Wednesday, 1 August 2007

A right old Barnett

One of the earliest consequences of all the discussions at the Bay has been the cross-party agreement to set up a review of the Barnett Formula. This review has not, however, been universally welcomed. Those who have pressed for the review – mostly Plaid, of course – have been arguing for years that Wales is being robbed by the formula, and that funding to Wales should be increased. The doubters – mostly Labour – have warned that Wales already gets a more generous per capita level of spending than England, and that starting a public discussion on this could lead to Wales losing out.

So who is right? Strangely enough, there is more than a little justification for the arguments on both sides.

Perhaps we should start by reminding ourselves that the creator of the eponymous formula, Joel (now Lord) Barnett himself only ever intended that the formula would be a short-term expedient. Indeed, he is on the record as saying,

“The Formula was intended to be approximately population-based and was intended as a stop-gap until a needs-based system came into operation. In fact, no such change to take account of needs has been made.”

With a statement like that in the public domain, it is surely not surprising that someone would argue that we should do exactly what he always intended – i.e. replace the formula with something that truly reflected needs. And for as long as we fail to address the question of whether the formula does or does not reflect needs, there will be an opportunity here for some to argue that Wales is losing out, and for others to argue that we are being treated over-generously.

From that point of view alone, we should welcome the chance that we are being given for a rational debate on an outdated formula for funding.

But we cannot simply dismiss the fears of those who point out that Wales is currently over-funded, and could therefore lose out from any review. In relation to the areas of expenditure covered by the formula (which is not the same, by a long measure, as total government expenditure), it is clear that expenditure per head in Wales is higher than in England. That is an incontrovertible fact.

Of course there are counter-arguments. We are dealing with numbers and statistics here, and in that realm, a great deal always depends on what assumptions one makes in doing the sums. Plaid supporters will inevitably argue that the excess expenditure of £1,000 per head applies only to the areas of expenditure covered by Barnett (roughly speaking, the areas of responsibility of the old Welsh Office, and hence the Assembly), and that any assessment of whether Wales gains or loses overall from government expenditure must take account of expenditure outside the formula.

This is theoretically a valid standpoint, but doesn’t look terribly relevant to the question of calculating the block grant for the National Assembly, which must inevitably concentrate on those areas of expenditure where power is devolved.

Returning to what Barnett himself said, what is required is a formula based on needs, rather than the one we have, which is essentially based on two factors – population and historical spend. It sounds simple enough, and is difficult to argue rationally against. But it raises political issues which actually go much deeper than mere pounds and pennies – and interestingly, I find myself almost wondering whether the two main protagonists, Plaid and Labour, aren’t taking positions which appear to be at odds with their core beliefs in some ways.

From a Labour perspective, shouldn’t one of the benefits of “the Union” be that Wales should be treated more generously if the level of need can be shown to be higher than in England? And from a Plaid perspective, isn’t it an inevitable result of the constitutional arrangements that they want to see that expenditure in Wales would need to be held within the revenue resources available in Wales?

Over-simplification? Of course. Because laid on top of the question is the spin of the two parties. On the one side, Labour "see, if you become independent, you'll lose the extra spending you get at present", and Plaid's "see how badly we’re treated, they aren’t giving us the money we need and deserve”.

So – Barnett Review – good or bad for Wales? My feeling is that there is a running sore here, which will continue to run for as long as it isn’t addressed. There should be nothing to fear from an objective analysis of an outdated mechanism if that enables more transparency in the way Wales is funded. The problem isn’t so much with the review, as with the political consequences of the outcome.

If the review proves that Wales is over-funded in relation to needs, then Plaid will have to remove a lot of egg from their faces, and the Assembly will need to tighten its belt a little. If the review proves that Wales is under-funded, then Labour will have some explaining to do about why Wales’ needs are so much greater than those of England in the first place, and why they haven’t addressed the issue sooner. Either way, once that embarrassment is out of the way, the sore will be addressed, won't it?

Well, maybe not. What if the review concludes that Wales is indeed losing out, and then London refuses to act? Plaid’s dream – Labour’s nightmare. And quite possibly a realistic outcome of a mature and rational debate. A great deal of work on Barnett was done by the late Dr Phil Williams during the first Assembly – and there can be few in Wales who would challenge Dr Phil’s mathematical ability.

