Wednesday, 7 March 2012

Give us some cash

It’s a fact the Welsh Government can’t borrow. The Scottish government and the Northern Irish government can. 
The history of devolution in Wales has been that of catch up. Wales trying to catch up with the powers given to Scotland and Ulster. The needs of Wales were never taken seriously by the then Blair Labour government. 
Indeed the initial devolution settlement was an off the shelf bill that had been put on the shelf in 1979 when the first referendum on devolved government was rejected by Welsh voters. 
What was on offer in 1979 was limited, what was passed in 1997 was also limited. It took until last year to get law making powers and the Assembly is still without any fiscal powers. The Silk Commission is looking at this area, but the Welsh government is now pushing the Treasury for borrowing powers.
It has dawned on Carwyn Jones and his team that in these tight financial times that the only way to get essential capital schemes off the ground is to borrow money. Unless they get these powers, Wales is disadvantaged. The other nations of these isles are pushing ahead modernising their infrastructure whilst Wales looks enviously on. 
But the recession and the cuts have caused government and opposition to look for ways to get round Treasury’s rules. Both government and Plaid Cymru are trying to get round the borrowing ban by piggybacking on organisations that can raise the cash. And who do they have in their sights? Well, local councils and housing associations.
The latest example of this kind of thinking comes from Plaid Cymru. In an Assembly debate they offer up the idea of a £1bn short term fiscal stimulus. 
Alun Ffred Jones Plaid Cymru’s economic spokesperson reckons the money for this is going to come from “a Build4Wales style investment vehicle as proposed by Plaid Cymru which could carry about £500m worth of projects and an urgent commitment to revise and expand the local authority borrowing scheme to £350m. A similar programme for tapping into Housing Association borrowing powers must be drawn up, which should aim to generate around £150m.”
Well, if only money followed debates and the issue of press notices Wales would be fine. Unfortunately in the real world there is no magic wand. 
There are merits to Plaid Cymru’s Build4Wales idea but it ain’t up and running and would require Treasury to give its blessing. Treasury is not known for its sense of urgency.
Local authorities can and do raise money.   But this year their borrowing has already seen an 80% increase. It is debatable whether they’ll want to raise more loans.

Now housing associations have not only been fingered by Plaid but also the government as a means of raising cash. Civil Servants have been targeting them as a potential means of raising money not for housing but for other projects, such as school. 
Forget whether these charitable bodies should be raising money for ends other than housing. Those making the approach show a worrying degree of naivete in their understanding of accounts.
Most housing associations in Wales are already in debt. Debts they’ve occurred in raising private finance to build houses for those in need. They pay off these loans from the rent they collect. But with the cuts in housing benefit there are serious concerns within many associations about the future state of their balance sheets. 
The technical term is gearing. At the moment most associations are near their maximum gearing ratios. In other words, they can’t raise the cash that the government and Plaid would want to get their sticky hands on.
Of course, government could step in and guarantee new loans, but why should associations borrow money for schemes that are non-housing when there is a large housing need out there. 
If government or Plaid Cymru, for that matter, want to give the economy a boost, let it be by allowing housing bodies to build what they’ve been set up to do - houses.                         If Welsh politicians want money for roads, rail and schools, let them redouble their efforts to get Westminster to give Wales the powers.  Wales mustn’t always be disadvantaged because of the way politicians sold the country short in the original devolution settlement.


  1. My patience with the Assembly is at an end. I have never seen a more useless group of individuals in my entire life. If this is the best that Wales can offer then let's close down Wales!

    As for Wales needing more money, enormous sums were spent during the last decade. And to what end? Quite. So why repeat the disasters of before.

    The Economist had an interesting article concerning education in Wales. I would urge all those that are educating their kids here to read this article. Condemn yourself to a lifetime of grime if you wish but please demand better for your kids. And start demanding now.

  2. On a specific point: Many housing associations are getting Social Housing Grants from the Assembly to build new housing, so they're taking no risk for a guaranteed return in the form of (very high) rents. How many housing associations are using their own reserves to take risks in providing for housing need? They're unaccountable and hugely influential bodies that do not impress me with their track record.

    On the broader point: It's good that Carwyn and Gareth are coming round to the need for proper devolution. The begging for crumbs from the table devolution we've had so far has outlived its usefulness and we need to start thinking seriously about fiscal powers being devolved to Wales.