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Barnett Formula

Unfortunately, my Lords, I am not so sure that the Leader of the Opposition quoted liberally from this excellent report. He might do well to study it with greater care. The noble Lord, Lord Lawson, was scathing about the Government’s response; partly because of that I will reply to the debate in slightly different terms. He did not join in with the position that was generally taken up by former members of Conservative Administrations in the past, which recognised the difficulties that the Barnett formula throws up—and threw up—and the difficulties of how to present an alternative position. The noble Lord, Lord MacGregor, reflected on this position in 1987. The noble Lord, Lord Forsyth, reflected on this position with even greater candour nearly a decade later. The noble Lord, Lord Lang, reinforced this position. All of them—one or two decades after the Barnett formula had been established—reflected that the Barnett formula has difficulties attendant upon it, which have been rightly identified in this debate, including the fact that it is based upon a population base that is a considerable 30 years old. However, in all those cases, Ministers with administrative and political responsibility shied away from producing a solution to it. That is because the solution is not easy. I understand entirely the points that have been made in the report. After all, this report also had the advantage of having looked at what the Holtham inquiry had done for Wales and the Calman commission for Scotland. This report had the benefit of identifying many of the problems attendant upon the Barnett formula. There is no doubt that this position is felt particularly strongly in Wales. As has also been hinted at, but not developed quite as strongly as might have been the case, some regions in England think that they are disfavoured under this arrangement. My noble friend Lord Barnett himself commented on the regional dimension. Why is it, then, difficult to produce a radical solution when, as has been indicated—I think it was by the noble Lord, Lord Forsyth—this Government are based upon both principle and radicalism, and would therefore be eager to right wrongs if that could be done easily, clearly and in a radical fashion? The answer is quite straightforward. It is very easy to say that it should be based upon needs rather than the dated formula on which the Barnett position is established, but the problem is: what would be the definition of the needs? I know that the Select Committee gave an example of a formula that might be developed for illustrative purposes, but government is not about illustrative purposes. It is about impact upon a population and distributing resources within it, so illustration will not do. I appreciate the point that the committee had the enormous benefit of having the noble Lord, Lord Moser, helping with regard to statistics, but I am quite sure that he will also recognise the Government’s difficulty when it is not just a question of that. Among others, my noble friend Lady Hollis again emphasised, as she has done in previous debates on this issue, the importance of our shifting the formula to needs. Yet she also knows that the formulas we have in other contexts vary enormously. There are different methods for allocating RSG in each of the four countries involved. There is no agreement across the UK on a single best method of allocating that element of spending, and the same is true of any of our other big spending programmes, such as health. The actual concept of the allocation of need, and how one can be precise about it, is fraught with difficulties. Consequently, noble Lords opposite have recognised—and I think this is also true across the House—that the shift from the Barnett formula to any other would, first, create a significant administrative problem. I recognise frankly that it is a difficult political problem as well, and as open as this House always is, that has been frankly recognised on many Benches. It is also one that has no chance whatever of being solved overnight. If one plea has come strongly on all sides regarding the challenge for reform, it is that there would have to be a long interim period of adjustment. I know what noble Lords will say: that it may of course be a long journey, but somebody has to take the first step. I want to be a little optimistic about that first step. I emphasise the fact that the moment that the Calman commission produced its report and the Holtham report came from Wales, Government Ministers immediately took a very real interest in what those reports said, and they have been active in those areas. The Secretary of State for Wales indicated on 26 November that he was very concerned about the identification of the problems in Wales—and he derived benefit too from this House’s work in that area—and immediately addressed himself to the issue. He is meeting the Chancellor of the Exchequer on those points to emphasise that the Barnett formula brings very significant disadvantages to Wales, which are not acceptable and need to be addressed.