Y Pwyllgor Cyllid

Finance Committee


Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Mike Hedges
Peredur Owen Griffiths Cadeirydd y Pwyllgor
Committee Chair
Peter Fox
Rhianon Passmore

Y rhai eraill a oedd yn bresennol

Others in Attendance

Philip Rycroft Aelod o'r Comisiwn Annibynnol ar Ddyfodol Cyfansoddiadol Cymru
Member of the Independent Commission on the Constitutional Future of Wales

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Cerian Jones Ail Glerc
Second Clerk
Christian Tipples Ymchwilydd
Leanne Hatcher Ail Glerc
Second Clerk
Martin Jennings Ymchwilydd
Mike Lewis Dirprwy Glerc
Deputy Clerk
Owain Roberts Clerc
Owen Holzinger Ymchwilydd

Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.

The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.

Cyfarfu’r pwyllgor yn y Senedd a thrwy gynhadledd fideo.

Dechreuodd y cyfarfod am 09:30.

The committee met in the Senedd and by video-conference.

The meeting began at 09:30.

1. Cyflwyniad, ymddiheuriadau, dirprwyon a datgan buddiannau
1. Introductions, apologies, substitutions and declarations of interest

Bore da a chroeso i'r cyfarfod yma o'r Pwyllgor Cyllid. Rydyn ni yma ac mae pawb o'r Aelodau yma, felly does gennym ni ddim ymddiheuriadau y bore yma. Bydd y cyfarfod yn cael ei ddarlledu yn fyw ar Senedd.tv ac mi fydd yna record o'r trafodion yn cael ei gyhoeddi, yn ôl yr arfer, ar ôl y sesiwn. Fedraf i ofyn os oes gan unrhyw un unrhyw fuddiannau i'w nodi? Na. Gwych. Diolch yn fawr iawn.

Good morning and welcome to this meeting of the Finance Committee. All the Members are here this morning, so we have had no apologies. The meeting will be broadcast live on Senedd.tv, and the Record of Proceedings will be published as usual after the session. Could I ask Members whether they have any interests to declare? No. Excellent. Thank you very much.

2. Papurau i'w nodi
2. Papers to note

Gwnawn ni symud ymlaen at eitem 2.

We'll move on to item 2.

We'll move on to item 2, which are the paper to note. I have four papers to note. Are there any comments on anything? No. Diolch yn fawr. We'll note those items.

3. Cysylltiadau Rhynglywodraethol Cyllidol: Sesiwn dystiolaeth 1
3. Fiscal Intergovernmental Relations: Evidence session 1

We come to our substantive item this morning, and it's our first evidence session in the fiscal inter-governmental relations inquiry that we're doing. We're joined this morning by Philip Rycroft. Welcome. Croeso cynnes. I'll ask him to introduce himself for the record. If I ask you just to introduce yourself, please.

I'm Philip Rycroft. I was a long-serving civil servant, first off in the Scottish context, pre devolution, and then for the Scottish Executive, the Scottish Government, and then I moved down to Whitehall. I spent the last 10 years of my career, broadly speaking, in Whitehall. Among my responsibilities were constitutional and devolution issues from 2012 through to 2019. In the latter two years of my career as a civil servant, that ran alongside my responsibilities in the Department for Exiting the European Union. I left the civil service just coming up five years ago. I now do various things, but in and amongst all of that do a bit of academic work for the Bennett Institute for Public Policy in Cambridge and for Edinburgh university. And I was, of course, a member of the Welsh constitution commission, which produced its final report just a few weeks ago.

Thank you very much. Croeso cynnes. It's good to have you with us. A very long pedigree there, and we're going to pick your brains this morning and see what you think of inter-governmental relations.

Could I start this morning by asking you if you could give an overview of the remit of the Independent Commission on the Constitutional Future of Wales relating to inter-governmental relations? How did you go about carrying out that work?

The remit of the commission itself was a very broad one, as you know. We were given quite a lot of licence to range across Welsh constitutional issues, both the current settlement and possible constitutional options for the future. That's a remit we stuck to, and as you'll see in the final report, we have made recommendation on the sustaining of the current devolution settlement but also setting out some thoughts on possible future constitutional options for the people of Wales.

Inter-governmental relations were absolutely central to that, in terms of our perception of the importance of inter-governmental relations for the current devolution settlement and for the sustaining of the devolution settlement, now and into the future. We spent a lot of time thinking about that and discussing that, and indeed made what I think is a very important recommendation in terms of putting inter-governmental relations on a statutory footing. So, it was central to our thinking process. I think the key point that I want to make in this context is the way in which the quality of inter-governmental relations spills out across the wider handling of the devolution settlement. 

