Devolution and the Gatekeeping Role of the Core Executive: The Struggle for European Funds

Abstract

The purpose of this article is to explore the impact of devolution to Wales on the policy control of the UK core executive. Our case study is the implementation of the additionality principle guiding EU structural funds. Successive UK governments have been reluctant implementers of this principle and have played the ‘gatekeeper’ role in controlling the financial impact of EU funds on domestic public spending. Devolution presents a challenge to central control over this policy. In this context, we seek to refine the ‘gatekeeper’ concept by drawing on the insights of the core executive approach.

Introduction

Since the establishment of the European Regional Development Fund (ERDF) in 1975, EC/EU regulations have stated that ERDF and other structural fund expenditure should be additional to planned domestic spending on regional development: the principle of additionality. Successive UK governments have been reluctant implementers of this principle and have played the ‘gatekeeper’ role in controlling the financial impact of EU funds on domestic public spending (McAleavey 1995; Bache 1999).

One explanation for this lies with the lack of decentralised governance structures in the UK that have both autonomous control over their own financial resources and the capacity to scrutinise EU and central government expenditure flows (Martin 1998).

After the May 1997 general election, the new Labour government quickly embarked upon a process of democratic devolution. In this context, we consider whether the Labour government's approach to additionality changed from that of its predecessors and what role, if any, the devolution process played in shaping this change. To date, the academic research into the additionality issue has focused upon explaining relevant and technical public expenditure mechanics (Bristow and Blewitt 1999), and articulating issues to be resolved by the UK government's Spending Review (SR) completed in July 2000 (Kay 2000). The completion of the 2000 and 2002 SRs now allow for a more complete analysis of the government's interpretation of the additionality principle and the influence of devolution on this.

The significance of this issue cannot be understood fully by simply documenting recent events. Theoretically informed insight about the changes in governance structures and the interrelationships of actors within policy networks deepens our understanding of the impact of devolution on the implementation of additionality. To this end, this article draws on the core executive approach, emphasising the complexity of networks surrounding central government and the nature of the resource dependencies that link actors within these networks. This approach highlights the tensions within the domestic polity that challenge central government's image as a unified gatekeeper seeking to resist unwanted domestic outcomes from EU policies. In short, we seek to refine the concept of government as gatekeeper by drawing on the insights of the core executive approach.

Gatekeeping

Despite the widespread use of gatekeeping as a metaphor for national government responses to unwanted developments arising out of EU membership, it remains an under-theorised concept. Gatekeeping has its origins in the work of Stanley Hoffmann (1964 and 1966), who applied the international relations approach of intergovernmentalism to the emerging European Economic Community. With considerable subsequent refinements, intergovernmentalism remains an important approach in academic debates on the EU (particularly through Andrew Moravcsik (1993, 1995 and 1999).

Hoffmann's portrayal of national governments as gatekeepers over EU policies provoked strong criticism. Carol Webb argued that:

the overdrawn, unidimensional image of national governments favoured by intergovernmentalists is inadequate and distorting. Far from being efficient and effective gatekeepers straddling the threshold between their national boundaries and the Community, national governments more closely resemble the juggler who must apply himself simultaneously to the tasks of keeping several balls in the air and not losing his balance on the rotating platform (Webb 1983, 32).

While this criticism has validity, it appears not to challenge the unidimensional nature of national governments, but rather points to the many challenges that constrain their ability to play ‘gatekeeper’ over a given issue. Our argument is that the starting point for a more nuanced understanding of the gatekeeping role is acknowledgement that the use of the ‘black box’ concept of ‘national government’ in relation to EU policies should be replaced with the concept of the ‘core executive’. This core executive approach points to challenges to the gatekeeping role arising from tensions both within central government and within the domestic polity more generally.

The core executive approach

The core executive approach suggests that the heart of government should be seen not merely as the important formal institutions, but also the networks that surround them. Within these networks, all actors have resources: political, legal, financial, informational and organisational. The extent to which different actors control these resources, combined with the way in which they are utilised, explains the relative influence of the core executive in a given situation.

In an early summary of the approach, Patrick Dunleavy and R. A. W. Rhodes (1990, 3) stated:

The innermost centre of British central government consists of a complex web of institutions, networks and practices surrounding the PM, cabinet, cabinet committees and their official counterparts, less formalised ministerial ‘clubs’ or meetings, bilateral negotiations, and interdepartmental committees. It also includes some major co-ordinating departments—chiefly, the cabinet office, the Treasury, the Foreign Office, the law officers and the security and intelligence services.

