SCOTLAND, Wales and Northern Ireland need more financial powers to deal with future crises, influential economists say.

Westminster must learn Covid-19 lessons and equip devolved governments for the longer term – and Omicron proves it, according to new research published today by a trio of experts.

This includes major reform of the devolution settlements to give Holyrood, the Senedd and Stormont enhanced borrowing powers on top of minimum funding guarantees to give financial headroom above the Barnett formula allocation. This, it is argued, would stop devolved leaders having to play catch-up after England's figures are worked out.

Welcomed by Kate Forbes, it also includes new measures to allow furlough and self-employment support to be offered on a geographical basis, something that's currently not allowed.

David Phillips of the Institute for Fiscal Studies (IFS), David Eiser of Fraser of Allander Institute (FAI) and David Bell of the University of Stirling say there is a "case for a modest extension to the scope and scale of the devolved governments' borrowing powers in 'normal' times" to respond to unforeseen events, and that "even fairly substantial borrowing by the devolved governments would have little impact on the UK's borrowing and debt".

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A discretionary limit of 1% of the resource budgets open to devolved administrations would "provide useful additional flexibility" and avoid concerns about any unfairness arising from England's inability to do the same, it is suggested.

There is also said to be a case that funding guarantees could be used in future to provide extra up-front cash and security, but this risks a "significantly larger" funding increases than in England in normal years.

Meanwhile, there should be a permanent uplift to £600 million in the Scottish Government's annual borrowing limit for addressing forecast errors, with an equivalent for the Welsh Government, it is argued, with drawdown limits faced by these administrations "potentially abolished" to give them greater use of reserves.

Eiser said: "Currently the devolved governments cannot borrow to fund discretionary resource spending. There is a strong case to change this on a permanent basis to provide them with additional flexibility to respond to unforeseen events.

"Set at a modest level, such as 1% of their resource budget, this would pose no meaningful risks to the UK Government’s overall fiscal stance or fiscal targets. For similar reasons, there is also a good case for extending the devolved governments’ existing – and very restrictive – drawdown limits from their reserves."

Part of a research response to the Covid-19 pandemic, the Economic and Social Research Council-funded paper also calls for a reformed Joint Ministerial Committee and change in culture at Westminster and the devolved legislatures to improve the workings of government.

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It states: "Improved collaboration between the UK and devolved governments could help identify how a shock is impacting (or is likely to impact) across the nations of the UK, and inform the design of an appropriate fiscal response.

"A genuinely collaborative approach, aimed at forging consensus, would also provide greater legitimacy to any decisions taken, which could be important if a shock is affecting part of England particularly badly and it makes sense to top up only England’s funding."

Bell stated: "It is not only the fiscal frameworks where change could be beneficial. Effective communication and coordination between the UK and devolved governments is vital for effective policymaking given the interactions between funding and policy decisions taken by these two levels of government.

"There were improvements during the early stages of the Covid-19 pandemic but stakeholders have told us these have not been sustained.

"Sustainable improvements will require a strengthening of formal arrangements for coordination and communication such as the Joint Ministerial Committee. But culture change is also important.

"While there will always be genuine disagreements between governments with different priorities, both the UK and devolved governments should aim for a consultative and collegiate approach to issues where their funding and policy decisions interact."

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Phillips commented: "With the Omicron variant of coronavirus surging across the UK, it is vital to learn lessons from earlier waves of the pandemic for the devolved governments’ funding arrangements.

"If new policy and spending announcements start to come in quick succession, the devolved governments should swiftly be given some combination of the funding guarantees successfully deployed last year, and/or enhanced borrowing powers, to allow them to respond in a timely and effective way.

"Without such measures, they could find themselves uncertain about how much funding will be available until announcements are made for England, potentially holding up policy development and implementation."

A Treasury spokesperson said: "The UK Government has worked closely with the devolved administrations throughout the pandemic and continues to do so.

"The UK Government’s £400 billion Covid support package has supported people, businesses and public services in all parts of the UK, and we have just made £860m of additional funding available to the devolved administrations to use how they see fit when tackling Covid-19.

"The Statement of Funding Policy for the devolved administrations was updated in October and a review of the Scottish Government’s fiscal framework is due to take place next year."

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Forbes, Scotland's Finance and Economy Secertary, responded: "The pandemic has brought in to sharp focus the need for additional fiscal flexibilities for the devolved governments to be provided on an ongoing basis - including greater borrowing powers, reserve limits and year-end flexibility.

"Disputes over Covid funding from the UK Government shows exactly why the current arrangements do not work for Scotland and that we need more financial powers, including enhanced borrowing capabilities, to implement appropriate support measures during the pandemic.

"Additional flexibilities would allow the Scottish Government to mobilise and deploy funding in an effective and efficient way to support our businesses and citizens. The reserve and resource borrowing powers in the fiscal framework are insufficient to deal with the volatility inherent in its operation.

"Recent UK Government funding announcements have been unclear about the extent of new funding over and above previous indications.

"We urgently need the UK Government to confirm what additional funding is coming to Scotland and how much of it will have to be repaid in future."