Wales Bill

Lord Richard Excerpts

Wednesday 15th October 2014 Lords Chamber

[Lord Richard (Lab)]

My Lords, I start by declaring an interest. Some years ago, I had the privilege and honour of chairing the committee of your Lordships’ House that looked into the operation of the Barnett formula. It was an extraordinary committee. On it, among other people, we had a former Chancellor of the Exchequer, two former Secretaries of State for Scotland, assorted junior Ministers, and other Members of your Lordships’ House. The committee came to the unanimous conclusion, set out in a report, that the Barnett formula was out of date, inefficient, basically unfair and ought to be replaced. One of the most substantial parts of evidence we had was from my noble friend Lord Barnett himself. He said that he thought it was out of date and inefficient and was never intended to last this long—that it was introduced as a temporary measure in about 1977 or 1978 and not designed to be semi-permanent. It was meant to last a year or so and then expire. I put it to him whether it was fair to say that it ought to be replaced. He said, “Yes, perfectly fair.” He has persisted in that view.

Where are we on this issue? Here we have a formula, introduced nigh on 40 years ago, which still determines the basis of the block grants for Scotland, Wales and Northern Ireland. It is based on evidence garnered in the 1970s, and is not based on needs but rather on population. You hear the argument frequently that you cannot have a formula based on needs because it is too imprecise and difficult to do. I would commend that the people who veer in that direction of the argument read the evidence that we produced in that report about six years ago. There was a detailed examination of a needs-based formula and the evidence then seemed quite conclusive, as it does now. The Barnett formula is unjust and unfair. Wales is unfairly discriminated against as a result of the operation of the Barnett formula.

No Government in recent years have been prepared to take this issue on. In terms of the Labour Government which left office in 2010, the then Chief Secretary to the Treasury appeared before our committee and said that he thought the operation of the Barnett formula was broadly sort of fair. Indeed, the then Secretary of State for Wales even came in front of the committee and said he thought it was sort of fair. Of course, the Secretary of State for Scotland thought it was extremely fair. The Secretary of State for Northern Ireland also did not dissent from that general proposition. I was appalled, frankly, at the evidence that we got from the Chief Secretary to the Treasury and the Secretary of State for Wales. Nothing has changed. Things have not got better as far as the Barnett formula in Wales is concerned: on the contrary, they have got worse. Something has to be done about it. We really cannot go on with this.

Although I have held the view for some time that the formula’s time has come and that it should be quietly expunged from the public record, I was surprised and, indeed, somewhat appalled to see the three party leaders re-emphasise in the Scottish referendum campaign that it should continue to apply to Scotland. If it is said that it should continue to apply to Scotland, on what basis should it do so? Does that mean that it should continue to apply to Wales? If so, will Wales be asked to put up with what is, by almost everybody’s admission now, a basically unfair system of allocation of resources from central Government to Cardiff? Are we really going to be asked to put up with this because the party leaders went up to Scotland at the end of the referendum campaign and made what is, on the face of it, an extraordinary offer to the Scots? If the party leaders want to keep the Barnett formula for Scotland, so be it, but they should not be prepared to inflict it upon the Principality in perpetuity. It is basically unfair, unjust and out of date, and something should be done about it.

[Lord Howarth of Newport]

My Lords, it is enough to make one weep that, in the run-up to the Scottish referendum, political leaders felt themselves driven by expediency to pledge to retain the Barnett formula. As my noble friend Lord Richard explained to the Committee, it is one of the great injustices and malfunctions of government in this country over the past 40 years and a lamentable lack of statesmanship has prevented it being reformed. There was a great opportunity in 2010. The Conservatives had nothing to lose in Scotland. With universal recognition of the need for austerity, there was a political opportunity to deal with it then. That has been made infinitely harder now by the rash and unprincipled pledges that have recently been made.

