UK and Welsh Governments (Finance)

Glyn Davies Excerpts

Tuesday 11th September 2012 Westminster Hall

[Hywel Williams]

My hon. Friend makes a very pertinent point. The question was asked of me in preparation for this debate whether one set of discussions needed to be concluded before the other set of discussions could be concluded. Do we not need to wait until the questions about responsibility are decided before we decide what the financial settlement is? My hon. Friend makes a very good point. What I am looking for in this debate is some answers from the Minister, who perhaps can enlighten us. My understanding is that, with the intergovernmental discussions, no communiqués are issued. Ministerial statements have lacked detail. Freedom of information requests have been refused or severely curtailed. Written questions have produced stonewalling answers. There is little information in the public domain and there is no schedule for reporting as there is with the Silk commission.

Therefore, as I said, my aim in today’s debate is simply to obtain some information on who is involved in the meetings, what is happening, what progress they have made, when they will conclude and how they will be reported. The debate is an opportunity for the Government and, indirectly, their interlocutor in Wales to report back to the Welsh people in their favourite forum—Parliament here in London—so here is an open goal for the new Minister.

Let me set out the headings of the matters that I would like the Minister to address. The primary aim of the discussions, as I understand them, is to consider the conclusions reached by the Holtham commission about the block funding grant for Wales—the so-called and now much-criticised Barnett formula. I say “now much-criticised”, as the Barnett formula had no stauncher defenders than members of the previous Administration, who repeatedly referred to it as

“a good deal for Wales”—

that is, until they were no longer in government. Then it was all awful.

The Holtham commission, as we well know, found that the Barnett formula was “not fit for purpose”. There was agreement with that in a variety of other reports issued at the same time from the House of Lords, the House of Commons and the Calman commission and in discourse between political parties and the various parts of Welsh civil society. That is because Barnett is unrelated to the relative needs of each of the devolved Administrations. Instead, it depends on the spending decisions made by individual Departments in England, so the amount of money spent in Wales depends on the amount spent in England. More than that, the formula is intended to converge with the English average, irrespective of whether that helps the people of Wales. That was the initial intention at least—a converging formula.

The amount of money that we get is decided not according to our needs, but according to the formula; and the gap between the amount of money that we need and the amount available is growing. The Holtham commission estimated, conservatively, that there was a gap of about £400 million between the amount of funding that Wales receives and its relative needs. However, those figures are now several years out of date, as well as being based on spending estimates rather than the final budget. More recent estimates by our colleague, Dr Eurfyl ap Gwilym, suggest that the difference in 2010-11 could have been as high as £680 million, not £400 million.

My worry, therefore, as far as the discussions are concerned, is that if we accept the much-touted suggestion of a Barnett floor to prevent further convergence, we will lock ourselves into the existing inequality. The Barnett floor might actually become a Barnett ceiling. The question for us today and for the people of Wales is at what level that might be set. Would it be at 112% of need, 113% or 114%, as Holtham suggested? The answers to those questions are crucial.

[Glyn Davies (Montgomeryshire) (Con)]

Members of all parties are concerned about the operation of the Barnett formula. I have always taken the view that we cannot deal with the situation in Wales without dealing with the situation in Scotland, because there is a huge overpayment to Scotland. Does the hon. Gentleman accept that the only way of resolving the issue is to deal with Scotland and Wales at the same time?

[Hywel Williams]

I will give a plain answer to a plain question: the Barnett formula should be reformed and we should do whatever it takes to reform it. My concern, as a Welsh MP, is the effect on Wales, and the effect on Wales is very damaging. That is the point. That is why I want answers from the Minister.

Time is catching up with me, so I will press on. We would also like the Minister to report on the housing revenue account subsidy, which my hon. Friend the Member for Carmarthen East and Dinefwr (Jonathan Edwards) has brought up repeatedly. According to a freedom of information request, though they may not realise it, council house tenants in Wales have donated more than £1 billion to the Treasury since devolution began. This year, the estimate is that £73 million will be returned. There is no such scheme in Scotland or Northern Ireland—it never existed—and the scheme in England, which had major changes made to it anyway about 10 years ago, has been scrapped. In answer to a written question, the former Secretary of State confirmed that it would be part of the bilateral discussions, so, I again ask the Minister, what is happening or—to coin a phrase—what’s occurring?

The role of the Welsh Government and their borrowing powers is the third issue on which I want to question the Minister. That was supposed to be part of the bilateral discussions, and the Silk commission is examining it as well. The Welsh Government have limited borrowing powers. The right to borrow to invest would make a significant difference. I know that what I am going to say will not find favour on the Government side of the Chamber: if we were to follow Keynesian principles for public sector investment, when the private sector would not do so, borrowing powers could be hugely significant for the Welsh Government. They could make investment decisions for themselves.

Does it not seem odd to people outside this place that the Welsh Government do not have borrowing powers, but local authorities do? The next strand of government down has such powers, but not the national strand in Wales. We, in Plaid Cymru, believe that significant borrowing powers should be devolved to the Welsh Government. Borrowing limits should be based on an assessment of sustainability and affordability—two principles that I am sure will find favour with the Minister. We are not advocating a spending spree. The Welsh Government should be entitled to set an annual borrowing limit for themselves, which they consider affordable. We also believe that the Welsh Government should be free to issue bonds or obtain commercial funding, as well as use the services of the Treasury’s Debt Management Office. That would enable the Welsh Government to decide which borrowing mechanism best suited their requirements. What progress can the Minister report?

As part of the Holtham discussion on borrowing powers, it was recommended that the Welsh Government have unfettered access to end-year flexibility funds—the money left over at the end of the year. It was a matter of great disappointment to, I am sure, all Welsh MPs—well, nearly all—that an unspent £386 million voted to the Welsh Government by Parliament was clawed back by the new Government in 2010. A huge amount of money disappeared down the M4, again. Previous end-year flexibility reserves were invested in projects such as the strategic capital investment framework. The money has been well used. By removing that £386 million of end-year flexibility, the UK Government in effect removed a significant sum of money from the poorest part of the British state. It would have been useful for job creation, keeping people in work and a host of priorities that all Members share.

There we are. I look to the Minister for answers. There is a new Cabinet, and a chance for a new openness and new dialogue with the people of Wales, or possibly not—let us see.