Funding Formula

Hywel Williams Excerpts

Tuesday 18th January 2011 Westminster Hall

[Andrew Selous]

The formula was fundamentally on a population basis. If the hon. Gentleman reads the excellent report by the House of Lords Committee on the Barnett formula, which came out in July 2009, he will see the significance of the population issue. I propose that we move to a needs-based formula, and that was the Committee’s unanimous, cross-party conclusion, which was supported by its Conservative, Liberal Democrat, Labour and Cross-Bench members. I think I can assure the hon. Gentleman that I absolutely want to reflect the higher need that is clearly evident in Wales and parts of Scotland so that we are totally fair. The evidence is that we are not doing that now. The situation has become unfair, and that is a danger to the Union.

Let us see what the man after whom the formula is named has said. Speaking of the formula’s creation in 1976, he said:

“I just wanted to get through every day without too much trouble.”

He also said:

“I do not consider it is successful. I do not think it is fair.”

He added:

“I thought it might last a year or two before a government would decide to change it. It never occurred to me for one moment that it would last this long”,

or more than 30 years. Those who pray in aid the Barnett formula should be well aware that its author thinks that it is time we moved on to something that is fairer and that is built on a needs basis.

[Hywel Williams (Arfon) (PC)]

Will the hon. Gentleman refer to the Holtham commission, which looked at the nature of the funding for Wales? It identified that Wales has been underfunded historically to the tune of about £300 million per annum.

[Andrew Selous]

I will most certainly refer to the Holtham commission. What the hon. Gentleman says is quite correct. He should have no fear about what I propose. The Holtham commission came to the same conclusion as the House of Commons Justice Committee report in July 2009 and the excellent House of Lords Committee report, on which there was a good debate on 11 March 2010. The commission really said the same thing as those reports: we need to move to a needs-based formula.

The money given to Wales and Scotland is distributed on a needs basis across the Principality and Scotland. It should not, therefore, be too difficult to put together a needs-based formula to allocate the money. That is difficult to argue against, and as I said, leading members of the Conservative, Labour and Liberal parties came to the unanimous conclusion in the House of Lords Committee report that we should move to such a formula.

I want to spend a little time explaining why the situation is unfair for England. We sometimes look at the Barnett formula as if it is just about Scotland, Wales and Northern Ireland. As a committed Unionist, however, I think we also have to remember the English. I do not, in any sense, say that apologetically; I just think we need to be fair to everyone, because poor people in England have similar rights and should also be treated fairly.

Council tax in Scotland has been frozen for a considerable number of years. Many of my constituents have worked hard all their lives to buy the home they love, but some are forced to sell their homes because they cannot afford the council tax, which goes up year after year. Is that fair?

I also think of business rates. I represent a town called Dunstable, which recently had 56 empty shops in its high street. Many shopkeepers told me time and time again that business rates were driving them out of business. Hon. Members might therefore be interested to know that business rates in Scotland were reduced by 80% for businesses with rateable values of up to £8,000 in 2008-09 and scrapped entirely in 2009 and 2010. Business rates were cut by half for businesses with a rateable value of up to £10,000 and by up to 25% for those with a rateable value of up to £15,000. Of course, I commend the Minister for recognising that unfairness as far as England is concerned and for bringing some relief, although it is not as much or as generous as elsewhere. I thank her and her Treasury colleagues very much for what they have done, but there are businesses that would still be operating in my constituency and paying tax revenue to the Treasury had we applied that relief earlier and more fairly across the United Kingdom.

Since 2002, personal care in Scotland has been given without reference to need, whereas it is time limited and not available in the same way in England. Prescription charges are much lower in Scotland and will be abolished completely by April. They do not exist in Wales. Why should people in the same circumstances in England have to pay prescription charges? On hospital car parking charges, it costs £2.50 per visit to park at my local hospital. If someone on a low income has a family member in hospital for a long period, those charges will be significant. Again, such charges are not paid in Scotland.

