The Welsh Government would need to make a compelling economic case to the Treasury if it wants its borrowing powers increased, says Welsh Secretary Simon Hart.
Under the Wales Act 2014 and 2017 the Labour led administration has the ability to borrow up to £150m a year for capital, via the 海角视频 Government issuing of gilts through the National Loans Fund. It also has the ability borrow £200m a year for resource expenditure, which it has never used. Over a five year period the total borrowing ceiling is £1bn, which the Welsh Government has consistently asked should be raised.
However, with interest on 海角视频 Government debt at record lows, the Welsh Government’s only use of borrowing for capital was a single transaction of £65m in early 2019.
In contrast, while with a bigger capital borrowing capacity of £450m a year, since the Scotland Act the Scottish Government has borrowed nearly £2bn in capital.
The Welsh Government said its under-utilisation of capital borrowing was due to current inflexibilities in its funding arrangements set by the 海角视频 Government.
Mr Hart was asked whether he agreed that the Welsh Government should have a higher borrowing capacity, with greater year end flexibility, against the context of the significant borrowing powers of local authorities in Wales through the Treasury’s Public Works Loan Board to fund capital projects with low interest bearing low term debt, as well as the ability of universities to raise finance through bonds.
Mr Hart responded: “With all of these things Welsh Government has got to make a compelling case. The Treasury quite rightly always needs to be persuaded. And Welsh Government has got to persuade it that it is not seeking to increase borrowing powers to increase its political influence. It needs to persuade the Treasury that there is genuine economic advantage in job creation, in job sustainability, in inward investment and in net zero which can be achieved from increased borrowing powers.
"That is the argument it has got to make. I don’t know if they have put that argument recently, but I know they have been making it in general stages over the last few months, but they need to make a compelling argument that meets all of that criteria... then the Treasury will be happy to be flexible.”
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Economic Secretary to the Treasury John Glen said: “This is a conversation (with Welsh Government on borrowing) we have in the run up to all spending reviews. We have provided £8.6bn directly to the Welsh Government over the course of the pandemic and that has been really important support. I am not the minister for the spending review, but I am obviously aware of that ask. However, there is a significant unused capacity there at the moment, but we will continue that conversation.”
Leading economist Gerry Holtham said the Welsh Government’s meagre use of borrowing powers to date, could undermine its case for raising the current £1bn ceiling.
He recently said: “Failing to borrow in two successive financial years [2019-20 and 2020-21] seems unambitious. Not knowing the capital allocation is not a decisive reason because they know what it will be within a 10-20% error margin and could plan for contingencies.
“There’s a huge programme required of house insulation and refitting and of coastal and river flood defences, not to mention faster rural broadband and rail’s South Wales Metro project.
“The Welsh Government should proceed while real interest rates are negative, as at present. It is also harder to push for a higher borrowing allowance when you don’t use what you have. Perhaps Welsh Government lacks capacity in project appraisal and management. Yet I’d guess they could hire a strong team of 20 for around £5m.”
The Welsh Government said it while it starts every financial year, as it has for its 2021-22, with the intention to borrow £150m for capital investment, the receiving of what it said was late capital consequentials – as a result of increased spending by the 海角视频 Government – meant it was difficult to know what its capital budget would be until year end, so making deployment difficult enough without borrowing on top.
It added that the current amount it can carry over from one financial year to the next, with a reserve capacity of £350m, was another contributing factor to its lack of borrowing. Any amount not spent over that could have to be returned to the Treasury.
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A Welsh Government spokesman said: “The Welsh Government sets its planned capital borrowing through the annual budgetary process and this year’s budget shows that in order to finance our capital plans, we are anticipating borrowing the maximum £150m that is available to us within our annual limit.
“We continue to raise the issue of receiving allocations of capital funding late in the financial year with the 海角视频 Government. The Finance Minister also recently wrote to the Chief Secretary to the Treasury calling for urgent consideration over increasing our budgetary flexibility with borrowing and the Wales reserve.
“Against the background of the pandemic and the need to plan and make investments to enable growth and recover, it is imperative that our calls are recognised.
“We have welcomed the Secretary of State for Wales’ comments to the Senedd Finance Committee in March to work with HM Treasury to look at adjusting the system and await detail of when discussions will begin with us.”