The Senedd will debate the Finance Committee’s report on Fiscal Intergovernmental Relations on 11 December, which offers a platform for HM Treasury and the Finance Ministers from the devolved governments to discuss financial matters across the UK.
What are intergovernmental relations?
Intergovernmental relations (IGR) in the UK refers to engagement between the UK government and the devolved governments in Wales, Scotland and Northern Ireland.
In January 2022 and following its review of IGR, the UK Government published a paper which set out new arrangements to facilitate relations between governments. At the highest level, there is a Prime Minister and Heads of Devolved Governments Council (‘the Council’). Under this is an Interministerial Standing Committee, and a Finance Interministerial Standing Committee (F:ISC) with Interministerial Groups (IMGs) below these.
The F:ISC, which engages on fiscal matters across the UK, consists of a representative of the UK Treasury and the Finance Ministers from the devolved governments.
Why did the Committee choose to look into fiscal IGR?
The report notes that during the Committee’s budget scrutiny work it found time and again that the ability of the Welsh Government to make spending decisions is often hampered by structures, attitudes and processes that are outdated and not reflective of the territorial realities of the UK.
The Welsh Government highlighted areas where fiscal intergovernmental relations have been challenging. Such challenges were cited in “The Independent Commission on the Constitutional Future of Wales” report, which included:
- Late UK Government funding announcements impacting on Welsh Government’s budget planning;
- The devolution of powers to implement a vacant land tax in Wales, which began four years ago with no formal decision made to date; and
- Updating the Scottish fiscal framework by indexing capital borrowing to inflation and abolition of the reserve draw-down limits, which have not been applied to the Welsh fiscal framework.
What is the state of fiscal IGR?
The Committee’s report identifies positive changes to IGR mechanisms implemented following the IGR review but it also highlights the power imbalance between the Treasury and devolved governments.
The report notes having the right structures in place is only part of the solution. IGR “needs to be supplemented by a robust culture between governments in the UK, based on mutual respect and parity of esteem”. However, the Committee found this hasn’t always been the case, saying:
Too often, this report highlights instances where those have been lacking, and that this has resulted in processes that don’t work to their potential, leading to disappointing outcomes.
The Committee has also experienced its own issues with the Treasury in the past, saying:
We have also been continually frustrated with the lack of engagement from the Treasury to appear before the Committee, despite repeated efforts, and we hope to cultivate more constructive relationships with the new Treasury Ministers from now on.
The Committee made a range of recommendations, which it felt should be implemented, including:
- the UK Treasury differentiating between devolved governments and UK Government departments in their treatment;
- placing IGR on a statutory basis;
- the UK Treasury trusting devolved governments by sharing confidential information in advance of fiscal announcements;
- the UK Treasury providing the Welsh Government with additional budgetary flexibilities to better manage its finances; and
- a review of the Welsh fiscal framework.
The Committee’s overriding view is that “IGR fiscal arrangements in the UK should be underpinned by clear principles, and not the whims or personalities of Treasury Ministers”.
How could the Committee’s report help with fiscal IGR?
The General Election in July 2024 led to a new UK government, which has presented an opportunity to reset intergovernmental relations. The Committee noted in its report its intention:
To shine a light on areas where improvements can be made and to set out some practical steps around how this can be achieved, with the aim of strengthening the Welsh Government’s hand in fiscal discussions.
Time will tell how the new UK Government will approach intergovernmental relations although the Prime Minister has confirmed he will establish a Council of the Nations and Regions.
With the Welsh Government accepting all of the recommendations (including one in principle) within its influence then the Welsh Government could use the Senedd Committee report as leverage when dealing with the UK Government on financial matters such as greater budgetary flexibility and sharing confidential information ahead of UK budgets.
If you’d like to know more about fiscal IGR and the Committee’s findings, you can watch the debate live on senedd.tv on 11 December.
Article by Christian Tipples, Senedd Research, Welsh Parliament
