It's our money: HS2, the Barnett formula, and the threat to Welsh democracy

Yesterday’s announcement from Whitehall that HS2 would proceed – at an estimated cost now of £100bn, a figure that seems likely to rise substantially – has opened a wide fault-line about the future of Wales and Welsh devolution.

As Plaid Cymru MP Jonathan Edwards argues persuasively in a piece in Nation Cymru, the issues for Wales are simple. HS2 is classified as a project that benefits both England and Wales, and therefore Wales will not receive any consequential funding as a result of the Barnett Formula, which provides that increasing public expenditure in England will be reflected in an increase in Westminster funding for Wales. This is despite the fact that not a centimetre of HS2 track will be laid in Wales and economists estimate that HS2 will actually damage the economy of South Wales – to the tune of £150m per year; the justification is that it will be possible to get a connecting service from Wrexham to Crewe, which some would regard as a pretty desperate piece of post-hoc rationalisation. It looks especially threadbare when one considers that Scotland – which will potentially benefit from substantially reduced travel times to London – will receive Barnett consequentials.

The loss in Barnett consequentials is likely to be around £5bn – assuming the £100bn overall cost of HS2 is correct (and it seems reasonable to expect it will come in above that).

All of this matters, not just because of the loss of £5bn of desperately needed funding in the poorest country in Northern Europe, whose economy is blighted by notoriously inadequate transport links. It throws into sharp relief issues that are beginning to emerge about the future of devolution itself.

First, it is a reminder that the Barnett Formula is no more than a convention. It has no force in law, and only exists as long as the Treasury in London allows it to exist. The Treasury could announce tomorrow that it was over and the Welsh Government could do absolutely nothing about it.

And politically, it’s essential to remember two things: first, that the new Tory government, faced with the austerity that will inevitably follow the hard Brexit it now appears to be pursuing, will be under huge pressure from its new North of England Tory MPs to protect spending in their areas, in line with Boris Johnson’s rhetoric about promoting the North of England. The convention that automatically uplifts Wales’ spending settlement is bound to be under political pressure in these circumstances.

Morevover, Wales has recently been granted tax-raising powers. There is a close fit with the Cameron governments’ localism agenda, which in theory granted extra revenue-raising powers to English local authorities through retention of business rates, but in practice became a rationale for cutting central Government funding: the message was, you can raise the money locally so we don’t need to fund you.

So there is a clear rationale emerging in which Welsh political institutions continue to take the responsibility for providing services but are systematically starved of the resources to do so; the scenario facing many English local authorities but from which Wales – has to a limited extent – been protected by the Barnett formula (although it’s becoming increasingly obvious that the ability of Welsh political institutions to deliver services like health is under huge and growing pressure).

And, second, it’s essential to understand the political context in which the HS2 decisions have been taken. It was instructive to hear Boris Johnson, yet again, using the HS2 announcement to attack the Welsh Government’s decision not to build the M4 relief road around Newport. The point is that whatever one might think of that decision, it was taken in Wales by our own government; Johnson and Westminster have absolutely no jurisdiction. here.

Added to that is the huge pressure that Brexit – especially the hard Brexit envisaged by Whitehall – will place on Wales: both on our economy and on our political autonomy. The effect of a hard Brexit will obviously be catastrophic for Wales; the Government’s own estimates suggest a 7% fall in GDP across the UK as a whole – similar to what Spain and Ireland experienced in the Eurozone crisis. Wales, because of our economic structures, is far more vulnerable than many parts of the UK. And the EU withdrawal legislation means that over areas determined by Whitehall fiat to be part of the UK single market, it will be far more difficult for the Welsh Government to act, least of all to mitigate the effects of Brexit on either the economy or essential quality-of-life issues like the environment or food standards.

In other words, the HS2 decision is a reminder that the cumulative effect of Boris Johnson and the Conservative Party’s attitude towards Wales – including its attitude to Brexit – is to undermine fatally both our political institutions and our ability to finance our own public services; it is essentially a denial of service attack on Welsh democracy. And anybody on the progressive side of Welsh politics has to understand that the HS2 decision exposes clearly the ruthless determination of Tories, ultimately, to ensure that Wales learns its place and takes its medicine.

So where do progressives start to fight back? One of the complaints that one hears on the progressive side of politics is that we don’t have the three-word slogans that Boris Johnson and his minders used so devastatingly in the EU referendum: “take back control” and “get Brexit done”.

So here’s one for Welsh progressives: “its our money”. And let’s use this as a reminder that achieving progressive politics in Wales is intimately bound up with developing constitutional arrangements that are fit for purpose, robust and not subject to Whitehall whim.

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