

Improving intergovernmental co-ordination: better intergovernmental relations and better devolution

I’ve a report out today on the procedural aspects of intergovernmental relations.  This was commissioned by the UK Changing Union project through the Wales Governance Centre at Cardiff University, and can be found on their website here. Today was also the day when the plenary Joint Ministerial Committee met; it agreed, among other things, a full-scale rewrite of the Memorandum of Understanding.  As this post argues, such a rewrite is overdue. 

Intergovernmental relations are key to making devolution work effectively. The Scottish Parliament, National Assembly for Wales and Northern Ireland Assembly all operate in a wider context of governance across the UK, and how their functions overlap with those of the UK Government (and other governments) is vital for all four governments and all UK citizens. The Smith Commission’s recent report pays a good deal of attention to the need to ‘scale up’ intergovernmental co-ordination as part of the package of further devolution.

The UK Government is not very interested in managing intergovernmental relations, however. It put in place an attenuated under-institutionalised set of mechanisms in 1999, and has allowed that to weaken or fall further into disuse since then. The key institution is the Joint Ministerial Committee. Plenary meetings of that ceased altogether between 2002 and 2008; they have been more or less annual since then, but are characterised by grandstanding rather than productive work. The JMC’s ‘Domestic’ format has nearly ceased to function, as so few policy issues concern more than one devolved government. The only established format of the JMC which does meet regularly, and does more or less what it was expected to, is the EU format which helps formulate the UK ‘line’ for major EU Council meetings, though there are problems even there. In reality, most intergovernmental issues are bilateral, but with few exceptions they are dealt with in an ad hoc, casual way, out of sight of public or legislatures, and many important issues slip through the net.

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Filed under Intergovernmental relations, Northern Ireland, Publications and projects, Scotland, Wales, Whitehall

‘Constitutional Futures’ workshop at Queen’s University Belfast, 10 October

Along with James Mitchell from Edinburgh and Aileen McHarg from Strathclyde, I’ll be taking part in a workshop on ‘The Direction(s) of Devolution’ in the law school at Queen’s University Belfast on Friday 10 October.  There is more information here, or the flyer can be downloaded here.  Capacity is limited; please email if you’d like to attend.


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Filed under Events, Northern Ireland, Scotland, Wales, Westminster, Whitehall

What follows the referendum: the process of negotiating Scottish independence, or of delivering Devo More

Back in May, I gave a lecture at the University of Ulster’s Belfast campus about what might follow the vote in the Scottish referendum. I’m afraid I’ve only now had the chance to tidy that up for wider reading. It’s available on the Social Science Research Network here, or can be downloaded directly HERE. The lecture as a whole is somewhat lengthy (around 10,000 words), so this post picks out the key points.

Perhaps the most important and novel part of the lecture is the second one, where I map out what would follow a Yes vote – the sort of steps needed, particularly on the rUK side to tackle the many uncertainties that will follow. This is a separate issue from that of the strengths of each party in the negotiation, discussed HERE earlier in the week.  This would call for a great deal of imaginative thinking, in the midst of a first-order constitutional crisis. In particular, it seems to me that:

  • The negotiating process needs to move with all due speed, to preserve the democratic legitimacy of both rUK as well as an independent Scotland. There is no good reason for rUK to seek to prolong the process, and plenty of reasons for it not to.
  • The 2015 UK General election presents grave problems for that – the time lost to campaigning in an election and briefing a possible incoming new government means it will be impossible to make a proper start in negotiations before June 2015, since even provisional agreements reached under the present government might lack support from the new one.
  • One option – which appears to be gaining some support, particularly among Conservatives – is to postpone the 2015 election. But the present government has already been in office for 4½ years, and has no mandate to negotiate something so important to rUK as Scottish independence.
  • A better option would therefore be to hold a general election early, before the end of 2014, so there was both certainty about the composition of the UK/rUK Government and that government had a political mandate for independence negotiations. This would need approval by a two-thirds majority in the Commons, under the Fixed-term Parliaments Act 2011.
  • Those negotiations will not be quick or straightforward – not just because of the difficulty or complexity of the issues to be considered, or how trade-offs might be made between issues, but because they are a matter for parliaments as well as governments. Parliaments will need to approve legislation giving effect to the final outcome, and in Westminster’s case also to authorise much of the necessary preparation on the Scottish side. There will need to be close co-operation between governments and their parliaments, both to ensure proper democratic control and accountability in the process and to simplify the process of approving the agreement at the end of it.
  • A special UK Parliamentary committee, probably mostly meeting in private to preserve the confidentiality of proceedings and negotiating positions, would be an important way of helping to accomplish that.
  • There would also be problems about the involvement of Scottish MPs and ministers in the independence process on the UK/rUK side. It would be contrary to the interests of the people of rUK for MPs sitting for Scottish seats to be involved in that process; as those negotiations affect first and foremost the people of England, Wales and Northern Ireland, only their representatives should be involved – whether in negotiating teams, Cabinet or Cabinet committees when considering independence-related matters, or when those are considered in Parliament. This is the West Lothian question on steroids.
  • The need to ensure a broad consensus of support within rUK for the agreement also means that the Opposition – whoever it may be at the time – will need to be involved in the process. In particular, figures from the Opposition should be included in the rUK negotiating team, and party leaderships kept abreast of all issues under consideration. Again, while this complicates the process of the negotiations, it will simplify the process of approving and implementing an independence agreement.

