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| The Barnett formula - a simple concept, but difficult to negotiate in practice, especially when it comes to so-called "consequentials". |
Originally set up as a temporary sop to Scottish nationalism following the North Sea oil boom, it's lasted to this day but is creaking at the seams. One bugbear is that the formula doesn't take into account relative need (like an elderly population, rurality or deindustrialisation), meaning Wales and parts of England are under-funded by the formula while Scotland and Northern Ireland are over-funded.
What AMs were particularly concerned about this time is what's known in political jargon as a "Barnett consequential" – a budget top up which is distributed based on the population share of the UK's nations, which in Wales' case is about 4.9%. So if the UK Government spends an extra £1billion on a project that only benefits England, Wales should receive a "consequential" extra ~£49million as a result....but it's not as simple as that.
In their motion, AMs believe :
- Any expenditure that benefits England alone should result in a Barnett consequential.
- An independent arbitration system should be established to adjudicate in disputes between the UK and devolved governments over whether certain expenditure warrants a Barnett consequential.
Kicking things off, Mike Hedges AM (Lab, Swansea East) - who I have to say was really hard to follow at points (clip) – said that as long as Barnett continues, developments that benefit England should produce a consequential for Wales, backed by an independent arbitration system when disputes arise. He said one of the claimed strengths of the formula is that it's simple for the UK Treasury to calculate as it's based on relative population.
However, it's much more difficult than that as projects can be moved from one category to another (UK-wide or England-only). Crossrail resulted in Barnett consequentials, High Speed 2 largely didn't even though it would tangibly benefit England-only (Will High Speed 2 benefit Wales?). Likewise, Network Rail capital funding is devolved under Barnett to Scotland and Northern Ireland, but not Wales.
The 2012 Olympic Games – despite massive infrastructure and regeneration spending - were only included on appeal without independent arbitration. Even though events were held elsewhere, it took 4 years to get a Barnett consequential of £8.9million from an estimated £9billion budget for the Olympics. A population-based share for Wales would've been around £450million (roughly the cost of building the Olympic Stadium).
Alun Ffred Jones AM (Plaid, Arfon) was pleased there was cross-party agreement there should be a fair means of deciding Wales' share of spending (clip); he cautioned, however, that it shouldn't be confused with the principle of "fair funding". Alun was impressed by UK Labour leadership candidate Andy Burnham's recent admission that he knew "Wales was underfunded" when a treasury minister.
He also drew attention to former Olympics Minister, Tessa Jowell's, comments that the Olympics successfully regenerated parts of London - if it were a regeneration project, Alun contends that Wales should've seen a full Barnett consequential. Finally, he said HS2's intention was to benefit SE England and the Midlands and couldn't in any way be considered an investment in Wales, requiring "flexibility" in definitions to justify that assertion.
Julie Morgan AM (Lab, Cardiff North) said the issue of funding was crucial to service delivery (clip). It was regrettable that there's no statutory (legally-binding) framework for the Barnett formula as we would then "know where we are" as it would outline dispute resolution procedures and the budget formula itself.
When disputes arise, the Prime Minister decides based on Treasury advice, so the chances of a devolved government winning a dispute are low – an example's given on a decision to make Finance Wales' borrowing part of the block grant, which impacted the amount of money Wales had to spend elsewhere.
Julie called for a body similar to the Australian Commonwealth Grants Commission to be included in any future constitutional convention. The Commission recommends how revenues from goods and service tax (an equivalent of VAT) are distributed to Australian states. The Commission has never been challenged as its recommendations are highly-regarded.
Peter Black AM (Lib Dem, South Wales West) said (no clip*) the motion doesn't deal with how the Barnett formula should be replaced but was worded to deal with specific issues on how it's implemented. He added that although it sounds simple, proportional spending varies from department to department and allocations are based on a percentage of additional expenditure not a straight percentage, which "distorts the whole process even further".
