The Lords' Verdict on Barnett

Hard on the heels of the Holtham Commission report, the House of Lords Select Committee on the Barnett Formula has just published its first report, which can be downloaded here:

     Lords Select Committee Report on the Barnett Formula

Including the evidence, it's a mammoth 409 pages. But the report itself is a more readable 45 pages. There's no separate Executive summary, but it starts with a one page Summary (p7), and then condenses its Conclusions and Recommendations into two-and-a-half-pages (pp8-11). I'm grateful.

 
There are no prizes for guessing what these are: namely that Barnett is arbitrary and unfair, and that it should be scrapped.
 

But we all know that. So the real question is what should be done about it, and over what timescale.
 

1. The Treasury

The report is particularly critical of the UK Treasury for acting as "judge in its own cause" when it comes to distribution of money within the UK. Their decision making process is obscure and needs to be replaced with:

A clear process and open consultation with the devolved administrations.

Furthermore although the economic data the Treasury provides is better than it used to be, it still falls short of acceptable standards. The report says that:

Clear, thorough and readily accessible data on public spending across the United Kingdom are not yet being provided.

What we should be getting is:

A single, coherent and consistent publication ... [which] should contain all material data on devolved finance, showing the allocations of grant to the devolved administrations, changes from previous years and explanations for any changes made.

 
2. An Independent Funding Commission

Although it is right that the UK Treasury is responsible for setting out overall levels of public spending, the Committee recommends that a new, independent body be set up to properly allocate that money between the devolved administrations.

It is particularly impressed with the way things work in Australia (the Commonwealth Grants Commission) and this body provides a model of how things could work in the UK without us having to re-invent the wheel.

The critical question is of course what criteria it should use in making the allocation, but it is absolutely unequivocal about the allocation being made on the basis of relative need. As I mentioned in this post on the Holtham Commission, "need" isn't necessarily a measure of deprivation (although it often can be) it is more accurately a reflection of the cost of providing public services of an equal quality to each region. It is as much a measure of, say, the geography or the age profile of a particular region as it is of deprivation.

The report recommends that:

The new system should be based on the following principles:

• It should consider both the baseline and any increment in funds;
• It should be fair and seen to be fair;
• It should be comprehensible;
• It should respect territorial autonomy; and
• It should be stable and predictable.

Any needs assessment should take these aspects into account:

• The age structure of the population;
• Low income;
• Ill-health and disability; and
• Economic weakness.

 
3. The Bottom Line

Yes, it's pointless talking in purely academic terms. What actually matters is what will happen to the amount of money that the devolved administrations get. This is what the Lords say:

On the basis of our initial analysis, we believe that Scotland now has markedly lower overall need than Wales and Northern Ireland in comparison to England. The current allocation of spending does not properly reflect this basic pattern across the devolved administrations.

In blunt terms, both Wales and Northern Ireland are being short changed. As I mentioned in my post of 10 July, the huge injustice is that the PESA figures show that, in relative terms, public spending in England and Scotland is going up, but that spending in Wales and NI is going down. Exactly the opposite of what is fair and right.

The Lords have not done a detailed analysis, but this is where the work recently done by the Holtham Commission comes into its own. They have done the sums, and have concluded that a correction factor of 1.14 needs to be applied to any future adjustments.

I want to re-emphasize that this Holtham Correction is just a short term fix to be applied until new allocation criteria are developed for all the devolved administrations.

The Lords envisage that it will take between three and five years to before the final arrangements of the new Independent Funding Commission are in place ... perhaps even seven years. That's a long time, and a lot of money for Wales to lose. So I repeat that the emphasis must be on our politicians—from all parties—to press for the Holtham Correction to be applied immediately.

This is an issue that should unite everybody in Wales. Kick up a fuss. Don't let the work of not one, but now two, expert bodies be kicked into the long grass.

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