I think the one thing that we should really fear is that Wales arrives at a consensus view of whether Barnett is fair or right – and London then refuses to deal with the consequences. I’m afraid that I suspect that that is the real fear of many in Labour about the review. But it’s too late to stop the review now, and scare-mongering won’t help. What the Labour doubters need to be doing now is starting to work on Brown and London to be ready to respond positively to the conclusions of the review.


Republicanos said...

Interesting post on a question that I genuinely don't know the answer to. I'll put a link to you on my page in recognition of a decent argument there. Still disagree with lots of it, but at least you address the issue rather than just the personalities involved.

Glyn Davies said...

Trouble with all this theorising is that it ignores reality. I would have been happy with a review, if it had been binding in some way. The political reality is that Scotland currently gets way above its share - and if Rhodri/Ieuan think Gordon Brown is going to take billions upon billions away from the Scots, they are daydreaming about living in a land where Gordon is not the Prime Minister.

And not only that, but working out a needs formula is impossibly difficult. The Formula by which Local Government is funded is horribly complex and it can be, (and has been) skewed to meet certain political objectives, by means of very small adjustments.

Nothing wrong with a review in theory - but it won't acheive much in practice. Sorry to be so negative - but I've been there.

Dai Twp said...

Surely the ultimate aim of a devolved body would be to fund it's own expenditure. Most economists would agree with the principle that you should be responsible for raising as high a percentage as possible of the money you spend. (I believe this is called the verticle fiscal index - but I'm not an economist so correct me if I'm wrong).
The idea of fiscal autonomy is already gathering pace in Scotland with cross party support (Labour again being the main opponents of any change). This despite (as you have mentioned in your blog) Scotland possibly having a lot to lose by such a move (or maybe not depending on who's figures you want to believe).
Since the findings of this review is not binding why not widen it to look at the idea of the Assembly gaining more responsibilities for raising it's own finances rather than relying on block grants from London.
I realise that it has been proposed that the review will look at the idea of having tax varying powers on a par with what Scotland has now plus Corperation tax, but this is a tiny proportion of the overall budget for Wales, so why not use the opportunity to wider the scope and ask some more fundamental questions?

Ceredig said...

Republicanos – I agree with you that political debate ought to be far more about the issues than about the personalities. (Not that I’m above having a bit of a poke at some of our politicos from time to time, of course – just for fun). I think there are three factors which push politics in the direction of personalities rather than issues, though. The first is the increasing similarity between the parties on a range of subjects; the second is the straitjacket of the Assembly’s powers, which – to date, at least – has left little room for real differences; and the third is the conventional media – which is one of the main justifications for seeking outlets such as blogging for a more meaningful debate.

Glyn – I think I'm in serious danger of agreeing with much of what you say. Of course it will be difficult to arrive at a needs-based formula - that's precisely why the 'temporary' formula has been left in place for so long. And of course, the Scottish dimension will make it impossible for Brown to respond positively to anything which comes out of a purely Welsh review. But as long as areas such as Wales and the North East of England are perceived to lose out by the formula, there will be continuing complaints.

However, my real point is this: for better or for worse, Rhodri Morgan and his party have agreed to opposition demands for a review, and that review is now going to happen. There is a danger that this review, like much of content of the report of the Richard Commission and the Commission into PR for local government, will end up sitting on a shelf somewhere, leaving the main protagonists still arguing about fair funding for the National Assembly. Far from lancing the boil, the government of Wales may only have made another rod for its own back – and the only way out that I can see is for them to be doing everything they can to ensure a positive response from London to whatever the report might conclude.

Dai – ‘ultimate aim’ is a big word (or rather one of the words is!). If you believe (and I know that I’m second guessing what might lie behind your comments) that devolution is about recognising Wales as a nation and building national institutions, confidence and responsibility, then of course it follows that an increasing degree of fiscal autonomy should also be devolved. But if you believe that devolution is simply about bringing government closer to the people, and improving the delivery of services, then the connection is by no means as black and white as that. I guess that's almost a summary of the differences between devolutionists and nationalists in their attitude and approach to the whole purpose and existence of the Assembly. That’s a completely different can of worms (to which I may well return in the future). I can understand why some see the proposed review as like opening Pandora’s box, and the idea of expanding the scope of the review in the way that you suggest is hardly likely to re-assure them, however desirable some may see it as being.