This year, the situation with tuition fees and education maintenance allowance really was the straw that broke the camel’s back for a lot of people in England. English Members have been receiving lots of letters about education maintenance allowance and the fact that it is to be replaced by a discretionary grant; but of course it is being kept in Wales, Scotland and Northern Ireland. There will continue to be no tuition fees for Scottish students and there will be no increase in the fees for Welsh students, while those of English students will double. Therefore, in a few years’ time, a Scots graduate, a Welsh graduate and an English graduate, working in the same company and the same office, perhaps having done similar courses, and earning the same salary under the same taxation system, will be paying back hugely different amounts of debt. How are we supposed to explain to our constituents that that is fair? My children are already giving me considerable grief on the subject, as they look to the university fees that they will no doubt pay in a few years. It is frankly not fair, and I defy any Scottish or, indeed, Welsh Member to say that the system is fair to the English.

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[Andrew Selous]

I will now move on to what I think we should do about the situation. I am proposing a needs-based way of allocating the block grant, reflecting current populations and needs, which are worse in England in some cases than in Scotland, and significantly worse in Wales than in some parts of England. That should be recognised because there is a fair, open and transparent way of proceeding, but at the moment much of what the Treasury does is not transparent. Crossrail, for example, was at one moment a UK project, designated by the Treasury. The next minute it was designated an English project so that there could be a Barnett consequential, and Scotland could get an extra £500 million. That may or may not have been right, but what was the process? Was it open to transparent scrutiny so that people in Wales and England could see that it was fair? In one year, the Treasury suddenly said that there was a £900 million underspend for 2007; that was allocated to the Scottish budget. That may have been correct, but at the moment everything is done deep in the bowels of the Treasury. I do not say that there has not been fair play, but there is a need for the process to be more open and transparent. The Treasury is judge and jury in its own court, in a process that is not open to scrutiny. I do not think that that is right.

[Hywel Williams]

I agree largely with what the hon. Gentleman has been saying. I want to point out the value of considering not only differences between Scotland, Wales and England but the interesting regional differences in England. It would be very useful for hon. Members from the north-east, for example, to look at those. Perhaps the hon. Gentleman will refer to them later.

[Andrew Selous]

The hon. Gentleman is right. There are significant differences. I am an east of England MP, and that region has the lowest spending of any region in England. Perhaps that is why I get increasingly angry communications from my constituents on the matter.

Having outlined the problem and some of the unfairness, I want to talk more about what we can do. I direct my hon. Friend the Minister to the excellent conclusions of the House of Lords report of 2009 on the Barnett formula. The report looked across the world to Australia—I declare an interest in that my mother was Australian, but that does not affect whether I think the Australians have a fair and good solution, from which we could learn. In Australia, the Commonwealth Grants Commission is an independent body charged with the responsibility of dividing the cake between the Australian states and territories. It is an advisory body to the federal Government and its impartiality is completely accepted by the states and territories of Australia. I understand, and agree with Government colleagues, that we are not looking to set up extra quangos. If my hon. Friend does not want an extra quango my proposal is that we should add the specific responsibilities in question to the remit of the Office for Budget Responsibility. However, if she says that that is too much for the OBR, it is not fair to tell me that we should not have an extra quango. I would be happy to go either way, with whichever option seemed most sensible and would cost the Government less. We could add the responsibilities to those of the OBR, but if we wanted a separate body we could have one. Given the figures involved—the sums of public spending—it would be a serious body.

What the Committee in the House of Lords proposed was only illustrative. If the Government have other or better ideas, or if colleagues from either side of the House want to contribute ideas about what the needs-based formula should include, let us start the debate now. Let us get ideas rolling into the Treasury, so that we can proceed with total fairness.

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[Alun Cairns (Vale of Glamorgan) (Con)]

It is a privilege to serve under your chairmanship, Mr Dobbin. Before the debate started, I forewarned you that I may have to leave early because of my Select Committee responsibilities, and I apologise for that.