And just one other very important point that the commission did discuss, and I think we were very alive to. Whatever Wales's constitutional future, whatever the direction of travel, bar the very unlikely imposition of a unitary state from Whitehall, there will be a requirement for inter-governmental relations because of the nature of the border, cross-border issues, and the need to manage so many policy areas on a cross-border basis. So, this is absolutely fundamental now and pretty much for any foreseeable constitutional future for Wales.

Thank you very much. What do you think about the new inter-governmental relations arrangements for fiscal matters, and how do they compare to previous structures that were in place?


I've had quite a lot of experience of the previous structures, as it was my team, essentially, that looked after them from the perspective of the UK Government, and, indeed, I was involved in a previous attempt to reform those structures, which did get somewhere, but ultimately failed to get across the line at a meeting of the Joint Ministerial Committee in October 2016. So, I watched with great interest the reform process that was kicked off just before I left Government, and then ultimately concluded after I'd left the civil service.

There's no doubt that in those structures, the changed structures, there are improvements: the more developed structure of ministerial meetings across a wide range of policy domains; the formal establishment of the Prime Minister and heads of devolved Government meeting—the key words in there are actually 'Prime Minister', the commitment that the Prime Minister will be part of those meetings, which I think is important; the changes to the dispute resolution mechanism, whereby it is no longer in the gift of the UK Government to say, 'We don't care what you guys think, we don't think that's a dispute, so we're not going to allow it to come in to the dispute resolution system'; impartial secretariat and so on. So, in structural terms, this is undoubtedly an improvement—and, of course, from your perspective on the finance side, the finance inter-ministerial group as part of that.

But structures on their own don't necessarily make good inter-governmental relations. They are necessary, but, of course, beyond that, you need the spirit—on the part of all participants—to make those structures work and to bring them to life. And critical to that, to my mind, is respect, parity of esteem, that all parties in these arrangements are coming to the table in a genuine spirit of collaboration and co-operation to try and move forward mutual issues. It's not always going to be easy, of course; there are many difficult issues in public policy, and some of those engage different points of view from different parts of the UK. Having those structures there is so important, but it's the way that those structures are then used that is more important still.

Going back to that comment around 2016, when things fell apart, if you like—you got so far but didn't get any further—in your view, or from your experience, what caused that? Was it those breakdowns in relationships or was it more fundamental in the structures, that you just couldn't get agreement?

We got a very long way with that, and I give credit to my colleagues in the devolved Governments on the official side. We worked very closely together—tough debates; nobody was a pushover in this context, I can assure you. But we advanced a proposition for Ministers, and what happened at the end of it—it was right at the end of the process—was that, effectively, from a Sinn Féin perspective, there were elements of that, in respect of the engagement of devolved Governments on the international stage, that they were not prepared to accept. So, that was the sticking point there.

But, underneath that, there was broad agreement that we needed to improve the nature of inter-governmental relations. If you go back over time—we don't have time today to go through the history of inter-governmental relations—you will be aware that, from a brave start in 1999, it very quickly went into abeyance. Through most of the years of Labour-led Government from Westminster, relations were dealt with on a bilateral basis, and that's perfectly understandable when you had Labour-led administrations in both Cardiff and Edinburgh. Then, with the SNP coming into power in Scotland in 2007, that demanded a bit of a reset. But I think it was our experience, not least through the Scottish referendum campaign—certainly it was my view, my learning from that—that from the UK Government perspective, as well as from the devolved Government perspective, having inter-governmental relations on this very loose, almost informal, setting was not adequate to the importance of the issues that we faced as a country.

I was very glad when we were commissioned by then Prime Minister David Cameron to undertake this review. As I say, we took it a long way, and I was a bit disappointed that we didn't get it over the line. But I was pleased to see that the baton was picked up, and the structures now I think are more fit for purpose. But I come back to the point that you can have all the structures in the world, but if there isn't a political will there to make them function, then inter-governmental relations will not improve.


Thank you for that. Before I come on to some questions from Peter, how effective are the current structures in creating those relationships? Do they work? You talked about bilateral discussions when there was a previous Labour administration in London, and, obviously, in Edinburgh and Cardiff at the same time. Is it political, or is it more structural? You can have relationships with other parties and disagree, but you can still get things done. I'm just wondering how effective they are. 

