Welsh government given limited borrowing powers

The Welsh government has reached agreement with the UK coalition allowing it limited powers to borrow money to finance major schemes.

The deal is conditional on the Welsh government getting a new source of income from taxes - something being examined by the Silk Commission into the future of devolution.

It follows talks between ministers in Cardiff and the Treasury over funding.

Plaid Cymru said the Welsh government had failed to get what it wanted.

Ministers in Cardiff have been calling for borrowing powers as a way to raise money for big capital projects, such as motorway improvements that could boost the economy.

As it cannot currently borrow and has no tax powers, the administration in Cardiff Bay relies on Whitehall for its budget.

'Step forward'

Chief Secretary to the Treasury Danny Alexander said the in-principle agreement to devolve capital borrowing powers was "an important step forward".

"I am delighted that the two governments have worked closely together to deliver this good outcome for Wales," he said.

In another aspect of the deal, both sides will sit down at UK government spending reviews and conduct a joint assessment of how much Wales gets.

The committment is designed to stop a squeeze on Welsh funding.

Welsh Finance Minister Jane Hutt said it was the first time the Welsh government and the Treasury had agreed there was a risk of Wales losing out under the Barnett formula - the mechanism which adjusts funding for the devolved nations.

Thanks to a quirk of the system, known as convergence, Welsh spending has been falling compared to levels in England. The trend is unlikely to continue in coming years because overall public spending is being cut.

But the deal effectively rules out the prospect of the Barnett formula being scrapped in the near future.

Critics argue it should be replaced with a system that better reflects how much Wales needs.

Ms Hutt said Barnett reform was "probably our long-term goal".

She said: "I welcome the in-principle devolution of capital borrowing powers, which should give the Welsh government an additional lever to generate economic growth."

The Silk Commission is due to publish its first report on 19 November, looking at whether the Welsh government should be made more accountable for the money it spends by devolving tax-varying powers.

It is not yet clear how much the Welsh government will be able to borrow under any future arrangements.

First Minister Carwyn Jones has previously said his administration needs parity with Scotland.

Borrowing powers have already been devolved to the Scottish government, with a maximum of £2.7bn available every year.

'Wholesale reform'

Plaid AM Ieuan Wyn Jones, the former deputy first minister, said: "The statement doesn't even tell us how much Wales will be allowed to borrow at some future unspecified date.

"This announcement has the Treasury's paws all over it, and I can't understand why any first minister of Wales would sign up to it."

He added: "There is no mention at all of the longer term need for a wholesale reform of Barnett."

Welsh Secretary David Jones said: "It shows that by working together we can achieve so much more than if we pull in separate directions."

Shadow Welsh secretary Owen Smith welcomed the principle of allowing borrowing but claimed Wales was still underfunded and that the Welsh budget was being "hammered" by spending cuts.

Speaking ahead of the announcement, James Foreman-Peck, director of the Welsh Institute for Research in Economics and Development at Cardiff University, told BBC Radio Wales questioned the timing of granting borrowing powers.

"We've got UK national debt rising strongly, we've got Europe mired in its debt problem and here we're being told Wales is about to join the throng by getting more and more debt," he said.

Nick Bennett, chief executive of Community Housing Cymru - the body that represents housing associations in Wales - said: "We have to take responsibility for funding more of our infrastructure ourselves for the future."