Clegg has more to do on Welsh funding – so does Carwyn

Political finger wagging was much in evidence at Nick Clegg’s Wales Governance Centre lecture in Cardiff this week. He himself was complaining about the Welsh Government’s tendency to point the finger at the Westminster Government, while doing just that himself, though in the opposite direction. What it illustrates is the way in which Welsh and British politics are tripping over each other, with each party talking past the other.

Substance and process need to be disentangled: the substance is the matter of the future funding of the Welsh Government in the context of the developing quasi-federal nature of the UK. The process issue is the choice between megaphone diplomacy and alternative negotiating strategies for Wales.

Nick Clegg has a point when he criticises the Welsh Labour administration’s reluctance to countenance the devolution of taxation powers, while still complaining of the inequity of the current Barnett formula. On the other hand, Carwyn Jones has a point when he criticises the Westminster Government’s reluctance to even recognise the Barnett issue.

Clegg himself says that “you’ve got to bring these two things together’. Precisely. Then why is one of them – taxation powers – put within the remit of the Silk Commission that is looking at the whole devolution settlement in Wales, while the other – Barnett and borrowing powers – is reserved for bilateral negotiation between Cardiff Bay and Westminster? Even a cursory glance at the evidence to the Silk Commission will tell you that there is little chance of getting any consensus in Wales on devolving taxation powers, unless the Barnett issue is addressed simultaneously.

That is not, as Mr. Clegg argues, because Wales wants ‘blank cheques written first’ but because, given the economic disparities across different parts of the UK, devolution of taxation powers without clarity on a complementary successor to Barnett would pose a huge risk for the Welsh Government and people. The gap between total revenues raised in Wales and total expenditure in Wales is, depending on your assumptions, somewhere between £4billion and £6billion. That may be an uncomfortable, some would say demeaning position to be in, but any Welsh Government that ignored that funding gap would be irresponsible.

Nick Clegg is the leader of a party that has long believed in a federal Britain. As such he might do more to persuade his LibDem colleague at the Treasury, Danny Alexander, to understand this predicament and at least make some public acknowledgement of its existence. He might also seek to persuade Mr Alexander that any system of fiscal transfers will, ultimately, have to be based on demonstrably equitable principles, rather than on crude political muscle. But don’t hold your breath. Nothing is going to happen before the Scottish referendum.

In the meantime it does not help that Mr Clegg dismisses some of these issues simply as ‘impenetrable debates about funding formulas and floors which exercise the political and media class’. For a professed federalist that is a cheap and unworthy point.  Every single study of the current situation, from the House of Lords to the Holtham Commission has been deeply critical of the present funding arrangements.

Mr Clegg is, however, right to question the Welsh Government’s approach to this negotiation. There are several truths to be faced. First, that the inequity of the present funding system has been obvious for a decade past. Second, that successive Labour administrations in Cardiff did not argue for reform while their political colleagues were in power at Westminster and while economic conditions might have made it easier to find a solution. By now party politics and economics are much more difficult. Third, and most uncomfortable of all, is that Wales does not have the political leverage of Scotland or Northern Ireland.

The Welsh Government’s frustration, possibly at opportunities missed and certainly at seeing the leverage of the other two devolved administrations – especially in the run up to a referendum on Scottish independence – has led to some loud public complaining by the First Minister. At the very least there is room to question this as a strategy, if strategy it can be called.

It is complicated by the inconvenient intertwining of Welsh and British politics. Carwyn Jones heads the only Labour administration in the UK above the local government level. He must, therefore, feel some obligation to make Labour’s case against the UK coalition’s policies, especially as those policies will impact so heavily on his own government and on the less well off, of whom Wales has more than its share.

But discharging this political obligation may well run counter to the best negotiating strategy for the pursuit of the Welsh interest. If you have no leverage, you need friends and allies, even cunning and dissimulation. But you also need the courage to face up to all parts of the funding equation.