Funding for Scotland, Wales and Northern Ireland Contents

2Implications of HM Treasury’s decisions

HM Treasury’s decision-making

15.Whether or not the devolved administrations receive funding when there are changes to planned spending in England is determined by how HM Treasury categorises spending programmes and projects as either reserved or devolved.28 Comparability factors, decided by HM Treasury and listed in their HM Treasury’s Statement of Funding Policy (SFP) for each UK government department and each of their spending programmes, and the application of factors of 100% or 0% to be used in the Barnett formula, reflect the extent to which public services have been devolved to Scotland, Wales and Northern Ireland or are still reserved to the UK government.29

16.HM Treasury told us that, in the run up to a spending review, they make sure that the devolved administrations know what comparability factors they are using and that there is agreement that they are the correct ones. But HM Treasury acknowledged that the comparability factors for the Spending Review 2015 were shared with the devolved administrations at a late stage. We expressed our concerns that late information causes problems for budget-setting and has a knock-on effect on the budgets the devolved administrations allocate to others, such as local government. HM Treasury told us that it is aiming to get information to the devolved administrations “in good time” ahead of the next Spending Review but was reluctant to commit to a target time for sharing information.30

17.We asked HM Treasury about the differences in its categorisation of rail infrastructure projects, HS2 and Crossrail, whereby funding allocated to railways infrastructure in England does not always result in consequential amounts of funding for all devolved administrations. HM Treasury explained that the distinction followed the comparability factors that are set out in its SFP, where administrative arrangements for ‘heavy’ rail infrastructure vary across the devolved administrations. It told us that as Crossrail is administered by Transport for London it is treated as a ‘local transport scheme’ and Scotland, Wales and Northern Ireland receive Barnett consequentials from UK government investment into the project.31 But HM Treasury categorised HS2 as a ‘national’ project, with the result that Barnett consequentials are payable to Scotland and Northern Ireland but not to Wales.32

18.UK government’s announcements of increased spending on specific projects and programmes in England do not necessarily result in additional funding for Scotland, Wales and Northern Ireland. Additional funding is provided to the devolved administrations if spending plans increase the overall amount spent in England for services and activities devolved to Scotland, Wales and Northern Ireland. HM Treasury decides what funding mechanism to use to support new government projects and programmes. The devolved administrations do not receive additional funding via Barnett consequential if HM Treasury chooses to fund new spending announcements through reprioritising or cutting spending in other areas. As a result, the amount that they receive through Barnett consequentials may be less than the devolved administrations expect.33 We heard from Professor David Heald, who told us that announcements can obscure an important distinction between ‘new’ money for comparable English programmes and the reallocation of existing money.34

19.In the case of the additional funding announced for the NHS in summer 2018, HM Treasury acknowledged that the devolved administrations were allocated less than they expected because part of the funding was not new money but rather met from a reprioritisation of existing budgets. HM Treasury recognised at the time that the announced was made, it was not clear how it would be funded and as a result the devolved administrations received “slightly less” than it had first estimated. It told us however, that at the same time it had also allocated new funding to the social care sector, which resulted in Barnett consequential being made to devolved administrations and in this case they received more than it had first estimated. HM Treasury similarly recognised that details about the precise funding may come a little bit later than the initial announcement. It told us that it tried to give devolved administrations information about likely levels of funding early on, but that this sometimes meant that it had to make corrections at a later date.35

20.We asked HM Treasury about the likely funding available to the devolved administrations from funding allocated to the Stronger Towns Fund. HM Treasury told us that funding for the first year of the programme was met from a reprioritisation of existing budgets and so there was no consequential funding for the devolved administrations. It confirmed that funding for future years would be allocated at the spending review, and that if there were new allocations for the fund in areas which are devolved, this will result in additional payments to the devolved administrations as Barnett consequentials.36

21.While the devolved administrations maintain their own records of UK government spending announcements and estimate how much they expect to receive at fiscal events, they will not know the net impact on their budgets until HM Treasury has decided how the announcement will be funded.37 We asked HM Treasury what would happen to Barnett consquentials if the Crossrail budget was cut. HM Treasury confirmed that, under the Barnett formula, if the government reduced spending in England on a programme that was devolved, then there would also be a reduction in spending within the devolved administration. It explained that this money would not be taken from the devolved administration’s budget for the current year, but would be taken from the relevant block grant the following year. It also told us that whether devolved administrations would receive more or less funding overall would depend in whether there were increases elsewhere to offset the cut in that area.38

Uncertainty about future funding

22.HM Treasury acknowledged that major decisions are to be taken about funding next year and that the timing of these decisions was critical for the devolved administrations because of their own budgeting cycles. HM Treasury told us that, in the normal course of events, it would set plans for three years and that the date of the next Spending Review would be confirmed by the Chancellor. It confirmed that while it was preparing for the next Spending Review, but it would not speculate on the outcome of the spending review and what decisions would be taken.39 Following our evidence session, we received written evidence from Professor David Heald, who told us that uncertainty about the timing of the next spending review has “systemic implications for budgetary decisions by the devolved administrations”.40 HM Treasury told us that, as a minimum, it would set new spending plans this autumn for the year 2020–21.41

23.We questioned HM Treasury on its plans for what will happen to the EU funding the devolved administrations currently receive when the UK leaves the EU. It told us that the UK government has guaranteed to maintain all EU funds at their current levels until 2023.42 HM Treasury explained that there will be an implementation period this year and next year, in which the UK would still be participating in the EU budget so structural funds(intended to reduce disparities in the regions of the EU), payments to farmers, research funding or science funding would continue to flow this year and next year as today, under the same system. In the event that the UK leaves the EU without an agreement, HM Treasury said that the UK government had guaranteed that the funding that the devolved administrations currently expected would still be paid.43

24.HM Treasury explained that the public money that is allocated to, or spent in, Scotland, Wales and Northern Ireland from the European Union budget was determined according to EU rules rather than the Barnett formula. Regarding the development of new frameworks for after we have left the EU, HM Treasury said that it was important that it worked out how to replicate or replace that funding in the future and referred to “a long process of discussion and negotiation ahead”.44 It told us that the Government was consulting, including with the devolved administrations, on how this will work.45

28 C&AG’s Report, para 2.3–2.6

29 Q 10

30 Qq 12, 40, 43–46

31 Q 25–27, C&AG’s Report para 2.7

32 C&AG’s Report, para 4

33 C&AG’s Report, para 2.15

34 Ev 0001, Professor David Heald, June 2019

35 Q 14

36 Q 18–19

37 C&AG Report, para 2.15

38 Q 28–30

39 Qq 22, 30,42–44

40 Ev 0001, Professor David Heald, June 2019

41 Qq 20, 22, 50

42 Q 38

43 Qq 38, 51–53

44 Q 51

45 Q 38

Published: 26 July 2019