Whitehall Ignores Case for Fairer Welsh Funding

Eurfyl ap Gwilym unpacks the UK Government’s response to the House of Lords Select Committee on the Barnett formula

The way the devolved administrations in the UK are funded has been the subject of three significant enquiries over the last two years. In Scotland the Calman Commission reviewed funding as part of its wider remit. In Wales the Holtham Commission has published its first report together with a working paper on how a needs-based formula could be made to operate. Meanwhile the House of Lords established a Select Committee under Lord Richard to review the current Barnett formula.

The Calman Commission favoured retention of a block grant as part of the way Scotland was funded but also supported moving to  a needs-based determination of the level of the grant. Holtham and the House of Lords demonstrated that the current population based formula was wholly inadequate and unfair and both made a compelling case for a needs based funding formula.

In the evidence presented to the House of Lords the only defenders of the present funding system were the three territorial Secretaries of State, the Treasury Minister and the Finance Minister of the Scottish Executive. Given the excellent deal that Scotland enjoys under the Barnett formula the position of the Scottish Minister is understandable. The Treasury officials in their evidence claimed to have no departmental view but pointed out the ‘administrative convenience’ of the present system.

On 16 December the UK Government published its formal response to the report of the House of Lords Select Committee (Cmmd. 7772). The substantive part of the UK Government’s response is four pages long and essentially takes each of the House of Lords’ recommendations and decides to ignore them whilst confirming that it intends to continue with the current Barnett funding system. Thus the Government intends to continue with a system that the cross party House of Lords Select Committee demonstrated was unfair, not related to relative need and is without any intellectual foundation. It is perhaps not surprising the UK Government’s response was released on the day that Parliament was going away for Christmas.

It will be interesting to see the response of Labour in Wales. If it were to endorse the UK Government’s position it would favour the continued short-changing of Wales. This was conservatively estimated by the Holtham Commission to be £400 million a year and increasing and this at a time when Wales, in common with the rest of the UK, can expect large cuts in public expenditure from 2011 onwards.

What can the Welsh Government do in the face of such stonewalling? At a minimum it needs to ensure that the operation the Barnett formula includes the proper allocations between comparable and non-comparable expenditure which it manifestly does not at present. As the UK Government’s response states, the devolved administrations are consulted on details of what are comparable and non-comparable expenditure items. Publication of the Statement of Funding Principles which is the basis of the operation of the current formula is agreed with the Territorial Secretaries of State.

If there are disputes then they may be remitted to a Joint Ministerial Committee, with representatives from the three devolved administrations and the UK Cabinet Office.  Following this, and if necessary, the Secretary of State can take the matter to the UK cabinet for resolution. As the report notes, “In practice no disputes have been remitted to the Joint Ministerial Committee since devolution”. This is a clear indication that the Welsh Government and successive Secretaries of State have been failing rigorously to scrutinise the details of the funding allocations to ensure that Wales gets a fairer deal within the Barnett formula.

It appears that the Barnett formula will be retained for some time if Labour remains in power at a UK level, for three reasons. It is administratively convenient, in practice it is run by the Treasury, and it favours Scotland which is a Pandora’s box successive UK Governments have favoured keeping well shut. It would be interesting to see the approach of an incoming Conservative Government but perhaps the best chance for change would be a hung Parliament.

Eurfyl ap Gwilym sits in the boards of a number of public companies and is a trustee of the IWA.

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