Later, Martin Smith (1999, 5) included all government departments, including territorial ministries, in a broader definition of the core executive. He did this for two reasons: ‘they are the core policy-making units within central government (Smith et al. 1993); and they are headed by ministries who are key actors within the institutions of the core executive’. In this view, political devolution to Scotland and Wales represents a fracturing of the core executive. Extant functions of the territorial ministries of Scotland and Wales have been devolved to new institutions accountable to national electorates, not to Whitehall.

This shift in functional responsibility to directly elected institutions has transferred resources of political legitimacy away from core executive ministers to members of the devolved institutions. Superficially, financial, informational and organisational resources also appear to have been transferred. However, the precise impact of devolution on resource dependencies within specific policy areas is a matter for empirical investigation. Formal institutional structures provide a framework of resource distribution within which actors operate, but do not determine policy outcomes. The effectiveness of actors is in large part dependent on ‘the tactics, choices and strategies they adopt in using their resources’ (Smith 1999, 5).

Following this, we argue that the institutional changes brought by devolution provide a challenge to the capacity of the core executive to centrally co-ordinate policies and, with reference to our case study, core executive gatekeeping over the implementation of additionality. This study focuses on the sensitive area of public expenditure control, a key concern for all recent UK governments and one which has strengthened the position of the Treasury within the core executive:

Formally, the Treasury is an economic, and not a co-ordinating department. However, the importance of its functions, the status of its ministers, and the impact it has on all other departments uniquely places it to affect the operation of the core executive as a whole (Smith 1999, 145).

Of particular importance for this case study, devolution presents an opportunity for greater ‘localised’ scrutiny of funding flows from the centre to constituent parts of the UK. In this sense, devolution raises the prospect of challenging Treasury control of informational resources, which have been central to the UK's non-compliance with additionality (see below).

In summary then, this study considers the extent to which devolution has changed the composition of networks around the additionality issue and has restructured resource dependencies to present a challenge to the gatekeeping role of the core executive. The analysis focuses on the implementation of additionality in Wales, and the structural fund region of West Wales and the Valleys in particular, because devolution here has coincided with an unprecedented increase in the scale of its EU structural fund receipts (in contrast to the situation in Scotland and Northern Ireland where EU receipts have fallen).

The additionality principle

Additionality is the principle that EU structural funds should be spent in addition to, and not replace, domestic public expenditure. This has been a requirement of EU regional funding since its introduction in 1975. For a long period after 1975 national governments sought to frustrate implementation of the principle, preferring to view structural funds as a rebate for national contributions to the EU budget. While the Commission reported satisfaction with most member states by the early 1990s (in that they were able to demonstrate that EU funding was additional to planned domestic expenditure in eligible regions), the UK government's implementation of the principle remained problematic (see McAleavey 1995; Bache 1999). As the Labour party in opposition had long criticised Conservative governments' non-compliance with additionality, the election of a Labour government in 1997 brought renewed hope on this matter to the regions targeted for EU assistance.

The implementation of additionality has to be understood in the context of the inclusion of the structural funds in domestic public expenditure totals. In the UK, EU grants are counted as public expenditure and administered centrally through central government. Therefore, before any public body can spend its EU receipts it requires permission from the centre in the form of increased ‘public expenditure cover’ (or ‘PES’ cover). In the case of the devolved administrations for Scotland, Northern Ireland and Wales, this cover is included in the block grants of public expenditure they receive from the Treasury. Annual changes in the volume of cover included in block grants is also therefore determined by the Treasury and is subject to the workings of the Barnett formula, which is the mechanism used to determine changes in the budgets of devolved administrations (see below). This cover is necessary both for the European contribution of structural fund grants and for the domestic match funding (under EU rules, domestic bodies are required to provide up to 50 per cent towards the cost of any project as a condition for EU assistance).

In the case of the UK, the main concerns surrounding the implementation of additionality have focused upon whether the appropriate amount of PES cover has been included in public expenditure allocations to the bodies receiving EU funds. Successive governments after 1975 claimed that they provided the necessary extra PES cover for structural fund spending in their financial planning. However, UK local authorities claimed that the failure to separately identify ERDF allocations in government accounts concealed a lack of additional cover (Bache 1996, 274).

The UK government's approach to additionality has been challenged both within and without the core executive. In the 1970s, as secretary of state for Scotland, Bruce Millan sought to challenge the Treasury's refusal to breach preset public spending limits to accommodate the additional spending of European funds. That Millan was unsuccessful at this time was not insignificant later when he became the European commissioner for regional policy. When taking up his Commission position in January 1989, Millan expressed the dissatisfaction he had felt towards the UK Treasury over its interpretation of additionality during his time as secretary of state for Scotland:

Every quarter we drew up a list of projects or companies due to get national assistance. We knew roughly what the UK as a whole and Scotland would get from the EC each year. So we just picked out as many projects as were needed to make up the UK quota, and sent the list off to Brussels. Back came the EC money, and the Treasury simply lopped that amount off its expenditure (quoted in Cutler et al. 1989, 92).

