Covid shows devolved UK nations need funding flexibility, researchers say

The UK government should provide greater access to funding for the devolved administrations of Scotland, Wales and Northern Ireland that could help them to respond to crises such as the coronavirus pandemic, independent researchers have concluded.

The recommendations from researchers at the Institute for Fiscal Studies, Strathclyde university’s Fraser of Allander Institute, and the University of Stirling Management School come amid growing tensions over funding between the UK’s central and devolved governments.

Westminster’s block grants to the devolved nations are calculated using the so-called “Barnett formula”, which is based on changes to spending levels in England and allows relatively high levels of per capita public expenditure in Scotland, Wales and Northern Ireland.

In their report published on Tuesday, the independent researchers recommended that even in “normal” times, the devolved nations should be able to borrow more on their own account.

In the case of an “extreme and rapidly moving adverse shock like the Covid-19 pandemic”, a combination of funding guarantees and further expansion of devolved governments’ borrowing powers could be warranted, the report said.

“This would ensure that policymaking is not held up by having to wait until funding becomes available via the Barnett formula, after policies have been announced for England,” they wrote.

The devolved nations, which control their own health policies, have throughout the pandemic frequently been willing to adopt tougher coronavirus restrictions than has Westminster.

But the devolved authorities have repeatedly complained that Treasury funding of expensive programmes, such as the employee furlough scheme, has only been forthcoming when the UK government imposes restrictions in England.

“Our ability to provide and sustain longer-term economic support during this new wave of this ongoing public health emergency is severely constrained by the current position of the UK Treasury,” Mark Drakeford, Welsh first minister, said on Friday.

The UK Treasury on Sunday said it was doubling to £860m extra Covid funding for Edinburgh, Cardiff and Belfast. But the money will have to be repaid if UK government spending in England before the end of the fiscal year does not increase by a similar proportion.

Kate Forbes, Scottish finance secretary, dismissed the Treasury announcement as merely “advance confirmation” of funding.

“We have no means of generating vast new sums of funding overnight without [the UK government],” Forbes tweeted on Monday.

David Phillips, an associate director at IFS and report co-author, said the UK government had issued funding guarantees for the devolved administrations last year, while other countries had increased borrowing powers for devolved regions during the pandemic.

“With the Omicron variant of coronavirus surging across the UK, it is vital to learn lessons from earlier waves of the pandemic for the devolved governments’ funding arrangements,” Phillips said.

David Eiser of the Fraser of Allander Institute, another author, said the borrowing limits on the devolved nations could be loosened without any “meaningful risk” to the UK’s overall fiscal targets.

“Currently the devolved governments cannot borrow to fund discretionary resource spending. There is a strong case to change this on a permanent basis to provide them with additional flexibility to respond to unforeseen events,” Eiser said.

Asked about the report, the Treasury said its £400bn Covid support package had assisted people, businesses and public services “in all parts of the UK”.

“The UK government has worked closely with the devolved administrations throughout the pandemic and continues to do so,” the Treasury said, adding that a review of the Scottish government’s “fiscal framework” was due to take place next year.