Peter Black makes a fool of himself

As if it wasn't enough for Carwyn Jones to make a fool of himself by saying that we wouldn't get the £300m by which Wales is currently short-changed unless we voted Yes in a referendum on primary lawmaking powers, Peter Black has now stepped in to muddy the waters yet further.

Over on Freedom Central he said:

The claim that for every day the coalition fails to act on the Barnett formula it costs Wales £800,000 is also misleading and disingenuous. Gerry Holtham himself has suggested that it could take 10 to 14 years before Wales receives the full benefit of such a reform. It cannot be achieved overnight and it does not help that Wales’ most senior politician goes public in this way to suggest otherwise. Where is his evidence? Clearly, Carwyn does not want the facts to get in the way of a good story.

The cost of a no vote - 5 August 2010

The fact Peter can't quite face up to is that Wales is currently losing £300m a year. Carwyn Jones was not wrong about the figure, he was wrong to link it to a Yes vote in the referendum. This is the figure calculated by the Holtham Commission, based on a lower end estimate of what Wales would get if it was funded on the same criteria as a region of England.

The next thing he misunderstood was the timescale necessary to address the problem. It will not take years. Gerald Holtham said that a fix could be applied immediately: namely to establish a "floor" so that future Barnett incrementals to Wales would be multiplied by 114%. Indeed, it's fair to say that Peter Hain probably did try to establish such a floor in his last days as Secretary of State, but the Treasury refused to make any commitment to apply it, saying only that they would "look at the situation" and act if it was clear that Wales was being "disproportionately disadvantaged".

Gerald Holtham was incredulous. He said the government were acting like "silly billies" for not making such a commitment because, at a time when it was clear that public spending was not going to rise at the rates it had been doing, it would cost the government very little to apply such a floor straight away. I commented on it here.


OK, that was before the Westminster election, and Labour clearly missed their opportunity. But now the ball is in the ConDem government's court. They can do what Labour failed to do. The perfect opportunity to apply the floor will be as part of the Comprehensive Spending Review that is due in October.

The 10 to 14 years is a red herring that Peter is using as an excuse for his government's inaction. Gerry Holtham was talking about the long-term replacement of the Barnett Formula rather than the 114% floor that could be applied immediately. Peter wants to imply that because Labour did nothing to replace the Barnett Formula in the 13 years that they were in power, the government that his own party is part of can be excused for doing nothing as well. But that misunderstands the situation. The true picture is quite clear from the Holtham Report:


To put it in blunt terms, if the indicators of Wales' needs relative to England are in the band between 114% and 117% (which is what Holtham has calculated) then Wales was probably getting more than it should have got in past years ... although this would also have been the case for NI, and even more true for Scotland which by every measure is overfunded relative to need. But as public spending increased, the application of the Barnett Formula produced a convergence of spending relative to England ... something known as the Barnett Squeeze. It is only in the last few years that this has resulted in Wales getting less than it should on a needs based formula. But if the situation is not dealt with now the gap will get bigger and bigger, though by how much will depend on the rate of growth or contraction of public spending.


That is why Peter Black, is completely "away with the fairies" when he goes on to say this:

And of course if this is so important then why is it that Labour did nothing to reform the Barnett Formula for the 13 years when they were in power both at Westminster and in Wales? On the First Minister’s calculations that inaction has cost Wales £3.9 billion since 1997.

Peter really should leave maths to people who have some grasp of numbers ... though I suppose if he did have any numeracy skills, it would make him noticeably different from his LibDem colleagues.

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Hendre said...

“We recognise the concerns expressed by the Holtham Commission on the system of devolution funding. However, at this time, the priority must be to reduce the deficit and therefore any change to the system must await the stabilisation of the public finances. Depending on the outcome of
the forthcoming referendum, we will establish a process similar to the Calman Commission for the Welsh Assembly.”

This kerfuffle is all down to that clumsy wording in the coalition agreement. It was a bit silly to acknowledge that there might be a problem with Welsh funding and then go on to link the outcome of a referendum on powers with a commission dealing with fiscal matters. I’d like to know whether there was any Welsh Conservative/Lib Dem input at the time. I rather doubt it. Carwyn is obviously trying to embarrass the coalition – I’m not convinced it’s the right tactic.

MH said...

I would agree that the wording is not as clear as it could be, Hendre.