Soon afterwards (1991), the additionality problem in the UK grew to a head when commissioner Millan took a strong stance against the UK government's proposed arrangements for implementing the EC's Rechar programme (aimed at regenerating declining coal-mining areas).

In this dispute the Commission and UK local authorities argued that the government could not have budgeted for Rechar monies because local authority spending cover had been determined prior to the Rechar programme being announced. The Treasury denied this, arguing that it had anticipated that the programme would be announced and had built in appropriate cover for local authorities. After a prolonged struggle between the government and the Commission, during which time commissioner Bruce Millan withheld the UK share of the Rechar money, in February 1992 the government agreed to revise its arrangements for implementing additionality.

The decisive factor in the government's apparent climbdown on the issue was a cabinet split which led to negative publicity for the government on the issue in the run-up to the 1992 general election. While the Treasury position was to resist policy changes, the secretary of state for the environment, Michael Heseltine, had begun to mobilise cabinet colleagues to support a policy change. His initial targets for support were the secretaries of state for Scotland and Wales, whose territories would have benefited from genuine additionality. There was every indication that an internal memo on the matter from Heseltine to cabinet colleagues had been deliberately leaked to the press to undermine the ‘official’ Treasury-determined position. At the time, Heseltine had aspirations to succeed John Major as Conservative party leader following the April general election, the outcome of which was uncertain.

Despite this internal pressure before the election, when the new arrangements for implementing additionality were revealed by the re-elected Major government in the summer of 1992, they revealed no substantive policy change. A detailed assessment of additionality after 1992 showed little evidence of extra spending capacity in the targeted regions as a result (Bache 1996 and 1999). In effect, the new system showed additional cover for European funds, compensated for by cuts to other local authority spending cover: the net effect on spending in the regions was relatively neutral. This clever body-swerve by the government made it difficult for the Commission to take further action: technically, the government was now withholding PES cover to local authorities for domestic spending areas and on this matter the Commission had no competence to act.

This brief history of additionality in the UK pre-devolution illustrates that while the core executive's control over the implementation of the additionality principle has been challenged, it has never been seriously undermined. This leads us to the question of whether devolution has made a difference to the policy, in particular through bringing greater transparency to changes in relevant public expenditure levels in the affected regions, hitherto absent, and/or through a more effective political challenge to the core executive's interpretation of additionality through the National Assembly of Wales. To be able to assess this, it is important to outline the Commission's current approach for verifying compliance with the additionality principle.

Verifying additionality under the current programme period

For the 2000–2006 structural fund programming period, the European Commission issued detailed guidance on the baseline levels of expenditure to be included in structural fund programme documents to provide comparison for additionality purposes (see, for example, Commission 2000a). Broadly, this requires that a member state's public expenditure corresponding to a particular EU objective in the current programming period should be at least equal to that in the previous programming period (i.e. 1994–1999). These expenditure plans are to be verified at the beginning, middle and end of the period 2000–2006 to ensure that each member state maintains its expenditure. The three stages are the ex ante verification (i.e. before the approval of the programmes), the mid-term evaluation (which must take place no later than 31 December 2003) and at the end of the programme (before 31 December 2005). In order to increase transparency, the Commission has also stated that it intends to report on the results after the conclusion of each of the three stages of verification.

This new guidance does not prescribe that these baseline levels of expenditure for comparison should exclude the structural fund support provided in relevant areas under the previous programming initiative. Moreover, the regulations state clearly that additionality needs only to be satisfied for the sum of eligible regions in the member state as a whole and not for regions or localities within it (Article 11, Regulation 1260/99 EC). Notwithstanding this, the Commission has indicated that if expenditure were clearly to fall in assisted regions and localities relative to the previous programming period, it would undertake further investigation into the issue (Beschel 2000, 22). We now turn to our study of the implementation of additionality in the UK within the context of political devolution.

Devolution

Following the May 1997 general election, the new Labour government made a rapid start on its plans for devolution. Within six months of taking office the government had held successful referenda on devolution in Scotland and Wales and made progress on the creation of Regional Development Agencies (RDAs) in the English regions. From the outset, the devolution of powers to the constituent parts of the UK was explicitly uneven, or ‘asymmetrical’ (Heald et al. 1998).

Devolution in Wales

In July 1997, the new Labour government published its proposals for devolution for Wales, which were endorsed by a referendum of the electorate on 18 September 1997. The UK parliament subsequently passed the Government of Wales Act 1998, which established the National Assembly for Wales and laid out its powers and responsibilities.