I'll put a caveat on this, as I've not been working for the Government for five years now, so I'm not, on a day-to-day basis, exposed to how these things operate now. In terms of the current arrangements, one very simple metric is how often have these ministerial groups met. On the Prime Minister and heads of devolved Governments meeting, they met in November 2022 and haven't met since. So, that says something, I think. In terms of the inter-ministerial groups, some have met more regularly than others. The Department for Environment, Food and Rural Affairs have met with their devolved counterparts very frequently. On the finance one, my understanding is that it's met six times, which isn't quite as often as it should have done—it should have been meeting once a quarter. So, that tells you, with a very simple metric, that, across Whitehall, practice is varied.

I think there is a clue there to the answer to the wider question you asked me about how is this working across the piece. It actually depends. It depends quite a lot on individual Ministers, and there was undoubtedly a hiatus in moving forward improvement in inter-governmental relations through what you might describe politely as the rather disruptive time around the change of Prime Ministers at the UK level. The very rapidly revolving door of ministerial appointments at the UK level of course doesn't help, because with inter-government relations, the clue's in the word 'relations'—they do require time for people to establish contact, to build those relationships, to get to know each other, and that's when you can get these things on a more effective basis. So, that very rapid change across the piece, really, in the UK Government, in ministerial responsibilities, I think has had a debilitating effect.

Set against that, it is worth remembering that, at a detailed, day-to-day level, there are multiple interactions, particularly between officials, that keep policy running. This is absolutely necessary in so many policy domains, and very rarely does it get much public debate because it's mostly uncontroversial. Some of that is now expressed through the common frameworks, and it's just worth mentioning those. They were set in place after much quite difficult debate in the Brexit time as a consequence not least of discussions with the Welsh Government through the work we were doing on the withdrawal Bill. This is obviously pre exit—this was the foundational Bill to take us out of the EU. And as a consequence of concerns about how returning powers from Brussels were dealt with, what we ended up with—it was a long and quite difficult process—were these common frameworks. I think the general consensus is that they work rather well on the whole, because baked in to the assumption around common frameworks is a collaborative approach—it's about seeking and achieving agreement across the four Governments on the approach to different policy areas.

I wouldn't want to run away from the fact that there is a lot going on, and credit to the officials and indeed Ministers from all Governments for sustaining that and keeping it going. But overall, this system of inter-governmental relations in the UK is too dependent on individual ministerial inclination to engage, particularly from the perspective of the UK Government. And, dare I say it, also a relative—even after all these years of devolution—a relative lack of understanding on the part of officials of how you make this work, the importance of inter-governmental relations for the good governance of the United Kingdom.

So, we've come some distance since 1999, but, notoriously, in the way that the settlements were configured and thought about and arranged, the one thing that didn't change was the centre, Whitehall. I say the centre, that's slightly moot, seeing it from Cardiff, you wouldn't see it as the centre, but the centre of Government in the United Kingdom context did not change, and it's taking Whitehall—. I was responsible for seven years for trying to improve understanding of the devolution settlements in Whitehall. It has been a long and, dare I say it, too slow a process, and that combined with, in the case of some Ministers, either a personal or a political unwillingness to accept the importance of inter-governmental relations means that the picture across the piece is not as consistent and as good, in my view, as it should be.


Thank you and good morning, Mr Rycroft. It's a really fascinating conversation already, and it seems that politicians are almost an inconvenient truth in all of this, as they probably get in the way. And it probably works on an informal basis when the same party is in power, but, clearly, we need something that transcends politics so that there is an expectation that has to be adhered to. 

One of the other things that constantly comes up in conversation and taxes us a little bit is the Barnett formula, and understanding that. I know, in your interim report here, it suggested that the Barnett formula was not providing objectivity and doesn't obey the principles of where it should reflect relative need. I wonder if you'd like to expand a little bit more on that, and perhaps how this might be achieved in the future.   

Can I just pick up your point about politicians first? I certainly would not want to give the impression that politicians should not be absolutely engaged in this process; you need that political engagement. Indeed, I've worked for excellent politicians across the political spectrum, and you need that political leadership. It's so, so important. So, I certainly wouldn't want to give the impression that you have to leave inter-governmental relations to folk like me; that would be very wrong. 

The Barnett formula—well, how much has been written and said about the Barnett formula would fill many, many volumes, this temporary mechanism that was put in place many years ago to manage the changes in funding to, obviously, in those days, the Scottish Office, the Welsh Office and to Northern Ireland. Is the Barnett formula logical, soundly rooted in respective or comparative need? No, it isn't. And, of course, what the Barnett formula has never done is to re-base the starting point, to re-base where the whole settlement set off from.

