THE IMPACT OF THE GOVERNMENT'S DEVOLUTION
PROPOSALS ON ECONOMIC DEVELOPMENT AND LOCAL GOVERNMENT IN WALES
The regional structure
78. The Bill provides in Clause 62(2) for statutory
regional committees of the Assembly; and Clause 62(1) obliges
the Assembly to set up a committee for North Wales in particular-though
the boundaries of the various regions of Wales are nowhere set
out in the Bill itself. In addition, the new structure assumes
that there will be four regional offices for the enhanced WDA.[118]
There are other regional structures already in place: Training
and Enterprise Councils [TECs] and Regional Economic Fora (which
consist of informal groupings of interested parties, including
representatives of business and local government).[119]
The Wales TUC strongly supported a regional structure for the
various agencies
"because it is only when you get that regionalisation
in place that you can start overcoming the tendency which has
existed, which is to concentrate on the easy bits first. We have
to get down to the more difficult areas.".[120]
It was also very anxious to see much closer cooperation
between the enhanced WDA and the TECs.[121]
79. The Welsh Office has just concluded a consultation
exercise on a paper entitled Economic development: a proposed
regional structure[122]
which proposes four new regions as follows:
- North Wales: Anglesey, Gwynedd, Conwy, Denbighshire,
Flintshire and Wrexham;
- Mid Wales: Powys and Ceredigion;
- South West Wales: Pembrokeshire, Carmarthenshire,
Swansea and Neath-Port Talbot; and
- South Wales: Bridgend, Merthyr Tydfil, Rhondda
Cynon Taff, Vale of Glamorgan, Cardiff, Caerphilly, Blaenau Gwent,
Torfaen, Newport and Monmouthshire.
The boundaries of the new regions would serve both
for the regions of the enhanced WDA and for the TECs.
80. One possible problem which we foresee for the
proposed new regional boundaries concerns the proposal to place
Meirionnydd in the North Wales region; hitherto, it has been within
the boundaries of the DBRW as part of Mid Wales. The Member for
Meirionnydd Nant Conwy, Mr Elfyn Llwyd, wrote to the Chairman
arguing in very strong terms that Meirionnydd should be part of
the Mid Wales region of the new WDA-a view which he had already
put forward to the Secretary of State. At the same time, however,
he would prefer Meirionnydd to remain associated with North Wales
when the six existing TECs are reduced to four.[123]
81. The argument for change is a complex one: the
Welsh Office Regional Development Division would prefer to see
Meirionnydd in the North Wales region of the enhanced WDA, not
least because the alternative would be to split the Gwynedd County
Council area between two regions.[124]
On the other hand, Mr Rowe-Beddoe told us that
"The whole of Meirionnydd, Ceredigion and
Powys simply hangs together as an economic entity and has been
a partnership entity since 1956".[125]
and we note that he expects the existing DBRW
to become the Mid Wales region of the enhanced WDA.[126]
Moreover, the Mid Wales region as proposed in the consultation
paper looks very weak economically, with the lowest population
(at 193,963) and GDP of the four.[127]
82. Several witnesses, such as the Wales TUC, argued
for coterminous boundaries.[128]
CBI Wales went even further; Dr Haywood argued that coterminous
boundaries would simplify the issues, and she wished to see coterminous
boundaries for Business Connect as well.[129]
Crucially, the CBI wanted to see the Assembly adopting the same
boundaries for its own regional committees as those that had already
been put in place for other functions, on the grounds that the
regional committees would inevitably find themselves dealing with,
for example, the regional offices of the WDA. By implication,
at least, this was also the view of the WDA, which assumed that
the Assembly would formulate its regional economic development
policies with the advice of its regional committees and with input
from the Regional Economic Forums: "a combination of 'bottom-up'
and 'top-down'".[130]
83. We are reluctant to offer any view as to precisely
where the boundaries between the new regions should be drawn.
We are, however, convinced of the desirability, wherever possible,
of coterminous boundaries for the various regional functions.
We would very strongly urge that the regional committees
of the Assembly be established on the same boundaries as the regional
structure for the Welsh Development Agency, Training and Enterprise
Councils, the Regional Economic Fora and similar groupings; and
we suggest that the Secretary of State draw the matter to the
attention of the National Assembly Advisory Group. As to
the question of Meirionnydd, the balance of the argument lies
in the direction of including it in the Mid Wales region of the
new WDA-but that may mean that it would have to be included in
Mid Wales for other purposes as well.
