'Welsh Assembly needs borrowing powers to invest', Finance Committee

As the Silk Commission rumbles on and the politicians continue to argue over what the Welsh economy needs, the influential cross party Assembly Finance Committee has published its latest report today (3^rdJuly) entitled ‘Borrowing Powers and Innovative Approaches to Capital Funding’ and calls for borrowing powers for the National Assembly for Wales, along with not for profit models of capital finance and the creation of a centre of financial expertise for the public sector to ensure civil servants across Wales have the relevant skills and knowledge needed to fully exploit new opportunities.  

The report has 17 recommendations which are below

Recommendation 1 The Welsh Government should be granted the power to borrow, without negative impact on the Welsh block grant, for the purpose of financing capital spending. 

Recommendation 2 Capital borrowing powers for the Welsh Government should, if granted, be put onto a firm legislative footing.

Recommendation 3 If borrowing powers were granted to the Welsh Government, a control framework should be negotiated between the Welsh Government and HM Treasury which provided the Welsh Government with maximum flexibility to use borrowing effectively to  respond to investment needs.  The negotiated framework should be reflected in the Statement of Funding Policy. 

Recommendation 4 In order to maximise flexibility for the Welsh Government if it were granted borrowing powers, and respect HM Treasury’s fiscal and macroeconomic responsibilities, a protocol should be negotiated between the Welsh Government and HM Treasury to enable a national borrowing limit to be agreed, if required by economic circumstances. 

Recommendation 5, if the Welsh Government were granted borrowing powers, proposals for upper limits for its borrowing requirements, demonstrating affordability, sustainability and prudence, should be presented to the Assembly within the budget motion. 

Recommendation 6 If borrowing powers were granted to the Welsh Government, a protocol should be negotiated with HM Treasury to ensure that the Welsh Government would be notified sufficiently early of any proposed or planned movements in National Loan Fund or  Public Works Loan Board rates.

Recommendation 7 Any legislation which granted borrowing powers to the Welsh Government should make provision for HM 7 Treasury Ministers to grant the Welsh Government the power to issue bonds. 

Recommendation 8 The Silk Commission should consider whether the devolution of tax varying powers is a pre-requisite for the granting of borrowing powers to the Welsh Government, or whether the focus should be on whether borrowing is affordable, prudent and sustainable, regardless of tax-varying powers. 

Recommendation 9 The Welsh Government should undertake exploratory discussions with HM Treasury about the possibility of drawing forward future capital budgets where appropriate, particularly in relation to large scale infrastructure projects.

Recommendation 10 The Welsh Government should be able to switch its departmental expenditure limit budget allocation from resource to capital in year without requiring HM Treasury approval. 

Recommendation 11 In its discussions with HM Treasury, the Welsh Government should negotiate modifications to the Budget Exchange System, including the removal of the cap on the level of underspends which can be carried through, with a view to increasing budgetary flexibility. 

Recommendation 12 In the light of reductions in its capital budgets, the Welsh Government should consider using revenue-financed models, including Non-Profit Distributing models, as an alternative source of financing for capital investment, subject to robust value for money assessments.  Account should be taken of the discrediting of the approach to traditional Private Finance Initiative value for money assessment.  

Recommendation 13 The Welsh Government should take account of the outcomes from the business rates review, and lessons which could be learned from Tax Incremental Financing pilots elsewhere in the UK, and consider the merits of undertaking pilot projects in Wales.

 Recommendation 14 The Welsh Government should consider whether its departments have the right mix and standard of the skills and capabilities required to develop, design and make use of innovative financial models and undertake borrowing, if it were granted the powers to do so.

Recommendation 15 Taking account of lessons which could be learned from the establishment of a centre of expertise in Scotland, the Welsh Government should consider putting in place arrangements to ensure that the whole Welsh public sector has access to a central source of expertise which complements existing capability and capacity.  It would be essential that the costs of these arrangements did not outweigh the benefits. 

Recommendation 16 The Welsh Government should commission an independent assessment of the quality of asset management across the public sector in Wales, with a specific focus on reviewing the systems in place to ensure investment needs are robustly challenged.  Subject to the findings of such an assessment, the Welsh Government should consider lessons which could be learned from Scotland on the role of an independent body to challenge the assessment of investment need by public bodies. 

Recommendation 17 The Welsh Government should consider lessons which could be learned from Scotland on the role of an independent body to co-ordinate asset management planning and decision making across multi-agency boundaries

The full report is HERE 

Any source