We had that problem, of course, with Wales with, relatively speaking, the Barnett formula not delivering the right outcomes for Wales, and that was one of the big issues around the Wales Act 2017, which, of course, was taken through in my time when I was responsible for these things, and working very closely with the Wales Office to take that legislation through. So, there was a redress made at that time, but the fundamental system, of course, hasn't changed. 

Should it be put on, ultimately, a more transparent needs-driven basis? Of course. And not just for the devolved parts of the UK, by the way, but also for England. When you disentangle public finances in the UK, one of the things that is very clear is that there is relative disadvantage in places like the north-east of England. Certainly, when they look over the border—. I live in Scotland and I've lived in Scotland for many years, so I don't want to suggest that Scotland is over-funded, but, clearly, Scotland benefits from the Barnett formula, and has done for many years, compared with Wales, and certainly compared with contiguous parts of England.

The really interesting question you asked there is why hasn’t it changed. I’ve had conversations with politicians over some years about the Barnett formula, making the point that it was something that was meant to be temporary, but has endured over that time because it is a convenient mechanism for allocating funding after changes following fiscal events. But the political willingness to embrace this and take on the pain of reforming it has just not been there. It is politically really, really tough to change something like the Barnett formula. If I could just refer briefly to Scotland, you’ll remember after the referendum the commitment that led to the Smith commission and the Scotland Act 2016: absolutely explicit, up front in that, no change to the Barnett formula, and that, I think, is indicative of the importance of the Barnett formula viewed, certainly, from the perspective of Scotland, but also the challenge to politicians at a UK level to taking on that system and wishing to reform it.

My view, if I just put this on the table now, is that change is only likely to come in the context of a very much more thoroughgoing shift in the constitutional settlement of the UK, which would have to include a very much larger measure of devolution in England, however that is managed. Is that likely to happen in the next few years? I don’t think so.


So, just building on that, did anything that the Holtham review, which brought in the amended fiscal framework in 2017—or 2018 or 2016; I can't remember when it was—where there was an element of needs-based assessment—? Did that help things? Because I know it was signed up to then with, quite, enthusiasm, but that gave this guarantee of £1.15 for every £1. How far adrift do you think those figures are from where they perhaps ought to be? Or is that too practical?

I couldn't answer that question currently. Of course, at the time, Holtham was extraordinarily helpful to us in terms of the advice we were giving to Ministers, understanding the relative needs in Wales and indeed taking that perspective—Holtham didn't look at Scotland, but taking that perspective—to a Scottish context and indeed a Northern Irish context as well. So, Holtham was—. Really, his evidence underpinned the negotiations that then kicked in around what turned into the Wales Act 2017, because the fiscal floor was integral to, ultimately, achieving a legislative consent motion for that Bill, and to have that become an Act with the full support of the Welsh Government, which of course is incredibly important. We could not have imposed a Wales Act on Wales without the support of the Welsh Government.

So, the way that Holtham had crystallised the problem—. I don't want to reveal too much about the internal UK Government debates, but we had some pretty robust discussions with Treasury over that time because the figures were so clear that Barnett was disadvantaging Wales, and we needed to do something about that, and hence the solution that was put in place at the time. But like all of these things, a slightly—. I don't want to say 'ramshackle'; it's not perhaps the right word, but with a system that has grown up through temporary fixes over time, the risk, of course, with that is that it gets out of kilter again, and then, as the problems build up, you then have to have another political moment to seek to fix them. So, my tidy civil service mind says, ‘Well, why not put the whole thing on a needs basis that is evidence driven and where the adjustments can be made pretty much in real time, year on year, so you don’t allow these disparities to build up?’ But it is one of the frustrations, I think, about the political process in the United Kingdom that we find it really quite difficult to address these big, knotty, cross-country issues, and this is important across the whole of the union, taking that time out, ideally on a non-partisan, non-party basis, in order to find a way forward. We just find that very, very difficult, and it's usually that whoever's in power at the time—this is not a party political comment at all—has other pressing priorities and doesn't want the political pain of dealing with these very knotty issues. So, my concern is that it's not going to shift in the short term.


Well, thanks for that—that was really interesting. I've got a couple more points, but I'm conscious there are quite a lot of questions to ask.

Okay. Yes, fine. I was just wondering if you had any deeper perspectives, or perspectives, on the effectiveness of the dispute resolution mechanism to address that imbalance of power between UK and Wales.

