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Barnett Formula

My Lords, I hope the House will bear with me, because I am the Welsh affairs spokesperson for the Liberal Democrats and will address most of my remarks in that context. I am sure that my colleague from Scotland, the noble Earl, Lord Mar and Kellie, will address such measures as the Calman report, which is not dissimilar to the Holtham report, which has come out on funding the needs in Wales. I congratulate the noble Lord, Lord Richard, the chairman of the Select Committee, on this excellent report. The Barnett formula is crucial to us in Wales, where the economy is extremely fragile. It is one of the two key points that have to be resolved in Wales; the other is law-making powers—on which the noble Lord, Lord Richard, also chaired a commission. He and his fellow commission members made recommendations in their report with which I wholly agreed. Our problem is that, for example, if we get law-making powers in Wales in the referendum which is likely to occur this autumn, we may not have the means adequately to carry out economic policies to regenerate large parts of Wales, because, as has already been said, it is a very unfair formula as regards needs. The Government of Wales Act 2006 opens the door, but if we get law-making powers, we will need to follow it up very rapidly with reform, on a needs basis, of the Barnett formula. My country, Wales, has large sparsely populated areas. Some parts are as sparse as the highlands of Scotland. Other parts are old, decaying, formerly heavy industrialised areas, for example in the Valleys. We have a low-wage economy. We therefore have a lot of needs. The conclusion of the Select Committee report on the Barnett formula lists quite a number of facets and makes extremely sound recommendations. It says that the advantages of the current formula are, ""simplicity, stability and the absence of ring-fencing"." There is a failure to take account of population changes, as has already been said, and that creates a significant problem. Therefore, ""the resulting per capita allocations are arbitrary and unfair"," and, indeed, they often fall short. The baseline represents a population level that has changed and, ""the Treasury is judge in its own cause"." Much of this has already been stated, so I do not want to go over it in its entirety. The recommendation for a clear process and open consultation is very important for the devolved Administrations of the UK. This consultation needs to be clear, thorough and accessible. The recommendations on the independent commission which the Select Committee report wants to see in place are of particular interest. It has to be a fair resolution, and it has to be seen to be fair. It has to be comprehensible, stable and predictable. It has to respect territorial autonomy. As the report says, and as the noble Lord, Lord Richard, stressed, any needs assessment has to address the questions of age structure, low income, ill health, disability and economic weakness. Taking those in the context of Wales, for example, we have a higher number of elderly people by a factor of 3 or 4 per cent. We have lower family income by as much as £7,000 per family. Our levels of ill health and disability are a legacy of heavy industry, whether in the coal and steel industries or from working long hours in the countryside. We also have economic weakness. Our GDP seems to have been stuck on 80 per cent of the average. That penalises many of us, and the result is that Wales does not produce a sufficient surplus for investment in a much more resilient economy. The government response to the needs list—it is undoubtedly a Treasury response—was rightly criticised. It contains words such as "notes" and "concern". The Government say that devolved Administrations should be allowed to determine their own assessment of needs and priorities in devolved areas. The committee also suggested a transition period to implement the new arrangements, but the Government’s response was to say that they have no plans to make such changes. We in Wales find such responses from the Government in Westminster very familiar. The Government’s attitude to the report’s constructive proposals reminds me of a slightly erring child being patted on the head and told, "There, there; we’ll think about it. But please go away now. I have lots of other things on my mind to consider". Well, we in Wales have news for you. We will not stand for this kind of treatment any longer. We are used to it, but we have overcome it. We have now had 10 years of devolution, and we have a lot more confidence than we used to. We have a just cause not only in relation to public services but in relation to building up a new entrepreneurial economy in Wales, which is extremely important to us. While the Calman commission has considered the funding of initiatives in Scotland through adjustments to the tax system, we in Wales suggested in 2007 that we should have an independent committee to look at the question of the Barnett formula. The Holtham commission was set up and it reported last July. It concluded that Wales was losing out to the tune of £300 million per year. The result—in lower spending on pupils, higher education, the NHS and local government—is evident. Spending on children’s education in Wales, for example, is £500 per child less than in England; higher education is less adequately funded per student, and the NHS is constrained by higher demand from the factors that I have already mentioned. Sparseness of population is another issue where we used to be compensated much more adequately than we are now. There is a lack of affordable housing and quality jobs. Public sector employment is sometimes more dominant than private sector employment, so the impending cuts are bound to be another factor affecting, for example, the spending of local authorities. In the private sector, we do not have any multinational HQs or bank HQs, but we often have closures—such as Burberry in the Rhondda, Bosch industries near Cardiff and Anglesey Aluminium, to name just a few. The situation is therefore one of need. The Holtham investigation made some very constructive proposals, which there is no time to mull over now. None the less, they are rather similar to those in the Select Committee report. The main point is that both reports support a needs-based formula. We should proceed soon to finding a fair replacement for Barnett. We will surely make significant progress there, which will be extremely fair.