House of Commons - Welsh Affairs

Select Committee on Welsh Affairs First Report

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

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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

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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]

changes

It is not used to determine their overall levels

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Crucially, it is non-statutory.[134]

86. The WLGA was very concerned about possible changes to the Formula, arguing that

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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.".[

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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,

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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