UK Government investment in Welsh rail infrastructure has long been controversial. It’s often said that Wales has been short changed for years on Network Rail major project investment.
HS2’s classification as an ‘England and Wales project’ has also been controversial as this infrastructure behemoth has seen no Barnett consequential funding come to Wales. This is despite the route being entirely in England, and evidence showing the scheme will have a net negative impact on the Welsh economy.
This contrasts with Scotland and Northern Ireland which have received funding as a result of spending on the project.
With nothing explicit in the first UK Labour Government budget for Wales on rail, this article sets out the issues.
How does rail infrastructure funding work in Wales?
While the Welsh Government can choose to invest in Welsh rail infrastructure, planning and funding this (outside the Welsh Government owned Core Valleys Lines) is a UK Government responsibility.
This means Wales doesn’t receive any block grant allocation for rail infrastructure so any investments it makes – like reopening the Ebbw Vale line – are funded from money allocated to Wales for other purposes.
This contrasts with Scotland, where the Scottish Government sets its own priorities and receives a block grant allocation for infrastructure. Rail investment is also devolved to Northern Ireland.
This devolution settlement underpins classification of HS2 as an England and Wales project.
As HS2 is managed by HS2 Ltd, rather than Network Rail, there are two separate but related issues to consider:
- whether Wales is treated fairly through Network Rail spending on major projects (known as ‘enhancements’); and
- whether it should receive consequential funding as a result of HS2 spending.
Network Rail enhancement spending
A Welsh Government commissioned 2018 report by Professor Mark Barry estimated that the Network Rail Wales Route, which covers 11% of the UK network, received just over 1% of the enhancement budget for the 2011-2016 period.
In 2021, the Wales Governance Centre provided evidence to the UK Parliament Welsh Affairs Select Committee’s Rail Infrastructure in Wales inquiry. This concluded that between 2011-12 and 2019-20 Wales would have received an additional £514m for enhancements via Network Rail had rail infrastructure been devolved as in Scotland.
While Network Rail receives funding for operations, maintenance etc in the Wales and Borders region, decisions on major enhancements in England and Wales are made by the UK Government through a Rail Network Enhancements Pipeline, assessed based on the Treasury’s ‘Green Book’.
In September 2020, Welsh Government analysis of enhancement spending argued Wales was disadvantaged by project prioritisation on an “England and Wales basis”. It argued the appraisal system systematically overestimated demand for schemes in London, and underestimated those elsewhere, including in Wales.
The Welsh Affairs Committee report acknowledged this evidence, and welcomed the UK Government’s 2020 review of the Green Book appraisal process established to address these concerns.
That review acknowledged weaknesses in the Green Book approach and its application in terms of ‘levelling up’. However, it remains to be seen whether the updated approach brings additional investment to Wales.
The Welsh and UK governments have been working together for some time on a pipeline of rail enhancement projects. While the details have not been made public, the Welsh Government has set out priorities in its National Transport Delivery Plan.
One key area is investment to deliver the recommendations of the ‘Burns Review’ on alternatives to the M4 Relief Road. In October, the Burns Delivery Board published its Prospectus for Travel in South East Wales – proposing £810m investment, including UK Government investment of £385m in the South Wales Mainline between 2025 and 2030.
Yet while the UK Government budget included confirmation of funding for major enhancement schemes in England, there was nothing explicit for Wales.
HS2 spending
All parties in the Senedd now support calls for a “fair share” of HS2 funding to be allocated to Wales. The Welsh Affairs Committee also recommended HS2 be reclassified as ‘England only’ so Wales would receive a consequential.
However, the previous UK Government’s response to that recommendation stressed its responsibility for heavy rail, and said due to departmental comparability factors “the Welsh Government has actually received a significant uplift in its Barnett-based funding due to UK Government spending on HS2”.
However, Senedd Research is unable to find evidence supporting this statement.
Barnett consequentials
Given the classification of HS2 as an England and Wales project, the UK Government has allocated Wales a comparability factor of 0% for HS2 spending in its statement of funding policy. Scotland and Northern Ireland were allocated 100%. This factor measures the extent to which UK Government department services are devolved and is used to calculate the block grant for devolved governments.
This means Wales receives no consequential funding from UK Government spending on HS2, unlike Scotland and Northern Ireland both of which receive 100% comparability.
While the scope of the project, originally planned to reach Leeds and Manchester via Birmingham, has been reduced with the cancellation of phase 2, costs have grown. There have been various estimates suggested for what Wales should receive.
In January 2022 the current Secretary of State for Wales, Jo Stevens MP, speaking in her previous Shadow role, quoted a figure of £4.6bn. Although her recent comments since entering government suggest this might not be forthcoming.
In March 2023, the then Minister for Finance and Local Government, Rebecca Evans MS, published a written statement saying:
The UK Government must commit to review the categorisation of this £100 billion investment [HS2] as an England and Wales project and provide the Welsh Government with its £5 billion share of consequential funding.
In January 2024, Plaid Cymru made the case Wales should receive £3.9bn in compensation based on the total cost of HS2 reaching £66bn given the cancellation of phase 2.
While these figures appear to be based on estimates of total cost, the Welsh Government has quoted lower figures based on expenditure to date.
During a debate in June 2024, the then Cabinet Secretary for Finance, Constitution and Cabinet Office, Rebecca Evans MS said:
Up to the end of 2024-25, Wales will have missed out on around £350 million as a result of the incorrect classification of HS2 as an England-and-Wales project. That amount is likely to increase considerably in future years.
In a letter to Senedd Members, the Cabinet Secretary explained how the £350m was reached, saying this was an estimate of “how the Welsh Government’s block grant would have changed to date, if HS2 had been classified as an England only programme”.
Where do we go from here?
In September the Cabinet Secretary for Finance and Welsh Language, Mark Drakeford MS, wrote to the Chancellor of the Exchequer emphasising the need for “a fair approach to the application of Barnett in relation to rail funding”.
With a change of tone from UK Labour in Government, it’s not clear whether any shortfall will be addressed. The First Minister told Plenary on 19 November:
….I haven't given up on making sure that we get additional rail infrastructure funding from the UK Government. I'm not giving up; I'm standing up. Every single time I see Keir Starmer, I bring this issue up. I've made it clear to him that I will not stop bringing it up until we have fair play on this issue.
People in Wales will watch closely for results from this pressure.
Article by Andrew Minnis and Christian Tipples, Senedd Research, Welsh Parliament
