Get the biggest stories sent straight to your inbox Sign up for regular updates and breaking news from WalesOnline Thank you for subscribing We have more newsletters Show me See our privacy notice Invalid Email

A quirk in the devolution settlement could potentially rob Wales of £500m in housing investment, we can reveal.

Last week Communities Secretary Eric Pickles announced a significant housing stimulus package for England.

In the normal course of events, money spent on devolved policy areas like housing across the border results in a proportion of the cash – known as a “Barnett consequential” after the funding formula that determines how much money comes from the Treasury to Wales, Scotland and Northern Ireland – being given to the Welsh Government.

But on this occasion, a crucial element of the package is a £10bn loan guarantee scheme to help not-for-profit organisations like housing associations borrow money to build affordable homes. There is doubt over whether a decision by the UK Government to offer loan guarantees connected to English schemes will carry an obligation to pass funds to the devolved administrations in the three Celtic countries.

If the Barnett Formula is applied to the loan guarantee scheme, Wales could receive investment of around £500m, based on 5% of the money allocated in England.

Nick Bennett, group chief executive of Community Housing Cymru (CHC), which represents housing associations that build affordable homes, said: “It’s good news that the Coalition Government in Westminster has recognised the key role of house-building in stimulating economic growth and recovery. Housing associations across Wales secured over £1.5bn in private borrowing to invest in existing housing stock, regeneration and building new social and affordable homes.

“That’s why it’s vital that we secure our fair share of the £10bn in loan guarantees and £300m in capital funding to support the building of much-needed homes. However, initial enquires suggest that the £300m capital funding is not new money, but reallocated underspends from other English departments – so Wales will not receive a Barnett consequential. If it had been new money we would have received £15m.

“Of even greater significance is the announcement of £10bn loan guarantee for England. A similar initiative in Wales would be worth about £500m. Wales is the poorest constituent part of the United Kingdom – we can’t afford to have a new stimulus programme that stops to the east of Offa’s Dyke. The Treasury need reminding that they are the UK Treasury, not just the finance department for England.

“If we could see a similar initiative in Wales then local housing associations could take many more of the 90,000 families in severe housing stress off the waiting list and help get Wales building.

“I will be liaising with colleagues in Scotland and Northern Ireland and raising the issue with the Wales Office and the Welsh Government to make sure there is a fair settlement to this matter.”

It is understood that Mr Bennett will discuss the issue with Welsh Government Housing Minister Huw Lewis today.

In his statement last week Mr Pickles said: “The Government will use its hard earned fiscal credibility to pass on lower costs of borrowing to support the long-term delivery of new rental homes. To give institutional investors the assurance they need to invest in this area we will be issuing a debt guarantee for up to £10bn for [affordable housing]. Under the scheme, the Government will enable providers to raise debt with a Government guarantee, where they commit to investing in additional new-build rented homes.

“The Government will be inviting expressions of interest from companies wishing to benefit from the scheme. It is expected that housing associations, property management companies and developers will be amongst those to benefit.”

A spokesman for the Mr Pickles’ Department for Communities and Local Government responded to the Western Mail’s request for a statement on how last week’s announcement would affect Wales by saying: “This is nothing to do with us. We are responsible for funding housing programmes in England. It is a matter for the Welsh Government.”

A Welsh Government spokeswoman said: “We are in discussion with the Treasury over elements of the package but we expect Wales to get the Barnett consequential of any additional funding made available in England in the normal way.

“In line with established practice, any consequentials from UK Government announcements will be added to our reserves and allocated in line with our strategic priorities either in the context of our in-year financial management or the budget planning process.”