The report of the committee of my noble friend Lord Richard is unanswerable. We debated it in your Lordships’ House and there was not a scintilla of a persuasive argument to defend the status quo. Indeed, I do not recollect anybody even trying to defend it. The pledges that have been made will come back to bite their authors because I cannot foresee how we can make progress towards new constitutional arrangements in this country following the referendum in Scotland and following the pledges that have been made in respect of devolution so long as there is such a fundamental inequity in public financing. I cannot see how there can be a fair and acceptable new set of arrangements while the Barnett formula is retained.

The noble Lord, Lord Wigley, spoke extremely well and constructively with his practical suggestions as to how we might try to develop a sort of fallback position. My noble friend Lord Richard suggested that if the Scots are to retain their advantage, it may none the less be possible to find ways at least to reduce the inequity for Wales. However, it seems to me that that path also bristles with political difficulties because, if public spending is a zero-sum game, if there is to be more for Wales, then it has to come from somewhere and if the Scots are allowed to retain their present advantages, then it will come from Northern Ireland or, more likely, from England. However, there is, rather belatedly, a growing recognition in the regions of England that the Barnett formula is a lousy deal for the English. I cannot see that there is a path towards remedying at least a part of the injustice from which the people of Wales suffer if it is to be done directly at the expense of the people of England. Hasty pledges have placed us all in immense difficulty but I look forward to hearing from the Minister or the noble Lord, Lord Bourne, who may be able to pluck a solution out of the hat, although I somehow doubt it.

--- Later in debate ---

[Lord Thomas of Gresford (LD)]

The noble Baroness said that a future Labour Government would address the Barnett formula. Well, they addressed it in the last Labour Government; they appointed the noble Lord, Lord Richard, and his commission to produce a report and then ignored his findings.

[Lord Richard]

That is not right. I was appointed by this House, in accordance with the usual rules for the appointment of chairmen of committees.

[Lord Thomas of Gresford]

I withdraw the term “appointed” but I am sure that the idea was generated by the Labour Government of the day. It was not something that this House thought up of its own accord.

[Lord Richard]

I am sorry but it was an ad hoc committee, which was set up after the Liaison Committee decided that that was one of the subjects on which the House should have an ad hoc committee. That is how the committee came into existence and I was then asked to chair it.

[Lord Thomas of Gresford]

I had misunderstood the basis of that committee, so I withdraw what I said first of all—that the last Labour Government addressed the Barnett formula. They clearly did not and it was a committee of this House, chaired by the noble Lord, Lord Richard, which did address it. The Government then ignored its findings. That is what I am told. I am told that there was a second committee but I am not particularly aware of it.

Where the problem really arises is that the Barnett formula is used as an excuse for the failures of the Welsh Labour Government in the fields of education and other devolved areas. They say, “We don’t get enough money”. As soon as I read of the vows given to the Scottish people by the three leaders, it seemed to me that at that moment the concept of having a formula that could apply equally in Scotland and Wales was dead because one surely has to decouple whatever funding formula eventually applies in Scotland when it exercises its powers from whatever formula happens in Wales when it exercises different and more limited powers. Accordingly, we need something specific to Wales through looking at the needs of its people as opposed simply to dividing money on a population basis.

The whole point of the social contract is that taxes are paid—not to be divided equally per head of population but so that services according to need can be paid for by the government of the day. That is the principle that must be the basis of the way in which Wales is funded in the future.

[The Parliamentary Under-Secretary of State, Wales Office (Baroness Randerson) (LD)]

My Lords, as ever, a debate on the Barnett formula is interesting but I am afraid that from my perspective it is rather too well worn territory.

I start by responding to the comments of the noble Lord, Lord Wigley, in relation to the £300 million to which he referred as the funding gap identified in the Holtham report. The gap has indeed come down in size and it would be very useful to determine the current shortfall. It is particularly important to point out that when the agreement was made between Jane Hutt and the Chief Secretary to the Treasury in an exchange of letters in October 2012, it acknowledged that convergence had ceased to take place, that there was, in fact, divergence and that Welsh funding was within the region of what the Holtham report regarded as fair funding. Therefore, at the moment, there is not a major issue of unfair funding. There may be issues at the edge, but it is not a big problem at the moment, as was acknowledged by the Welsh Government. Of course, that does not solve the problem, because convergence is predicted to start again around 2018. That issue has to be addressed if the gap is not going to widen again. I agree that there is a need to deal with this in the scope of the devolution discussions because it distorts the political debate in Wales. Funding is quite simply blamed for every policy failure. Even if we take the figure of £300 million, in a budget of £15 billion, £300 million is a significant amount of money, but it is not something that could possibly be blamed for every health failure, every education failure and every social problem within Wales. It is not so massive that it is fundamental to the problems that we all acknowledge are faced in Welsh society.

