Funding Formula

Owen Smith Excerpts

Tuesday 18th January 2011 Westminster Hall

[Andrew Selous]

I will most certainly refer to the Holtham commission. What the hon. Gentleman says is quite correct. He should have no fear about what I propose. The Holtham commission came to the same conclusion as the House of Commons Justice Committee report in July 2009 and the excellent House of Lords Committee report, on which there was a good debate on 11 March 2010. The commission really said the same thing as those reports: we need to move to a needs-based formula.

The money given to Wales and Scotland is distributed on a needs basis across the Principality and Scotland. It should not, therefore, be too difficult to put together a needs-based formula to allocate the money. That is difficult to argue against, and as I said, leading members of the Conservative, Labour and Liberal parties came to the unanimous conclusion in the House of Lords Committee report that we should move to such a formula.

I want to spend a little time explaining why the situation is unfair for England. We sometimes look at the Barnett formula as if it is just about Scotland, Wales and Northern Ireland. As a committed Unionist, however, I think we also have to remember the English. I do not, in any sense, say that apologetically; I just think we need to be fair to everyone, because poor people in England have similar rights and should also be treated fairly.

Council tax in Scotland has been frozen for a considerable number of years. Many of my constituents have worked hard all their lives to buy the home they love, but some are forced to sell their homes because they cannot afford the council tax, which goes up year after year. Is that fair?

I also think of business rates. I represent a town called Dunstable, which recently had 56 empty shops in its high street. Many shopkeepers told me time and time again that business rates were driving them out of business. Hon. Members might therefore be interested to know that business rates in Scotland were reduced by 80% for businesses with rateable values of up to £8,000 in 2008-09 and scrapped entirely in 2009 and 2010. Business rates were cut by half for businesses with a rateable value of up to £10,000 and by up to 25% for those with a rateable value of up to £15,000. Of course, I commend the Minister for recognising that unfairness as far as England is concerned and for bringing some relief, although it is not as much or as generous as elsewhere. I thank her and her Treasury colleagues very much for what they have done, but there are businesses that would still be operating in my constituency and paying tax revenue to the Treasury had we applied that relief earlier and more fairly across the United Kingdom.

Since 2002, personal care in Scotland has been given without reference to need, whereas it is time limited and not available in the same way in England. Prescription charges are much lower in Scotland and will be abolished completely by April. They do not exist in Wales. Why should people in the same circumstances in England have to pay prescription charges? On hospital car parking charges, it costs £2.50 per visit to park at my local hospital. If someone on a low income has a family member in hospital for a long period, those charges will be significant. Again, such charges are not paid in Scotland.

This year, the situation with tuition fees and education maintenance allowance really was the straw that broke the camel’s back for a lot of people in England. English Members have been receiving lots of letters about education maintenance allowance and the fact that it is to be replaced by a discretionary grant; but of course it is being kept in Wales, Scotland and Northern Ireland. There will continue to be no tuition fees for Scottish students and there will be no increase in the fees for Welsh students, while those of English students will double. Therefore, in a few years’ time, a Scots graduate, a Welsh graduate and an English graduate, working in the same company and the same office, perhaps having done similar courses, and earning the same salary under the same taxation system, will be paying back hugely different amounts of debt. How are we supposed to explain to our constituents that that is fair? My children are already giving me considerable grief on the subject, as they look to the university fees that they will no doubt pay in a few years. It is frankly not fair, and I defy any Scottish or, indeed, Welsh Member to say that the system is fair to the English.

[Owen Smith (Pontypridd) (Lab)]

I am pleased that the hon. Gentleman got this important debate, and pleased to be able to contribute a little. There is a one-word answer to the question that he has raised: devolution. In the spirit of fairness in which he has framed his remarks I entirely agree that we need to move to a needs-based formula, and the Holtham report and all the other empirical data we have about Barnett point in the same direction. We need to move in that direction. I am encouraged to hear a Parliamentary Private Secretary thinking in such ways. However, is it not invidious to cherry-pick ways in which citizens in Wales may be better off, when they are less well off in other respects? The hon. Gentleman mentioned the relative deprivation in Wales and Scotland. That is reflected in the empirical evidence, which shows that a needs-based, deprivation-based formula would afford more money to Wales than we currently enjoy.

[Andrew Selous]

I am glad that the hon. Gentleman is with me in wanting a needs-based formula. He is right that the evidence of the Holtham commission, and the evidence that the House of Lords took, suggests that Wales would benefit from such a formula and that if it is to be applied fairly there should be some reduction in what Scotland currently receives.

I agree with the hon. Gentleman that it is up to the Welsh Assembly Government and the Scottish Government to spend their money as they see fit. What is not fair and right is the allocation of money in a block grant on a bust formula from 1976, whose author no longer thinks that it is fair, when there is clearly in many cases such an imbalance between what the English and the Scottish can be offered. That is an entirely reasonable case.

