Devolved Budget for Wales: Inflation

Baroness Penn Excerpts

Wednesday 15th March 2023 Lords Chamber

[Baroness Wilcox of Newport]

To ask His Majesty’s Government what assessment they have made of the potential impact of inflation on the devolved budget for Wales.

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

The Welsh Government are well funded to meet their responsibilities. The 2021 spending review set the largest annual settlement in real terms since the devolution Act. The settlement is still growing in real terms over the spending review period. The Welsh Government also have their own tax and borrowing powers. In addition, the UK Government are supporting households UK-wide with the cost of living, supporting businesses, charities and the public sector with their energy bills.

[Baroness Wilcox of Newport (Lab)]

I thank the Minister for that Answer, but I need to make her and the House aware that Wales is facing a perfect storm of pressures, with austerity, the pandemic, the cost of living and high inflation. Our economy and public services in Wales are very fragile. Simply put, it seems that the UK Government have abandoned Wales to meet these pressures alone. With the funding from last autumn’s Budget Statement, inflation means that our settlement is still worth up to £3 billion less in real terms and £1 billion less next year. What can the people of Wales hope for from the UK Government’s latest Budget today—more of less?

[Baroness Penn (Con)]

My Lords, I reiterate to the noble Baroness—and to the Welsh Government—that the Welsh Government, in the 2021 spending review, received the largest annual settlement in real terms since the devolution Act. I also say to the noble Baroness that, with the inflation that we are facing across the country, the budget is still growing in real terms across the spending review period. The Autumn Statement included additional funding for Wales, and today’s Budget means that the Welsh Government will receive an additional £180 million through the Barnett formula across the next two years. Measures that we are taking across the UK in today’s Budget will benefit Wales: the extension of the energy price guarantee; the freezing of fuel duty; and the doubling of draught relief, which will support more than 2,000 pubs and bars in Wales. There is much to be welcomed in today’s Budget for Wales.

[Lord Morgan (Lab)]

My Lords, is it not the case that Wales has been inadequately funded under both Labour and Conservative Governments? Many reports have been debated in your Lordships’ House. I recall the noble Lord, Lord Forsyth, saying how inadequate it is. The Barnett formula is a fraud; it seriously underfunds Wales. Furthermore, Wales in any case suffers from long-term problems in matters such as housing and education, which relate to the fact that Wales is bracketed with England—a bad idea in the first place. We need something much more substantial than what were—I agree with the noble Baroness—some beneficial points today. Otherwise, Wales will continue to lag behind.

[Baroness Penn (Con)]

I believe the noble Lord was referring to the Lords Committee on the Barnett Formula in 2009, which called for a review of that, including implementing a needs-based factor. That is exactly what we have done through implementing the recommendations of the Holtham commission, which found that the Welsh Government should have at least 15% more per person than equivalent UK government spending to reflect the Welsh Government’s additional needs. In fact, that figure is 20% more per person in the 2021 spending review, which is about £1 million more each year than the Holtham commission indicated and which the Welsh Government agreed was fair for Wales relative to England.

[Lord Wigley (PC)]

My Lords, did not the Holtham commission have as one of its three points the need to do away with the Barnett formula as it exists and to replace it with a needs-based formula? That has not been accepted by the Government. Will they please think again?

[Baroness Penn (Con)]

Instead of removing the Barnett formula, we have amended it to include that needs-based factor. The Barnett formula is simple and efficient and provides a clear and certain outcome. With the addition of the needs-based factor, the people of Wales have the guarantee that funding based on their own needs will not fall below the assessment of where those needs are.

[Lord Hannan of Kingsclere (Con)]

My Lords, inflation did not come as some act of God; it was caused by paying people for two years to stay home and printing money to cover the difference. Is it not odd that those who called for the longest and strictest lockdown, including not least Labour’s Administration in Wales, now complain about it and demand more of the medicine that sickened the patient? Will my noble friend the Minister confirm that no one ever tamed inflation by spending more money?

[Baroness Penn (Con)]

My noble friend is absolutely right about the importance of reducing inflation. That is why it is so important that the measures we have taken in the Autumn Statement and today’s Budget mean that, when we get to the end of this year, inflation is more than halved, meeting one of the Prime Minister’s five pledges to the United Kingdom.

[Baroness Humphreys (LD)]

My Lords, last month the British Dental Association warned that NHS dentistry in Wales could disappear. In Cardiff and the Vale of Glamorgan alone, around 15,000 people are on two-year waiting lists, more than 8,000 of whom are children. Given the financial constraints already referred to and the imposition by the UK Government of a 3.5% cap on the dentists’ remuneration body—leading to 13% saying that they would hand back their contracts this year—how can the Welsh Government run an efficient and viable service?

[Baroness Penn (Con)]

My Lords, I believe that is a question for the Welsh Government, as it is a devolved area. On funding, I just go back to the point that the Welsh Government have had a record settlement. At the Autumn Statement we put increased money into the NHS and social care, which of course would have flowed through to Wales as a result of the Barnett consequentials. What the Welsh Government choose to do with that money is a matter for the Welsh Government.

[Lord Lexden (Con)]

My Lords, is it not extremely difficult to secure throughout our country the high level of prosperity that we would all like to see? My noble colleagues from Northern Ireland will testify to that.

[Baroness Penn (Con)]

It is a difficult thing, but one that this Government are committed to. That is why I am so pleased to see that as a result of the measures announced in this Budget today, we have seen the OBR adjust its growth forecasts upwards by the largest amount based on supply-side reforms since its establishment in 2010.

[Lord Morgan (Lab)]

My Lords, the noble Baroness mentioned the Barnett formula in terms of great approval. How does one reconcile that with the view of Lord Barnett about his own formula when he said he was deeply ashamed of it? Why are the Government not equally ashamed?

[Baroness Penn (Con)]

My Lords, I believe we are having a whole debate this evening about the Barnett formula. I simply say to the noble Lord that, yes, all allocation systems have strengths and weaknesses. The reforms I spoke about earlier in this Question, introducing a needs-based factor into the Barnett formula for Wales, have addressed one of the major weaknesses that was identified.