Funding Formula

Guto Bebb Excerpts

Tuesday 18th January 2011 Westminster Hall

[Alun Cairns]

I shall square that point in a moment, but I do not want to let the previous Government off the hook for their delaying tactics in resolving the matter because of its sensitivity. Whereas Lord Barnett plainly said that it was not fair, the then Chief Secretary to the Treasury said that it was fair enough. That certainly was not good enough for Wales. I regret to say that despite 13 years in office, the previous Government did not have the opportunity to resolve the formula.

[Guto Bebb (Aberconwy) (Con)]

It is important to point out that back in 1999 and 2000, Wales, on average, received £125 for every £100 in England. In 2010-11, Wales receives around £112 for every £100 in England. Therefore, the Welsh treatment under the Conservative Government is significantly better than it was under the Labour party, when there was a significant decline in funding for Wales.

[Alun Cairns]

I will come on to the convergence in a moment. None the less, it is a point that is well made and that should be recognised by the Labour party. It is important not to confuse freedom of devolution, which enables nations to pursue their own policies, with funding. There is naturally a link, but because there is a policy, subsidy or generosity in one particular area, it should not then be used as proof or evidence of over-funding when we consider the whole context.

--- Later in debate ---

[Guto Bebb (Aberconwy) (Con)]

I will be very brief, Mr Dobbin. Thank you very much for calling me. It is a pleasure to serve under your chairmanship this morning. I also want to apologise in advance for the fact that I might have to leave before the conclusion of the debate, because of Select Committee responsibilities.

I congratulate my hon. Friend the Member for South West Bedfordshire (Andrew Selous) on securing this debate. In my view, the debate has been very positive and the spirit in which it has been conducted is something that we should be proud of, because it has not been a case of people complaining about the unfairness of the funding system in relation to England. Instead, the debate has highlighted real concerns about the fact that the current system is possibly unsustainable, because we are creating anomalies that are very difficult to justify in the long term.

I concur with my hon. Friend the Member for Vale of Glamorgan (Alun Cairns), inasmuch as the fact that some of the examples that have been given about the differences, for example, between Wales and England in terms of spending is in danger of confusing the issue of Barnett with the actual effect of devolution. As a Member from north Wales, where one can get to Cheshire in less than an hour along the A55 on a good day, I am very aware of the fact that, for instance, the decisions made by the Welsh Assembly during the past 12 years have resulted in spending on education being significantly less per head in Wales than in England. That is a real concern for people in north Wales, because we can actually see the differences between spending in Cheshire and the spending in north Wales. That is an effect not of Barnett but of the decisions that have been made and the priorities that have been set by the Welsh Assembly. As I said in my contribution to the debate on the issue of student funding, I personally feel that the decision made by the Welsh Assembly, within the Barnett block grant, in relation to funding student fees in future is actually an attack on the Welsh university system, which will be disastrous in the long term for Wales. Again, however, that is a decision that has been made within the funding formula. It is important when we have this debate on the funding formula to be aware of the fact that, on some clearly beneficial spending priorities established by the Welsh Assembly, there are counter-arguments, in terms of examples of spending decisions made in Wales that are actually quite damaging.

There are things that we need to be aware of about Barnett. In the Welsh context, there is concern that there has been a real change in the way in which Barnett works in Wales. I have already highlighted the fact, in an intervention, that in 1999-2000, Wales received on average about £125 for every £100 spent in England. That figure has reduced to about £112 for every £100 spent in England and obviously that reduction has been highlighted in Wales regularly. Therefore, I genuinely applaud the Welsh Assembly for commissioning the Holtham report, because the argument that Wales was underfunded and was being unfairly treated in some way was one that we had heard a lot about. I think that the Holtham report gave a very secure background to that debate and explained that Wales was, in comparative terms, being underfunded, if one takes into account the needs of Wales. That point has been acknowledged in this debate by my hon. Friend the Member for South West Bedfordshire, so it is a genuine issue.

Therefore, there is now a growing need to address the fact that the Barnett system is out of date and is creating a real problem. That situation has been made much worse by the implications of the Barnett squeeze; because of the way that the system works, as spending was increasing, the allocation to Wales on a pro rata basis was not increasing at the same rate.

