Wales: Barnett Formula

Lord Sassoon Excerpts

Wednesday 20th June 2012 Lords Chamber

[Lord Wigley]

To ask Her Majesty’s Government what representations they have received from the Welsh Government concerning the reform or replacement of the Barnett formula.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, bilateral discussions between the Government and the Welsh Government on all proposals arising from the Holtham commission, including funding reform, are continuing. To repeat what I have said on a number of previous occasions, as set out in the coalition programme for government, while the Government recognise concerns expressed over the Barnett formula, they believe that at this time the priority must remain the reduction of the deficit.

[Lord Wigley]

My Lords, is the Minister aware that in regard to the funding needed to maintain the level of public services in Wales up to the UK average, last year the Holtham report indicated an underfunding of some £400 million? Figures released yesterday indicate that by 2010-11, based on Treasury outcome figures, that had increased to an underfunding of £540 million. Is he further aware that when the Secretary for Wales addressed the National Assembly on 23 May, she said that,

“everybody knows that the Barnett Formula is coming to the end of its life.”?

When will it be buried and replaced by a needs-based formula?

[Lord Sassoon]

My Lords, first, on the numbers, which the noble Lord, Lord Wigley, quoted, when the Holtham commission reported to the Welsh Assembly in July 2010, it claimed that Wales had a £300 million funding shortfall. I do not recognise the new figure put out by Plaid Cymru yesterday but the point is that Wales has received nearly £500 million additional funding in the current spending review, SR10. In 2010-11, funding in Wales was running at some 15% above the level in England, so we need to keep the numbers in perspective. As I have said previously, yes, we recognise the significant issues that there are with the Barnett formula.

[Lord Barnett]

My Lords, as the noble Lord knows, a powerful Select Committee of this House unanimously recommended major reform, which would help not only Wales but every other part of the UK, particularly Scotland, where there needs to be reform. I gather that, subject of course to the Scottish people sensibly voting against separating from the UK in a referendum, the Government have in mind a major financial reform in Scotland, probably well before the time that the Minister has always mentioned. In those circumstances, would not then be a good time for Scotland to make that piece of essential reform?

[Lord Sassoon]

My Lords, we are straying a bit from Wales, but I am very happy to talk about Scotland. Of course, we recently passed through this House the new Scotland Bill, now an Act, which made some very significant changes resulting from the Calman commission recommendations. In respect of the eponymous formula of the noble Lord, Lord Barnett, the difficulty that we have among others is that there is no consensus across the UK on what could replace it. Since 1978, it has stood the test of time, and it is very difficult to find a better basis.

[Lord Roberts of Conwy]

Would my noble friend agree that ideally what is required is a formula that is adaptable to the special needs of Wales, Scotland and other national regions?

[Lord Sassoon]

Yes, indeed, I would agree with my noble friend that that should be the objective of any replacement for the formula.

[Baroness Hollis of Heigham]

My Lords, the Minister said that his priority was to seek to reduce the deficit. Given that under the Barnett formula, which has not stood the test of time, Scotland is over-funded by £4 billion at the expense of English taxpayers, would that £4 billion not be a useful contribution to the deficit—or is the Minister so casual about our finances?

[Lord Sassoon]

No, my Lords, the Treasury is not remotely casual about the national finances, and what the noble Baroness says about the Scottish funding situation might well be challenged by others in other devolved parts of the nation.

[Lord Forsyth of Drumlean]

My Lords, it would not be challenged by me—and, indeed, the Select Committee came to that unanimous view. But what is the difficulty with finding an agreed needs-based formula for funding when the money that Scotland receives is distributed to health and local authorities using precisely a needs-based formula for funding? Surely it is time to deal with a matter that is creating division in the United Kingdom at a time when we need unity.

[Lord Sassoon]

My Lords, one difficulty is that there is no consensus on the appropriate way in which to measure needs for any replacement. As the previous Government said in response to the Select Committee report,

“the Barnett formula has a number of strengths, among them the merit of allowing the devolved administrations to determine their own assessment of needs and priorities in devolved areas”.

[Lord Richard]

My Lords—

--- Later in debate ---

[Lord Richard]

My Lords, I am obliged to the Leader of the House. The Minister says that there is no consensus in the United Kingdom about the Barnett formula, but there is a great deal of consensus that it does not operate fairly. The Select Committee was unanimous in that opinion, taking a great deal of evidence on it and coming to that conclusion. For the Minister to come along parroting, as he does every time the issue is raised, that we cannot do it now because of the deficit, is frankly unworthy of the subject. It is totally dismissive of the decision that the Select Committee took.

Is it not also true that there is a perfectly practical alternative to the existing Barnett formula to which the noble Lord, Lord Forsyth, referred—a needs-based formula? The Select Committee was set up to look precisely at this issue, which it did, and now it is time that the Government did.

[Lord Sassoon]

I simply refer the noble Lord, Lord Richard, to my first Answer.