If you don't understand ... email a friend

Like many others, I read with interest Gerry Holtham's explanation of why Wales has suffered disproportionately compared with Scotland and Northern Ireland as a result of the ConDem government's recent spending review.

     Why Wales has been hit

At the end of his explanation he added the line:

Got that? If not try reading it again!

I have to admit that I didn't understand it (or perhaps it would be better to say that I understood some of it but not all of it) and so I read it again. Still not there. So I then made myself a double espresso to get my brain into top shape for the third attempt, but finally had to admit defeat. It was at that point I emailed a friend.

We met up last night, with some others, and it was one of the things we talked about. The consensus seemed to be that a lot of people hadn't really understood the point he was making either, including those (even in the House of Commons) who we thought would have understood. But our friend didn't let us down, and I am relieved to say that I now understand the point Gerry Holtham was making.

It's not that the details weren't already there. In fact, it was probably the detail that got in the way of me seeing the big picture. But having it explained from a slightly different angle, I can now re-read Gerry Holtham's article and see that it all makes perfect sense. Therefore, in the hope that it might help some others, this is the simpler version:

•  Non-Domestic Rates are collected from businesses by local authorities. In England and Wales they are then forwarded to the Treasury in Whitehall and put into a common pot. The Treasury then adds additional money to that pot and redistributes it.

•  In Scotland and Northern Ireland Non-Domestic Rates do not go to Treasury in Whitehall, but the Treasury still forwards the same percentage of additional money to the individual pots of the governments of Scotland and Northern Ireland, who then redistribute it.

•  In both cases the collected NDRs are about 82% and the top up is about 18% of the final redistributed total.

•  The UK government has decided to cut the amount of the top up by a total of 27% over four years.

So far, everything is fine in principle. We might not agree with the cuts, but we have to live with them. The problem is that the Barnett Formula is only designed to determine what is paid out to the devolved nations from the Treasury, and doesn't take into account what these nations pay in. As a result of this anomaly:

•  Scotland and Northern Ireland get to keep all of the NDRs they collect because they didn't go into the Treasury pot, and will only suffer a 27% cut in the top up.

•  But Wales, because our NDRs have been paid into the Treasury pot, has to suffer a 27% cut over the entire redistributed total ... not only the top up, but the NDRs that have been collected from businesses as well.

Put another way, it means that the Treasury is going to hold on to a considerable proportion of the money we collect from businesses in Wales. As Gerry Holtham says:

This ... is more than enough to explain the whole difference between the Welsh total fall of 7.5 per cent in public spending, Scotland’s 6.8 and Ireland’s 6.9 per cent reduction.

I hope that those, like me, who didn't really understand the original article will now understand it. And I particularly hope this includes those in the House of Commons, because the only possible response to this is to be angry ... very angry indeed.

This can't be swept under the carpet with the excuse that the Barnett Formula will one day be replaced. This is a problem that affects us now. It is a loophole that can be fixed very easily by simply "ring-fencing" the NDRs we pay into the Treasury, so that the 27% cut only applies to the top up sum, not to the whole redistributed sum. It is an issue that should unite MPs from every party in Wales ... including the Tories and LibDems.

Come on. Let's see you stand up and fight.

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11 comments:

Anonymous said...

Oh, can we just forget this whingocracy and go and get powers to raise and spend our own revenue? This is just wasting time and energy.

The party's over lets look at ways of raising money as an independent state within the EU and allow the Brits to argue about crumbs off the table.

C'mon MH, we're grown ups now. This is undignified.


Macsen

MH said...

Macsen, that's the long term solution, but it won't affect the immediate problems in the system at all. For as long as we are part of the UK, we need to make sure we are treated as fairly as the other parts of the UK.

You call it whinging if you want. But if you were a policeman and someone came to tell you they had just been robbed, would you tell them to "Stop whinging"? Would you say, "You're grown up, sort it out for yourself"?

I'm not going to stop pointing out examples of how Wales is unfairly treated, because it is only by pointing out the unfairness that we will get people in Wales angry enough to do something to change it.

Anonymous said...

... or maybe you get a different police force and policies which mean you're not robbed in the first place. It's got to stop sometime.

So, what do Plaid do when/if the UK government sort out Barnett? Say 'ok, thanks for that, we're happy now - see London does care about little Wales after all, as long as we scream enough'?

This is a weak narrative. It's a narrative which asks for British crumbs. We should be pointing out that we don't need UK money that, if we had the power we could generate more income.

Macsen

Anonymous said...

However, the flipside to your comments is that Wales is currently benefiting from an extension of business rate relief (from October 2010 to 2011) that is funded by the UK Government.

