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New Clause 11 — Allocation of funds

Orders of the Day — Government of Wales Bill — [2nd Allotted Day] – in the House of Commons at 7:57 pm on 28th February 2006.

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'(1) The Secretary of State shall appoint a panel of not less than four and not more than six experts to recommend the sums of money to be allocated to the Welsh Consolidated Fund.

(2) The Secretary of State shall publish in full the terms of any recommendations made under subsection (1).

(3) The panel shall have regard to—

(a) the principle of fairness,

(b) the principle of transparency, and

(c) the particular needs of Wales.'.—[Lembit Öpik.]

Brought up, and read the First time.

Photo of Lembit Öpik Lembit Öpik Shadow Secretary of State for Northern Ireland, Northern Ireland Affairs, Shadow Secretary of State for Wales, Welsh Affairs

I beg to move, That the clause be read a Second time.

I am grateful to Mrs. Gillan and her colleagues for speaking so briefly on the preceding new clauses.

New clause 11 deals with the allocation of funds. It returns us to the age-old debate, which I have initiated many times over the past nine years, about the principles of fairness, transparency and a needs-based formula for conveying money to the Welsh Assembly and thus to the Welsh people. Currently, as all Members know, we have the Barnett formula, which is so discredited that Barnett himself—the inventor of the formula—says that he is ashamed to be associated with it. It was good for its time but its time has long gone, and for that reason we Liberal Democrats propose new clause 11, which would require the Secretary of State to

"appoint a panel of not less than four and not more than six experts to recommend the sums of money to be allocated to the Welsh Consolidated Fund."

The Secretary of State would also be required to publish in full the terms of any funding recommendations made by the panel. Moreover, the panel would have specific regard to

"the principle of fairness . . . the principle of transparency . . . and . . . the particular needs of Wales."

The problem is that the Barnett formula is not needs-based and does not take account of the social and economic conditions of Wales. Furthermore, it has random unintended consequences that create difficulties in allocating funds to Welsh expenditure. If we compare what Wales is given with what it needs, it is clear that it often loses out. The levels of deprivation in Wales and its economic circumstances are often quite different from those in the rest of the UK. So our request is very simple: that the Government take on board a recommendation that has come from all quarters, including from the inventor of the existing formula himself; and that, for once, they listen to recommendations—made, on this occasion, by Opposition politicians—based on common sense.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Secretary of State for Wales

The other day, the First Minister said that Wales has 5 per cent. of the UK's population and makes 4 per cent. of its income but receives 6 per cent. of that income. Does the hon. Gentleman envisage improving those figures through his new clause, or worsening them?

Photo of Lembit Öpik Lembit Öpik Shadow Secretary of State for Northern Ireland, Northern Ireland Affairs, Shadow Secretary of State for Wales, Welsh Affairs

We are not seeking to gerrymander the formula in favour of Wales; rather we are trying to ensure that it is fair to Wales—and, for that matter, to Scotland and Northern Ireland—by it being needs-based. We have to take the chance that, as Wales prospers under a Liberal Democrat Administration, its funding will be less because its needs will be less. But so far as we are concerned, this is not about begging bowls and asking for more; rather, we are asking for fairness. As the new clause makes clear,

"fairness . . . transparency . . . and the particular needs of Wales" are the right bases on which to allocate funds.

In conclusion, I look forward to hearing what the Minister and others have to say. I hope that he will say that he has been persuaded by the arguments—arguments that have been made many times before—and that he will incorporate the new clause. If he does, he will be a hero not just to the Liberal Democrats but to the people of Wales. If he does not, he will stand condemned alongside other Ministers who have shown a similar unwillingness to demonstrate the ability to listen that this "listening" Government so often claim for themselves.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Secretary of State for Wales

I was not going to speak to this new clause—until I heard what Lembit Öpik had to say, whereupon I was forced to my feet. I am sorry to say that if he presses it to a vote, I will be unable to recommend to my hon. Friends that they support him, not least because of the wishy-washy nature of subsection (3). [Interruption.] Someone said "Surely not" from a sedentary position, but

"the principle of fairness . . . the principle of transparency . . . and . . . the particular needs of Wales" is fairly wishy-washy and imprecise language, as I anticipate the Minister will agree.

This is possibly a good-hearted attempted by the Liberal Democrats and I do want to be fair to the hon. Gentleman, who is probably leading with his heart but certainly not with his head. As he just said, if, under this new and magic formula Wales gets less money, well, so be it. Of course, much as that might appeal to people in Northern Ireland, Scotland and England, I doubt whether the people of Wales would be very happy to discover such an attitude toward the support that they receive. As I pointed out earlier, the First Minister has said that he supports the current situation. I therefore doubt very much whether the Government will accept the new clause—particularly given that it has not been planted and then moved by a Labour Back Bencher, but has genuinely come from the Liberal Democrats—because doing so would put them directly at odds with the First Minister.

