Ben Lloyd says there is no point reforming the way the National Assembly is funded if we don’t also cut back on wasteful spending
Perhaps the most pernicious element of recent discussions about the Barnett formula has been the way that politicians have started using its reform as a panacea for Wales’ financial ills. This money is important, Wales deserves it and the Barnett formula should be replaced with a needs-based alternative as soon as possible. But its value is being overstated and the public misled as to the potential of its impact.
Most commentators estimate the impact of Barnett reform as increasing the Welsh block grant by around £300 million. This is around 2.5 per cent of the current value of the Welsh block grant. There is no doubt that that is a considerable sum of money and we could develop some innovative policies with it. But it is misleading, as Plaid Cymru suggests in its Manifesto, that this alone will protect “our vital frontline health and education services here in Wales”. If they are to be protected the Welsh Government will need to seriously review its economic strategy.
A recent report from the Auditor General has predicted that the Welsh Government’s budget may lose £3 billion over three years (A picture of public services, Wales Audit Office, 2008, p.12). Even if the proposed Barnett reform could be implemented immediately, it won’t cover these losses. What is even more worrying is that the Government will use the money from any Barnett reform to offset the costs of money lost through cuts in Westminster and gradual removal of EU Convergence funding.
What is needed is a fundamental review of the way the Welsh Government spends its money. A report by the cross-party Finance Committee in the National Assembly concluded that its baseline budget had not been fundamentally changed to reflect the needs of the recession (Report on the Welsh Assembly Government Draft Budget 2010-11, 2009, p.11). That is, their assumptions are still fundamentally based on the 2007 budget, which in turn was based on budgets from the second Assembly. It is utterly ridiculous that the current Welsh budget is based on one written in the years of relative largesse that existed in years gone by.
Unfortunately, it’s not just the budget that exists from that time – it’s the mindset too. Too many Welsh politicians are used to knowing there will be enough money next year, or the year after. And very few have prepared themselves for having to talk sensibly about cuts.
Likewise, the Welsh Government is consistently spending more and getting lower outcomes. Recent research carried out by the IWA here shows that the Welsh Government outspends other regional development bodies in the UK Welsh GVA is still the lowest in the UK, and is falling relative to the rest of the UK. A recent report by the Nuffield Trust suggests Wales outspends England in health spending and receives less in return (Connolly, Bevan and Mays, Funding and performance of healthcare systems in the four countries of the UK before and after devolution, Nuffield Trust, 2009). Admittedly, Wales starts with difficult challenges – relatively lower levels of economic development and relatively higher levels of poor health. However, it is worrying that there is little impetus in the Welsh Government to examine why.
The Welsh Government has access to a budget which it cannot lower, or raise. Without tax-levying powers, it is incumbent on them to get as many ‘bangs from their buck’ as possible. The more efficiently we spend, the more services we can deliver. It is incumbent on the Welsh Government to deliver savings, and yet it refuses to investigate claims that up to £1 billion of NHS money is being misspent – which could be better spent on patients, or transferred to other departmental expenditure lines. Likewise, although the Auditor-General’s report suggests a series of changes in governance that could save money, there is little evidence that the Government is pursuing them.
My party, the Welsh Liberal Democrats, has already outlined in its Welsh manifesto the changes we need to make to our finances in order for Wales to keep apace with England after this election, and they are confined to issues of how we undertake government. We are committed to reviewing policy expenditure as well – prioritising those programmes which need to be kept and discarding those that are luxuries.
I would argue strongly that every Minister should be conducting a comprehensive review of her or his department. Look for example, at the Economy and Transport portfolio, where money is being spent on a heavily-criticised Airlink, running an ineffective international business arm and spending profligately in roads. There are examples of unnecessary spend in all departments, but there seems no desire in Government to examine why.
Welsh Ministers tend to portray spending reviews or efficiencies as part of a right-wing agenda when in fact they can be progressive. The Government can do more if it saves more. If it saves more money it can spend more money. Efficiencies and savings and cuts may look bad in the media but the additional policies that could be delivered are essential if we want to deliver the long-promised devolution dividend. Indeed, it is difficult to imagine how a progressive government can proceed to deliver the fair policies that Wales needs without discussing them.
The impact of what could be large cuts to the Welsh block grant should worry politicians. They should cause both Government and opposition to think seriously about what programmes continue and what are cut, and how we can deliver the Welsh budget more efficiently. This needs to be done regardless of whether the Barnett formula is reformed. Reforming Barnett will not cover the Welsh funding gap. If we use it to ride out the cuts coming to Wales then we will be wasting an opportunity to invest in new, innovative and important schemes that could truly prove devolution can deliver.