The case made in favour of devolution to Wales was largely a democratic one. The establishment of the Assembly was intended to promote a more responsive, directly accountable and democratic government in Wales, and to supersede the ‘quango state’. Furthermore, the development of a framework based upon collective decisions was seen as critical for encouraging private economic activity to thrive (Mackay et al. 1997).

The devolution arrangements in Wales differ from those in Scotland (where the Scottish parliament has been granted tax-varying and primary legislative powers), and the English RDAs (which are not elected by the general public, have a narrow remit for economic development and remain accountable to central government). The assembly has no power to pass primary legislation, but has the ability to exercise powers that were previously delegated by parliament to the secretary of state for Wales, and to pass secondary legislation. The Assembly thus has the power to allocate the budget within its control, but has no powers over taxation, macroeconomic policy, defence and foreign policy, social security, or the police and legal affairs.

The most distinctive feature of the Welsh Assembly is the organisation of its executive. Initially, it was intended that the assembly would be run along local government lines, with subject committees assuming responsibility for the determination of policy. However, during the passage of the Government of Wales Bill, the opposition parties successfully argued that such a diffuse power structure would reduce the status and authority of the National Assembly. Thus, it was argued that a cabinet system of executive authority was necessary to provide effective political leadership and clear lines of accountability. However, the ‘local government’ committee system was retained to act as a counterweight to the cabinet and to fulfil a policy development (as well as a scrutiny) function. Thus, what has been created is a constitutional hybrid involving a balance of power between the executive committee (cabinet) and the six subject committees of the Assembly (Jones 1998).

The devolution settlement for Wales is thus one based on compromise and caution. The powers for secondary legislation create scope for policy innovation, but the preservation of the post of secretary of state and the retention of key policy competencies at central government level have created a ‘mix and match’ pattern in devolved powers, and significant scope for tension within the institutional architecture (Norton 1998). The outcome of the first Assembly elections in May 1999 was important in shaping future events. The result was a disappointment to the Labour government. While Labour emerged as the largest party with 28 of the 60 seats, this produced a minority Labour administration and a precarious balance of power between the executive and the subject committees (Osmond 1999).

Developments in Wales

One of the first tasks facing the National Assembly for Wales was the preparation of an Objective One programme for the designated area of West Wales and the Valleys, which required it to negotiate the tricky waters of additionality. The West Wales and the Valleys Objective One bid, which was developed by the Welsh Office, was approved by the Commission in March 1999. During the period before the establishment of the National Assembly in May 1999, responsibility for developing the programme plan in Wales (the Single Programming Document), lay with the Welsh Office and a cross-sectoral partnership body (the Wales European Taskforce). Formal responsibility for managing the programme in Wales was handed over to the Assembly on 1 July 1999.

The scale and coverage of the Objective One programme in Wales shaped the ensuing concerns about the additionality of structural fund receipts. In the 2000–2006 programming period, Objective One alone covers 63 per cent of the area of Wales and 65 per cent of the population (some 1.9 million people). This meant a significant change in the volume of structural fund monies available in Wales. The European Commission allocated £1.14 billion under the Objective One programme, almost doubling the annual structural fund allocation in Wales before 2000, from £91 million to approximately £170 million per year. By way of comparison, the Assembly's block grant in the year 2000 stood at £7.5 billion.

As noted above, PES cover for structural fund allocations in Wales is provided as part of the ‘block grant’ allocation from the UK Treasury to the National Assembly. As such, the core executive retains this power and the level of PES cover is decided within the overall framework of central public expenditure review and control. The Assembly's budget is composed of a number of separate categories of public expenditure. These are defined as Departmental Expenditure Limits (DELs) and Annually Managed Expenditure (AME). DELs cover expenditure over which government departments (or devolved administrations) have the ability to exercise control and thus for which firm three-year (SR) plans have been set. Changes in the provision for most of the expenditure items covered by the DEL, and those for which the devolved administrations have discretion to set expenditure levels (termed ‘assigned’ budget items) are determined by the ‘Barnett formula’. This formula operates by allocating a proportion of every increase in public spending on comparable programmes in England to Scotland, Wales and Northern Ireland—this ratio being based on the proportion of each country's population to the population of England. Some expenditure items within DEL (termed ‘non-assigned’ budget items), however are not determined by the Barnett formula and are specific to certain spending areas and are ‘ring fenced’. The level of expenditure for these items is determined separately by (in the case of Wales) the National Assembly, the secretary of state for Wales, the Treasury and where appropriate, the relevant department of the UK government. The AME element of the devolved administrations' budgets covers expenditure which cannot reasonably be subject to firm multi-year limits and which is not determined by the Barnett formula. This is thus reviewed annually as part of the UK government's budget process. Whilst the Barnett formula has been subject to much criticism, it has the significant advantage of allowing the devolved administrations to exercise discretion over spending within the overall total. (For more detailed discussions of the origins, durability and effects of the Barnett formula see Heald 1994; Midwinter 2000; HM Treasury 2002.)