Photo of David Heath David Heath Shadow Leader of the House of Commons, Shadow Spokesperson (Cabinet Office) 8:15 pm, 28th February 2006

I am most grateful to the hon. Lady for giving way. She is obviously taking a view in her capacity as shadow Secretary of State for Wales, but does she not think that a fairer and more transparent system would be in the interests of many of the English constituents whom she and I represent?

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Secretary of State for Wales

The hon. Gentleman is perhaps in danger of being ruled out of order, Madam Deputy Speaker. [Interruption.] You are indeed nodding, and we are not going to go down that route. We are not discussing the English regions, much, of course, to his chagrin; rather, we are discussing Wales and the people of Wales and what is best for them.

Although the hon. Member for Montgomeryshire has tabled the new clause with hope in his heart, to be fair to the people of Wales, he is probably doing them a great disservice in doing so. If he presses it to a vote, I will be unable to support it.

Photo of Adam Price Adam Price Spokesperson (Defence; Transport; Economy & Taxation; Miners Compensation; Regeneration; Trade & Industry)

I am disappointed to hear Mrs. Gillan—who has been gracious, as ever—say that, unfortunately, the Conservatives will not support the new clause, despite the spirit of revisionism that seems to be blowing through their party as we speak. This is an opportunity for us to raise the hugely important question of the Barnett formula, which is a non-statutory formula. Indeed, this is one of the few opportunities that we have had in recent years to force a vote on this issue, which, notwithstanding law-making powers and the various other important matters that we have been discussing, is probably the single most important determinant of the Assembly's and the Assembly Government's ability to improve the lives of the people of Wales.

The Barnett formula is a convergent formula: over time, it results in a fall in the relative position of public expenditure per capita in Wales, compared with England. For example, only six years ago—in 1999–2000—the public expenditure per capita index figure for devolved services in Wales was 115. Now, it has fallen to 112, which is a very significant relative fall over that period. That process will continue until we reach the point at which Wales and England are exactly the same, even though there is no guarantee that the level of need in Wales and England—the economic and social position—will be identical. That is why we must support the principle of a needs-based formula.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Secretary of State for Wales

This matter is far too important to be discussed in the dying minutes of consideration on Report. It demands full and fair examination at another point, and in that regard I am in agreement with Lembit Öpik. Before I paint myself into a corner, let me reiterate that this issue needs discussion, but not at 19 minutes past 8 o'clock, with a guillotine about to fall at 8.30.

Photo of Adam Price Adam Price Spokesperson (Defence; Transport; Economy & Taxation; Miners Compensation; Regeneration; Trade & Industry)

I accept that and look forward to the Conservative party devoting one of its Opposition days to a call for the revision of the Barnett formula. We would support such a motion, as we will support the Liberal Democrats in the Lobby tonight. This matter is far too important to be left to party politics.

The hon. Member for Chesham and Amersham mentioned the First Minister, Rhodri Morgan, and said that he supported the Barnett formula. I am sure that he does now, but in 1997 he told the Treasury Committee that the formula was "detrimental" to Wales. Moreover, he said in an interview with John Humphrys that the formula was

"putting a lot of pressure on expenditure in Wales. We now cannot keep up with the percentage increases in health and education that the Department of Health and the Department of Education and Employment are doing in England."

That shows that the First Minister at that time supported our proposals. As has happened all too often, however, he has failed to support our position now.

The Government claim that there is no evidence for the position adopted by my party and others, but there is plenty, and the amount is growing. As Lembit Öpik said, even the formula's progenitor agrees that it is long overdue for revision. If we do not act now, we will continue to suffer.

I appeal to Labour Members—we must move away from the Barnett formula. It is detrimental to Wales, and Northern Ireland is also beginning to suffer from the effects of the Barnett squeeze. The problem will continue to get worse, unless and until we get a proper formula that is fair to the nations of these islands and to the regions of England. It is a matter of territorial justice; for example, per capital expenditure on public services in some parts of the south-west region of England is very low. We need a root and branch reform of the allocation of finances in these islands.

Photo of Kevin Brennan Kevin Brennan Assistant Whip (HM Treasury)

The problem with new clause 11 is that it would set up a panel of so-called experts to make recommendations about the Welsh block grant. In other words, it would create another new quango to determine how much money would be devoted to public expenditure in Wales.