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[Alun Cairns]

I will come on to the convergence in a moment. None the less, it is a point that is well made and that should be recognised by the Labour party. It is important not to confuse freedom of devolution, which enables nations to pursue their own policies, with funding. There is naturally a link, but because there is a policy, subsidy or generosity in one particular area, it should not then be used as proof or evidence of over-funding when we consider the whole context.

[Owen Smith]

I was rising to make precisely that point. Does the hon. Gentleman fear, as I do, that the hon. Member for South West Bedfordshire (Andrew Selous) will not be happy when we have a needs-based formula, because those examples that he cherry-picked earlier will still exist? The politics of envy, which underpins some of his concerns, will still play into this debate.

[Alun Cairns]

That point only demonstrates the hon. Gentleman’s misunderstanding of the spirit and tone of the debate presented by my hon. Friend the Member for South West Bedfordshire. My hon. Friend identified the differences, but recognised that that freedom needs to take place when we consider devolution. The obvious things in Wales are free prescriptions and—this one has focused attention of late—tuition fees. To those hon. Members who are critical of the Barnett formula because it is advantageous to Wales, I say that our NHS waiting lists are much longer and that the cancer drugs fund does not apply, so there are considerable drawbacks, and they need to be taken in the context of the whole funding settlement. It is far too easy to pick a policy that has been prioritised by the Welsh Assembly Government without accepting the areas that may not have been prioritised. Health is the obvious one. In England, for example, there is a guarantee of no cuts in NHS spending, whereas in Wales there will be real-term cuts and financial cuts to the health service. That point should be recognised in the debate.

My hon. Friend the Member for Aberconwy (Guto Bebb) has referred to the positive contribution of the Holtham commission. The two volumes of the Holtham commission can be brought down to a few figures. At the moment, Wales receives £113, which will drop to £112, for every £100 that is spent in England; Scotland receives £120; and Northern Ireland receives £124. Holtham concludes that Wales needs £115, which is marginally more than it is currently being awarded; Scotland needs £105, which is a significant reduction from its £120 now; and the figure for Northern Ireland is not far from what it already receives. That is the first needs-based assessment that has taken place. If that is not accepted in general terms, it is certainly an exceptionally useful starting point of where the needs lie.

The hon. Member for Arfon (Hywel Williams) has said that, historically, Wales has been underfunded by £300 million, but that fails to understand the convergence that has taken place over the past 13 years or more. That £300 million is the current level, and it would have been a much smaller level in the past.

A very good point has been made about Crossrail. Despite the view that the Labour party in Wales is taking at the moment, we can compare the spending on Crossrail with that on the Jubilee line. The spending on the Jubilee line was Barnettised, but the spending on Crossrail by the previous Government was not, which highlights another way in which Wales was treated unfairly by the previous Administration. It is far too easy to point the finger, when a real debate is taking place on satisfying the needs-based requirement.

My closing points—I am conscious of the time—relate to the way forward. All the nations and regions need to engage in the debate about this extremely sensitive area. Those who are allied with the Scottish National party are a block not only to any form of debate—that position is natural, because of the way in which Scotland would lose out—but to changes elsewhere in the United Kingdom. As the hon. Member for Arfon builds up a strong relationship with the Scottish nationalists, he must recognise that that is blocking reform in Wales, because every part of the UK needs to engage in this debate if we are to come up with a needs-based formula that satisfies all the nations and regions of the United Kingdom.

[Owen Smith (Pontypridd) (Lab)]

I am grateful to serve under your chairmanship, Mr Dobbin. I will make a few brief remarks, because I, too, am on the Select Committee to which the hon. Member for Vale of Glamorgan (Alun Cairns) has referred. I must leave early, for which I apologise.

I welcome today’s important debate. Although the issue has been debated many times in this House—there was a recent debate in the House of Lords, which produced an excellent report that is well worth reading—it is worth debating again. The issue was not resolved by the Labour Government. I accept that we were tardy in addressing the issue. Once we saw the firm evidence in the Holtham report on convergence—the so-called Barnett squeeze that resulted in a reduction in the relative benefits to Wales over the past 10 to 15 years—we responded to that at the last election. The previous Labour Government were keen to see fair funding for Wales, and we went into the last election fighting for that pledge. Had we won, we would have delivered fair funding. I hope that this current Government will be true to their word and look to deliver a different form of funding for Wales and the other devolved nations and regions of the UK, and I hope that it will be needs-based, as the hon. Member for South West Bedfordshire (Andrew Selous) has said.