Yes. So, the dispute resolution mechanism of old was not used very often. It was used—. One of the cases that was in my time that was still outstanding was around the Barnett consequentials for Olympics funding, and that dragged on for some time until, ultimately, the Treasury, I think, decided that they were going to resolve that. Notoriously, there was a—. I think certainly the Scottish Government, and I think the Welsh Government as well, tried to raise a dispute around the £1 billion of funding that was offered to the Democratic Unionist Party as part of the deal that Mrs May sought to do after the 2017 election, and that was a very important moment, because the UK Government essentially said, 'No, we do not this regard as fit for purpose for a dispute.' So, when the UK Government is essentially acting as judge and jury, that meant that, the dispute resolution, there was no trust in it.

Now, the new dispute resolution mechanism, the UK Government has instituted something of a self-denying ordinance that says, 'No one Government can, as it were, refuse the claim of a dispute, if another Government thinks there is something that should be put through the dispute resolution mechanism.' As it happens, there is only one dispute live at the moment. That has been in abeyance, because it comes from Northern Ireland, and went into the fridge when the Northern Ireland Executive was not meeting. Presumably, that will be revived now that the Executive, thank goodness, is back in and functioning. 

I think the point here is that, for dispute resolution mechanisms to work, there needs to be trust. There needs to be trust between the Governments, and there needs to be trust in the mechanism, and that trust has clearly been lacking in recent years, not least through the Brexit time, and I think it will take time for that trust to evolve. A dispute resolution mechanism—ideally, you resolve disputes before they actually trigger the mechanism itself, but I don't think we should be afraid of dispute resolution mechanisms, because sometimes they're rather useful in terms of exposing issues to wider view, getting independent evidence into those disputes. So, if we had, in future years, more disputes, I don't think that's necessarily a sign of failure; it might actually be a sign of the system functioning.

Just one addendum to this: of course, as you'll be well aware, in the construct of inter-government relations, there is a separate chapter on financial issues, which is written in a slightly different tone to the rest. It refers throughout to 'devolved administrations', and this is either the Treasury being a bit obtuse and forgetting that, actually, the proper language to use is 'devolved Governments', or is the Treasury being a bit haughty and imposing its will. But, of course, on funding disputes, the Treasury will only accept funding disputes if there is a breach of the principles of the funding statement. And I wonder—I haven't tested this, and we have no examples in front of us, but I do wonder—whether there is a little bit of a rearguard action there from the Treasury just to preserve their space to determine when a dispute should go into the dispute resolution mechanisms, or when they can rule it out of court. So, I do worry about that. I think the Treasury, clearly, has used the inter-governmental relations mechanisms. They are meeting, not as often as they should, but on a reasonably regular basis, but, again, is the spirit willing? Are they taking these things seriously, and would they accept issues coming from the devolved Governments when there is an argument about funding?


I know Rhianon wants to come in. Before I bring Rhianon in, as I'm just conscious of time—I thought we had slightly longer than we have—how are you for time, Mr Rycroft? Are you okay if we run over by about 10 minutes?

It's just fascinating, your insights. We're enjoying it this end and getting a lot of insight from you. If you're okay for time, we might run over a little bit.

I'll just bring Rhianon in very briefly, and then I'll go to Mike, and then, Rhianon, you'll get your chance to ask questions after.

Very briefly, and picking up on what you said in terms of the lack of use of the current dispute resolution mechanism, is that mechanism fit for purpose? You've hinted already in terms of the Treasury's ownership around this. What's your simplistic view on that, please?

The proof will be in the pudding, frankly, on these things. So, the structure is there. It allows for independent chairing of dispute meetings, of bringing independent evidence to bear, but not arbitration. So, ultimately, this has to be sorted out between the Governments. But is it effective? We won't really know until it's used in earnest. As I say, this does require—. If you're sitting in the Welsh Government, you've got a concern, or, indeed, in the Scottish Government or Northern Ireland Executive, it's sort of quite a big thing to do to trigger these mechanisms. You want to know that it's going to deliver an outcome for you. We've had a couple of instances of very, really quite grave political disputes between the UK Government and the Scottish Government over the last couple of years, neither of which went into this process. That, I think, is quite telling, that they sought to resolve this through different routes. That, in many ways, is disappointing. Again, I'm not saying—. I think both Governments, in a sense, were at fault there.

The commission called for indexing reserve limits to inflation and the abolition of the reserve draw-down. Why do we need to index reserve limits? Every local authority and community council in Britain can put as much money into reserves as they want. Peter has told us on many occasions just how much money different local authorities have in reserves. Why does the Treasury, effectively, need to control the amount of money that is held in reserves when the money's already been given?