The UK Treasury's Comprehensive Spending Review (CSR) of July 1998 set public spending plans for all departments and devolved administrations for the three-year period from 1999–2000 to 2001–2002. Thus, the budget for the Assembly had already been fixed for the first year of the Objective One programme (i.e. 2000–2001) before the extra financial demands of Objective One could have been taken into consideration. The situation had echoes of origins of the Rechar dispute. As Dafydd Wigley (Plaid Cymru MP) observed:

the total managed expenditure for Wales in 2000–2001 was £7,908 million. No provision in that figure was made for Objective One, as it was some months before that had been cleared by the European Union. Under the National Assembly and the office of the secretary of state, who remains in Westminster, the budget for next year will be £7,909 million, which is within a million of the original budget. There is no additional money whatever in the budget for Wales for 2000–2001 to reflect the additional expenditure necessary with regard to Objective One (House of Commons debates, Hansard, col.11 WH, 11 January 2000).

In June 1999 Alun Michael—then first secretary of the Assembly and leader of the minority Labour administration—informed the Assembly's cross-party Economic Development Committee that the government's next SR scheduled for July 2000 would revise the spending totals in Wales for the year 2001–2002. However, he was forced to concede that additional money for the European contribution of grants and for public sector matching funds would not be made available from the Treasury until at least April 2001, some 15 months into the Objective One programme (National Assembly 1999a). This situation threatened to place severe and transparent budgetary pressure on other expenditure programmes overseen by the Assembly. The Coalfield Communities Campaign (1999) suggested that particular pressure would be felt upon local authority credit approvals for roads and environmental services which typically provide an important source of matching finance and which were squeezed in the 1998 CSR. For all Welsh local authorities, the total approvals for these services amounted to £82 million for 2000–2001 and £98 million for 2001–2002. This compared with an average of £130 million a year for the five years up to 1998.

Attention within Assembly debates thus began to focus on two issues: firstly, the volume of public expenditure cover available to meet the extra demands for spending prompted by Objective One in the first year of the programme; and secondly, the adequacy of the mechanisms in place to ensure that the case for additional funding in Wales for future years of the programme would be properly addressed in the July 2000 SR.

In October 1999, Assembly officials presented figures to the Economic Development Committee which, according to the Assembly leadership, demonstrated that sufficient funds were available to meet Objective One spending requirements in the first year of the programme (2000–2001). This was identified as £25 million from within the block grant derived from underspending on European programmes in previous years. This level of expenditure was estimated on the basis of the spending profiles of previous Objective One programmes in the UK, and the relative slowness with which project applications typically come forward (National Assembly 1999b).

Opposition parties in the Assembly, however, questioned the adequacy of the provision available. They pointed out that, to satisfy Commission demands for a relatively even expenditure profile, the Assembly would be expected to commit £187 million of Objective One expenditure to specific projects in 2000–2001. This commitment must be paid out within two years to prevent the money becoming de-committed or lost. Thus, opposition parties expressed the serious concern that the Assembly would be committing to expenditure in 2000–2001 without knowing whether it would be granted extra provision by the UK Treasury to cover the expenditure taking place at a later date (National Assembly 1999c). Furthermore, this financial package did not get around the problem of match funding.

Structural fund regulations require that a proportion of structural fund project costs are met by the public and private sector (so-called matching funds). In total, the Assembly executive estimated that some £885 million would be required from the public sector for matching funds over the lifetime of the Objective One programme. However, it is difficult to discern how much of this would have to be found out of the Assembly's budget for public sector organisations because some funding would be available from non-Assembly budgets (e.g. National Lottery funds which are included in the public expenditure totals of the Department for Culture, Media and Sport). The Assembly opposition noted that in expecting the lion's share of the £1.3 billion matching funds requirement to be met from existing Assembly budgets for public sector organisations, the Assembly executive would be placing ‘an impossible expectation on budgets already stretched to their limit (National Assembly 1999d, 4). Similarly, the Select Committee on Welsh Affairs (2000, para. 24a) observed that ‘it will not be possible for Wales to raise the £885 million of public sector match funding from within existing resources’.

The dissatisfaction with the executive culminated in the presentation of an ultimatum to the Assembly leadership on 20 January 2000 by Plaid Cymru—the main opposition party in the Assembly. This ultimatum stated that unless an extra £85 million was found for the first year of the programme, they would table a no confidence motion in the Assembly leadership at the end of the Assembly's budget debate on 8 February.

