Sunday, 23 February 2014

The myths and realities along the silk Road



When Dave and Nick strode into the Oriel of the Senedd building last month they did so with a purpose. “More power for the Welsh people and the Welsh government”, the Prime Minister told the initial press conference.

Since then the UK Government have published a fuller response to the recommendations of the Silk Commission, and this week unveiled a draft Wales Bill setting out how they will legislate to give AMs greater accountability for the money they spend.

"Power that's about building this country up, power that's about making sure we have real accountable government here in Wales” was what David Cameron said he was delivering on the November morning he came to Cardiff.  But the details that are emerging are less straightforward than the rhetoric might suggest.

The Welsh Government is to get permission to use its existing powers (inherited from the old WDA) to borrow £500 Million for infrastructure spending, and up to a similar amount to help with cash flow problems.  If they want to borrow any more than a modest £1 Billion  then they need to call a referendum (with the permission of the Welsh Secretary) and persuade the Welsh people to draw down powers to vary income tax.

The ‘minor taxes’ that the UK Government have agreed to hand over to the Welsh Government are just that, minor. Stamp duty, land tax and landfill tax are small beer in revenue raising terms. To begin to meet the expectations of unlocking investment capital that have been raised by the debate around Silk, income tax is the only show in town.

The political judgment from the Coalition Government is that Carwyn Jones needs an incentive to take on tax powers, and face up to the responsibility for raising, as well as spending, money. The First Minister has said all along he’d be quite happy to get the power to borrow, but he’s not inclined to accept tax powers without a fairer funding deal for Wales, recently labeling the current situation a trap. There are, of course, other considerations, not least the fact that the Labour Party is split, and the polls show a referendum would be hard to win.

But even with income tax powers the revenue the amount of money the Welsh Government can expect is modest.  While there are no precise figure, sums in the region of £125-140 million a year are expected, which would only allow Ministers to service a debt of around £2 billion ( amounting to little more than the cuts to the Welsh budget since the austerity drive began).

The UK Government have raised expectations about the scale of fiscal responsibility, which look increasingly unlikely to be met. Carwyn Jones may not think that such a modest sum is worth the political risk of calling a referendum.

“More power for the Welsh people and the Welsh government”, but only if they agree to use it for projects the UK Government approves of it seems. Old habits die hard in Whitehall, relinquishing control is not in the DNA. Even the £500 Million pounds that is available now to spend on infrastructure comes with very considerable strings – it must be spent on upgrading the M4.

As it happens the Welsh Government are also very keen on spending money on the M4 – even though much of the current Cabinet agreed to cancel plans for a new road in 2009.

Ministers have to be careful what they say about their preferred option for the motorway around Newport as the formal consultation is ongoing (they had to scrap the last one because of the threat of a legal challenge on environmental grounds). They need to be seen to be keeping an open mind, but it feels very much that Cathays Park and Whitehall would prefer to build a brand new section of motorway over the Gwent levels.

The trouble they have is the cost. £500 Million doesn’t go a long way when it comes to building a six lane motorway.  The Welsh Government has put the cost of a new stretch of M4 at £936 Million, but analysts believe £1.25 Billion is nearer the mark.

The cost of large infrastructure projects are notoriously hard to predict, but the Welsh Government’s current estimate for a new motorway is on the optimistic side.  The cost of building a new road was put at £1.25 Billion at the time the project was shelved in 2009.  The latest plans out to consultation assume the road can be built more quickly and therefore can be delivered for less than a billion - but analysts think the figures are unrealistic.

Prof Stuart Cole, Emeritus Professor of Transport at the University of South Wales, has told the IWA “The figure of £936 Million is based on an expected date of completion of 2020. If a completion date of2031 is used, which was the original assumption and is realistic, then £1.25 billion is a reasonable final figure for the expected outturn price”.

Prof Cole has put forward an alternative plan in a report published jointly by the IWA and the Chartered Institute of Logistics and Transport, The Blue Route: a cost effective solution to relieving M4 congestion around NewportHis proposal - which had been the favoured option of transport officials at one stage - would cost £380 million (one third of the Government’s official estimate) and could be completed much sooner.

But even if a brand new motorway is thought to be the best option it may be a luxury that the Governments cannot afford.  BBC Wales Political Editor Nick Servini tweeted  that the “Welsh Government says £500m borrowing limit could be enough to build M4 relief road after it's topped up by other funds”.

That'll take a lot of 'other funds' and won't leave anything for the rest of Wales.
When it was announced that the Welsh Government would get new borrowing powers, the First Minister emphasised the money ‘is not just for the south of Wales, it is for the whole of Wales north and south’. A point echoed by Welsh Secretary David Jones who was quick to press the case for investment in the A55.

Tying up all of our borrowing powers, and potential future revenues, in one scheme in the south east is politically difficult.

No doubt more money could be found if there was a will to do so. Indeed, the ‘other funds’ Nick Servini refers to may well be a reference to the prospect of gilt market borrowing funded by the proceeds of future Severn bridge tolls. But there’s some way to go before that is a likely prospect.

In the meantime, as the dust settles on the UK Government’s detailed announcement on what “More power for the Welsh people” means, the spin of empowerment is feeling a little hollow.

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