Dai Twp said...

I think my use of "ultimate aim" might have been miseleading. I didn't mean it to imply nation building, I meant it rather as attaining the most effective governance possible for the people. As I mentioned people tend to manage their money more effectively when they are responsible for both earning and spending it. It also encourages you to be more creative in how you raise and spend your money (even the tories in Scotland are beginning to realise this). Many economists argue that the trouble with need based formulas are that they encourage you to appear needy (therefore restricting creativity and dynamism).
As you mention the WAG is there to serve the people of Wales and not as a statement of it's nationhood. Since there is to be a review of how the Assembly is to be funded, I'm simply saying why don't we widen the scope as far as possible to come up with the most effective solution possible. In my opinion this would bring government closer to the people.

Anonymous said...

Thamk you Glyn Davies, Ceridig thinks this is the nasty old English keeping the Welsh on their uppers.The member for kirkaldy has said no so why not leave England out of it and take your complaints to Scotland?.

Anonymous said...

Bitter and twisted.

'Celtic' motto:

"I hate England, can i live there PLEASE!"

gwe said...

More nonsense from Nonnies who can't read. This piece couldn't be more balanaced if it tried.

Ceredig - note the spelling Nonnie #1 - is pointing out that the PERCEPTION (a long word, granted, but one that even the both of you should be familiar with) of the injustice of the BF is enough to cause continuous political strife. There's not a single word about blaming the English.

Anonymous said...

"There's not a single word about blaming the English. "

03 August 2007 16:18

,,,,,or any aknowledgement that the English pay for it all

,,,, and suffer much deprivation as a result of this completely undemocratic confiscation of our money .

Anonymous said...

"expenditure per head in Wales(and scotland and northern Ireland is higher than in England. That is an incontrovertible fact.we're also called nonnies as well. The original article does not mention scottish attitudes to barnett, just English.

Anonymous said...

You want self governance but want someone else to pay for it.
Taffy was a Welshman, Taffy was a ...
this rhyme was not penned for no reason.
Grow up and take responsibility for your future.
Sour Little Englander, Portsmouth England.

Anonymous said...

How about change the discussion points instead of the begging bowl mentality of the barnet formula what about backing welsh buisness flair and creating wealth in Wales for Wales.

that would actually take the political class, business, trade unions etc to all pull together and in one direction, but can it happen?

Ceredig said...

Dai Twp – Sorry if I read more than I should have into the phrase 'ultimate aim'. I don't really disagree with your contention that there can be advantages for a body which spends public money to also be answerable for the taxation which allows that spending. But the implications of that for the future shape of the Assembly and its powers are very far-reaching, and it would be a very brave decision to start that debate at this point. One of the key points that I was making in the original post was that this review is being kicked off at a Wales level, when we all know that nothing that it concludes can be implemented at a purely Welsh level. That brings the very real danger that the review will only succeed in making things worse - I suspect that that danger would be even greater if the review’s scope was extended in the way you suggest.

Anonymous visitor(s) (I haven't a clue how many different people have commented) – I really do think that you’ve read what you wanted to read rather than what I wrote. At no point did I in any way suggest that ‘the English’ were in any way doing Wales down. The closest that I can find to that is my suggestion that 'London' may choose to disregard the results of the review which the Government of Wales has already agreed to initiate. Sorry, but 'London' is not some sort of code for ‘the nasty old English’, it’s merely shorthand for the Government of the United Kingdom of Great Britain and Northern Ireland, which is a mouthful.

I wonder how anyone could read the use of 'Nonnies' by Gwe as an abbreviation for Anonymous as some sort of anti-English insult, unless we are suffering from some sort of cultural misunderstanding. Does the word mean something different across the border?

Thanks to Gwe for his support on this (although the mis-spelling of my name is something that I can live with; there are plenty of other things for Ceri to become 'dig’ about!)

Having said all that, and despite the somewhat anti-Welsh tone of some of the responses, I think that some of the issues raised deserve a fuller response than a counter-comment; so I have returned to the subject in my latest post.