When is £2 billion not £2 billion?

HS2 has been a contentious issue for the UK Government since its conception. Campaigns against the project have seen political careers stalled, and much debate is still being had over the cost of the project.  Current costs are projected to be higher than £42.5bn. Even though Wales will not get a high speed rail line, there are still consequences for our budget..

The mechanism by which Wales’ devolved functions are funded, the Barnett Formula, is meant to ensure that when money is spent in subject areas that are devolved to Wales our budget gets a ‘consequential’ change.  So, for example, if a hundred million is announced for hospital in England the Welsh budget will get a share.

Up until this week, it has seemed unlikely that the UK Government would issue a ‘consequential’ for HS2, despite numerous calls from Wales, as regarded the project as benefiting the whole of the UK and was therefore not subject to the formula.

This Monday, a letter from the Finance Minister to Jocelyn Davies, the Chair of the Finance Committee, arrived. The letter claimed that Wales would be the net recipient of a Barnett Consequential totalling in the next budget year £84Million. Further, the broader term implication meant that the UK Government had totally changed position and allowed for Wales to benefit directly from the rail investment in the HS2 project in England. But it was a bigger issue than just the £84m – applying the Barnett formula isn’t a one off step. This change meant an overall consequential to Welsh funding in the region of £2 Billion over the life of the project.

To Welsh Government, this news should really have been greeted like winning an enormous prize on the premium bonds. But they just slipped it out in a letter. Why? This landmark “announcement” was posted with very little Welsh Government fanfare nor celebration, nor any salivating and cajoling over the potential projects this could be earmarked for.  Rather, we had a glum assertion that the funding would be used to offset further capital budget reductions by the UK Government. One would have thought that this fitted the “standing up for Wales” narrative perfectly?

On Tuesday, it was the turn of Plaid and the Lib Dems to have their moment, somewhat more positive than the sombre Jane Hutt. They released cock a hoop Press Releases left and right -both parties claiming to have applied so much pressure to the UK Government,that the Treasury had caved and allowed Wales to receive consequential funding from HS2.

But it wasn’t to be and at 5.42pm on Wednesday, BBC Journalists issued the first Fact Torpedo that ‘Treasury contradicts Jane Hutt’s letter to the Finance Committee – says Wales did NOT get any consequentials from HS2 in its 2015-16 budget’. HMT officials had stated the funding came from a series of major trunk road projects in England, definitively NOT from HS2.

On Thursday morning the evergreen Minister for Finance was sticking to her guns, asserting this is as a Barnett consequential.  Could this be the Whitehall mandarins downplaying what is already a sensitive issue of public spending priorities and that this would give more ammunition to the opponents of HS2, or an error of communication between administrations, which would never be fully unveiled? It certainly felt like more than that.

Friday morning rolled in and the headlines of The Treasury conceding ground had broken through, with the BBC reporting ‘High Speed 2 extra funding for Wales, Treasury concedes’ but with the niggling caveat that it would probably only be for the year 2015-16 and not for the lifetime of the project. A review is pending, and is it unlikely that they will make the same mistake twice. The Treasury may win in the end but not without putting another nail in the coffin of the Barnett formula.  In the meantime, don’t send your capital investment Christmas list to Jane Hutt anytime soon.