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From that point of view alone, we should welcome the chance that we are being given for a rational debate on an outdated formula for funding.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