MH said...

Can you explain that in more detail, 18:43?

In itself, there's no problem with Wales benefiting from something funded by the UK government. It would only be a problem if the rest of the UK were not getting it (or some other equivalent) based on the same eligibility criteria.

Siônnyn said...

I understand from Holtham, that in England the re-distribution is made on a needs based formula.

If they can do it for England, why can't they do it for Wales? It appears that in Wales, Scotland and NI it is based on Barnett, which is not needs based. Why?

I am also concerned that the NDR is set by the London Government in Wales. Surely, that can not be good for enterprise in Wales, can it? NDR (and Corporation tax) would be better set locally, to reflect local conditions and aspirations, wouldn't they?

Complicated as this issue is, despite your excellent précis, I can't see us getting much traction from this on its own, as most people don't understand basic income tax - but as a way of seeing how committed your MPs (especially if they are Labour) are to getting a fair deal for Wales, then it is a most excellent Litmus test!

MH said...

Siônnyn, some of what you've said is not quite right. Yes, the collected NDRs plus the top up money are distrubuted on a needs-based formula (the whole point of putting NDRs into central pots is to redistribute it) but that's a different point. The point at issue is that local authorities in England will receive all of the collected NDR money due to them, and only the top up part of that will be reduced by 27% over 4 years. They will get it because Barnett doesn't apply to England; Barnett is a formula designed to make sure that the rest of the UK benefits proportionately from the spending decisions made by Westminster for England or "England&Wales". It's only designed to work one way.

But all the redistributed money that would have come back to Wales will now be subject to a reduction of 27% over 4 years; not just the top up part (as in England, and as in Scotland and Northern Ireland but in a different way) but the collected NDR part (which is 82% of what makes up the total pot) as well.

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Second, NDRs in Wales are not set by Westminster. The rateable values of properties are fixed, but the Westminster government sets the multiplier for the whole of England, and the Welsh Government sets the multiplier for the whole of Wales.

To complicate matters, there are then schemes which give relief to small businesses and the like, again set by Westminster for England but by the devolved administrations for their respective nations.

Siônnyn said...

What a mess!

But the needs based redistribution does not apply to Wales, because we are stuck with Barnett, which is not needs based -is that right?

I obviously misread Holtham on the setting of the rates, so apologies!

MH said...

Macsen, after some time to think it over, I'd like to say a couple of things in response to what you said yesterday.

I can see that you are totally convinced that Wales would be better off as an independent country, and I trust it's obvious that I do too. But perhaps we need to think about how we reached this conclusion. For me, although part of it is to do with national identity and our own confidence in our ability to make decisions for ourselves, the other part is a matter of hard-nosed pragmatism.

In order to win people over to the cause of Welsh Independence we must appeal on both these fronts. In fact I would go so far as to say that most people in Wales would be more than eager for Wales to be independent, but have resigned themselves to thinking that it is not possible in practice, and so leave it as something buried deep inside rather than something that they could feel confident about fighting for.

That is why I post articles like this one. In some ways it's the easy part, for it is much easier to prove a concrete argument based around hard figures than it is to win over the heart. I want to show that, as part of the UK, Wales suffers from unfairnesses that other parts of it do not suffer. In this particular case I was trying to explain something that people with a much better grasp of money than I have can see much more easily than I can. But if I could see it in the end, I hope others will see it too, and that it will help persuade them of what we are already convinced about. I wouldn't expect many people to know the exact mathematics of the process, but we can surely all understand the end result. Gerry Holtham said that this anomaly in Barnett more than accounted for the difference between Wales' cut of 7.5% and Scotland's smaller cut of 6.8%. The difference is 0.7% of a budget of about £15bn a year, that's over £100m each year ... or 15 brand new primary schools.

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We have to accept that most people in Wales do not yet want independence. So, with respect, we cannot simply "rise above" these unfairnesses. We have to shout about them, in just the same way has we have to shout about the £400m (it used to be £300m) we loose each year because of Barnett in general.

I too read that the Tories' attack line is going to be "Stop all the whingeing and grow up." But I'd urge you not to buy into it. They just want to blame the victim, to make out that we don't have a case and should therefore shut up about being mistreated. It's not surprising that they should want to spin it this way, for they are the one's imposing these unfair cuts on us. And by unfair I mean that we are suffering larger cuts than other parts of the UK.

But they equally know that they are attacking a weak part of our collective psyche: our confidence in our ability to stand up for ourselves. And, from your first comment, I can't help but think that it hit home.

Anonymous said...

