Barnett Formula

Lord German Excerpts

Wednesday 15th June 2011 Lords Chamber

[Lord German]

My Lords, I congratulate the noble Lord, Lord Barnett, on his fame in Wales. In fact, he is almost a household name, but not perhaps for the reasons for which he would like to be known. The Barnett formula now has a sort of infamy as it is referred to as a formula in disrepute. The case is perfectly well made about a needs-based formula which would serve Wales much better.

The main problem with the formula is what is known as the Barnett squeeze. If any noble Lord can imagine being squeezed by the noble Lord, Lord Barnett, please carry that image in your mind, but the eventual ending of the Barnett formula—we are running towards it at a rate of knots—will result in every person in Wales being paid the same contribution from the public purse as anybody else in the United Kingdom. In other words, no matter where you are, you will be paid the same. The realisation is quite obvious; Wales is the part of the United Kingdom in greatest need. Two-thirds of the population of Wales are in a convergence zone of the European Union because their GDP level falls below 75 per cent of the average across the European Union. That has occurred not just once but twice and is likely, given current performance in Wales, to fall into that category for a third time, so Wales is in greater need than any other part of the United Kingdom as a whole. In fact, two local authorities in Wales compete in terms of their populations having the worst health of people in Britain. The money that is required to treat people well and appropriately across our country should be distributed according to need. The squeeze must be imposed over a period of time and we must move to a needs-based formula.

You could simply transfer the money from Scotland and give it to Wales but I am sure that that is not appropriate. That is probably why the previous Government always said that they were opposed to changing the Barnett formula. Alternatively, you could provide some new money to cushion the change which will take place over time. Timing is important because we now have devolution across many parts of the United Kingdom. We have asymmetric devolution, which means that powers have been handed over at different rates in different areas of public life in Northern Ireland, Scotland and Wales, but gradually the devolved regions are moving closer together in terms of the devolved powers that they have. Devolution involves being responsible for your finances as well. The Scotland Bill, which will come to this House very shortly, as has been said, looks at one side of that coin. It gives fiscal responsibility to Scotland. Undoubtedly, that will occur in Wales as well over the next few years. However, the other side of the coin is that in a United Kingdom it is important that we balance the needs of our country by offering the opportunity of a grant which is disbursed according to need around our country. It is just as important for Cornwall as it is for the north-east of England, Wales, parts of Northern Ireland and parts of Scotland. We need to address that need; it is two sides of the same coin.

Therefore, we will need that change over the coming years. It means that we will make a start on the process of moving towards a needs-based formula. It will take time. To get the financial accountability right, the Scotland Bill itself looks to 2018, and I hope that the Minister in his reply will tell us what steps can be taken now that will lead to the post-2015 change that the noble Lord, Lord Barnett, quite rightly talked about.