Peter said appeals should logically end up with the Office for Budget Responsibility (OBR) but instead end up with the UK Chancellor, whose chief consideration is how much it would cost the Treasury. He gave an example of HS2, which would mean a "significant sum of money for Wales", but the Treasury would naturally oppose as it puts strain on what's already a large budget. Barnett therefore needs to be replaced by a formula based on need, overseen by an independent commission.
Nick Ramsay AM (Con, Monmouth) said this issue wouldn't make up the "bread and butter discussions" the public would have (no clip*), though accepted there's agreement the Barnett formula is nearing the end of its usefulness. He makes the point that Wales is close to receiving its fair share of spending at 115% of the UK average even after the Holtham Commission's findings in 2006 (which famously suggested Wales is/was underfunded by around £300million a year).
He found it strange there was a debate on this while the Assembly's Finance Committee – of which he's a member - are undertaking an inquiry into future funding arrangements for Wales. Nick would prefer to wait for the results of the inquiry before debating the next steps, saying it would be "ill advised to pre-empt" the findings.
On behalf of the Welsh Government Finance Minister, Jane Hutt (Lab, Vale of Glamorgan), repeated that one advantage of the formula cited by various studies is that it's simple to operate and easy to understand though in practice operation has "been far from simple" (clip). Jane cites an example where the Treasury were unclear whether the Welsh Government had received consequentials for HS2, but then confirmed Wales had received £84million in additional spending via the transport capital budget.
The Minister would press the UK Government to ensure Wales continues to receive HS2 money, that Whitehall prioritise capital investment and ensure a fair working of the Barnett formula. She said the case for funding reform was "indisputable", and she would work to secure a funding floor before the next spending review. Jane finished by citing recent research from the Bingham Centre (pdf) which showed the present arrangement where the Treasury "remain judge and jury" on Barnett decisions falls short of the principle of consent and rule of law.
In reply, Jocelyn Davies AM (Plaid, South Wales East) said a consensus was emerging that Barnett was "unsustainable" - in political rather than practical terms – as dissatisfaction grows (clip). She said there was an assumption in Barnett that different governments around the UK would follow England's policies. This causes problems when different platforms emerge and when cuts are made in England, with little opportunity to make representations when big decisions are made, regardless of who's in charge at Westminster.
Jocelyn said an independent body would improve transparency. It's in everyone's interest as it would reduce tensions as it's difficult to assume the Treasury would be objective. However, fair funding may end up more complicated than a Barnett formula replacement.
She assured Nick Ramsay that, as Chair of the Finance Committee, the debate wouldn't pre-judge the forthcoming inquiry report. Nick intervened to say it would be strange if those who spoke in this debate end up speaking out against the views of the Finance Committee if the report's recommendations clash, suggesting it "wouldn't be tolerated by the public".
The motion was subsequently approved by 36 votes to 10.
* Senedd TV cut out during Peter Black's contribution (accompanied by a blue screen of death and burst of static) and didn't return until Nick Ramsay was wrapping up. A written record of what was said is available here.
Everything said on Barnett consequentials is on solid ground. Wales should receive a proportional share of spending on England-only projects. No matter how it's spun, HS2 is an England-only project which will have a negative impact on the Welsh economy as a whole (it would benefit NE Wales). The estimated £2.5billion Wales could/would/probably won't receive would go a long way towards investing in infrastructure to make up lost ground - like electrification of the north Wales mainline, road upgrades or other projects outside SE Wales.
This isn't the same as funding parity with Scotland (Plaid Cymru's doomed policy proposal - more from Syniadau), a fair funding formula or other Barnett formula replacement proposals – they're all separate issues.
There was nothing wrong with the substance of the debate itself, but Nick Ramsay had a point. I'm starting to get worried by the number of (mainly opposition-led) debates which step on the toes of committee inquiries. Standing Orders need to be changed to ensure debates don't prejudice reports. The report will be based on collated evidence, the debate is based, mainly, on opinion.
We have AMs, up to an including members of the committee, who've explicitly supported some sort of reform to Barnett (on the record), many of whom will now be expected to comment objectively on a committee report into future funding for Wales having already shown their hand – predetermination in other words. They can get away with it because it was a backbench debate, but I hope they can see why it isn't 100% kosher.
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