Devolved Administrations: Financial Flexibility
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Lord Wigley
To ask Her Majesty’s Government what discussions they have held with the devolved administrations concerning the future working of year-end financial flexibility.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, my right honourable friend the Chief Secretary to the Treasury announced on 18 July that the Treasury has agreed with the devolved Administrations that a modified version of the budget exchange system will apply to their underspends during the spending review period. The devolved Administrations will be able to carry forward DEL underspends up to a maximum of 0.6 per cent of resource DEL and 1.5 per cent of capital DEL from one year to the next.
Lord Wigley
My Lords, does the Minister agree that it is much more prudent for the devolved Administrations to carry forward, as a capital sum, any money that is unspent at year end rather than to rush to spend it? Given that the Assembly Ministers, as he said, have agreed with the Treasury a formula for devolved Administrations to carry forward underspends within these defined limits, why was the Treasury insisting on denying to Wales, and to the National Assembly, some £400 million of accrued underspends in Wales, money which Parliament had voted for use in Wales and which had been accumulated on a formula previously agreed with the Treasury? Will the Minister now discuss with his Treasury colleagues the possibility of releasing that sum over the next two years to augment the National Assembly’s much depleted capital resources?
Lord Sassoon
My Lords, sadly, the previous Government left us with a pot of money of some £20 billion which had been unspent by departments, which, if now spent, would simply increase our deficit; it would increase the stock of debt by £20 billion. It was necessary for the Government, as part of our deficit reduction strategy, to cancel that EYF, but the stock of cancelled underspends in the devolved Administrations was 8.4 per cent of the total, compared with 15 per cent of expenditure, which the devolved Administrations represent, so what they were prevented from spending was rather less proportionately than applied to the United Kingdom as a whole.
Baroness Randerson
My Lords, the decision not to allow the EYF for Wales was something which took many people there by surprise. Can the Minister tell us whether it took the Government of Wales by surprise or were there discussions with the Government prior to the decision by the Treasury at the time of the Budget?
Lord Sassoon
My Lords, as I have already explained, the Government inherited an extremely difficult deficit position. We took decisions that affected the whole of the United Kingdom and this one was consequential on decisions that needed to be taken to bring the deficit position under some sort of control so that departments were not completely without controls on their expenditure. After that, there were detailed discussions led by my right honourable friend the Chief Secretary, which led to the proposals which are the subject of this Question.
Lord Touhig
My Lords, the £400 million, to which the noble Lord, Lord Wigley, referred, could certainly help to sustain public services in Wales and boost the economy. Parliament has voted that money for the Welsh Assembly. Does the Minister not think that it is arrogance on the part of the Government to ignore the will of Parliament?
Lord Sassoon
My Lords, a lot of factors have to be taken into account in setting expenditure for the devolved Administrations, not least our favourite Barnett formula, but the fact remains that expenditure on a head-count basis in Wales will, in the present period, be some 12 per cent higher than the per head expenditure in the United Kingdom.
Lord Eatwell
My Lords, was the Welsh Assembly consulted before this decision was made?
Lord Sassoon
My Lords, the United Kingdom Parliament—this House and another place—was not consulted before an awful lot of spending decisions were taken. That is the way that Governments make spending decisions.
Lord Roberts of Llandudno
My Lords, the Minister has, I think, criticised the Barnett formula. What plans does he have to bring in a different formula regarding Wales and Scotland?
Lord Sassoon
My Lords, would I ever be so bold as to criticise the Barnett formula? The Barnett formula has been widely questioned, not least by the noble Lord, Lord Barnett, himself. However, the Government’s priority has to be stabilising the public finances. If, in due course, the formula is to be superseded, the challenge is that there is no consensus on how to measure needs, which would be required to bring in some needs-based formula.
Baroness Hollis of Heigham
My Lords, on the contrary, I would suggest to the noble Lord that there is plenty of research on how to bring in a needs-assessed formula, given that both devolved Administrations distribute their money down to local authorities on precisely that basis. Would the noble Lord therefore accept that Wales is indeed underfunded, that the Barnett formula effectively misspends and overspends by £4 billion and that a rectification of that would surely help the Minister to address the deficit?
Lord Sassoon
My Lords, what I said was that there was no consensus. Of course there is plenty of research but there is no consensus, and that is what is needed in this area.
Lord Myners
My Lords, the Minister brings considerable private sector expertise to his role, including at Union Bank of Switzerland. Can the noble Lord tell the House whether in his private sector experience he has ever come across a situation where companies say that if you do not spend the money, it will be taken away from you? What prudence does that encourage?
Lord Sassoon
My Lords, I believe that it was under the previous Government in 2006—the noble Lord will remember this better than me—that the health service overspent its budget and reserve by £182 million, and the previous Government stopped the EYF system. So I really do not think that we need lectures about me and my experience; it was the noble Lord’s Government who stopped it.