This is the final instalment of the trilogy instigated by the Institute of Welsh Affairs debate at Bangor University where I was one of the panellists.  I have, as my loyal readers will know, written about both the taxation options and the Barnett Formula so finally here are my views on the issue of borrowing powers for the Welsh Assembly.

My initial gut feeling is to scream NO! from the rooftops.  I simply do not like to see politicians advocate borrowing powers and especially politicians with no ability to raise their own finances.  Since I have argued against taxation powers for the Assembly it would be logical to state that allowing the Assembly to enjoy borrowing powers would be wrong.  After all, if the Assembly has to live within a block grant but was also allowed to borrow then a government today could be tempted to borrow in order to implement a pet project knowing full well that the responsibility of re-paying the loan would fall on a future government.  Thus a disreputable administration could easily deliver today and pay tomorrow knowing full well that the funds to re-pay the borrowing would reduce the block grant of a future government of a different political colour.  This in my view would be unacceptable.

Therefore I can conclude that borrowing powers should not be allowed and this would be the shortest of my three part series.  But…..

The funding of the Welsh Assembly is complex.  As my discussion of the Barnett Formula showed, an increase in Education or Health spending in England will automatically result in an increase to the Welsh Assembly block grant.  We saw this yesterday.  An increase in Health spending in England announced by the Chancellor will result in an increase to the Welsh block grant of around £48million (which will not need to be spent on health but allocated in response to the priorities of the Assembly Government). 

Now the situation becomes complicated if the Westminster Government decides to undertake capital spending on a devolved area such as health or education rather than revenue spending.  What this does is to automatically provide the Welsh Assembly with an increase in the capital spending budget whether it had been planned for or not.  In the same way, a reduction in capital spending in England would result in planned spending on capital projects in Wales being starved of funds.  This situation is not ideal.

I therefore conclude that there is an argument for limited borrowing powers for the Assembly but only in relation to the Capital spending budget.  Good governance demands planning and the efficient use of capital budgets should be based upon a detailed long-term strategy.  In this context and in this context alone there is a case to be made to provide the Assembly with limited medium term borrowing capacity within their capital spending budget.  Such powers would avoid the irresponsible spending I highlighted in my second paragraph above whilst allowing fluctuations to the capital budgets of the Welsh Assembly to be smoothed over to a more regular income stream.

My views on this issue as with the Barnett Formula and Tax Raising Powers are attempting to provide a basis for discussion about the way in which we can make the Welsh Assembly work better for the people of Wales and whilst I aspire to be the first MP for the Aberconwy constituency I know that serving the people of Wales also means having an Assembly that works.  The need for a more regular and less fluctuating capital spending budget within the devolved areas of government will, in my view, lead to the possibility of a better planned and more efficient delivery of capital projects to the people of Wales.  

Guto