The Barnett formula has been used for some time to determine public expenditure in Wales, and has produced significant increases in that expenditure, but the quango created by the new clause would make recommendations in isolation from the rest of the UK. It would not pay heed to fairness, transparency and the particular needs of Wales—language that Mrs. Gillan described as "wishy-washy".

Essentially, the new clause would adjust public expenditure in Wales according to the views of the panel of experts, but in isolation from what was happening with public expenditure in the rest of the UK. However, funding public expenditure in Wales cannot be separated from what happens in the UK as a whole. I think that hon. Members recognise that, although the new clause does not.

No rational system of resource allocation for public expenditure could ever consider funding the needs of one part of the UK in isolation from the whole, as that would make it impossible to manage any logical process for setting budgets. The Barnett formula is operated by the Treasury, and it determines the funding allocations for Northern Ireland and Scotland as well as for Wales. However, this Bill deals only with Wales, and so is inappropriate for the new clause's proposal to abandon the Barnett formula in respect of Wales alone and replace it with a new system for allocating public expenditure there.

The Barnett formula has been criticised by various hon. Members, but it has worked well in practice. It has provided a stable and secure financial context, and allowed the National Assembly to plan public expenditure with some confidence. The National Assembly has received financial settlements without the need for lengthy annual negotiations with the Treasury. The Barnett formula is a relatively simple mechanism, whereby money is allocated to the National Assembly in a way that is open, transparent and comprehensible to the people of Wales.

The Barnett formula ensures that changes to planned public expenditure on comparable services in England are properly reflected in the budget in Wales. The formula will provide average growth of more than 4 per cent. each year in the period since the spending review of 2004. All public institutions must be realistic and work within a fixed budget. They have to concentrate on the outcomes of the use of public money, and not just on the quantum figure, important though that is.

The National Assembly Government are committed to providing quality public services, using the funding provided through the Barnett formula. As a result of that process, the Assembly budget has risen from less than £8 billion in 1999 to more than £14 billion in 2007–08. That means that the budget has almost doubled in that period.

I confirm that the Government have no plans to review the Barnett formula, which has served the UK very effectively. In practice, it has produced reasonably fair settlements, and we will continue to monitor its operation to ensure that it is being applied properly and rigorously. Clearly, the mechanism has some advantages in the context of devolved government, and indeed it was developed originally by Joel Barnett in the 1970s when the question of devolution was first visited.

The Barnett formula is simple to understand, and provides the degree of stability that is essential in the consequential flow of resources to Wales. It also allows Administrations a considerable degree of freedom when it comes to making spending decisions. The Government have looked carefully at the matter, but we have concluded that there is no advantage in reopening the question of the Barnett formula at this time.

New clause 11 is well meaning, but would be unworkable in practice. It would create yet another quango, and mean that decisions about public expenditure in Wales would be made outside the context of such decisions in respect of the rest of the UK.

Photo of Lembit Öpik Lembit Öpik Shadow Secretary of State for Northern Ireland, Northern Ireland Affairs, Shadow Secretary of State for Wales, Welsh Affairs

Mrs. Gillan said that the funding calculation was too important to be decided in the dying moments of the Report stage of this Bill. We agree, which is why we tabled the new clause. We are suggesting that the experts should say how we decide the formulation. We all agree that there are flaws in the system, and the Liberal Democrats feel that the flaws are so significant that we should change the formula.

The hon. Lady also quoted the First Minister in defence of the existing formulation, but we have heard from Adam Price that the First Minister himself has criticised the formula on other occasions, when it suited him to do so. We cannot pretend that he has any consistent form on the issue.

Ranting a series of numbers at the Opposition is not a sufficient defence of the existing formulation. This is not about specific figures, but about fairness and transparency. I must point out to the Minister that it is obvious that when we talk about the principle of fairness, that has to be seen in the context of the UK. When we talk about the principle of transparency, that has to be seen alongside the principle of collective decision making, not as some isolationist approach for Wales. And when we talk about the particular needs of Wales, of course we have to think about the needs of the rest of the UK as well. For those reasons, the Minister should recognise the strength of feeling that many of us have in favour of a change—and that is why I need to press the new clause to a vote.

Question put, That the clause be read a Second time:—

The House divided: Ayes 44, Noes 281.

Division number 180 Orders of the Day — Government of Wales Bill — [2nd Allotted Day] — New Clause 11 — Allocation of funds

Aye: 44 MPs

No: 281 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Question accordingly negatived.

It being after half-past Eight o'clock, Madam Deputy Speaker put forthwith the remaining Questions required to be put at that hour, pursuant to Order [27 February].