Labour moves to shore up Scottish block grant

John Osmond says an announcement expected in Edinburgh today will create problems for the Welsh Government in Cardiff Bay






Johann Lamont

Labour is poised to offer Scotland significant new powers in an announcement today that are bound to have significant repercussions for Wales. If advanced reports are to be believed the most significant impact will be a pledge to sustain the Barnett formula’s present level of Scotland’s block grant in the event of a No vote.

The block grant currently gives Scotland about £28 billion a year which, according to the Holtham report, is about £4 billion a year more than it would receive under an assessment based on need. On the other hand, Holtham estimated that the formula underfunds Wales by around £300 million a year.

There have been fears in Scotland, much exploited by the Yes campaign, that if the country votes No on 18 September, its current favourable funding deal will be gradually eroded. On this reading a No vote would relieve pressure on the UK Government to continue funding the Scottish Parliament significantly beyond what a needs-based assessment would indicate.

Hence today’s anno0uncement, to be made by Scottish Labour leader Johann Lamont ahead of her Spring conference this weekend. However, it will have negative repercussions in Wales. Here First Minister Carwyn Jones has said that he will not contemplate considering income tax powers for Wales until the Barnett formula has been replaced by one based on need. Today’s announcement, would make any such prospect extremely unlikely. It would also cement the current underfunding that Wales experiences.

It has been noticeable that although Labour in Wales are committed to replacing the Barnett formula with a needs-based assessment, no such commitment has come from the top of the Labour Party – Ed Balls or Ed Miliband. One reason Wales is disadvantaged is that, over time, funding increases as a result of the formula tend to bring Welsh spending into line with the average across the UK – the so-called Barnett squeeze. This has not happened in recent years because funding has either been cut or stood still.  The only commitment on Barnett has been to revisit the formula in the event of higher future spending re-introducing the squeeze.

In Scotland the headline-grabbing trails of today’s announcement has been giving Holyrood greater control over setting income tax rates in Scotland, including the power to set different rates for different income bands – a policy recommended for the National Assembly by the Silk Commission. Over the weekend Johan Lamont told the Scottish press that this would give her the option to raise the higher income tax rate to 50p

This would unlikely be a realistic option in Wales given the porousness of the Welsh border with England. All it would be to persuade higher income tax payers to move to England, so losing the Welsh Government revenue. A more realistic option for Wales would be to lower the top rate, with the prospect that this would actually increase revenue by persuading top-rate earners to move into Wales.

This idea is appealing to Welsh Conservative AMs and was floated at Plaid Cymru’s recent Spring conference by the party’s Carmarthen East candidate in the forthcoming Assembly election. However, while she said the idea was interesting, Plaid’s leader Leanne Wood said it would be unlikely to become part of the party’s programme. For similar reasons, lowering taxes for the best off in society would be unlikely to appeal to Welsh Labour either.

It is also expected that Johann Lamont will announce the devolution of significant welfare powers to Scotland, over housing benefit, attendance allowance and the work programme. None of this will be music to Labour ears in Cardiff Bay. Their first question will be – can we be sure that they money will follow the new responsibilities?

John Osmond is Editor of ClickonWales.