I congratulate my hon. Friend the Member for South West Bedfordshire (Andrew Selous) on securing this debate. I recognise and support the spirit in which he has raised this sensitive matter, which affects all the nations and regions of the United Kingdom. He has underlined the point that we have a reforming Government and that bold steps need to be taken to come up with a formula that will serve all the nations and regions in a positive and constructive way that is dependent on need. The debate has been going on for some time in Wales. Even before the evidence was as stark as it is now, there was a view that relative deprivation in Wales meant that the Barnett formula was not serving Wales well.

A mathematical formula, such as the Barnett formula, offers significant advantages. The first advantage is that it offers a guarantee of funding, particularly to devolved Administrations, who need such a guarantee to plan, which prevents, for example, the Welsh Assembly Government, or the Wales Office on its behalf here in Westminster, becoming involved in horse trading year on year. Such a mathematical formula obviously offers that guarantee. The second advantage is that in times of limited or reduced spending, the Barnett formula offers protection to the devolved Administrations.

On the other hand, there are significant disadvantages with the formula being so far out of date, and I regret the time that it has taken to get to this point. The previous Government should accept their responsibility for leaving it so long. Despite Lord Barnett’s strong view that the formula needed reform, it was not accepted. He plainly said that the formula was unfair.

[Hywel Williams]

My memory of that slightly pre-dates the hon. Gentleman’s. I draw his attention to numerous debates over many years when Front-Bench spokesmen on both sides used the formulation, “The Barnett formula serves Wales well.” The hon. Gentleman should concede that both Conservative and Labour Governments were staunch defenders of the Barnett formula. My party, of course, took another view.

[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.

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[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.

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[Hywel Williams (Arfon) (PC)]

I very much welcome this debate, and I congratulate the hon. Member for South West Bedfordshire (Andrew Selous) on securing it. The issue has been possibly an obsession of my party for many years, and so I am glad to see other people sharing that obsession—or disability.

I should like to focus briefly on the Barnett formula and on Wales, rather than on the English regions, because there are clear implications for the English regions, as I have already said. There are great differences between the funding for the regions within England, and the debate on that can be informed by looking at what has happened in Wales for many years. We have already heard that the Holtham report points out the requirement for Wales now to have a needs-based assessment. In fact, such assessments have been needed in Wales for many years, and they are already carried out in some English regions. The Barnett formula was developed in the ’70s and implemented in 1978—not in 1976, as has been said. It was based on historical spending and the size of the population—basically on the success of Ministers in extracting money from the Treasury pre-1978. It is a converging formula, and we have seen it in operation for many years. Between 1999 and 2007, public spending in England rose by 33%, and in Wales by 28%. That is the nature of convergence: public spending rose, but less quickly in Wales.

[Mark Lazarowicz]

The hon. Gentleman’s point needs to be underlined, because although many people suggest that the Barnett formula gives an unfair bias towards Scotland and Wales, it is in fact designed to level their expenditure down to the English average. It is not in any sense a formula that protects Scotland and Wales.

[Hywel Williams]

The hon. Gentleman makes a good point, but my point is that it is a converging formula, and that Wales is gradually losing out. Jumping forward to one of my later points, Holtham called for a floor to be established, and the right hon. Member for Neath (Mr Hain) referred to that before the election. We have consistently called for public sector funding in Wales to be based on needs, and our calls have been ignored and rejected. I do not know how many times I have heard the right hon. Member for Neath, and current Government Members, saying that the Barnett formula has served Wales well. Joel Barnett himself said, in a statement on 11 January 2009:

“I only meant the Barnett formula to last a year, not 30…One of the problems is that it was not based on need. It determined on the basis of population how much more or less funding Scotland should receive when cuts or increases in public spending were being made across the United Kingdom.”

I note, however, that the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) used his appearance at the Wales Labour pre-election conference last year to call Barnett a needs-based formula. It is, of course, no such thing.

The report produced by Gerry Holtham has received the support of all the main political parties in Wales, and I am glad there is a measure of cross-party consensus this morning. The report calls for a floor to prevent further erosion of Welsh funding, for the reform of the formula to make it a needs-based one, and to at least stop, if not necessarily correct, the historical underspend on Welsh services. It then calls for differential taxation to be considered, to ensure that the Welsh Government take greater responsibility for their own spending. As I have noted many times in speeches in this place, the Welsh Government get a very large amount of money and are responsible for raising not a single penny piece of it, which is, I think, a fundamentally bad situation.