Yes, it's a very good question. That's a very, very good question. Ultimately, it is obviously the Treasury's concern about the public sector borrowing requirement, which is at the root of so much the Treasury seeks to do. But is it reasonable? No, in my view, it's not reasonable at all. This is money that's been allocated. In the grand scheme of things, if you look at the amount of money the UK Government is borrowing on an annual basis at the moment, these sums of money are not—I mean, they're important sums of money—going to destabilise the UK finances. I personally think these sorts of constraints are unnecessary and I don't really understand what purpose they serve these days. The Welsh Government should be seen as a responsible operator, responsible for managing its own finances, and that cross-year point, this really doesn't make any sense that the Treasury is seeking to assert such control over that, when all it does, really, at the end of the day, is inhibit the proper and responsible expenditure of funds by the Welsh Government, because it forces you into making short-term decisions, which are not necessarily good value for public money. So, I think this is counter-productive.

Thank you for that. I've said on many occasions—you haven't heard it, but everybody else in this room has several times—that the Treasury tends to treat the Welsh Government as another Government department, rather than a devolved institution.

You talked about the indexing of borrowing as well. As I'm sure you're well aware, there are a number of local authorities in England that have borrowed by an order of magnitude higher than their annual income. I think that's a bad use of borrowing and some of them will eventually go bankrupt because of it. But why does there have to be such control over the Welsh Government's borrowing when there isn't that level of control over local authorities who may have an income of £22 million and are borrowing £500 million?


Yes. Your initial comments about the way the Treasury regards the devolved administrations is very telling. You shouldn't have to say that; you should have plenty of evidence to show that the Treasury is treating the devolved Governments as precisely that—devolved Governments. Clearly, there has to be some constraint on borrowing, ultimately. There I have a modicum of sympathy for the Treasury position. There is some mechanism required to ensure that there is no capacity for public sector actors in the UK to borrow in such a way that, ultimately, is destabilising of the public finances. I think that, as a baseline, is understandable. 

How you apply that and how you apply that in regard to the devolved Governments, who are dealing with very big budgets and have, therefore, a capacity to manage their finances, including managing borrowing, is another question. What you're saying pretty clearly there is that the Treasury is too controlling of borrowing and the limits that are set are too constraining. Again, I would agree with that. I'm not going to propose what the right level should be, because that would require expert negotiations between the Welsh Government and the Treasury. But the principle should be that the Welsh Government has sufficient borrowing capability, responsible borrowing capability, to meet not least its needs for infrastructure and other investment—capital investment. As we all know, the public realm right across the country is degrading at far too rapid a rate, and there are particular issues in Wales, obviously, around transport, the rail network, and so on. Responsible borrowing to improve infrastructure in particular that has a direct positive impact on economic growth, and so, ultimately, does pay for itself, it seems to me is a bit of a no-brainer. And it is sort of indicative of what I'd think of as a very old-school approach to thinking about devolution—that it still seems to have too much of a grip—of my former colleagues in the Treasury.

Okay. Thank you. There's no constraint on private finance initiative. The Government can have hundreds of millions of pounds of PFI, which is probably the most expensive way of borrowing money that exists, but it can't actually borrow cheaply in order to do the same thing.

No, and there's an interesting debate about PFI. I was working in Scotland at the time the PFI mechanisms were in full flow and we built a lot of schools as a result of that—I was responsible for schools and education at the time. And whether that was the best way of building those schools in terms of, again, public value—. And there are a legion of stories now about the constraints of those contracts and whether they ultimately delivered good value for the public purse. The thought process was that, by having the private sector build and maintain these assets, they would do that more efficiently than the public sector, even though their borrowing costs would be higher. I'm sure some PFI contracts have worked very well, but there is, I think, plenty of evidence to suggest that not all of them have. So, your point, again, is a very fair one.

That whole process—. I'm not a deep expert in public finance and the ins and outs of what scores on the public sector borrowing requirement, but, of course, with PFI, part of the rationale for that was that you get it off the books, and that, as a sort of wheeze, if I remember rightly, didn't hold, so, even from that point of view, it was, perhaps, a wrong turning. It comes back to the entity that can borrow most cheaply is the Government. The Government, in my view, therefore has a responsibility, thinking about infrastructure investment particularly, and how you do that most effectively to get best value for the public purse.

Thank you very much. I could carry on with this for hours, but neither the Chair nor you would allow me to do that.

The other piece of Treasury control is capital and revenue, and the ability of Welsh Government to move money from revenue to capital and capital to revenue is massively constrained. Is there any rationale or reason that you can see why those need to be constrained?

No, I think—. My personal view is that there ought to be a political restraint, particularly about shifting capital to revenue, because, self-evidently, that denudes your capital budgets of short-term funding, and the risk there is that you never catch up. So, a responsible government, responsible politicians will seek to manage their budgets in a way that does sustain a necessary investment in capital infrastructure, but where should that be done? Again, I'm going to agree with you, or the implication of your question, that that should be done by the Welsh Government.