As well as concerns over the immediate funding pressures promoted by Objective One, this ultimatum reflected growing disquiet regarding the mechanisms in place for securing additional resources for the remaining years of the programme in Wales. Under cross-examination at a meeting of the Economic Development Committee, Assembly officials revealed that the volume of public expenditure cover for European funds in Wales is determined by the population-based Barnett formula and is not added to the block grant (National Assembly 1999e). This raised the concern that if the SR negotiations relied solely on the Barnett formula, Wales would not get its full entitlement of Objective One funding. This is because ‘cover’ is regarded as a comparable programme and so Wales would only automatically receive a population-based proportion (i.e. around 6 per cent) of any increase in ‘cover’ in England. This would be significantly less than the sum needed to meet the Objective One funding requirements. Thus, the Assembly passed a motion in favour of insisting that adequate matching funds be found in addition to the Welsh block and that all EU-supported expenditure should be ‘ring-fenced’, from the operation of the Barnett formula—a motion which the Assembly's Labour administration failed to amend (National Assembly 1999f, para. 4).

The Assembly leadership also came under increasing attack for its perceived reluctance to concede that there would have to be tough negotiations with the Treasury to secure additional funding for Wales. Whenever questioned on the issue, both Alun Michael and the secretary of state for Wales (Paul Murphy MP) reiterated their faith in the UK government's commitment to securing the best possible outcome for Wales (see, for example, National Assembly 1999g). However, this commitment appeared to offer no cast iron guarantee of additional resources. When questioned in the House of Commons in October 1999, the prime minister Tony Blair stated:

We do not intend to let the people of Wales down … We know that we have to make it good but that must be decided in the proper normal way through the Comprehensive Spending Review (House of Commons debates, Hansard, col. 456, 20 October 1999).

However, in an earlier letter to Colin Breed, MP for South East Cornwall, the prime minister seemed to indicate that structural funding in the Objective One areas of the UK would have to be accommodated within existing public expenditure limits:

There has been considerable speculation that the UK government will make additional public resources available to those areas in order to provide a further source of match funding for projects under the programme. However, such match funding will continue to be the responsibility of the grant applicant and will be largely derived from the existing domestic programmes available to the area … I cannot guarantee that more public funding will be available (House of Commons debates, Hansard, col. 11 WH, 11 January 2000).

Moreover, the Assembly leadership was further criticised because the channels of communication on this important issue were established only between the Treasury and the Assembly executive (i.e. cabinet) and not with the subject committees (National Assembly 1999h). This criticism and the failure of the executive to deliver increased resources by the Plaid Cymru deadline ultimately resulted in a vote of no confidence in Alun Michael's leadership on 9 February 2000 (by 31 votes to 27 with one abstention) and his concurrent resignation as first secretary. In essence, the opposition argument was that Michael had failed to secure the necessary guarantees from the Treasury that additionality would be provided for Objective One. In addition, he had failed to achieve ‘inclusive politics’ (Osmond 2000, 60).

The Commons Welsh Affairs Select Committee subsequently became involved in the debate with the publication of its report into funding issues surrounding The Structural Funds in Wales (Select Committee on Welsh Affairs 2000). This report recommended that the UK government make a clear and early commitment, within the context of the SR, to raise Wales' public expenditure cover to allow full take-up of European receipts. It also recommended that the government increase the funding made available to Wales in the next SR sufficiently to meet in full the public sector element of matching funds. However, it acknowledged that the principle of additionality, as currently defined by the Commission, ‘cannot be called in aid to require the UK government to provide additional public expenditure cover to Wales’ (Select Committee on Welsh Affairs 2000, para. 29a). This is because as the principle applies to expenditure by each member state to the sum of its Objective One regions, the UK government is not obliged to demonstrate that expenditure is specifically additional within West Wales and the Valleys.

However, this was not to say that the Commission would not be prepared to align itself with the Assembly in putting pressure on the member state (UK) government to deliver the required resources to Wales. The Commission's preliminary appraisal of the Objective One Single Programming Document (SPD) for West Wales and the Valleys, published in February 2000, revealed considerable dissatisfaction with the financial uncertainty surrounding the programme in Wales:

… the Commission needs to be satisfied that future financial resources will be able to provide public funding for the whole programme and cannot be satisfied that this will simply be reviewed in the forthcoming Comprehensive Spending Review. A commitment to this effect needs to be included in the final SPD (Commission 2000b, 28).