The underspend in Wales has been recently estimated at around £300 million—a significant sum—and there has been a knock-on effect on the private sector, as I am sure the hon. Member for Aberconwy (Guto Bebb) knows. The public sector in Wales is so large and is such a significant purchaser of goods and services, that if it were to have more money there would be a knock-on effect on the private sector. Because the formula reflects an historical position rather than an assessment of need, it has put Wales in a fundamentally weak position. We are funded on the basis of proportional Government spending in England and Wales, or in Great Britain, depending on the circumstances. Spending in Wales has been largely subject to changes in Government priorities on an England, England and Wales or GB basis, so we follow those priorities. We now have a Government in Cardiff who cut the cake as they see fit, but of course the size of that cake always depends on other matters. Hospital parking and prescription charges have been referred to, so I will not pursue those issues given the time.

How to define need has been discussed somewhat. I point hon. Members to the Holtham commission’s report, which suggests six steps based on such considerations as the number of old and young people, rurality and so on. The point was made that that might be complex, but that does not mean that we should not do it. I point hon. Members to an interesting example: the Welsh index of multiple deprivation, which has replaced the Townsend index of poverty. The Welsh index is complicated, but it is very effective. It can be done.

The Government have been clouding the issue by considering Wales’s funding as something that can be postponed until the recession is over. It must be examined now, for good reasons of governance in Wales and to eliminate the reasonable feelings that the hon. Member for South West Bedfordshire mentioned. Will the Minister tell us when the Government intend to start considering the Holtham inquiry’s recommendations for Wales and, more broadly, for the rest of the UK?

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[David Mowat (Warrington South) (Con)]

This has been an important debate, focusing more on Wales than on Scotland. There is a disparity in Wales—the figure of £300 million has been mentioned—but it is dwarfed by the Holtham estimate of the disparity in Scotland, which is £4.5 billion. Many English Members of Parliament, particularly those from the north, are being forced to go back to their constituencies and defend an austere budgetary environment. It is tough to do so when £4 billion a year over and above the needs-based amount is being sent to Scotland.

I have two quick points to make; I will finish by 10.40. We use the term “needs-based” a lot. The real issue is not need; it is population movement. We could continue to use the Barnett formula of 1976 if we adjusted it for the population changes that have occurred since then. It would be a simple arithmetical adjustment. It is true that a needs-based analysis could be complex, but that change is not required. We need only to adjust the formula for relative population movement, and it would eradicate two thirds of the current imbalances.

[Hywel Williams]

The hon. Gentleman is coming to the point that I wished to make. It is a converging formula, so there are issues other than population change to be considered.

[David Mowat]

It is not wholly a converging formula; I do not agree. For example, if the baseline population is not adjusted in arithmetical terms, it means that if the population of Scotland fell to one, that person would get all the money. We do not change it for population, which is indefensible. As I said, I regret the fact that there are no Members from Scotland here, unless I am misinformed.

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[Kerry McCarthy]

I am saying not that it is impossible to achieve, but that it is difficult. The Barnett formula was established in the 1970s and people have said that the implication was that it was intended to be in place for only a year. A Labour Government operated under the Barnett formula for 13 years, but a Conservative Government operated under the same formula for 18 years, so this applies to successive Governments. Although there were criticisms, they were unable to find the ideal solution to replace it. Devolution has bedded in and there has been a call from the devolved Assemblies for more powers, which is going to throw the issue into the spotlight again. It is time to revisit it.

[Hywel Williams]

Is the hon. Lady, as a Front-Bench spokesman for the Labour party, saying that the Barnett formula is serving Wales well now? If that is not what she is saying, what is her argument for not changing it as soon as possible?