I think it behoves a committee like you, to be clear about it, to hold the Welsh Government very, very closely to account for those sorts of decisions. I've sat in too many rooms across the years where there has been a switch, because of short-term exigencies, from capital to revenue and we see the results of that right across the land every day of the week. So, this is something that should be used with discretion, but that discretion absolutely should rest with the Welsh Government. It is all about respecting the Welsh Government as a responsible operator in terms of managing its own finances, and the current settlement assumes, ultimately, that they're not going to treat their financial resources with due responsibility.


Thank you, Mike. There might be a couple of points that we'll want to write you about after this session, if we may. It's just to make sure that we capture some of the knowledge that you've got there and your opinions, as well. But I'll come to Rhianon now, if I may, for that last section.

Thank you, Chair. Thank you for your very direct answers to our questions. In regard, then, to the overall thematic—just a quick one, if I may, and it's more of a comment, in a sense—there is a feeling that there is a lack of fundamental respect for a mature Welsh Government, in terms of many of the points that have just been made. But I'm going to park that one and move on to my questioning. Before I do, could I just ask you, in your experience, whose job do you think it is in terms of reforming mechanisms, systems and processes—and we've talked a lot about the inter-governmental framework and the mechanism around those, even just Ministers meeting? Is it civil servants' or is it politicians'?

The answer is civil servants act under the instructions of politicians, and rightly so. Civil servants can, and we did very frequently in my time, suggest to Ministers ways that things might be improved. Civil servants need to be—I think it's an important part of the job—innovative in their thinking so that Ministers have a palate of choice about the way forward. So, civil servants shouldn't be just passive recipients of whatever ideas Ministers have; they should be suggesting ideas, challenging what Ministers propose, but, ultimately, Ministers make the decision. Let's just be absolutely clear about that, and I wouldn't for a moment jib from that. It is fundamental, obviously, to our democratic processes.

Absolutely, and I completely concur. The commissioners recommended that the UK Government considers a solution similar to the COVID guarantee to give devolved Governments that element of certainty that we have not had, and still don't have, about the funding available in the year ahead to the UK supplementary estimate. So, do you feel that that, as a mechanism, is sufficient to be able to benefit, in particular here, the Welsh Government to be able to plan around its budget?

Again, obviously, the COVID guarantee was a short-term expedient in a national emergency, and the deeper question is how do you manage multi-year settlements when there are in-year changes, and what flexibility do you get round that. I think you'll probably guess the way I'm going to answer this question. If you seek to constrain that too much, if you don't give that line of sight, and if you don't give the flexibility to the Welsh Government about how they use any additional expenditure, what you're doing is constraining the Welsh Government in the way it makes decisions. The risk, bluntly, is the Welsh Government is pushing money out of the door because it's got to get money out of the door. That is not a good way to spend public money.

Now, ideally, we should have fewer in-year changes. We should have multi-year settlements based on three- or, ideally, five-year spending reviews. This is true for the Welsh Government, Scottish Government, Northern Ireland Executive, also for local government in England, so that the devolved entities and subnational Government in England have the ability to plan their budgets and their finances over time. In a way, seeing it from your perspective of a finance committee, that is the way that you get to hold the Welsh Government properly to account, because it is their responsibility. At the moment, the Welsh Government say, 'Well, we had no choice, because we're under all of these constraints.' So, it doesn't give a clear route to that accountability.

Is this going to change? Goodness knows. There was a very interesting Institute for Government report that just came out on Monday looking at the centre of Government in the UK. Worth a side glance at that, because basically what that is saying is that the strategic capability of the centre of the UK Government—I would throw the Treasury into that pot—has eroded dramatically over time. So, what we're left with is this sort of very, very short-term decision making, and that leads to poor legislation, poor financial decisions, poor political management of inter-governmental relations. So, all of this is part, I fear, of a bigger picture.


Absolutely, totally agree. In regard to the mechanism for introducing the new devolved taxes, the Welsh Government has submitted a request to the UK Treasury to devolve powers for the vacant land tax; no progress has been made. Is this symptomatic? I mean, no progress has been made on that. What are your views on that?

Yes, I'm disappointed, frankly. Part of the benefit of devolution is that you get to try out different stuff in different parts of the UK. And you'd have thought the Treasury might be quite keen on giving the Welsh Government the opportunity to have a vacant land tax and see, 'Oh, does this work? Does it raise any significant money? Does it have perverse effects?' And they can take the pain of experimenting, and instead the Treasury sits on it. And I haven't seen any sort of substantive rationale for why the Treasury's been so slow in responding on this.

