Short stick and short shrift for Wales

I’ve been trying to make sense of the devolution implications of the UK Government’s Spending Review.  In particular, the outcome of the review for Wales is rather baffling.  Why does Wales do markedly worse than Scotland or Northern Ireland?

Health and education are the largest drivers of changes in the overall block grant, as well as the largest spending items of the devolved governments.  These departments were relatively sheltered in the review.  In real terms, between now and the end of the review period in 2014-15, current health spending in England will increase by 1.3 per cent, and capital spending will decline by 17 per cent.  Education current spending in England will decline by ‘only’ 3.4 per cent, and the capital budget by 60 per cent.  (Education means pre-18 spending and schools spending is to be protected in real terms.)

The UK Government claims that the Barnett formula will be applied in the usual way to the review.  Devolved block grants will all shrink: by 6.8 per cent for Scotland, 6.9 per cent for Northern Ireland and 7.5 per cent for Wales, for current spending.  For capital spending, the forecast figures are – 38 per cent for Scotland, – 37 per cent for Northern Ireland and – 41 per cent for Wales.  (Those figures are set out in tables 1 and 2 on pages 10-11 of the Spending Review document, Cm 7942.)  Wales clearly gets the short end of a not very long stick.

Why is this?  The biggest difference in the composition of the block grants between Wales and the other devolved administrations relates to policing and justice functions.  These are devolved in Scotland and Northern Ireland, of course, but not in Wales.  Under the new Statement of Funding Policy, Ministry of Justice functions are more than 99 per cent ‘comparable’ – so devolved – and Home Office ones are 76 per cent comparable.  (In essence, that’s because policing is devolved, but border control is a UK matter.)  However, these functions fare pretty poorly in the SR.  The Ministry of Justice’s current budget declines by 23 per cent and 50 per cent in capital terms, while that of the Home Office declines by 23 per cent (current) and 49 per cent (capital).  So the main immediate differences in devolved spending between Wales on one hand and Scotland and Northern Ireland on the other should logically work to Wales’s advantage, where health and education make up a larger proportion of devolved functions, but they don’t.

A more likely contender relates to local government spending, which accounts for a substantial amount of spending.  There is a major difference here, as non domestic rates (NDR) are fully devolved in Scotland and Northern Ireland, but there is a single ‘England and Wales’ pool for NDR.   (My instinct suggests this helps Wales overall, given its generally lower commercial property values, but I have not seen any data on that – if anyone has some, I’d be very interested in it.)  The Spending Review report does not suggest what is to happen to non domestic rates, though it talks about a freeze in council tax to be funded from central funds.  As NDR forms the basis for the bulk of central government grants to local authorities, and local government grants overall in England are to reduce by 28 per cent over four years, that appears likely to be the explanation.

A second factor that may be at work is the nature of convergence.  This is an arithmetical property of the Barnett formula – over time, with accurate population figures and with nominal increases in public spending (as there still will be – the cuts are in real terms, not nominal ones), spending will converge on the English level.  Inaccuracies in the population figures appear to explain why this did not happen in Scotland during the 2000s (as Scotland’s population was in continued decline which was not picked up in the numbers used in the Statement of Funding Policy), even though spending was increasing rapidly.  The effect of convergence is more marked the closer  to the English level one is, so Wales suffers this to a greater relative extent than Scotland or Northern Ireland.  Again, it is not proven, but it is likely to be a factor.

The other issue that has attracted widespread discussion in Wales is the question of funding of S4C, and the way it is be funded from the licence fee that otherwise funds the BBC.  There is good news discussion of this in the Guardian’s Media section, and this piece by Geraint Talfan Davies on ClickonWales is also interesting.

What is notable here is the parallel with the 2012 London Olympics. A lot of work had been done in the weeks leading up to the review, and MPs briefed about the likely shape of the deal.  At the last minute, all that was unpicked to find a resolution to a quite different set of issues – in this case, the attempt by the UK Government to get the BBC to pay for free TV licences for elderly people, and that of the BBC to resolve its future finances.

The deal appears to have been done very late, by a small number of people, notably the BBC’s Director General, the UK’s Culture Secretary, and the Chief Secretary to the Treasury.  That number appears not to have included either the Welsh Secretary or representatives of S4C (let alone the Assembly Government).  The result is that the Conservatives have done themselves a great deal of damage when it comes to the Welsh language, unpicking nearly 30 years of work.   As with the ongoing row about the Olympics, the UK Government legislated in haste and will be able to repent at leisure.

This article first appeared on Devolution Matters