Falling out over money

Editorial in the Summer 2010 issue of Agenda predicts some ‘family rows’ between the UK nations

Two weeks following the May election the new Prime Minister David Cameron visited the National Assembly and declared he wanted his relationship with it to be based on “mutual respect”. He said he regarded the nations of the UK as a family which he wanted to keep together. And he added, “Now families sometimes fall out over money, this can happen. I don’t want our family to fall out over money”. However, unless things change pretty soon, and they show little sign of doing so, Cardiff Bay and Westminster will be doing just that.

In the Con-Lib 30-page document The Coalition: our programme for government, published in May, Wales gets just one specific mention, and it’s not encouraging. It comes under the heading ‘Political Reform’ and states: “We recognise the concerns expressed by the Holtham Commission on the system of devolution funding. However, at this time, the priority must be to reduce the deficit and therefore any change to the system must await the stabilisation of the public finances. Depending on the outcome of the forthcoming referendum, we will establish a process similar to the Calman Commission for the Welsh Assembly”.

Gerald Holtham, Chair of the Welsh Government’s Independent Commission on Funding and Finance for Wales, described this statement as “surreal”. Why? Because he has calculated that if the Treasury were to reform the way devolution is funded so that it relates to a needs-based formula rather than the present one that relies on a population count, it would save around £3.5 billion. So if the Westminster’s priority is, as it says, to reduce the deficit, that would make a significant contribution.

But this is where politics intervenes. That £3.5 billion saving would come almost entirely from a reduction in Scotland’s block grant. Scotland has benefited enormously since the Barnett formula was introduced back in 1979 because its population has declined. However, with the Scottish Parliament elections looming next May, the Westminster government is leery about touching its budget. Indeed, the Scottish threat in the form of the SNP has been the major reason why no Westminster government has been anxious to tamper with the Barnett formula and why it has lasted so long.

Meanwhile, as Gerald Holtham’s Commission has definitively demonstrated, Wales has been losing out by at least £300 million a year. This is the extra money we would be entitled to if devolution was funded on a needs-based system analogous to the one used by the Treasury to distribute money to the English regions. Using English distribution formula Wales would receive at least 114 per cent of average English expenditure per head compared with the 112 per cent it actually receives. These are statistics which should be taken into account before any budget cuts are directed at Wales.

An analysis of Treasury figures by Holtham showed that between 1999-2000 and 2010-2011 Wales’s relative expenditure per head on programmes covered by the Barnett formula declined from 125 per cent to 112 per cent of the corresponding level in England. Had expenditure growth in Wales kept pace with England, which would not have resulted in over funding, it would have meant an additional £1.82 billion, or 11.6 per cent of the block grant, being available to the Welsh Government this year. The Holtham Commission showed that Scotland is actually over funded on that scale, receiving 120 per cent of English expenditure per head, when needs formulae indicate the appropriate number is nearer 105 per cent – an excess approaching £4 billion a year.

When she addressed the National Assembly for the first time in June the new Secretary of State for Wales Cheryl Gillan declared that the Barnett formula “was coming to the end of its existence”. Whether or not that ‘end’ is speeded up expect some family rows across the UK.

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