The spending review

Chancellor Gordon Brown's statement of 18 July 2000 on the SR 2000 reignited the political debate over Objective One funding in Wales. The secretary of state for Wales, Paul Murphy MP, described the announcement of extra funding for the Assembly's budget as ‘an excellent settlement’; a sentiment echoed by the Labour leadership of the Assembly. In sharp contrast, the opposition parties were unanimous in claiming that the outcome fell far short of that required to make the most of European funds in West Wales and the Valleys. While these different interpretations of events were largely inevitable in the highly charged political context of Objective One debates in Wales, they also reflected the difficulties in assessing the precise increase in the budget required by the Assembly to enable it to accommodate the increased requirements for both PES cover and public sector matching funds.

One of the problems of assessing how much additional PES cover was required in support of Objective One in Wales was the uncertainty which surrounded the amount of existing cover in the Assembly's budget. A ‘baseline’ level of cover is included in the Assembly's budget for European Structural Fund spending, this being determined by historic levels of EU spending in Wales and the application of the Barnett formula to levels of cover in England. Since these calculations were not transparent, different estimates of the existing level of cover available were made. In turn, this led to different assessments of the levels of additional PES cover required for Objective One.

The Commons Select Committee on Welsh Affairs (2000) stated that some £70 million's worth of additional PES cover would be required for each year of the Objective One programme in Wales. This was based on the assumption that the baseline level of cover stood at £20 million. For the three years covered by the SR (i.e. 2001–2002 to 2003–2004) this would amount to an additional requirement of £210 million. In July 1999, finance officials at the Assembly came up with a three-year figure of £149 million (National Assembly 1999i). This was based on the assumption that the baseline level of cover stood at £40 million and that, following the experience of previous Objective One programmes elsewhere in the UK, payments under the programme in Wales would be slow to progress in the first three years. Plaid Cymru put the figure at £540 million (Plaid Cymru 2000). This estimate does not take into account the cover already in the Assembly's budget and is based on a more even spending profile over the first three years of the programme than that predicted by Assembly finance officials. The actual amount provided for in the SR was £272 million: more than that considered necessary by the Select Committee on Welsh Affairs and Assembly finance officials, but considerably less than that demanded by the opposition. Critically, the chancellor had acknowledged that in the context of the very significant resource implications associated with Objective One in Wales, cover for the European share of programme receipts could not be determined purely on the basis of the Barnett formula.

On the issue of public sector match funding, there was even greater scope for different interpretations of the chancellor's announcement. In its report on this issue, the Commons Select Committee on Welsh Affairs (2000) stated that some £885 million's worth of funding would be required from the public sector over the programming period (i.e. 2000–2006) or approximately £450 million for the three years covered by the SR. The Committee also noted that while it would be unrealistic to expect the Treasury to provide additional funding equivalent to the total match funding requirement, it would be impossible for Wales to raise the total amount required from existing sources without drastically cutting other spending programmes (e.g. on health and education). In line with this argument, the Assembly leadership requested that additional resources be made available under the SR for purposes of matching funds. However, the amount requested was not made clear.

What the chancellor announced was a significant increase in the total budget in Wales over the following three-year period. Even with the increase in PES cover for Objective One (and other structural fund programmes in Wales) taken out of the equation, the assigned budget would increase by some £1.6 billion between 2000–2001 and 2003–2004. The chancellor stated that this budgetary increase included extra resources for matching funds as part of the total spending settlement. A similar settlement was provided in the 2002 SR which provided for an extra allocation of £106 million a year in 2003–2004, 2004–2005 and 2005–2006 in Wales to support European programmes. However, in both reviews the precise amount made available for matching funds was unclear: the lack of transparency in the calculations of the formula meant that it was not possible to tell how much Wales received on top of the Barnett formula. Nevertheless, the Assembly leadership was confident that there was adequate match funding to support all worthwhile projects without taking from other spending programmes. In contrast, Plaid Cymru estimated that the increase in the budget was insufficient and argued that the Assembly would be forced to spend up to £100 million less on other spending programmes. The lack of transparency in the calculation of the budget increase however made it impossible to be sure which of these views was correct.

To sum up, the SR undoubtedly provided some very positive news for Wales. The Treasury recognised the special case presented by the large-scale Objective One programme in Wales and acknowledged that the Barnett formula alone would not be sufficient to help unlock the potential provided by European funds. There was a clear increase in the volume of cover available for the Assembly to spend the European element of Objective One receipts, and certainly an increase on what would have been provided by simple reliance upon the Barnett formula.

In contrast, the SR did not mark a step change in the volume of public sector match funding for Objective One in Wales. The degree of shortfall was difficult to estimate without a more transparent presentation of the manner in which the increase in the Assembly's budget was calculated. The likelihood was that there would be some pressures on other areas of spending in Wales to enable the Assembly to provide match funding for EU aid. In broader terms, one outcome of the SR was likely to be renewed calls across the UK for a thorough and independent review of the Barnett formula. Voices in the Assembly would also continue to challenge the lack of transparency and clarity in the treatment of European funds in the public expenditure system.

