News of the penalty came in a letter from Edwina Hart, assembly minister for finance, local government and communities. She explained that, under the statement of funding rules adopted by the UK government, the treasury had decided to adjust the assembly's budget for 2002-03 because the average council tax increase for 2000-01 exceeded the ceiling of 10.7% that had been agreed in 1998 by the secretary of state for Wales and the treasury. The adjustment is in respect of council tax benefit subsidy which is paid by the UK government.
Commenting on the treasury's decision, Sir Harry said:
'The WLGA regrets that the treasury has decided, so long after the event, to impose this penalty on Wales. As far as the association is aware, it is the first time that the UK government has imposed a financial penalty on one of the devolved administrations. The event is therefore of constitutional significance. However the size of penalty is anything but significant in the context of the UK government's finances or compared, for instance, to the billions of pounds it has spent on tackling foot and mouth disease. The treasury could have chosen to ignore the matter.
'The UK government planned for council tax in Wales to go up by 10.7% in 2000-01, well ahead of the increases in England and Scotland. The people of Wales already had a higher price to pay. The treasury's decision now means that local services could suffer unnecessarily. The consequence is that the assembly will provide less funding to local government in 2002-03 - the equivalent, for example, of the salaries of four teachers in Monmouthshire, three teachers in Torfaen and two police officers in each of the four police authorities.
'The UK government should think again.'
Paragraph 5.3 of HM treasury's 'Statement of Funding Policy' (July 2000) states:
'Specific rules are as follows:
i. Council Tax Benefit adjustments: if, due to decisions by the Scottish Parliament or the National Assembly for Wales or their respective local authorities, the costs of Council Tax Benefit subsidy paid to local authorities changes at a disproportionate rate (both higher or lower), relative to changes in England, then appropriate balancing adjustments will be made to the relevant devolved administration's Departmental Expenditure Limit. In such cases the Government applies a formula to calculate balancing adjustments based on relative percentage changes in Council Tax.'
As part of the Comprehensive Spending Review in 1998, the secretary of state for Wales and the treasury planned that council tax in Wales would go up by 10.69% in 2000-01 and 9.99% in 2001-02.
Edwina Hart wrote to Sir Harry on 28 August. The proposed reductions in revenue support grant for 2002-03 are as follows:
County and county borough councils
Dyfed Powys £64,000