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Fiscal framework

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With the devolution of tax powers to Wales, the funding arrangements for the Welsh Government will change.

From 2018 tax revenues from the new devolved taxes will directly fund public services in Wales.

In December 2016  new funding arrangements were agreed with the UK government under a new fiscal framework.

New funding arrangements

Under the new arrangements both governments have agreed Wales will have a fair level of funding for the long term.

  • Changes to the Barnett formula with a new needs-based factor set at 115%, as recommended by the Holtham Commission to reflect the characteristics of the population in Wales
  • The National Assembly to be able to set Welsh rates of income tax from April 2019 (subject to the passage of the Wales Bill and the Welsh Government setting out its intention to introduce Welsh rates of income tax to the National Assembly)
  • A block grant adjustment that reflects the income tax base in Wales 
  • Increased capital borrowing powers - the Welsh Government’s overall capital borrowing limit will be increased to £1bn and the annual limit to £150m. 
  • Creation of a new Welsh cash reserve – operating as a 'savings account' to help the Welsh Government manage budget fluctuations resulting from tax devolution 
  • Independent oversight – a role for independent bodies to provide input into disputes between the Welsh and UK governments on matters relating to the fiscal framework.

The process

The framework was agreed by the Welsh Government Cabinet Secretary for Finance and Local Government and the UK government Chief Secretary to the Treasury, meeting as the Joint Exchequer Committee.

The committee first met to negotiate the new fiscal framework on 28 September 2016. The committee will continue to meet in the future to review the implementation of the devolved tax and borrowing powers and operation of the fiscal framework. A summary of each meeting will be published.