Finance and the Barnett Formula
84. One issue which recurred during our inquiry
was that of the Barnett Formula-the mechanism whereby the Welsh,
Scottish and Northern Irish blocks of public expenditure are determined
during the annual public expenditure round. Simultaneously with
our own investigations, the Treasury Committee was conducting
an inquiry into the Formula from a United Kingdom perspective;
its Report was agreed on 15 December.[131]
85. The Formula-named after the then Chief Secretary
to the Treasury-was adopted at the end of the 1970s as a mechanism
for allocating expenditure to the territorial departments in a
non-contentious fashion.[132]
"The Barnett Formula is a way, based on
population, of sharing out changes in public expenditure
plans between countries of the Union. It is not used to determine
their overall levels. Under the Formula, `Scotland and Wales
receive a population-based share of changes in planned spending
on analogous programmes in England managed by the Secretaries
of State for Scotland Wales...' ".[133]
Crucially, it is non-statutory.[134]
86. The WLGA was very concerned about possible changes
to the Formula, arguing that
"the procedures for any review of the Barnett
Formula for the financing of public administration in Wales need
to be specified in the [Government of Wales] Bill".[135]
The Secretary of the Association, Mr Colin Jones,
explained that, because the allocation of finance under the Formula
was such a fundamental element in the devolution process, there
had to be safeguards under which no change could be made to the
funding of the Assembly without a proper process of consultation;
in his view, unless there was a degree of certainty over the funding
mechanism, there would be instability in the way in which the
Assembly conducted its business.[136]
87. The Treasury Committee noted that the Barnett
Formula was last revised in the 1992 Autumn Statement in order
to reflect changes in population revealed in the 1991 Census.[137]
That Committee expressed its disappointment, however, that no
Government studies had been made of the appropriateness of the
Formula in relation to needs, and suggested that it was time to
bring the needs assessment up to date.[138]
88. In a Written Answer on 9 December 1997, the Chief
Secretary to the Treasury published a statement of principles
governing existing and future arrangements for the Welsh and Scottish
expenditure blocks. Included in that statement was a commitment
to an annual recalculation of the population shares for the purposes
of the Formula based upon the latest estimates published each
year by the Office of National Statistics. The next recalculation
is to be made in time to determine changes in the Welsh and Scottish
block budgets for 1999-2000.[139]
89. We are convinced that there is a continuing
need for a readily-understood mechanism for allocating expenditure
among the four constituent territories of the United Kingdom;
up to now, the Barnett Formula has, however imperfectly, provided
such a mechanism. Given the relative inflexibility of the existing
Formula, however, we feel that the time has come to move beyond
Barnett and, while we accept that any such mechanism must be dealt
with at a United Kingdom level (which means that responsibility
for its operation must remain with HM Treasury), it must be made
much more responsive to changing circumstances.
90. We welcome the Government's commitment to
an annual recalculation of the population element of the Barnett
Formula as a first step. We agree with the Treasury Committee,
however, that the needs assessment within the Formula should be
brought up to date. Given that GDP per head of population
in Wales is 17 per cent below the average for the United Kingdom
as a whole, average full-time earnings 10 per cent lower, household
income 14 per cent lower, and economic activity rates 9 per cent
lower,[140] we suspect
that any reassessment of the needs element in the Formula could
not but be to the advantage of Wales-a sentiment with which the
Secretary of State would appear to agree.[141]
Postscript: the Assembly and the Secretary
of State
91. The devolution to the Assembly of the powers
of the Secretary of State to make secondary legislation is going
to involve a massive cultural shift in the political system of
Wales. At the moment, the Secretary of State is responsible for
a vast range of policy areas which would in England be the responsibility
of what might be termed the "specialist" Departments
in Whitehall. Once the Assembly is in operation, however, all
that will go. Even the allocation of the Welsh public expenditure
block is more-or-less an automatic process; as the Secretary of
State put it:
"The block allocation... is not the subject
of a detailed annual negotiation; it is derived by means of reference
to a Formula and it is the totality of expenditure that is negotiated
within Government. Once that is then fixed, you refer to a Formula
and you slice off a block for Wales.".[142]
The whole process is far more mechanistic than witnesses
such as the Wales TUC and the WLGA seemed to think.[143]
92. Nevertheless, in the negotiations during the
annual public expenditure round the needs of Wales (and, for that
matter, Scotland and Northern Ireland) will have to be borne in
mind in calculating the global sum from which the Welsh, Scottish
and Northern Irish blocks are ultimately to be sliced, and we
assume that future Secretaries of State will play an important
part in that process of negotiation. Moreover, the areas which
are not to be devolved, such as financial policy, policies relating
to policing and fire services, and defence, remain of enormous
importance to the people of Wales, both in setting the overall
United Kingdom framework within which the domestic policies of
the Assembly will have to operate, and in the economic impact
which they will continue to have on the Principality in terms
of public spending and employment. That impact is felt in two
distinct ways: in expenditure on, for example, defence-related
activities which flows into the Welsh economy, and in the financial
implications for Welsh local authorities of policies on matters
such as policing and fire services which are laid down by United
Kingdom departments rather than the Welsh Office-policy areas
which the WLGA would like to see transferred to the Assembly.[144]
93. The Secretary of State will therefore be responsible
for developing the non-statutory concordats that will govern the
relationship between Whitehall Departments and the Assembly and
the role of the Assembly in negotiations within the European Union
on matters in which the Assembly has an interest.[145]
Under devolution, Wales will continue to need a strong voice
in Cabinet in order to ensure that its special needs are addressed
in United-Kingdom-wide policy-making-and the continuation of the
office of Secretary of State for Wales will provide that voice.