Much of this sits oddly with usual British constitutional practice. But a Yes vote would trigger extraordinary times, and a need for extraordinary measures to cope with an unprecedented and very difficult situation. (Observant readers may note the considerable overlap between these recommendations and those of the Lords Constitution Committee’s report on Scottish independence: constitutional implications of the referendum – which was published after I gave the lecture.  I do differ with the committee’s conclusions about the compostion of hte UK negotiating team and timing of the 2016 election, however.)
As far as a No vote is concerned, the lecture maps out the programme that was clearly being advanced by the Unionist parties in May, and advanced by the IPPR’s Devo More project: separate party policies, cross-party agreement on the key elements of that, early consideration of them following the referendum and implementation through endorsement in the 2015 election manifestoes. That process would clearly need to include the SNP as well as the pro-union parties, unless the SNP chose not to take part. Since I gave the lecture, the Scottish Conservatives have published their proposals in the form of the Strathclyde Commission report (and I have amended the text to reflect that). Subsequent developments have hardened the commitment of the parties both to the need for joint action and a clear timetable, as well as a Scottish-focussed process to agree the main features of ‘enhanced devolution’.
None of this is about simply ‘giving Scotland more powers’. It is about getting devolution right, so that it enables Scottish voters to have what they have wanted for more than a decade: extensive self-government within the Union. That will benefit other parts of the UK too, and not just by achieving a greater degree of constitutional stability. It will ensure that if Scottish taxpayers choose to spend more on devolved Scottish services, they bear the fiscal consequences of that; this would not be at the expense of taxpayers outwith Scotland.
There is, however, a clear need for that to be followed by a wider process covering the whole UK, and the best way to achieve that would be through a conference of members of the UK’s parliaments and legislatures; MPs, MSPs, AMs and MLAs. This is the idea underpinning the Strathclyde Commission’s recommendation for a ‘committee of the parliaments and assemblies’ . Through their election, these figures all clearly have a mandate and authority that other methods of selection would not give them.
Whatever happens on 18 September takes the UK into new and uncharted constitutional waters. It is important that everyone understands what is likely to follow, and what the world is likely to look like in a few months’ time.

This post also appears on the UK Constitutional Law Association blog, here


Filed under Referendums, Scotland, Scottish independence, Westminster, Whitehall

Negotiations after a Scottish referendum Yes vote

In just over a week’s time, Scottish voters will choose whether Scotland should become an independent country outside the United Kingdom, or remain a devolved part of the UK. It’s a big decision, but they should not think that the referendum vote is the end of the matter. In reality, it is only the beginning. The pro-union parties have long made it clear that a No vote will start the process of delivering a form of enhanced devolution; a Yes vote will trigger a process leading to independence, about which there are few other certainties.

Much of the campaign in the last few weeks has been about creating a different sort of politics, and a different approach to social policy, within Scotland. But at least as important for Scotland as an independent state is the nature of its relations with the remaining part of the United Kingdom (rUK) – its much larger southerly neighbour, its main economic and trading partner, with which the Scottish Government aspires to share a currency, ‘social union’ and much more. All those plans are predicated on a close and amicable relationship with rUK, with Scotland able to enjoy the continuing benefit of a number of services that the UK presently offers to all its citizens.  The question is: can that vision actually be delivered? Even if that model t is the interests of an independent Scotland, why is it in the interests of rUK, if Scotland chooses a future outside it? If it is not, why should rUK comply with independent Scottish wishes – why is it in rUK’s interests to do so?  And, given the differences in interest in securing that outcome, how might an independent Scotland make it happen?

If there is a Yes vote, there will be a complex and messy set of negotiations between referendum day and independence day. Before those negotiations can start, and certainly before the Scottish Government can talk to any entity outside the United Kingdom, a paving bill permitting it to do so would need to be passed by Westminster. At the end, following those negotiations, both UK and Scottish Parliaments will need to approve the resulting deal. Not all the issues that need to be resolved between rUK and an independent Scotland (iScotland) will be resolved by independence day. Indeed, if the Czech-Slovak parallels are anything to go by (and that was a much simpler case), they will not be fully resolved for at least two decades. That does not mean Scotland cannot become ‘independent’, but that independence will indeed be a process not an event, with many issues falling to be resolved only months or years later. However, for an independent Scotland to start functioning as an independent state, some key top-order issues have to be resolved. Prominent among these are:

  • the currency the new state will use, and who bears the risks associated with that
  • the borders of the new state – particularly its maritime borders, which will affect oil and gas reserves unless a distinct arrangement is made for these.
  • the arrangements for movement of persons between rUK and the new state, both at the border and more generally
  • whether, when and on what terms the new state will be or become a member of the European Union
  • the division of the UK’s current National Debt
  • the division of other UK assets and liabilities – ranging from defence infrastructure to museum and gallery collections
  • what happens to the existing UK nuclear bases on the Clyde
  • if rUK is to continue to administer welfare and pensions payments in Scotland for some transitional period, the basis on which it will do so
  • the means by which outstanding issues are resolved, and what happens if the parties cannot reach agreement by negotiation.

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Filed under Scotland, Scottish independence, SNP, Whitehall

Guardian ‘Comment is Free’ piece on ‘What happens after a Scottish independence Yes vote?’

Drawing on my Belfast lecture, I’ve a piece in the Guardian‘s ‘Comment is Free’ section on what would happen following a Yes vote in September’s Scottish independence referendum.  I argue that the difficulties with a long transition are very great indeed, and that there are compelling reasons to ensure Scotland becomes independent by the time of the May 2015 UK general election if there is a Yes vote.  That  would be formidably difficult – not only are there are tough and complicated issues to be negotiated and resolved  between the governments, but also legislation needs to be passed by both Scottish and UK Parliaments (and the UK Government would need to pass a paving bill too).  But the problems caused by a longer transition are even more formidable, in my view.

The CiF piece can be found here.


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Filed under Implications of Scottish independence, Publications and projects, Referendums, Scotland, Scottish independence, Westminster, Whitehall