Andrew Davies argues that the Silk Commission should extend its brief to include consideration of the Barnett formula
There will be no possibility of reaching a consensus on the devolution of taxation powers without a parallel reform of the Barnett formula. This is a major conclusion reached by a Working Group I have been chairing charged with preparing a submission to the Silk Commission. We have been acting on behalf a partnership of the Wales Governance Centre at Cardiff University, the Institute of Welsh Affairs, and Tomorrow’s Wales. The partnership is running the Changing Union project, a three-year study of the future of the United Kingdom. A further major recommendation from our Group (see panel) is that the Silk Commission’s terms of reference, which exclude consideration of the much-criticised Barnett formula, are unnecessarily narrow and should be extended.
The Changing Union Finance and Funding Group
Andrew Davies, former Finance Minister, Welsh Government (Chair)
John Osmond, Director, IWA (Secretary)
Professor Bob Rowthorne, economist, University of Cambridge
Professor Gerald Holtham, Chair, Holtham report on Funding and Finance for Wales
Vanessa Young, Director of Resources, WLGA
Nick Bennett, Chief Executive, Community Housing Cymru
Lee Waters, National Director, Sustrans Cymru
Professor James Foreman-Peck, Cardiff Business School
Dr Jonathan Bradbury, Politics Department, Swansea University
Alistair Cole, Wales Governance Centre, Cardiff University
Sion Jones, Partner, LE Wales, an economics and policy consultancy
Geraint Talfan Davies, Chair, IWA
The terms of reference of the Commission on Devolution in Wales, chaired by former House of Commons and National Assembly Clerk, Paul Silk, specifically prevent it from considering the way funding is distributed to Wales. They also preclude it from considering borrowing powers. These are currently subject to bilateral negotiations between Cardiff Bay and Westminster.
However, if the Commission agrees to these exclusions it would be prevented from taking a holistic view of finance and funding. If the purpose of the Commission is to seek an improvement in accountability, it must be in a position to compare any new proposals with the status quo. It must, therefore, take a view of the status quo and known proposals for reforming it.”
As First Minister Carwyn Jones has pointed out recently, the holding of a referendum on Scottish independence and the prospects of the country seceding from the Union has transformed the political landscape across the UK, not least in Wales. We now have to address the implications of events beyond our boundary and beyond our control. There is a pressing need to assess the wider constitutional and fiscal implications for Wales of the different scenarios that could arise in the wake of the Scottish referendum. The Commission should evaluate these implications in detail.
A further reason why the Commission needs to consider the Barnett formula – by which funding for the devolved administrations is calculated – is because it has been charged to come up with a package of fiscal powers “which are likely to have a wide degree of support”. Our Group sees no prospect of establishing a consensus in favour of tax-varying powers in Wales without a parallel reform of the Barnett formula. Some consideration of Barnett is, therefore, necessary for the Commission to discharge that particular consensus-seeking part of its remit.
We believe strongly that any change to the existing funding arrangements must necessarily include reform of the Barnett formula to one founded on a needs-based formula. This is a position supported by all four major political parties in Wales. Not to do so would, in the Group’s view, leave Wales with inadequate funding for its needs. It would not address the well-evidenced inequity in the current system and fail to adhere to commonly agreed principles for funding devolved governments.
The Group has made eight recommendations to the Silk Commission:
- Retention of an unreformed Barnett formula system of funding the Welsh Government should not be an option, whatever the outcome of a Scottish referendum.
- Pending a full reform of Barnett, the Government should place a floor under the Welsh block grant to ensure that the convergence mechanism does not reduce expenditure in Wales below that of the poorest English region.
- The Commission should consider the case for reform of Barnett, along lines recommended by the Holtham Commission, as an essential ingredient in establishing a consensus on fiscal powers in Wales.
- That the Commission should demand the creation of Government Expenditure and Revenue statistics for Wales to give a firm basis to its recommendations.
- The Welsh Government should be given borrowing powers that include a capacity to issue bonds within an agreed overall framework of borrowing.
- Cash management of the Welsh Government’s funds should be devolved in order to encourage the efficient use of public funds, and avoiding repeated unnecessary friction around year-end adjustments.
- The Commission should liaise with Scottish Government and others to obtain a clearer understanding of what is meant by full fiscal autonomy or devo-max.
- The Commission should explore the implications for Wales of the possible outcomes of the referendum in Scotland.