Fiscal Framework

16 January 2017

Article by Martin Jennings, National Assembly for Wales Research Service

View this post in Welsh | Darllenwch yr erthygl yma yn Gymraeg

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Mark Drakeford, the Cabinet Secretary for Finance and Local Government, will make a statement in plenary regarding the Fiscal Framework on 17 January.

This fiscal framework was jointly announced by the UK and Welsh Governments on 19 December following months of negotiations.

The framework is of vital importance to Wales as it will determine both how the block grant is adjusted following the devolution of taxes in 2018 and how these adjustments are made in future years.

The Welsh Government had previously stated that the Assembly should not consent to the Wales Bill before such an agreement on long-term funding and that this agreement must incorporate an allowance for relative needs in Wales.

The Finance Committee held a scrutiny session with Mark Drakeford on this Framework on 11 January 2017. The Cabinet Secretary stated that the fiscal framework is “no longer an impediment” to Members voting for the Wales Bill.

The Cabinet Secretary also quoted two sets of modelling assumptions they had undertaken that suggested Wales could be £500 million or £1 billion cumulatively better off as a result of the Fiscal Framework agreement over the next 10 years.

Some key points in relation to the Framework are:

  • Inclusion of a new needs-based factor set at 115% for adjustments to the Welsh block grant, through the Barnett formula.
  • Assembly able to set Welsh rates of income tax from April 2019 (subject to passage of Wales Bill and Welsh Government policy).
  • A block grant adjustment reflecting the different income tax base in Wales.
  • Increased capital borrowing powers from £500 million to £1bn.
  • Creation of a new Welsh cash reserve with more flexibility than the current Budget Exchange System.