And while I'm at it, I think in looking at the devolved responsibilities around tax more broadly, clearly there is a differential now between the three devolved parts of the UK. What's the rationale for that? It is—. I have to confess, in a way, I was partly responsible, because it was the advice from my team that underpinned the Wales Act 2017 and Scotland Act 2016. But the nature of devolution, really since its inception, has been looked at sui generis for Scotland, Wales and Northern Ireland, and at no moment have we had that sort of reconciliation across the settlements. And there's an obvious question to ask there: if it works for Scotland and it's all right for Scotland, or for Northern Ireland or for Wales, why isn't it fit for purpose for the others? And that, I think, in my view should encompass income tax as well.

And just to be very clear on this: this is not a one-way street of saying, 'Oh, no, just devolve what Scotland—'. Thinking that through, through the Smith Commission, and those tax and welfare powers that Scottish Government had, there was a very vivid debate in Scotland around the so-called bedroom tax, the spare-room subsidy, and the Scottish Government was very, very angry about that, so actually giving them the power to raise more of their own money from the Scottish taxpayer, like myself, to spend that on objectives that they thought were important seemed to me at the time—and I stick with this now, even though I am now paying more tax in Scotland than I would if I was living south of the border—as absolutely the right thing to do for a serious democratic institution, and all of that I would apply to Wales as well.

Thank you. You've almost answered my final question, but obviously in terms of—you mentioned Smith, and the Gordon Brown report also concurred; I don't know if you've had sight of that—the authority there in Scotland being transferred equally in terms of the other devolved administrations.

I'm going to move on, then. I'll go through this question—some of it you've partially answered, but I'll do it anyway. The commission noted in its report that the Welsh Government’s scope to modify income tax is more limited than that of the Scottish Government, and there is no case in principle for this different treatment, as we've already discussed. Do you feel, though, that the reasons for the Treasury decisions regarding the devolved fiscal matters are transparent, for the record, and consistent, and would establishing more formal arrangements provide a fairer approach for Wales? 


The brief answer is, 'yes, it would'.

And finally, the Finance Committee have recommended that the Welsh Government explores the possibility of requesting the devolution of powers to control the Welsh rates of income tax thresholds, similar to Scotland. Also, do you agree there is something that should be devolved to Wales, and if not, why?

As I said, it works in Scotland, and it's encouraging a really interesting political debate in Scotland. That got a bit obscured because these powers came in basically just around the time of the Brexit referendum, so with all of the political stramash that followed that, this debate got obscured, but you can see it emerging again.

So, the differential in the bands and the thresholds in Scotland, taking more money from those who are better able to afford to pay, reducing the rate at the lower end of the spectrum in order to do things like the £20 child poverty payment—this is politics in action and the Scottish public can hold their politicians to account for those decisions. And as I say, I might grumble, as a Scottish taxpayer, that I'm paying more tax, but, as a Scottish citizen, it seems to me absolutely right that the politicians that we vote for are taking those decisions, based on their manifestos, to improve the common weal in Scotland. So, I'm absolutely at a loss to think why people in Wales should not have that same ability as well in terms of their relationship with their devolved Government.

Diolch, Rhianon. Diolch yn fawr, Mr Rycroft. It's been fascinating and sorry that we've gone over a little bit, but I think it was well worth it just to get your thoughts on the record. And as I mentioned earlier, we might write to you with a couple of things, if we may, and if you'd be willing. But thank you very much. There will be a transcript available for you to check for accuracy after this session.

4. Cynnig o dan Reol Sefydlog 17.42(ix) i benderfynu gwahardd y cyhoedd o weddill y cyfarfod hwn
4. Motion under Standing Order 17.42(ix) to resolve to exclude the public from the remainder of this meeting


bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yn unol â Rheol Sefydlog 17.42(ix).


that the committee resolves to exclude the public from the remainder of the meeting in accordance with Standing Order 17.42(ix).

Cynigiwyd y cynnig.

Motion moved.

O dan Reol Sefydlog 17.42, dwi'n cynnig bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod hwn. Ydy pawb yn gytûn? Ydyn, dwi'n gweld bod pawb yn gytûn, felly fe awn ni'n breifat.

I propose, in accordance with Standing Order 17.42, that the committee resolves to exclude the public from the remainder of this meeting. Are Members content? I see that they are content, therefore we will go into private session.

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 10:22.

Motion agreed.

The public part of the meeting ended at 10:22.