[Kerry McCarthy]

The argument for not changing the formula as soon as possible is exactly as I have said. At a time when spending cuts are hitting Welsh people, as well as people throughout the rest of the UK, and when changes are afoot and the Welsh Assembly is arguing for it to be given similar powers to those of the Scottish Parliament, we have to look at all those things in the round. There is no immediate solution or magic bullet that will sort the matter out. I accept the case made by my hon. Friend the Member for Pontypridd, who feels that a needs-based formula would serve the UK better.

I am conscious of the time so, to sum up, I shall just say that we accept that the Barnett formula is not perfect and that the situation needs to be reviewed. However, we would be very worried if there were a rush towards jettisoning the Barnett formula overnight. We must deal with the matter in a measured, considered way and with an acknowledgment that devolution is at the heart of the matter. There are devolved powers and we cannot expect Scotland and Wales to conduct their spending and financial affairs in exactly the same way as the rest of the UK.

[The Economic Secretary to the Treasury (Justine Greening)]

It is a pleasure to serve under your chairmanship, Mr Dobbin, particularly given your constituency’s links to the debate today, which became apparent during the discussion. I congratulate my hon. Friend the Member for South West Bedfordshire (Andrew Selous) on initiating an excellent debate. All hon. Members have made some articulate, well-argued points and I will do my best to try to respond to them during the next nine minutes. Given the fact that so many points have been made, if I do not cover all the issues, I will write to my hon. Friend afterwards to amplify them.

I shall start by being frank. As my hon. Friend is aware, the Government’s priority is to tackle the fiscal deficit. Although we do not have any current plans to review the Barnett formula, it is also fair to say that we accept it is not written in stone. Therefore, we look with interest at debates such as this one. The current statement of funding policy that we issued in October 2010 after the spending review was made in consultation with the devolved Administrations. Before I get on to some of my more detailed comments, I shall state a problem and then an observation about the issue. The problem is that, as the former Chief Secretary to the Treasury in the previous Government said, there is no money left. My observation on the debate is that I do not think anyone is arguing for a change in the Barnett formula on the assumption that their local community will come out of it with less money.

Those are the two challenges that we face. Hon. Members are absolutely right to make the case for the funding that their local communities need. The challenge is to ensure that we get the most out of the constrained pot that we have and to ensure in the future that the formula works effectively, whether that is at the Barnett level or at the England local government level, not just in terms of the absolute cash that goes in—there has been much discussion about cash per head and various Government policy areas—but critically in terms of what comes out. Despite today’s debate, we should never lose sight of the importance of discussing the quality of policy alongside the quantity of money that is going in. The cautionary tale is that the Barnett formula, which Lord Barnett said was only ever intended to be a short-term measure, has actually had a longevity that no one anticipated. It is worth while Ministers of today and tomorrow pondering the fact that, even if we think the decisions we take today are short-term, they might ultimately prove to be far more long term than we realise.

[Hywel Williams]

Is the Minister saying that underfunding in Wales will be addressed only when the economy grows and when we can afford to do so in a way that we currently cannot? Does she accept that that is irrelevant to the fact there is unfairness now?

[Justine Greening]

I shall make two points about the hon. Gentleman’s intervention. First, Wales is well funded. Secondly, let us consider how the Government have approached the spending review. It turns out that, because of how the formula works, the decisions we took to protect the NHS budget and the education budget in cash terms and in terms of schools has meant that the Welsh Assembly Government have probably received a more generous settlement out of Barnett than they would have if the previous Administration had stayed in office.

On the points raised today, clearly there have been a number of inquiries and reports on the Barnett formula and the devolution settlement. One such review is the Calman report on Scotland. As we have heard, the Scotland Bill is passing through Parliament and my hon. Friend the Member for Warrington South (David Mowat) is right to say that the legislation will devolve some of the financial management of income tax to the Scottish Government. However, I can assure him that it will not fix the Barnett formula in stone for the future. A further aspect to the Barnett formula is the Holtham commission, the findings of which illustrate the point I made at the start of my speech. The Holtham commission considered how a needs-based formula would work for Wales and said that such a formula would mean Wales got more, which would put more funding pressures on settlements for other areas. That shows that there are no easy answers to the debate.