Unexploded Bomb Under Devolution

John Osmond on how he caught up with the potentially biggest devolution story since 1999

Sometimes it takes a while to catch up on the really important news.  I confess to having missed the most significant development in Welsh (and maybe even British) politics over the past few months, which was hidden away in the Western Mail’s business pages  on 12 February. In a report by the paper’s Business Editor Siôn Barry that should have been splashed across page 1, Shadow Chancellor George Osborne committed to establishing an independent commission to consider a new needs-based formula funding model for the UK “as soon as a new Government is elected”. This would replace the present population-based Barnett formula, which Osborne acknowledged works to Wales’s disadvantage.

If there is a Conservative government following the general election assumed to be on 6 May, and if Osborne sticks to this commitment – perhaps pretty big “ifs” but far from impossible – then this promises the most radical shake-up in the devolution story since the National Assembly, the Scottish Parliament and the Northern Ireland Assembly were created at the end of the 1990s.

Attention was drawn to this at a meeting organised by the IWA in Cardiff this week, called to discuss the issues facing the Welsh Government’s Independent Commission on funding the National Assembly, chaired by Gerald Holtham. A questioner from the floor referred to the Western Mail report and wondered why it had been buried. The Western Mail’s Chief Reporter, Martin Shipton who was sitting on the panel  at the meeting, explained that he had been on holiday in Spain when the story appeared, but would ensure more attention was paid to its contents in the weeks leading up to the general election.

The importance of George Osborne’s commitment to replace the Barnett formula with one based on needs can be seen from the findings of a study undertaken by the Holtham Commission that was pubished last December. This provided an analysis of how a needs-based formula would work, based on Whitehall’s current needs-based distribution of funds to the English regions. If applied to the devolved administrations it would give Scotland £105 per head of population compared with a UK average of £100, Northern Ireland £120 and Wales £114.5. Pretty innocuous you might think, until you compare that with the present allocation: Scotland gets  £120, Northern Ireland £124, and Wales £112. It would mean Wales would get an extra £400 million, on top of its £16 billion block, but Scotland would lose a massive £3 billion from its £28 billion.

These are the figures which explain Labour’s reluctance to interfere with the Barnett formula. With the SNP breathing down the neck of many of its Labour MPs the last thing they want is to provide them with the heavy ammunition that a threat to Scottish funding on this scale would mean.

However, with only one Scottish Westminster seat and no hope of gaining more than two or three more in May, the Tories have comparatively little to lose – which presumably explains George Osborne’s willingness to consider changing the funding formula.

For the record, this is what Osborne told the Western Mail: “My initial look at the formula suggests that Wales might well be missing out under the Barnett arrangements. I think it is in Wales’s interest that we have that needs-based assessment, which is independently done … My view is that you want to move on it pretty quickly, as soon as a new Government is elected.”

John Osmond is Director of the IWA.

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