Cai Parry-Jones is Reform’s Shadow Finance and Government Efficiencies Minister and Senedd Member for Caerdydd Ffynnon Taf
Over the past few years Cardiff Council has had quite the splurge. They have been spending big on new projects. This includes a new 16,500 capacity arena, Cardiff Bay Arena, for an estimated £280 million, acquisition of an indoor leisure and entertainment complex, the Red Dragon Centre, for £55 million, and a new council headquarters for £118 million.
However, like all good times, it appears that the era of spend now, pay later, has come to an end for the council. The era of pay now has arrived.
Last week a BBC Shared Data Unit analysis projected the Welsh capital’s local authority will have a funding gap of £43.8m for the next financial year, the largest for any council in Wales. As a consequence the council has acknowledged they will need to take difficult decisions in order to close the gap. A spokesman for the council said “The intention is to avoid making reductions on core services but the size of the gap means that this cannot be counted out at this time.”
This week I spoke to the new leader of Cardiff Council, Councillor Chris Weaver, who said interest on debt for their existing portfolio was around £50 million a year. In other words, this funding gap could have been entirely avoided had the council spent within their means and avoided debt interest payments. In fairness to Mr Weaver, he wasn’t the leader at the time of making these big ticket spends. But in fairness to the unhappy residents of Cardiff, he was the Cabinet Member for Finance for the council at the time.
How Cardiff Council dig themselves out of this hole, whether through cuts to public services or higher rates of council tax, I am not sure. However it is dealt with, the people of Cardiff will bear the brunt of the Council’s irresponsible borrowing.
Unlike Cardiff Council, the Welsh Government is not in a bad position when it comes to public debt at the moment. The estimated debt repayment costs for the current financial year is £39 million. Given their budget is roughly 28 times bigger than that of Cardiff Council, this sum is considered relatively small. As a result, more of the Welsh Government budget can go towards spending on things that make an impactful difference to people’s lives today—school repairs, nurses, road maintenance etc.— without much risk that tomorrow’s budget will have to be sucked up by more and more debt repayments.
This sustainable spending from the Welsh Government, however, is not due to prior governments’ financial prudence, rather it’s because they had been limited to a strict borrowing limit from the UK Government. The current devolved system means the Welsh Government legally can’t borrow more than £165 million on capital expenditure in any financial year, and the total amount of debt can’t be greater than £1.1 billion. In contrast, councils in Wales have no annual limit in borrowing, and Cardiff Council only have a self-set limit on total debt of around £1.7 billion.
There is a debate to be had on why councils have more borrowing powers than the Welsh Government. However, I believe it’s a dangerous thing to think more powers for the Senedd in this domain is a good thing for Wales. Calling back to my time at university, there is a long list of economic literature on why uncapped government borrowing leads to bad outcomes for its country. At the risk of boiling the theories down a little too simply, here is my summary: a government is more concerned by the impact it creates in its years in office, ahead of the next election, over the financial implications decades into the future. As a result, most governments will want to borrow far more than is optimal for the country they govern because they want to take the credit for the instant spending they get from borrowing without worrying about the debt that slowly builds up over time. Historically, this has been particularly true for governments that brand themselves left-wing/socialist.
It is unsurprising then that Plaid Cymru, whose constitution brands itself as aiming for socialism, are currently arguing for significantly more borrowing powers. In their manifesto they said they wanted to triple the borrowing limit, and their Finance Minister, Elin Jones, has reiterated this call, as well as calling for “equality between ourselves and Scotland” in borrowing powers. The IFS has recently announced financial difficulties for the Scottish Government, saying services “cuts [are] looming next year”. Hardly something I would want to replicate here in Wales.
The new Plaid Cymru Welsh Government have been keen to place an emphasis on prevention in their first 100 days in office. Yet their plans for greater borrowing powers tells a different story when it comes to preventing a financial problem like that of Cardiff Council.
This is where my party comes into the article. At Reform in Wales we have always been clear that we do not want to see further borrowing powers to the Welsh Government, specifically because of the potential to be crippled by the encroaching burden of debt. Indeed, in one of my first speeches in the Senedd’s Chamber to the Finance Minister I asked:
Minister, in your manifesto, you say you want to increase borrowing powers by increasing the Senedd’s total capital debt limit to £3 billion. Reform is clear: we are against further borrowing powers, because there’s only one thing worse than having your taxes spent on tree planting in Uganda, and that’s your children being forced to pay the interest on those trees. Every pound of interest on debt is a pound that can’t be spent on future classrooms or cancer wards. That isn’t borrowing for Wales, that’s borrowing from Wales’s next generation. People like the economics Nobel prize winner James Buchanan have been warning about this issue of Government debt for 50 years. Do you accept that there could be substantial negative consequences for future generations if there is more borrowing for Wales?
The reply is not worth printing, sadly, as there was not even an attempt to answer my question, only a general cry of unfairness that their government has fewer powers than they would like; anyone who has listened much to FMQs recently will know this appears to be the go-to response from this government, whatever the question.
If the Welsh Government is keen on finding more money to spend, Reform has been leading the way for pushing them to look at reevaluating what is already being spent within their £28 billion budget. Over the summer recess I’ve been digging into some of the questionable spending, such as £840,000 this year handed over to an asylum seeker ‘Sanctuary’ charity, £600,000 provided to travellers for energy bills as part of “Anti-racist Wales Action Plan”, and over £9 million a year being spent on projects outside of Wales.
Coming back to borrowing, Cardiff Council should be read as a warning for this Welsh Government. It borrowed because it could, spent on things it could put a ribbon on, and left the bill for someone else to find. That someone is now the residents of Cardiff, who face higher council tax and fewer services to cover the debt interest. I would argue that the only thing standing between the Welsh Government and the same position is the borrowing cap that Plaid Cymru wants to triple. Wales does not need a bigger overdraft. It needs a Government willing to live within its means.