Funding Formula

Debate between Hywel Williams and Mark Lazarowicz

Tuesday 18th January 2011 Westminster Hall

[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?