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Barnett Formula

Volume 715: debated on Tuesday 15 December 2009


Asked By

The Government keep all aspects of public spending under review, but they have no plans to change the Barnett formula. The Government’s funding policies for the devolved Administrations were set out in the updated statement of funding policy, which was published by the Treasury in October 2007.

My Lords, my noble friend will be aware that the Richard committee—a committee of this House—concluded recently that the old formula did not reflect either today’s population or the respective needs of the devolved Administrations. The situation in Wales is even worse in that gross value added per head in Wales is now less than three-quarters of the UK average and is deteriorating. When will the welcome recent agreement reached between the Treasury and Mr Hain, the Wales Secretary, to ensure that Wales is not disproportionately disadvantaged be brought into effect? When will the details of that welcome agreement be announced?

My Lords, my right honourable friend the Secretary of State for Wales indicated after the Holtham review had been delivered that he was looking at future spending. That analysis is going on. I do not think that it is quite an agreement—the term used by my noble friend to identify it—but the Secretary of State for Wales is properly charged of his responsibilities in this area, and he is examining the issue.

My Lords, I declare an interest as a member of the Richard committee. The Barnett formula allocates over half the total public expenditure to Scotland, Wales and Northern Ireland on the basis of adjusted 1970s population figures. It gets it wrong, I estimate, by something like £4 billion to £5 billion a year. Does my noble friend agree that local authorities, health authorities and regional bodies are all resourced according to need: in which case, why not also the nations of the UK?

My Lords, that case, as my noble friend has indicated, was included in the House of Lords report on the Barnett formula. The Government are examining this report carefully and are aware of the strength of the committee’s position. However, my noble friend will know only too well that an accurate analysis of a needs-based expenditure structure is a very substantial task, and the Government will report on that in due course.

My Lords, does the Minister agree that Scotland, Wales and Northern Ireland have a great deal to thank the noble Lord, Lord Barnett, and his formula for, and that they should be careful when pressing for change to ensure that that change is in their interests and that they will benefit from it?

My Lords, there is no doubt that the Barnett formula has stood the test of time from its development 20 years or so ago, although inevitably over two decades there have been stresses and strains on the reports and the formula, and the accuracy of their basis is increasingly subject to challenge. However, the noble Lord is absolutely right that the three constituent countries of the United Kingdom apart from England have done well out of the Barnett formula.

My Lords, the Select Committee report was excellent. It clearly recognised the need for a change that is based on need, but the unpublished response simply said no. Was the response unpublished because it has now been scrapped and the Government are going to come up with a better one that agrees with the committee?

My Lords, I think that my noble friend is a little pessimistic about the Government’s response to the position. They very much value the work that he did two decades ago. But it is the case, as I indicated in my response to the first Question, that the Government are looking carefully at these issues. We have two reports now—the Calman report for Scotland and the Holtham report for Wales—both of which indicate that the formula presents some problems in the accurate allocation of resources. The Government are studying the situation carefully.

Does my noble friend accept that there was indeed a general welcome for the Secretary of State’s Written Statement in another place on 26 November? However, is my noble friend now able to take the UK Government’s thinking a little further? There has been a positive response to Gerry Holtham’s report, but surely the basic issue is this: how long will the Treasury continue to be the judge and jury in its own case? Or are the UK Government so afraid of fiscal federalism and the charge that would follow from that in other parts of the European Union that they are not prepared to tackle the basic issue of having an objective assessment of the relative needs, as my honourable friend has indicated?

My Lords, the problem with an objective assessment is that it is difficult to achieve objectivity. As the noble Lord will recognise only too clearly, some of those who are clamouring for revaluation are not sufficiently aware of the extent to which the devolved Administrations actually benefit from the formula at present. However, serious questioning of the Barnett formula is present in both of these reports and in the House of Lords Select Committee report, and the Government will give their response to them when they have a final considered position.