The UK Government has taken back £155m allocated to Wales because the Welsh Government hadn't spent it in time, it has emerged.
Most Welsh Government funds are held with in the UK Government Banking Service and the Treasury has taken back £155.5m from the Cardiff Bay administration's balance because it exceeded the amount the UK Government allows the devolved administration to carry forward at the end of the financial year.
The figure emerged as part of the scrutiny of the Welsh Government's accounts by the Senedd's Public Affairs and Public Accounts Committee and has caused controversy. Wales' finance minister Rebecca Evans called the decision "completely arbitrary" and the Welsh Government said it was "wholly unacceptable" and exposed the fundamental flaws in the devolution settlement.
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However the committee, which is made up of one member of each political party and is chaired by Conservative MS Mark Isherwood, blamed the Welsh Government for "poor record keeping and mismanagement of public accounts".
This figure is the result of the difference between the balance of the Wales Reserve on April 1 2021, £505.5 million, and the amount that the UK government has set as a limit for the reserve at the end of each financial year of £350 million.
The Welsh Government said the Chief Secretary to the Treasury had rejected its request to carry forward funds in excess of the Wales Reserve limit In a letter, Wales' finance minister Rebecca Evans said she had "pressed the Chief Secretary to the Treasury repeatedly to allow additional flexibility for this excess to be made available to Wales going forward" and had made a "number of reasonable and pragmatic suggestions for how this could be achieved".
She added that the decision by the Treasury was "completely arbitrary" and "does not fully recognise the arrangements agreed with devolved governments" and that "all these requests have been denied". She went on to say: "As a result, Wales will be deprived of £155.5m which we should have been able to carry forward - a position I have expressed to the Chief Secretary as wholly unacceptable."
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The committee questioned why the Welsh Government “waited so long to be told it could not do as it wished with the underspend, and why such a request was made retrospectively”. It said the Welsh Government “appears to have assumed, based on previous HM Treasury decisions, that it would be granted flexibility to use the funding”.
The committee said this raises questions as to whether making a request sooner may have enabled the funds to be used, as it warned “lessons must be learnt to ensure such vital funding is not lost from Wales again”.
Chairman of the Papac, Mark Isherwood, a Conservative Member of the Senedd for North Wales, said: “We are very concerned that significant funding was lost to Wales as a result of the underspend in 2020-21. This money could have been used to fund essential services and it is especially frustrating now when there are such pressures on public funding. “It is one of many examples where poor record keeping and mismanagement of public accounts has cost the people of Wales.”
A Welsh Government spokesperson said it had wanted to move the funding from its underspent revenue account, which is for funding operating expenses like wages, to its capital budget balance which is used for one-off infrastructure spending and was overspent by £149m.
They said: “The Finance Minister has made clear that the actions of the UK Treasury on this issue were wholly unacceptable. We stayed within our overall control total but the UK Government refused a switch between revenue and capital budgets, a process which has been agreed many times before.
“Our underspends during the exceptional 2020-21 financial year were very significantly below those of UK Government departments and our focus on achieving value for money meant we didn’t have the scandals of PPE contracts as we saw in England.
“The Treasury’s arbitrary application of its guidance in this instance was deeply regrettable and left Wales deprived of £155 million.”
How much of a difference would this money make to Wales?
We are not talking small change here. That amount of money would be enough to give every public sector worker in Wales a 1.5% pay rise of one year. The £155.5 million, that was either not drawn down or paid back to HM Treasury, equated to around two thirds of 1p on income tax that the Welsh Government have been under pressure to increase.
How did the situation play out?
This is the timeline of how the Welsh Government tried to keep the money that had been allocated to Wales:
- November 2021: HM Treasury officials advised the Welsh Government it could not retrospectively offset its capital overspend against its revenue underspend.
- December 2021: The Welsh Government “provided options to HMT with suggestions of how the ‘excess’ could be utilised including reprofiling into future years and ringfencing to be used on specific programmes”.
- March 2022: HM Treasury told the Welsh Government it “did not accept any of the suggestions and would apply its position as set out in November 2021”
- March 29, 2022: The Minister for Finance and Local Government met with the then Chief Secretary to the Treasury to discuss the issue.
- April 4, 2022: The Minister for Finance and Local Government wrote to the then Chief Secretary to the Treasury to request he reconsider his decision.
- April 19, 2022: The Chief Secretary to the Treasury rejected the Minister for Finance and Local Government’s request.
Who is to blame here?
Clearly there are huge issues with a system where Wales can be allocated money, to which it is entitled to because of its share of the UK's population, but then it be arbitrarily withdrawn. However the Public Accounts and Public Administration Committee in the Senedd which scrutinises how the Welsh Government uses public money has also raised questions about the Welsh Gov's conduct.
In their report they say: "It is difficult to understand why the Welsh Government waited so long to be told it couldnot do as it wished with the underspend, and why such a request was made retrospectively. The Welsh Government appears to have assumed, based on previous HM Treasury decisions, that it would be granted flexibility to use the funding.
"There are some gaps in the evidence provided to us in the timeline for the Welsh Government’s request to carry forward at March 31 2021. We note, in November 2021, HM Treasury officials advised the unused revenue budget could not be retrospectively switched to capital to offset an overspend against the capital budget. As a result, the revenue underspend exceeded that which could be accommodated within the Wales Reserve. However it is not clear to us when the Welsh Government made the request for flexibility and what discussions occurred between the Welsh Government and HM Treasury prior to and following the year-end (March 2021) and November 2021.
"This raises questions as to whether making a request sooner may have enabled the funds to be used. We do not expect to see a repetition of such funding being lost from Wales again and any future requests should to be made sooner."
WalesOnline approached the Treasury to ask why they hadn't granted flexibility to the Welsh Government. A HM Treasury spokeswoman said: “The Welsh Government funding arrangements are set out in the Statement of Funding Policy and the Welsh Government Fiscal Framework. These arrangements were applied in the usual way in relation to the Welsh Government underspend.”
A Welsh Government spokesman said: “The Finance Minister has made clear that the actions of the UK Treasury on this issue were wholly unacceptable. We stayed within our overall control total but the UK Government refused a switch between revenue and capital budgets, a process which has been agreed many times before. Our underspends during the exceptional 2020-21 financial year were very significantly below those of UK Government departments and our focus on achieving value for money meant we didn’t have the scandals of PPE contracts as we saw in England.
“The Treasury’s arbitrary application of its guidance in this instance was deeply regrettable and left Wales deprived of £155m.”
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