Wales Bill

Debate between Lord Richard and Lord Thomas of Gresford

Wednesday 15th October 2014 Lords Chamber

[Lord Thomas of Gresford (LD)]

The noble Baroness said that a future Labour Government would address the Barnett formula. Well, they addressed it in the last Labour Government; they appointed the noble Lord, Lord Richard, and his commission to produce a report and then ignored his findings.

[Lord Richard]

That is not right. I was appointed by this House, in accordance with the usual rules for the appointment of chairmen of committees.

[Lord Thomas of Gresford]

I withdraw the term “appointed” but I am sure that the idea was generated by the Labour Government of the day. It was not something that this House thought up of its own accord.

[Lord Richard]

I am sorry but it was an ad hoc committee, which was set up after the Liaison Committee decided that that was one of the subjects on which the House should have an ad hoc committee. That is how the committee came into existence and I was then asked to chair it.

[Lord Thomas of Gresford]

I had misunderstood the basis of that committee, so I withdraw what I said first of all—that the last Labour Government addressed the Barnett formula. They clearly did not and it was a committee of this House, chaired by the noble Lord, Lord Richard, which did address it. The Government then ignored its findings. That is what I am told. I am told that there was a second committee but I am not particularly aware of it.

Where the problem really arises is that the Barnett formula is used as an excuse for the failures of the Welsh Labour Government in the fields of education and other devolved areas. They say, “We don’t get enough money”. As soon as I read of the vows given to the Scottish people by the three leaders, it seemed to me that at that moment the concept of having a formula that could apply equally in Scotland and Wales was dead because one surely has to decouple whatever funding formula eventually applies in Scotland when it exercises its powers from whatever formula happens in Wales when it exercises different and more limited powers. Accordingly, we need something specific to Wales through looking at the needs of its people as opposed simply to dividing money on a population basis.

The whole point of the social contract is that taxes are paid—not to be divided equally per head of population but so that services according to need can be paid for by the government of the day. That is the principle that must be the basis of the way in which Wales is funded in the future.

[The Parliamentary Under-Secretary of State, Wales Office (Baroness Randerson) (LD)]

My Lords, as ever, a debate on the Barnett formula is interesting but I am afraid that from my perspective it is rather too well worn territory.

I start by responding to the comments of the noble Lord, Lord Wigley, in relation to the £300 million to which he referred as the funding gap identified in the Holtham report. The gap has indeed come down in size and it would be very useful to determine the current shortfall. It is particularly important to point out that when the agreement was made between Jane Hutt and the Chief Secretary to the Treasury in an exchange of letters in October 2012, it acknowledged that convergence had ceased to take place, that there was, in fact, divergence and that Welsh funding was within the region of what the Holtham report regarded as fair funding. Therefore, at the moment, there is not a major issue of unfair funding. There may be issues at the edge, but it is not a big problem at the moment, as was acknowledged by the Welsh Government. Of course, that does not solve the problem, because convergence is predicted to start again around 2018. That issue has to be addressed if the gap is not going to widen again. I agree that there is a need to deal with this in the scope of the devolution discussions because it distorts the political debate in Wales. Funding is quite simply blamed for every policy failure. Even if we take the figure of £300 million, in a budget of £15 billion, £300 million is a significant amount of money, but it is not something that could possibly be blamed for every health failure, every education failure and every social problem within Wales. It is not so massive that it is fundamental to the problems that we all acknowledge are faced in Welsh society.

The noble Lord, Lord Anderson, is absolutely right in saying that it is the funding issue that the public are interested in. They do not worry too much in general about devolution, but they are interested in fair funding. The noble Lord, Lord Anderson, referred to the Severn tolls. I look forward to our debates on that in the next Government. Whoever wins the election, there will be debates on the Severn tolls because, of course, the end of that franchise is due in the mid-years of the next Government.

