Barnett Formula

Lord Wigley Excerpts

Wednesday 15th June 2011 Lords Chamber

[Lord Wigley]

My Lords, the number of speakers in this short debate is surely evidence that this issue should be much higher on the political agenda. I thank the noble Lord, Lord Barnett, for this debate and for his long-standing recognition of the problems that have grown over the years.

I well remember debating in another place, in 1978, I think, the appropriateness of a formula that should be based on needs—in particular the need to help to bring up the level of GDP per head in Wales to the UK average, whereby we could stand on our own two feet. Since that time the GVA in Wales has fallen from 88 per cent of the UK average to 74 per cent. Wales has pressing economic and social needs, but the formula does not take these on board.

The problems are the assumptions that underpin the formula: first, that the base position of expenditure patterns in 1978 was a valid starting point; secondly, that the changes in spending levels in England represented a valid mechanism on which to base the changes in Wales, Scotland and Northern Ireland; and, thirdly, that circumstances in Wales had changed over the years in a way that reflected the changes in England, ignoring the massive changes in the basic industries, such as coal and steel, over that period. All three assumptions are faulty. Over 30 years those changes have compounded to undermine the validity of the formula. On top of this, as the noble Lord, Lord German, said, we suffer the effects of the so-called Barnett squeeze.

Successive studies have shown that the Barnett formula is underfunding Wales, as a number of speakers have generously recognised. A decade ago, papers were produced at Nuffield College showing the unfair nature of the problem. According to last year’s Holtham commission report, the extent of the problem is a shortfall of approximately £400 million a year for Wales. The Calman commission noted that the Barnett formula,

“is not well related to need”;

and the excellent report of the House of Lords Select Committee to which reference has been made—I thank noble Lords here for their contribution to that report—emphasised that the Barnett formula fails to take into account,

“the relative needs of the devolved administrations”.

The report recommended,

“A new system which allocates resources to the devolved administrations based on an explicit assessment of their relative needs”.

The response of the Labour Government was, frankly, flimsy, totally unpersuasive and showed contempt for the excellent work of the House of Lords committee. Labour refused to change the formula at all.

We need to get rid of the Barnett formula, which has been acknowledged by the noble Lord, Lord Barnett, as outdated, and urgently to replace it with a needs-based formula. The basic question is what the objective should be of any redistributive funding formula. Should it try to sustain broadly comparative levels of public services across these islands? Should it merely reflect the resources that can be raised within the territory of the devolved Administration? Or should it be a mixture of the needs and resources, as was for such a long time the basis of local government equalisation mechanisms?

Frankly, we have had enough of studies, commissions and investigations. What we need is action. In Wales, we need action very soon indeed. We need it urgently and we want it now.