So we need to try and clarify what a "Welsh Calman" might be. Calman does not go into how the block grant to Scotland is calculated. It takes the level of the block grant as a given baseline, and then proposes that a proportion of that total is substituted by Scotland being able to retain some of the taxes collected from Scotland. But it also had the wider remit of looking at further areas of responsibility to be devolved to Scotland (or re-centralized to Westminster) irrespective of funding.

So the point about the level of the block grant is completely separate from what a "Welsh Calman" would examine, and therefore doesn't need to wait for either a "stabilization of the public finances" or a Yes vote.

Put another way, what Holtham part 1 examined was the way the block grant was calculated and how the current shortfall could be addressed immediately; but what Holtham part 2 did was look at the separate subject of how a part of the block grant could be substituted by retaining some taxes in Wales. In that sense, Holtham part 2 was a parallel exercise to the financial part of Calman ... but the other part of Calman—a comprehensive review of what further areas of responsibility to devolve—has not yet been undertaken.

To me it would be a waste of time and money to set up a new commission to duplicate what Holtham has done (and by all accounts done better than Calman did for Scotland) but a commission to look at further devolution is something different; and that seems to me to be the only sensible way of interpreting the ConDem commitment, because it does make sense to do that only after the result of the referendum is known.

There are two ways of looking at it. On the one hand it might be better to look at further areas of devolution on a subject by subject basis, if only because the framework to do this is outlined in the GoWA 2006, namely to amend Schedule 7. On the other hand, the GoWA 2006 is such a dog's breakfast that it might make better sense to replace it with a comprehensive GoWA 2012 that would include the changes to electoral arrangements that will have to be made as a result of the electoral reforms currently being pushed through at Westminster. If the ConDems had any sense they would put forward proposals for Wales to have a Parliament with responsibilities exactly equal to Scotland's.

Hendre said...

"but a commission to look at further devolution is something different; and that seems to me to be the only sensible way of interpreting the ConDem commitment.."

Possibly, but I rather doubt that is what the ConDems had in mind! My theory is that they just shoved in a reference to a Commission without any great thought other than to give themselves the means to kick the funding issue into even longer grass.

MH said...

OK, let's just say I was trying to give them a way of appearing to have thought it through ;-)

Peter Black said...

To say that Wales is currently losing £300m a year is an over-simplification. It is certainly the figure identified by Holtham but unless you can demonstrate how you can get to the point where you can reclaim this money overnight then your point is just meaningless rhetoric. Carwyn's point is also rhetorical nonsense for the same reason. In this regard the 14 years quoted by Holtham is very relevant.

The Barnett floor is also very relevant and is something that can and should be imposed straightaway but it is a separate and unrelated issue. That is because the Barnett floor only applies when public expenditure is rising. It is there to protect against convergence and that only happens at times of expanding public spending. When spending is declining as at present the floor has no relevance. You seem to have missed this although it is made clear in the Holtham report.

For the record the £3.9bn I quoted was a debating point rather than a serious submission made so as to show up how ridiculous Carwyn Jones' position was.

The 14 years is not an excuse and it is certainly not my excuse. It was raised by Gerry Holtham not by me. The coalition government is committed to starting its own review and we are keen in Wales to get that underway as soon as possible. But let us be realistic this is a process not an event. It does not help anybody if it gets in the way of the referendum campaign and that is why it was a mistake for Carwyn to raise it in the way he did.

MH said...

Yes, it's fair to say that there was rather too much "rhetoric" in Carwyn's speech, and that your calculation was made in the same vein, Peter. Let's say no more about that. But thanks for the tone of your reply, because I think its something we can try and build on.

It is a bit over the top to say that Wales is losing £800,000 a day, as if every single day counted. However it is perfectly fair to say that in this financial year Wales got £300m less than it should have, applying the same needs-based indicators as are used for departmental spending in English regions. If you deny that, you are disregarding the detailed work that Gerry Holtham and his team have done over the past two years. You cannot call that an "over-simplification". However it is true that the weighting put on the factors could be tweaked one way or the other, and I won't have any real objection if the figure comes out at £291m or £309m. But it is real money that is being lost now, and similar sums (depending on public spending decisions) will be lost next year and in subsequent years unless something is done about it.

It's also true to say that what we call "the Barnett Formula" has two components. In the strictest sense, it refers to Barnett Consequentials, whereby any additional money the Westminster government chooses to spend in England results in a equal increase in spending per head for the devolved administrations. From what you've just said, you agree that a Barnett Floor should be put in place immediately, so that any such increases are multiplied to prevent further convergence through the Barnett Squeeze. Holtham recommended a figure of 114%, and then refined that to a range that could reach as high as 117%. Which figure it is depends on the same sort of fine tuning I mentioned before.