I strongly welcome the acknowledgment by the noble Lord, Lord Richard, that the Labour Party did not deal with the problems of Barnett. Indeed, the Labour Party refused for 13 years to agree publicly that there was any problem with the Barnett formula and it was in those years that convergence was taking place and the funding gap was really growing. It would certainly be the case that Wales would have fewer problems now if that had not been neglected. It is my view, and the Secretary of State certainly agrees, that it is time to look at the funding formula for Wales, and it is my view that one could do this even with the constraints of the agreement that Scotland will retain its current funding. One can look at Wales on a unilateral basis.

The noble Baroness, Lady Morgan, asked me to clarify the Prime Minister’s statement. He simply restated the oft-stated government position on funding in Wales, which is that because the problem of the deficit is our priority, no additional funding can be provided within this Government. That is in no way at odds with the Secretary of State saying that the long-term funding position of Wales needs to be looked at. There is an immediate situation and a long-term situation. The noble Baroness also asked for clarification on the impact of having income tax powers on the block grant and so on and referred to the index deduction method. The purpose of the index deduction method was to protect Wales from big swings in the economy as a whole and the sort of big swings that are due to UK government policy. However, I point out yet again that the Welsh Government have acknowledged that funding is fair at this point, within the region of fairness. Given that the Welsh Government acknowledged that we were in that sort of territory two years ago, it would be a good idea to go for a referendum on income tax powers as soon as possible to give the Welsh Government the maximum opportunities to use the taxation system to increase prosperity in Wales.

I shall very briefly look at the technical details of the amendments. Amendment 56 would require the Secretary of State to lay an independent report on options to replace the Barnett formula. Amendments 59 and 60 would seek to make the devolution of an element of income tax conditional on dealing with the funding formula. They specifically say that income tax can devolve only when the Welsh Government confirm that they are content with how funds are allocated. The progress that this Government have made on working towards fair funding, with the significant exchange of letters in 2012 between the Ministers in the two Governments, can be built on. I urge the noble Lord to withdraw his amendment.

Wales Bill

Debate between Lord Richard and Lord Thomas of Gresford

Tuesday 22nd July 2014 Lords Chamber

[Lord Thomas of Gresford (LD)]

My Lords, this Bill is introduced into the House at a very interesting time, with the Scottish referendum only weeks away. It provides centrally for the introduction of tax powers specifically to permit the Welsh Government to set a rate of income tax, subject to their first obtaining a favourable referendum vote. This is what the First Minister, Carwyn Jones, said about that last November:

“As a Government, we are not pursuing the devolution of income tax, certainly not at this time. The reason for that is we believe that income tax devolution cannot come unless there is reform of the Barnett formula. The funding basis for Wales must be solid first, before we can consider whether income tax devolution will be appropriate and right for the people of Wales”.

I noted that the noble Baroness, Lady Morgan, a moment ago said that she would not lead the campaign for income tax devolution. That continues to be the Welsh Government’s position.

There is a bit of curious thinking in the Labour Party about this, because the Scottish Labour Party’s commission on devolution report explicitly and repeatedly rejects proposals for a needs-based alternative. In an interview on “Newsnight Scotland” on 18 March last, Labour’s Scottish Leader, Johann Lamont, claimed that:

“The Barnett formula works for the United Kingdom”,

which is very different from what was being said a moment ago. She said it works for the United Kingdom, not for Scotland. Well, Labour received its comeuppance in Scotland in the last Scottish Parliament election.

One of the problems—

[Lord Richard (Lab)]

The noble Lord provokes me slightly, since I chaired the commission on the Barnett formula in this House. Is the noble Lord in favour of the Barnett formula remaining in its present form for Wales? Is the Liberal Party in Wales seriously suggesting that the way in which the Barnett formula is calculated at present should remain in that state?

[Lord Thomas of Gresford]

The noble Lord knows perfectly well that the Liberal Democrats are for the reform of the Barnett formula and always have been. I can give that assurance. I am just puzzled to hear what is said by the Scottish Labour Party, which obviously prefers the current arrangements.