MH - I appreciate what you say and for being candid enough to say it. I also understand what you're saying. But the more we go on about Wales's 'mistreatment' the less time we discuss and build confidence and arm ourselves with arguments on how Wales could finance herself. The only arguments we build are those which flow into the Brit Nat argument used by Labour for decades that Wales 'needs London' and that amending the Barnett formula is just an example of London oversight which can be corrected with the right party (read Labour) in power.

MH you say we must 'win people over to these arguments' ... but your not giving any arguments to win them over. The argument you're winning them over to the argument that we need more Welsh MPs and we need to keep in the UK to get a better deal. You may be furthering Plaid Cymru's short term electoral prospects but your not in any way 'winning' people over to the argument for independence because you're not making them at all.

To begin with I don't think that Wales is being 'mistreated'. I don't think there is a deliberate London strategy to punish/misgovern Wales. There may be overshigh, there is certainly taking Wales for granted - that's the problem we've had when Labour have been in power and Wales is just voting fodder. But Wales isn't mistreated any more or less than anywhere else.

In any case, even if London lavished us with everything I'd still want independence for the same reason as a Danish person wants independence from Germany or Ireland from the UK. It's to do with self-respect.

We can make your argument that we're 'suffering larger cuts than other parts of the UK' but would the nationalist line be, 'OK, vote Plaid and let us show you how we can create income and jobs with no burden to our long-suffering English friends who've bank-rolled us over the centuries, we'll make Wales richer by our own sweat. Here's how.' That would force Labour and Tory to either look like whingers themselves or say that Wales is too stupid to run its own affairs and generate wealth. It would show a level of confidence which I think would generate respect and move away from the zero-sum victim politics which we've had for decades. It's the only way to break the cycle.

I think you're perpetuating the cycle or victimhood, of Welsh dependence on London, of Labour hegemony. It's time to be hones, to be brave and to trust ourselves, the Welsh nation and Welsh nationalism.

Macsen

To be honest I don't even think

MH said...

I'd like to pick up on a few points you made, Macsen.

On the subject of Wales being unfairly treated, I think the evidence is clear. Three concrete pieces of evidence for this are: the report from the Holtham Commission; the fact that Wales was obliged to pay income from council housing rent to a central Whitehall fund even though English authorities were given an allowance which had the effect of reducing what they paid into the central fund (as detailed here); and the subject of this post.

I don't particularly want to comment on how these things were allowed to happen, but I feel I am totally justified in saying that as soon as these problems had been identified, each of them should have been rectified. They have not been rectified, and that failure to act is what constitutes the unfairness. Anybody can make mistakes (if mistakes is what they are) but they are then obliged to fix those mistakes.

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In terms of party politics, I certainly don't think this plays to Labour's narrative that only they can fix things in London. Barnett and council housing are two things that they had every opportunity to fix, but didn't. We must now press the ConDem coalition to fix them instead, and I hope they will do what Labour have not been willing to do. They must also deal with the one that has just arisen on their own watch. But Westminster fixing problems that Westminster itself was responsible for creating is no reason for us to be particularly grateful to Westminster, is it?

On the subject of MPs, you seem to have misunderstood what I've been saying. I am not saying we need more MPs. I must acknowledge that having fewer MPs will effect Plaid Cymru too. At present we have two solid, but small, constituencies in the north west. We are likely to end up with only one ... with the surrounding seats being more marginal. So my argument is certainly not based on party political advantage, it is based on constitutional and electoral fairness.

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I think the differences between us are not to do with the end destination, but when and how we get there. We need to be clear that, as noted in the Holtham Report, Wales has a fiscal deficit of just over £6bn a year. As an independent state we would of course spend less money on things that we did not consider important, and we could probably afford to run a deficit of up to about £2bn, since the UK government regularly ran a deficit of £35-40bn before the financial crisis. This is (or at least used to be) "normal". But we're probably still £2bn a year short.

Of course I'd vote for independence tomorrow, but that shortfall will make the next ten years of transforming our economy into a torrid time. So I think the game plan must be to make the necessary investments in infrastructure, and establish the sort of fiscal regime that will encourage the growth of our economy now, while we are not yet independent. That's why transport, education, energy self-sufficiency, sustainability and greater fiscal autonomy are major themes on this blog.

But we are not alone in wanting to create a more prosperous Wales. The great thing is that good people in the unionist parties are just as concerned about Wales becoming prosperous as we are, so we can work with them on the policies that will achieve this. You seem to regard this as some sort of compromise on my part because it leads to their destination. Yes, it does take us to where they want Wales to be ... but the road continues beyond their destination to ours.

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