But I have to say, firmly, that the ball is entirely in your court. Peter Hain couldn't get such a commitment from Alistair Darling ... but you are in government with the Tories, and I'd like to see you and your colleagues put pressure on them to make that commitment.

You are wrong to say It has "no relevance" because the principle is important. It is better to say what Gerry Holtham himself said: commit to it now, because it will not cost anything (financially or politically) to make that commitment at a time when public spending is not rising.

Too long for one comment, to be continued ...

MH said...

Comment continued ...

Barnett Consequentials are (in relative terms) minor adjustments in the levels of public spending. The big decisions about public spending are made every three years in Comprehensive Spending Reviews. These CSRs set "baselines" and the Barnett Consequentials reflect changes from that baseline. Those baselines do more or less follow what we more losely call "the Barnett Formula", but the key words are "more or less". For example, there was quite some debate in 2007 (Betsan Powys' post is a good starting point) about the baselines for Wales and Scotland, particularly because they reflected an underspend by the English NHS. My own view was that Wales didn't suffer very badly, but that Scotland did loose out and—because they are in part political decisions rather than determined by a transparent, independently calculated formula—this reflected the desire by the Labour government in Westminster to put its own squeeze on the SNP government in Scotland in a way that it didn't do in Wales because Labour were one of the parties of government. Not enough to be blatant, but within what could be explained as a reasonable margin of error.

So although the CSR will, insofar as it concerns devolved expenditure, broadly follow "the Barnett Formula" there is a fair deal of "wriggle-room" in baselines. The £300m we are currently losing is a relatively small sum in a block grant of £15bn or so. That is why the problem can be addressed in the CSR that will be announced in October this year. You and I know that all departments and devolved administrations are hard at work making their case for as much money as they can get (or as small a reduction, in current circumstances) therefore now is the time for the £300m shortfall to be acknowledged and addressed. I think all parties in Wales should be united in forcing the Westminster government to acknowledge the problem, and people like you have a particular role to play in that process because your colleagues are actually part of that government.

But, instead of that, there appears to be no sense of urgency about it from you and the Tories at all. You are using the need to find a long term solution as an excuse not to deal with the immediate crisis. There is no excuse not to put in the floor and adjust the baseline as part of the CSR in October.

We need to be aware that the 10-14 years was a figure given to change the current arrangements in favour of not only a a new needs-based formula but also a mechanism by which a proportion of the newly calculated block grant could be replaced by retention of taxes (and setting their rates) by the devolved administrations. If I might say it, you don't seem to have appreciated the difference between that and the way we can make the immediate fixes that Wales needs now.

Peter Black said...

Actually, I was there when Gerry Holtham referred to the 10 to 14 year period and he was talking only about the creation of a new needs-based formula and not the fiscal issues which you refer to.

MH said...

I'm sure you were there, Peter, but that doesn't mean you understood what Gerry Holtham was saying. What he said was that it could take maybe ten or fifteen years because of the transitional arrangements that might be necessary, particularly because Scotland would loose out under a needs based formula. If you still need convincing, he said it again in the interview I included in this post in July.

Any major change needs to be phased in gradually. Wales' £300m shortfall is a relatively small sum. Scotland's overpayment is closer to £4bn. It would be unreasonable to cut that in one go without transitional arrangements. But do the maths: if it takes 14 years to reduce a £4bn overpayment, that works out at roughly £285bn a year. In other words, even if it did take 14 years to make the total adjustment for Scotland it would take only a year to make the adjustment for Wales.

It may have escaped you, Peter, but any transitional timetable can only come into effect after a new formula has been agreed. He was not talking about how long it would take to work out the formula. He and his colleagues have already worked it out. The Treasury can either take it as it stands or tweak it a bit. But there is absolutely nothing to stop them doing it right now ...

... or rather, nothing to stop you doing it right now, since your party is part of the governing coalition in Westminster. You are clinging to a misunderstanding as an excuse for doing nothing. While you continue to do that, Wales will continue to lose out.

I'd expect you and your Welsh LibDem colleagues in Westminster (as well as the Welsh Tories, of course) to be making these points very forcibly, so that the adjustments I spoke about can be included in October's CSR. You have a very limited window of opportunity. Take it now, or Wales will have to wait three years before the next CSR.

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