Hey, Andy, Wales is in desperate need of full rail devolution…..please can you sort ASAP!
I thought a quick up to date review of the challenges of rail devolution and a quick reflection on the latest analysis of UK Government rail funding in Wales just published by the Senedd Research Team. Spoiler, I did a lot of that work and made every effort to be as accurate and objective as possible. Also, to help validate the findings, the main organisations – so HM Treasury (HMT), Welsh Government (WG), Transport for Wales (TfW), UK Government Department for Transport (DfT), Office of Road and Rail (ORR), Transport Scotland – were all invited to contribute, review, comment, and correct any inaccuracies in this report. Apart from minor comments, etc none offered any major changes or corrections.
The headlines of that report (linked above) are:
- From 2009-2025 circa £94Bn was invested in rail enhancements across GB
- Of that total, £44Bn was for HS2
- Total UK Gov rail enhancement expenditure in Wales over that period was circa £1.2Bn (~1.3%)
- WG actually funded circa £1.4bn over the same period
- That WG funding has had to come from a block grant for devolved functions that has no provision for rail; in effect WG has had to use funding meant for health, education etc to make up the UK Government shortfall
- Had Wales received just a 5% population share (and see below, an equitable settlement may need to be higher for good reason) then we would have seen over £3.4Bn more over that 17-year period (circa an additional £200M pa)
- Under the current arrangements this funding dysfunction is set to persist
- To note, the £14Bn of political commitments ti further rail investment in Wales is just that, it is a (welcome) political statement. However, HMT in the last spending review, allocated just £300m to Wales vs £34Bn to England. The next CSR will be the acid test.
For me, this constitutional dysfunction is undefendable and need to be addressed ASAP.
So should we devolve rail.
Well, clearly, we have a problem – and the systemic underfunding has had and continues to have a very substantive impact on WG finances. However, as I am sure previous WG Ministers have found, Wales has limited leverage in any negotiations with HMT and DfT. Furthermore, in my view, any deal has to go beyond just a 5% population share.
I would also recommend readers familiar themselves with the details re how the Barnett formula works, the comparability factor, how it is calculated etc (as set out in the report linked above) before getting into the following.
One key point I also like to restate, and this often gets lost in translation. It’s not just about HS2 – it’s all rail funding. The way Barnett works currently (and this could be changed) means that just focussing on HS2 undercooks the amount of underspend in Wales very significantly as making HS2 “England only” will only change the comparability factor from 33% to about 52%. (Again, please see explanation in the Senedd paper for the details). The Mark Drakeford letter (see report linked above) on this matter showed a £431M gap (for the period 2016/17-2024/25) if HS2 was defined as “England only” under the current non-devolved arrangements. However, this figure would be circa £1.5Bn if rail was fully devolved. Furthermore, Barnett allocations have also been squeezed given HS2 has also resulted in reductions elsewhere in the DfT budget, reducing the scale of Barnett adjustments in any case.
What happens if rail is devolved and the key issues to address
If, as it should, rail is fully devolved, then any future changes to the DfT budget could be subject to a more equitable Barnett adjustment and a 90%+ Barnett CF. In so doing, the more challenging issue is how the block grant should be adjusted to reflect these new devolved powers. How should it be calculated? And how does this impact future Barnett adjustments? This does not necessarily need to be related to the population, other factors are relevant, for example:
- The Wales and Borders Route is circa 10% of the UK rail network (and circa 8% of the track) and includes some sections in England (Marches Line, Severn Tunnel).
- Should the Severn Tunnel be included? This a piece of UK strategic cross-border infrastructure that may merit different treatment.
- The NR Wales and Borders Route has supported the UK economy for 200 years.
- Its condition, one might argue, is more depreciated than other parts of the UK network, and that depreciation has been built up over those 200 years – not the last 25 since devolution.
- It is more exposed to unsighted issues and liabilities and to the need to mitigate climate change impact. For example, it is understood that on the CVL, rain intensity measurements (which are monitored) have already exceed expectations for 2040 in 2025. Rainfall intensity and the susceptibility to unsighted issues is an increasing challenge – and one with ongoing costs implications.
Based on this, it could be argued 5% of GB expenditure may not be a sufficient basis to calculate a block grant adjustment; rather it may form the baseline for a more protracted and bespoke negotiation.
Just looking at the CSR publications last year and combining the committed annual expenditure to HS2 and NR, one can see a total of £23Bn. A 5% allocation of this total to adjust the block grant would be circa £1.15Bn pa; 10% would be circa £2.3Bn
Wales is supposed to be part of an equitable union where more nuance can and should be applied in situations like this.
Also, if WG did take full responsibility for rail it would have to fund not only the full costs and enhancement to the CVL and Wales and Borders Route, CVL OMR, but also the OMR already associated with NR Wales and Borders Route – which is currently circa £400-500m per year. (OMR is Operations, Maintenance and Renewal spend – which is different from enhancement, again see full report for explanation)
One might include the entire Marches line given its strategic importance to Wales and the reality that WG are much more likely to invest to enhance the Marches line than the DfT. If I was living in Shrewsbury or Hereford, I would get behind this!
Finally…
The UK Rail industry and ecosystem is going through its biggest upheaval in 30 years as part of the GB Railways Bill. This is a generational opportunity to get it right. However, that bill falls a long way short of what Wales needs. The bill needs a radical overhaul and include the full devolution of rail powers and funding to Welsh Government (and a NR Wales and Borders organisation subordinate to and eventually to merge with, Transport for Wales to create a vertically integrated organisation like GBR in England!). This needs to be accompanied by a block grant adjustment and bespoke Barnett arrangement that reflects and accommodates the considerations I set out above….
An interim alternative to a fully devolved settlement would be for WG to agree with the UK Government a dedicated line in the DfT budget for Wales rail enhancements (separate from the current England and Wales “Rail Network Enhancement Programme – RNEP) that is more proportional and transparent, which is not the case currently. I think a minimum of £450m pa is a reasonable ask, which is circa 5% of the current annual enhancement total (circa £9~10Bn) across GB.
I think WG should be pretty vocal about this and robustly make the case to Westminster and Whitehall – no pussy footing around for incremental changes, we need a radical intervention that is fit for purpose. If Andy Burnahm is serious about constitutional reform, and taking power out of Whitehall, this should be centre stage for his new Government. If not, then he will rightly be accused of engaging in performative politics.
Show us what you are about Andy! Let’s fix it once and for all!