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Fourth, the UK Treasury controls, directly or indirectly, all borrowing on programmes controlled by the devolved
Executives: they themselves can only borrow temporarily for timing reasons; and the ‘consent’ counterpart of (borrowing
for) capital expenditure by local authorities is scored against the assigned budget. Total UK control of all borrowing
would now be justified primarily in terms of UK commitments under the EU Stability & Growth Pact, though experience of
past practices suggests that this would have happened in any case. One of the reasons why the Private Finance
Initiative (PFI) - a Treasury programme to bring private finance and management into asset provision in transport,
education and health - has been embraced in Scotland is that it is an approved route to evade borrowing restrictions.
This is despite the fact that there remain ideological and Value-For-Money (VFM) doubts. The standard justification
offered politically for the adoption of the PFI route is one of capital starvation and the non-availability of public funds; this
sits uncomfortably with concerns that the Barnett formula will in future bring convergence.
Fifth, contrary to the purposes of various EU programmes of regional support to less prosperous regions, the award of
funds from the European Regional Development Fund (ERDF) generally does not bring additional resources to the
beneficiary UK territory or region. Despite EU pressure, the UK Government has consistently argued that there is
additionality in aggregate, namely that public expenditure as a whole is higher than could have been afforded in the
absence of ERDF receipts. The most politically dramatic event connected with devolution was when Alun Michael,
having been parachuted into the Welsh Labour leadership by the Blair Government to stop Rhodri Morgan being elected
First Secretary, had to resign because he failed to deliver extra money following the acquisition by West Wales (a
strange geographic construction covering 63% of the area and 65% of the population of Wales) of Objective 1 status.16
Subsequently, Rhodri Morgan became First Secretary; the Treasury allowed funding ‘above Barnett’;17 and the minority
Labour administration in Wales followed the Scottish precedent and went into coalition with the Liberal Democrats.
Sixth, the generation of revenues plays only a small role in the devolution funding system. Alone, the Scottish Parliament
has the power to vary the basic rate of income tax, by 3p in either direction; this ‘tartan tax’ and the local authority
taxation system is discussed in Section IV. 15 16
17 The data on identifiable expenditure should always be read with awareness about the impact of non-identified expenditure on services such as
defence. Debates about the territorial pattern of defence expenditure are a telling reminder that political concerns are as often about inputs (hence
employment effects) as about outputs. When the focus is upon both expenditure and revenue, tax expenditures...
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