Barnett Formula

Lord Wigley Excerpts

Tuesday 17th December 2013 Grand Committee

[Lord Wigley (PC)]

My Lords, I thank the noble Lord, Lord Shipley, for facilitating this debate. I identified with many of the points that he made. I also join the noble Lord, Lord Jones, in his comments about the late Wyn Roberts, whom we all miss very much.

I am glad this opportunity has arisen to comment on the LGA’s submission on the Barnett formula in the context of the Autumn Statement. There is only time to make a few benchmark points today, but it is worth noting that the LGA is working on alternative funding proposals, which will be published, I believe, next summer. I welcome that, although I hope they will consult both the WLGA and the devolved Government in Wales in taking that forward. The implication is that there should be mechanisms for distributing resources according to need within England as well as within the UK.

Noble Lords will be aware of the grave dissatisfaction that has existed in Wales for many years with regard to the inequity of the Barnett formula. The report of the Select Committee on the Barnett Formula in the House of Lords in the 2008-09 Session,

“concluded that the Barnett Formula should no longer be used to determine annual increases in the block grant for the United Kingdom’s devolved administrations”.

It added the pertinent comment:

“The Barnett Formula also takes no account of the relative needs of any of the devolved administrations”.

The Holtham commission, which investigated these matters in Wales, produced two assessments. The first, on the basis of the formula used within England to distribute resources, estimated that Wales was underfunded in 2010-11 by some £300 million. The second independent assessment identified a £400 million shortfall. The Silk commission, which reported on possible changes to the financial powers of the National Assembly, agreed with Holtham in its analysis. The Holtham commission set out, as an alternative to the Barnett formula, parameters for a needs-based formula which included the number of children, the number of older people, ethnicity, income poverty, prevalence of ill health and sparsity of population.

The conclusions of the House of Lords Select Committee to which I referred spelt out as parameters the age structure of the population, low income, ill health and disability, and economic weakness. To that extent, the House of Lords Select Committee, the Holtham report and the Silk commission were moving in the same direction. The LGA in its paper recognised the significance of looking at,

“the total identifiable public spending”,

and states:

“Scotland is overfunded by £4.4 bn”,

although this appears to be on the basis of Scotland’s fiscal and macroeconomic position, not on the basis of any detailed analysis of Scotland’s needs, which seems perverse.

Of course, if Scotland votes for independence it will fund the entirety of its services from taxation raised by the Scottish Government. Independence, to that extent, would bring to an end any feeling, rightly or wrongly, that Scotland is being overfunded at the expense of England. Perhaps Scottish independence will solve the problem that is bugging some colleagues here today. I do not suppose that they would support a yes vote, however.

Whereas the LGA in its paper purports to represent councils in England and Wales, it pitches its arguments solely in the context of England. It opens with the words:

“English communities are being short-changed by as much as £4.1 billion a year”.

It makes no reference in its text to the fact that Wales also is being underfunded on that basis and, presumably on the LGA’s own logic, should be receiving £300 million or £400 million a year more to put this right. Here I must note that the WLGA, which represents Welsh local authorities, while supporting the LGA’s call for a needs-based formula, has said that it,

“certainly cannot support the idea of decimating Scottish local government expenditure to achieve this, or having the entirety of any redistribution of funding to be spent solely in England on social care”.

Is the decimation of Scottish local government the alternative that Scotland faces if it votes no next September?

In conclusion, I very much support the thrust of the LGA’s approach, although the details need much further consideration. I hope, however, that all UK parties will make a pledge in their manifestos for the 2015 election to introduce a needs-based formula for distribution of resources.

[The Duke of Montrose]

From the study that the noble Lord has made, perhaps I may ask him whether the shortfall that the LGA was talking about is based purely on equality of distribution, or took into account the Holtham needs-based formula.

[Lord Wigley]

The table that was published, which I do not have time to go into in detail, referred to, “Identifiable public sector expenditure”, which is a different concept from that which is attributed by Barnett and needs analysis in its own right.