94. It should also be remembered that the power to
enact primary legislation will remain with the United Kingdom
Parliament. Although there is relatively little primary legislation
which relates exclusively to Wales if, for example, a further
major reorganisation of Welsh local government were to prove necessary,
the legislation would have to be enacted at Westminster-and it
would be for the Secretary of State to take responsibility for
it.
95. Clause 75 of the Bill provides that the Secretary
of State shall be entitled to attend and participate in proceedings
of the Assembly (though not of its Committees) and to receive
Assembly papers. When we asked why this provision had been included,
the Secretary of State replied that, though it was not a matter
of great principle,
"I felt that there would be many occasions
when the Secretary of State would want to be involved in the work
of the Assembly. If, for example, the Secretary of State were
to be wanting to address the Assembly about the contents of the
[Queen's] Speech at the start of a Parliament or if there was
an event of major significance or if there was a piece of legislation...
I felt that it was not inappropriate to give that right to the
Secretary of State to address the Assembly.".[146]
96. It seems to us to be appropriate that there
should be some kind of formal mechanism by which the Secretary
of State is able to attend meetings of the Assembly; in our view,
however, that attendance should be by invitation of the Assembly
only.
97. We have already noted the opinion of the
WLGA that the Secretary of State has a potential role as arbiter
between local government and the Assembly.[147]
We suspect that this will be an informal function rather than
a statutory one. Indeed, we would imagine that if the new system
is to work as intended, then many of the contacts between the
Secretary of State, local government and the Assembly are, of
their very nature, going to have to be conducted on an informal
basis-but they will be no less important for that.
118 Evidence
p 22. Back
119 Evidence
pp 22-3.. Back
120 Q
410. Back
121 Q
419. Back
122 (not
printed). Back
123 Appendix
40. Back
124 Economic
development: a proposed regional structure,
paragraph 9. Back
125 Q
6. Back
126 Q
79. Back
127 Economic
development: a proposed regional structure,
paragraph 12. Back
128 Q
443. Back
129 Q
387. Back
130 Q
84. Back
131 Second
Report of Session 1997-98: The Barnett Formula (HC 341
of 1997-98). Back
132 The
original Barnett Formula divided increases in public expenditure
between England, Scotland and Wales. As HC 341 of 1997-98 indicates
(page 12), changes in public expenditure are now divided between
Northern Ireland and Great Britain according to their respective
shares of United Kingdom population. Back
133 HC
341 of 1997-98, paragraphs 2-3 [emphasis in original]. Back
134 Q
143. Back
135 WLGA
Memorandum, paragraph 13. Back
136 QQ
147-8. Back
137 HC
341 of 1997-98, paragraph 5. Back
138 HC
341 of 1997-98, paragraph 11. Back
139 HC
Deb (1997-98) 302 cc510-13. Back
140 Evidence
p 69. Back
141 Q
729. Back
142 Q
731. Back
143 see,
eg, Q139 [WLGA], Q413-5
[Wales TUC]. Back
144 QQ
154, 229.. Back
145 HC
Deb (1997-98) 302 c682. Back
146 Q
732. Back
147 Q
182. Back
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