The Senedd will debate the Finance Committee's report on Financial Transactions Capital (FTC) on 29 January. This article examines how FTC works in Wales and the findings from the Committee’s report.
What is Financial Transactions Capital (FTC)?
Financial Transactions Capital is a ringfenced element of capital funding, which is provided by the UK Government as part of the Welsh Government’s block grant.
It’s sometimes called “net lending” or “policy lending” and includes loans or equity investments by devolved administrations into the private sector.
The majority of the FTC portfolio is managed by the Development Bank for Wales (DBW) on behalf of the Welsh Government.
The Finance Committee carried out a short inquiry into FTC to better understand the rules governing FTC, how it is used by the Welsh Government and the strengths and weaknesses of FTC.
How does Financial Transactions Capital funding work?
FTC funding must be repaid to HM Treasury, it differs from capital grants in that:
- FTC is expected to generate a financial return.
- FTC can only be given to entities outside of the Welsh Government’s accounting/budgetary boundaries, for example a business or charity.
- any borrower of FTC is expected to repay funds in full to the Welsh Government, and the Welsh Government is expected to return at least 80% of the fund to HM Treasury.
The Welsh Government says that, as a result of changes to the Consolidated Budgeting Guidance and Statement of Funding Policy (following the 2022-2023 UK Spending Review), it is in the process of reforming how FTC is managed and allocated. The changes are expected to have an impact from the 2026-27 Budget process.
What are the strengths and weaknesses of FTC?
The Welsh Government explained to the Committee that FTC allows the Government to “act in effect as an Angel Investor, aligning social objectives with long term investments” and in some cases funds can be recycled.
This recycling means that repayments of loans devolved administrations receive can be “recycled indefinitely into new loans by the devolved administrations”.
As of 2022-23, the Welsh Government says it has received £1.1 billion in FTC repayments and repaid a total of £372.2 million to HM Treasure, thus recycling over £695 million of repayments into other projects.
The Development Bank of Wales noted that FTC is beneficial in terms of funding certain areas which may not receive commercial lending support from banks, for example care homes.
However, using FTC was described as operating in a “straightjacket of rules” by the Cabinet Secretary for Finance and Welsh Language, as it can only be used for particular purposes and organisations. The length of time to apply for FTC funds was raised by stakeholders as a drawback and a “lack of clarity” was also noted about FTC and where it comes from.
The Cabinet Secretary stated that the way FTC is allocated from the UK Government to the Welsh Government is highly uncertain as:
…every year there is uncertainty, because we don’t hear until the autumn statement how much financial transactions capital is coming our way, and we have that short gap between the autumn statement and our own draft and final budget in order to show how we are going to use the quantum that we now have.
Barnett consequentials also impact the management of FTC as the Welsh Government receives funding related to schemes in England based on English risk profiles and repayment terms.
However, the Welsh Government portfolio differs significantly from the UK Government which the Welsh Government says “makes Barnett applied to changes to the UK [Government] portfolio a particularly random way” of determining changes to the Welsh Government’s FTC budget.
How is FTC used by the Welsh Government?
The Welsh Government FTC portfolio is comprised of a mixture of “economic and housing investments with a small education investment through the Mutual Investment Model”.
The majority of the portfolio is managed by the Development Bank for Wales (DBW) on behalf of Welsh Government. As part of the relationship with the DBW, the Welsh Government says it’s the responsibility of the relevant policy department to manage their respective portfolio.
The DBW has deployed over £1.1 billion in FTC spread across a range of sector and generalist funds. According to the DBW this is “meeting an extensive range of needs for loan and equity finance on commercial terms”.
The Cabinet Secretary identified housing and the economy as the “biggest users”, and highlighted social justice, higher and further education and renewable energy as other sectors that have come to use FTC over time.
A breakdown of FTC allocations, by department and relevant scheme, has been provided by the Welsh Government as part of the documents supporting the Draft Budget 2025-26.
What did the Committee find from the inquiry?
The Finance Committee concluded that FTC is “an useful tool, but that the Welsh Government’s ability to maximise its effectiveness is hampered by the uncertain nature and strict rules around its use which are set by centrally by the UK Government”.
The Committee made 15 recommendations to the Welsh Government, including:
- Publishing disaggregated FTC data alongside Draft Budget Documents from 2025-26 onwards;
- Clarifying how much FTC is recycled each financial year in the Draft Budget;
- Providing an update on the progress of discussions with HM Treasury regarding FTC reform;
- Conducting an analysis of the use of FTC, by sector, and presenting those findings to the Finance Committee.
The Welsh Government accepted all of the Finance Committee’s recommendations (either fully or in part), and said:
The Welsh Government has already made steps to improve its processes and to increase transparency around the use of FTC. The 2025-26 Draft Budget included a greater level of detail on FTC than previously been provided at the draft stage in order to facilitate effective budget scrutiny. We will continue to make improvements, and I welcome the contribution the Committee’s report makes to this work.
If you’d like to know more about FTC and the Committee’s findings, you can watch the debate live on senedd.tv on 29 January.
Article by Božo Lugonja, Senedd Research, Welsh Parliament
