Treasury insists income tax is needed for borrowing, says adviser

The Treasury is refusing to grant major borrowing powers to Wales unless some income tax powers are devolved, says a senior Welsh government adviser.

Welsh ministers want to be able to borrow to fund infrastructure projects, such as roads, schools and hospitals.

At present they are seeking control of smaller taxes, such as air passenger duty and stamp duty land tax.

Adviser Gerry Holtham also said a separate deal was under discussion on funding an M4 relief road near Newport.

The road could be built using money borrowed against toll income from the Severn bridges after they revert to public ownership at the end the decade.

Mr Holtham, a leading economist, said the smaller taxes were not enough to unlock the wider borrowing powers, involving £1bn or more, called for by the Welsh government.

There have been months of behind-the-scenes wrangling between the governments in London and Cardiff over the issue, with a much-delayed announcement now expected this autumn.

In an interview with BBC Wales, Mr Holtham said: "The Treasury's position up until now has been that it wants to concede borrowing powers only if and when Wales takes income tax powers.

"The Welsh government's position is that we should have borrowing powers commensurate with our revenue, whatever tax we get that's raising that revenue.

"These would be small taxes so the borrowing powers wouldn't be that great, but still, that's the principle.

"But the Treasury's trying to hold out and saying that you only get borrowing powers when you get income tax.

"There's an ongoing discussion as I understand it."

The Welsh government said that a referendum would be required before income tax powers were devolved to Wales.

This means full borrowing powers could be many years away if the Treasury maintained its position.

First Minister Carwyn Jones has consistently said that without borrowing powers a new relief road for the heavily-congested M4 motorway around Newport would be unaffordable - with a potential price tag of around £1bn.

That could not be found from within the Welsh government's existing budgets.

There have been repeated suggestions that the cost could be met in part through using revenue from tolls on the two Severn crossings after they return to public ownership.

'Haggled over'

These have been vehemently opposed by business groups such as the Federation of Small Businesses, which believes that the tolls should be cut as much as possible as soon as the transfer takes place in order to boost the Welsh economy.

But Mr Holtham said a deal of this sort was currently being "haggled over", in parallel with negotiations on borrowing powers.

He said: "The M4 is a separate issue, because quite apart from whether or not Wales gets continuing borrowing powers year after year, there is the possibility that the Treasury might allow it to borrow one-off in order to part-finance the M4.

"The discussion there is, can some of the road tolls that are currently levied on the bridges over the river Severn... be used to finance borrowing for the M4?

"I get the impression that the UK government is in favour of the M4 happening. It understands that Wales' capital budgets are not big enough to do the M4 without some borrowing powers - it would just gobble up the whole of the capital budget and therefore they are receptive to doing something about that.

"My guess is therefore they will, if you like, dedicate some of the road tolls to financing borrowing for the M4. I guess that will happen."

Mr Holtham chaired a commission into the way Wales should be funded in future and is an adviser to Finance Minister Jane Hutt on infrastructure investment.

A Welsh government spokesman said: "The chief secretary to the Treasury in his statement on 12 July said that the Welsh government should have early access to borrowing powers in order to support a funding solution for the M4 improvement scheme in south Wales.

"This confirmed the position agreed in the joint statement on funding reform published last October.

"We are not aware of any change in the position of the UK Government in relation to early access to borrowing powers since that date."