The noble Lord, Lord Anderson, is absolutely right in saying that it is the funding issue that the public are interested in. They do not worry too much in general about devolution, but they are interested in fair funding. The noble Lord, Lord Anderson, referred to the Severn tolls. I look forward to our debates on that in the next Government. Whoever wins the election, there will be debates on the Severn tolls because, of course, the end of that franchise is due in the mid-years of the next Government.

I strongly welcome the acknowledgment by the noble Lord, Lord Richard, that the Labour Party did not deal with the problems of Barnett. Indeed, the Labour Party refused for 13 years to agree publicly that there was any problem with the Barnett formula and it was in those years that convergence was taking place and the funding gap was really growing. It would certainly be the case that Wales would have fewer problems now if that had not been neglected. It is my view, and the Secretary of State certainly agrees, that it is time to look at the funding formula for Wales, and it is my view that one could do this even with the constraints of the agreement that Scotland will retain its current funding. One can look at Wales on a unilateral basis.

The noble Baroness, Lady Morgan, asked me to clarify the Prime Minister’s statement. He simply restated the oft-stated government position on funding in Wales, which is that because the problem of the deficit is our priority, no additional funding can be provided within this Government. That is in no way at odds with the Secretary of State saying that the long-term funding position of Wales needs to be looked at. There is an immediate situation and a long-term situation. The noble Baroness also asked for clarification on the impact of having income tax powers on the block grant and so on and referred to the index deduction method. The purpose of the index deduction method was to protect Wales from big swings in the economy as a whole and the sort of big swings that are due to UK government policy. However, I point out yet again that the Welsh Government have acknowledged that funding is fair at this point, within the region of fairness. Given that the Welsh Government acknowledged that we were in that sort of territory two years ago, it would be a good idea to go for a referendum on income tax powers as soon as possible to give the Welsh Government the maximum opportunities to use the taxation system to increase prosperity in Wales.

I shall very briefly look at the technical details of the amendments. Amendment 56 would require the Secretary of State to lay an independent report on options to replace the Barnett formula. Amendments 59 and 60 would seek to make the devolution of an element of income tax conditional on dealing with the funding formula. They specifically say that income tax can devolve only when the Welsh Government confirm that they are content with how funds are allocated. The progress that this Government have made on working towards fair funding, with the significant exchange of letters in 2012 between the Ministers in the two Governments, can be built on. I urge the noble Lord to withdraw his amendment.

[Lord Richard]

Can I be perfectly clear as to what the Minister has just said? As I understand it, she is saying that the fact that a vow has been given to Scotland that the Barnett formula should continue to apply there is no bar to the funding arrangements for Wales being reconsidered, and that it is the Government’s position that those funding arrangements for Wales will be reconsidered.

[Baroness Randerson]

I am saying that I do not believe that it is impossible to overcome the issue of the commitments made to Scotland and that you can honour those commitments and look separately and independently at the funding for Wales. Northern Ireland is also funded via the Barnett formula but from time to time gets additional funding for specific things. I cannot see why Wales cannot be treated, as Northern Ireland is, as a separate thing, as a matter of principle. Having said that, I am simply arguing the case—it is not government policy to do that. I am firmly saying that the Secretary of State for Wales has made it absolutely clear that it is his view that fair funding needs to be looked at in the context of the devolution settlement and the discussions that are going on about it. In that case, I am confident that those discussions will encompass the issue of funding, although I cannot predict the outcome.

[Lord Richard]

So that is government policy—what the Secretary of State said?

[Baroness Randerson]

Yes, that is policy, announced by the Secretary of State for Wales.