The Finance Committee undertook an inquiry into best practice budget processes to ensure that effective budget processes are in place for the scrutiny of the financial powers contained in the Wales Bill.  The inquiry was undertaken in two parts and Committee focussed on:

Part 1 – Budgetary best practice and its applicability to Wales – completed July 2014

• International best practice for financial accountability and budget processes, particularly in devolved administrations
• Opportunities for the budget processes to incorporate new concepts - such as preventative spending, less restrictive annual budgeting, and programme/outcome- based budgets.

To inform its approach, the Committee specifically sought views on any or all of the following points:

International best practice – What are the principles of fiscal accountability? How do other countries achieve devolved financial accountability while retaining central fiscal control? 

Are the devolved powers tailored to the Welsh devolution settlement – as the powers in the Wales Bill are based on those in the Scotland Act, does this create unforeseen problems in Wales?

Linking budgets to outcomes.  What new budget procedures are needed to improve the links between policies, spending programmes and outcomes? How would outcomes generated by the UK Government and the global economy be identified separately from those generated by local Welsh Government policies?

Part 2 – Planning and implementing new budget procedures – on-going

• Financial control –outlining the budgetary mechanisms which will control the new tax and borrowing powers, and how these impact on the Welsh block and the Welsh economy.  In particular, how the Holtham Commission recommendations will be met.
• The implementation of new budget procedures to reflect the additional powers.

Tax and borrowing issues identified in the Holtham Report; e.g. the impact on the block grant and the ‘indexed method’ for adjustments; the basis of the devolved taxes; the lack of a needs based floor; no clear resolution of ‘convergence’ issues; what is the tax yield and what borrowing could be made against this income; what would be the basis of any new taxes and will they be governed by principles or rules?

Managing budgetary risk - what additional budgetary risks are introduced by the new powers and how will these be monitored and managed (e.g. how are shortfalls in revenue managed)?

How can the new budget processes be made transparent and understandable to all stakeholders, and how can stakeholders engage and participate in the budget process.

UK budget planning - how does the Assembly work with Welsh Government, UK government and other public bodies under the new arrangements; how should the budget process be timetabled to meet Welsh and UK Government requirements (e.g. UK spending reviews)

Implementation – how does the Assembly formally implement the devolution of the financial powers; how does the Assembly scrutinise, approve and monitor the Welsh Government’s annual tax, borrowing and expenditure requirements; how does Welsh Government seek approval for new tax and borrowing powers from HM Treasury, and what role should the Assembly have in agreeing such changes.

Evidence from the Public

The Committee held a consultation to gather evidence on Best Practice Budget Process.