My caveat—I did not mean to personalise the debate earlier in referring to the politics of envy—is that at some level, the hon. Gentleman’s underpinning concern is that parts of England do not benefit. In particular, he points to the fact that historically the east of England, which he represents, has featured towards the bottom of the league table of public expenditure over a long period. That is, in itself, reflective of the relative needs of the east of England. We have for the English regions, as Holtham and others have pointed out, a needs-based formula. Indeed, one of the conclusions of the excellent House of Lords report is that a quick interim measure would be for Wales and Scotland to go to a needs-based formula based on the English version.

As the hon. Gentleman has pointed out, aspects of policy in the devolved nations and regions can foment a sense of envy. When one looks at the responses in the Daily Mail and The Daily Telegraph on tuition fees, which range from outrage that the Welsh are doing something different through to incredulity that such a policy can be afforded in Wales, one sees that they reflect the lack of understanding that persists across the House about the way in which devolution works.

Current Government Members, such as the hon. Gentleman, have highlighted examples of how Wales and citizens in Wales appear to benefit financially from the devolution of powers and the policies that are pursued in Wales, whereas hon. Members from Wales have highlighted other areas, such as the health service, where—according to those hon. Members—people in Wales are not benefiting.

[Andrew Selous]

The evidence from Holtham and from the House of Lords Select Committee is that Wales would gain from a needs-based formula. So there is no part of what I have said that would cause problems as far as the Welsh are concerned. It appears that Scotland is more generously funded than a needs-based formula would suggest, but that is what we need to set up a commission to look into.

[Owen Smith]

I am grateful to the hon. Gentleman for that intervention and I fully appreciate that point; I heard him say very clearly that Wales would benefit. My point is simply that I fear that in much of the debate on this subject there is a concern that English regions do not benefit where other parts of the UK, particularly the devolved regions, do. Traditionally English Members from both Houses have expressed that view, which underpins and unfortunately colours debate on this subject.

[Mark Lazarowicz]

Is it not the case that moving to a needs-based formula would receive universal support, would be value-free and would not allow any political interference is an illusory hope, because even with a needs-based formula the question arises of how one assesses needs? For example, how much importance should be given to rural diversity and to the length of communications in Scotland? If a high priority were given to ferry links to the Shetland Isles and Western Isles, there would obviously be a high result there. When it comes to funding that depends on age, there are some parts of both Scotland and Wales where unfortunately, because of ill health, some people do not live to an older age, which would not be reflected in the formula. The idea that we can move to a value-free system with a needs-based formula is somewhat illusory. Will my hon. Friend comment on that?

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[Owen Smith]

I agree with my hon. Friend—that is essentially what I was trying to say a moment ago. An arm’s-length independent organisation, which Holtham considered—whether it is the Office for Budget Responsibility or whether it is some other body—is an excellent idea that we should take account of.

[David Mowat]

The hon. Member for Edinburgh North and Leith (Mark Lazarowicz) has said that it is not easy to conduct a needs-based analysis, but that does not mean that it should not be tried. He has raised the issue of sparsity in Scotland and the fact that many people live in the Western Isles, Orkney and such places, which makes a difference. There is a precedent for such an analysis, which was carried out by the Scottish NHS and which is referred to in the report by the House of Lords Select Committee on the Barnett formula. The cost was about 15% extra for that component of the population. However, the point is that that component of the population is very small and the overall impact is less than 1.5%. So it is right that that factor is taken into account, but it is not material to what we are discussing.

[Owen Smith]

The point that my hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) has made—that it will be very difficult to introduce a needs-based formula—is valid. The aspects of a needs-based formula that ought to be taken into consideration and the weighting that ought to be placed on those aspects individually will not be incontestable. So it is easy to bracket them under “deprivation and sparsity”, or “deprivation” and some other criterion. Within that, there will be all sorts of eminently contestable notions related to the number of children in a country, the number of older people who are dependent, sparsity and all sorts of other aspects, which will be eminently contestable.

The simple point that I was trying to make is that even if we shift to a wholly independent—or ostensibly independent—and wholly needs-based formula, we will still see divergences and differences between the relative spending priorities and the relative quantum spent on individual aspects of public services across different parts of the country. That will still fuel a sense of resentment in certain quarters, when parts of the country are perceived as doing better than others. I therefore caution that we would not all be happy with a needs-based formula and I suggest that the hon. Member for South West Bedfordshire—

[Andrew Selous]

We would be happier.

[Owen Smith]

“Happier”—okay, well perhaps we would be “happier”. I, too, would be “happier” if we went to a needs-based formula; I will concede that much.

In conclusion, I simply add that at last we agree across this House that a fairer funding formula ought to be pursued and that Barnett has seen its day. I therefore commend the Government for considering how we might do something important about it in the future.

[Jim Dobbin (in the Chair)]

There are still three hon. Members who want to contribute, so I remind hon. Members of the time.