Conclusion

In this article we have sought to address two empirical questions. First, whether the Labour government's policy on additionality changed from that of its predecessors; and second, whether any changes were a consequence of devolution. In theoretical terms, we have sought a more nuanced explanation of the processes through which the centre plays a gatekeeping role by employing the concept of the core executive. We deal with each of these issues in turn.

Empirical findings

The first of these questions requires consideration of both the provision of PES cover to spend EU grants and of the ability of public bodies to provide the necessary match funding. On the first of these, the answer is clear: in the SR 2000, Labour moved decisively in favour of providing the necessary cover for Wales to spend the EU contribution of projects funded by the structural funds. In doing this, the government acknowledged that it needed to go beyond the Barnett formula. On the match funding issue, the answer is less clear. The Labour government provided additional spending to allow public bodies to raise match funding, but it was not certain whether this would be sufficient.

In short, while there was increased ‘local’ scrutiny of funding flows from the centre, the continued lack of transparency in Treasury accounting procedures continued to obscure the extent to which the government had moved towards providing full additionality. The case study illustrated that political devolution in Wales was not accompanied by any significant devolution of financial powers. Consequently, there was no change in the mechanisms through which central government dealt with additionality. Those seeking a change of policy on this demanded, at a minimum, the introduction of transparent accounting procedures within the Treasury for additionality: this did not happen. Beyond this, opposition parties in the Assembly argued for greater devolution of financial powers to take the matter out of Treasury control. This did not happen either.

Theoretical implications

The case study highlights that, despite devolution, the UK government retains control over the implementation of the additionality principle. Within the core executive, the dominant actor is the Treasury. However, this study has highlighted tensions on the issue both within and without the core executive.

In the pre-devolution period, central policy on additionality was challenged in two periods from within the core executive, in each case either led or supported by territorial ministries. However, the substantive policy impact of these challenges was very limited. Post-devolution, Wales was the only territory in the UK covered by devolved democratic structures to benefit from an increase in structural funding. In this period, the main challenge to additionality policy came from the newly created National Assembly for Wales, which, on this issue, largely displaced the role of the Welsh Office: a component part of the core executive.

The key difference between a policy challenge from the National Assembly rather than the Welsh Office is the more effective political weight of the former. As a directly elected body, it has resources of political legitimacy that have been transferred from the core executive. The Economic Development Committee of the Assembly played an important role in raising the profile of the debate on additionality and securing answers to key questions. The status of the Assembly as an elected body ensured a level of coverage of events that helped elevate the status of the additionality issue. In other words, it is now more difficult for Treasury ministers to ignore the voice of the Assembly than it was for them to ignore the Welsh Office. The Assembly demonstrated the political consequences for Labour seeking to do this when opposition parties combined to force the resignation of the Assembly's Labour leader.

However, while the Assembly has emerged as an influential voice on this issue, it has not decisively shifted the overall balance of resources within the additionality network away from the core executive. Despite political pressure, the centre has illustrated its determination to retain control over the allocative mechanisms and, despite the promise of greater local scrutiny of financial flows through devolution, it remains very difficult for the Assembly to determine precisely the amount needed from the centre for full additionality and the amount provided. This leaves open the possibility that the additional financial support the Treasury provided in this period could feasibly be removed in another, particularly if the political balance of resources changes (for example, through the election of a Conservative government dealing with a Labour-led Assembly).

In coming to this assessment, the core executive approach has played an important role. Its focus on networks and the concept of resource dependence provides a more nuanced understanding of the constraints on the ‘national government’ as gatekeeper. The approach highlights that within ‘national government’ the dominant actor on this issue has been the Treasury. However, by employing the concepts of networks and resource dependence, we are able to illustrate more precisely how devolution has affected central control. The creation of the National Assembly for Wales has transferred political resources within the additionality issue network away from the core executive to the devolved institution. At the same time, the Treasury has maintained its grip on both financial and informational resources. Thus, while the distribution of resources within this network has changed following devolution, the balance of power remains with the core executive.

In theoretical terms, the core executive approach sharpens our understanding of the notion of central government as gatekeeper over the unwanted domestic consequences of EU policies. It allows us to open and explore the black box concept of national government, which has traditionally been referred to as the gatekeeper. National government is not a monolith and traditional domestic politics concepts of cabinet government and prime ministerial power do not provide the tools for us to investigate the interdependence that is at the heart of government. In contrast, the insights of the core executive approach provide us with the necessary tools to understand the domestic circumstances that influence the effectiveness of central government as gatekeeper over EU policies.

Footnotes

The authors would like to thank Martin Smith and Matthew Flinders (both at the Department of Politics, University of Sheffield) for their helpful comments on an earlier version of this article.

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