That brings us to another important point. It has been highlighted by Holtham, and I do not think a single Member of this House would argue against this fact: most analyses of the Barnett formula seem to indicate that, if we try to move to some needs-based formula that is not dissimilar to the one used in England, the effect will be to increase the funding to Wales slightly—even if it is only a slight increase, it would be most welcome—but there would be a significant difference to the funding for Scotland.

That is an issue that we need to think about very carefully, because as my hon. Friend the Member for Vale of Glamorgan pointed out there is currently a block on consideration of the issue. Quite clearly, the Scottish Parliament is not looking to implement any changes, because the advantage is given to it by the current system.

Nevertheless, in my view there is a real issue here, which is the continuation of the happy relationship between the four component parts of the United Kingdom, because ultimately an ongoing sense of unfairness, which has been highlighted from an English point of view, is not compatible with the sustainability of the Union. There is a genuine need to consider coming up with a new formula that will replace Barnett and that will try to be fairer to all parts of the United Kingdom.

The hon. Member for Pontypridd (Owen Smith) made the point that no new system would necessarily result in everyone being happy, but that is not in itself an argument against sticking with a system that was implemented in 1976. Ultimately, it is important that the present Government take the issue in hand, to ensure that we have a system that is fairer to all parts of the United Kingdom.

Finally, I need to make a point about the Welsh context. The hon. Member for Arfon (Hywel Williams) is a Plaid Cymru Member, and his party has certainly been very vocal about the unfairness of Barnett. I think that it is fair to say that when the Holtham report was published there was genuine disappointment among some members of Plaid Cymru that the highlighted shortfall of £300 million was significantly lower than some of the figures that had been bandied around. Shortly after the publication of the report, I took part in a debate in Bangor university with the former president of Plaid Cymru and, in view of the evidence that had been collected, he could not argue that Wales was extremely hard done by under the current system.

[Hywel Williams]

Did I hear the hon. Gentleman say that the possible £300 million increase in funding for Wales was minor?

[Guto Bebb]

It is minor in the context of the unfairness that has been claimed by the hon. Gentleman’s party in the past. Currently, we spend about 112%, compared with the Holtham recommendation of 115%. In view of the fact that in 1999-2000 we were spending 125% compared to 100%, I think that my description is fair. The important point is that it is odd, to say the least, to hear a nationalist party, which now advocates independence, arguing very strongly for a needs-based formula that takes into account the need for transfers from England to subsidise the situation in Wales. I would fully subscribe to that. One of the hard lessons that I have learnt in life is that Wales is part of the United Kingdom, and as a result we accept that there can be transfers between the regions and nations of the United Kingdom to reflect their different needs. I find it odd that a party that advocates breaking that link can also stand up and argue for increased funding from the English taxpayer, to subsidise the situation in Wales.

[Hywel Williams]

I do not want to engage in what might be an internecine struggle, given the hon. Gentleman’s previous membership of my party and his strong advocacy of our policies, many years ago before he jumped ship—apparently on the matter of the currency. Does he accept that the Holtham report makes a three-step recommendation: first, a floor is established; secondly, there is then a needs-based formula; and thirdly, which is the point that the hon. Gentleman mentions, a differential taxation system for Wales is considered? The snapshot that he presents as our policy is certainly not our policy; it is one point on the journey.

[Guto Bebb]

The problem with the hon. Gentleman’s point is that it would require the agreement of the Scottish Parliament and we would have to look at the matter on a UK-wide basis. He is perfectly right to highlight my background regarding the single currency. The crucial issue was that one of the arguments against a single currency was that it was difficult to see how transfers from Germany to Greece, for example, to subsidise that currency could be justified. We now see that situation, and it has been highlighted in a book by my right hon. Friend the Member for Wokingham (Mr Redwood). My view is that we can still justify transfers within the United Kingdom to the different regions of England and to the nations, on the basis that we have a shared heritage and a shared belief that we are part of the United Kingdom. I was of the view that that shared heritage would not be there at European Union level, and we might see that issue tested to destruction this year. I do not want to see the situation that we have in the United Kingdom, with transfers within the Union, destroyed by a clear unfairness in the system. Wales will probably benefit from a needs-based system, but we certainly need to look at the issue during this Parliament because I think that otherwise there will be a growing disenchantment with the system on the part of the English taxpayer, and that would be bad for the needs of people in Wales.

[Jim Dobbin (in the Chair)]

Hon. Members might be interested to know that Lord Barnett was a predecessor of mine. I did not realise that my constituency had such an impact on Government funding.