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Lord Simon of Glaisdale: My Lords, when noble Lords debated in Committee the very important question of the financing of the assembly, it seemed that a number of specific questions arose. Listening from the Cross Benches, there seemed, on some of them, a clear preponderance of arguments. The first was: should the basis of the finance be a Barnett-like formula? Although that the noble Lord, Lord Thomas, with his authority, disagreed, it seemed to me that there was a clear preponderance in favour of that.

Perhaps the most powerful argument was advanced at Second Reading and in Committee by the noble Lord, Lord Callaghan, and I ventured to try to endorse it. Once there is that formula, one has to take into account its limitations. It does not cover the whole of the field of finance; it applies only to the year-on-year increase in expenditure.

Secondly, it is clear that, even when the formula was enunciated, it was out of date because it was based on statistics of the late 1970s. Therefore, in my respectful submission, the formula needs to be brought up to date.

Thirdly, there is another, quite different formula, which was referred to by the noble Lord, Lord Crickhowell, in Committee, and by the noble Lord, Lord Dixon-Smith, today and in Committee; namely, that governing local authority finance.

Under the Barnett formula, Wales comes off badly, for the reasons that have been put forward so cogently. On the other hand, I gather that, under the local government formula, Wales benefits, on the whole. It seems to me clear that there must be some review if the Barnett formula is to be used.

I support the amendment moved by the noble Lord, Lord Roberts, and the amendment in the name of my noble friend Lord Elis-Thomas. I again emphasise, as did the noble Lord, Lord Crickhowell, the words,

That is very necessary under the circumstances.

Perhaps a minor question is whether the formula should be expressed on the face of the statute. It seemed to me that as to that matter opinions were very nicely balanced, although personally I agree with the way it was put by my noble friend Lord Elis-Thomas.

In view of all the points to which I have referred, it seems to me that the line taken by the Government embodies the worst of all the solutions. They say that they will proceed on the Barnett formula but will have no review of it, no review of the financial implications and no update, nothing which the noble Lord, Lord Barnett, himself advocated; namely, a review and, as he put it, a Barnett formula Mark II. I fully support the amendment moved from the Opposition Benches and, it seems to me, the perfectly compatible amendment tabled by my noble friend.

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4.45 p.m.

Lord Desai: My Lords, I hesitate to speak in this debate, but the Barnett formula has been mentioned. It used to be my hobby and so I should like to examine the question. I believe that the Government have decided, in both this Bill and the Scotland Bill, that the formulation of the financial part will be very general, leaving a lot of scope for administrative and political settlement. The amendments before us seek to put some more structure into the Bill. I wish to argue that that is not always desirable. Even people who want more money may regret putting something on the face of the Bill because it may cause problems.

Any formula--even the Barnett formula--which simply increases expenditure over a certain base eventually takes into account needs, because population is a rough indicator of need. One could make it more complicated, but it does take into account needs. What else would it do? Another formula could be to say, for example, that the larger the population, the more the needs; the lower the relative income, the greater the needs. The difficulty would arise from the weights that one puts on these two elements, as well as from the numbers. Numbers become a matter of great argument. Revised population numbers are available only every 10 years. One might get oneself into a formula which was so rigid that one could not do much about it.

I believe that in this kind of devolved financial situation there will not be much change from one year to the next with regard to the proportion of money going to Wales or to Scotland. No one imagines that a government would come to power and cut even as much as 10 per cent. We are talking about small adjustments, which, in my opinion, should be left to the ongoing political process between the Secretary of State for Wales, the assembly and the Cabinet rather than be set in a rigid formula, which would lead to great sorrow later on.

As an example--not with regard to a financing formula--I remember that when the Conservative Government came into power they did not like the way the inflation formula was calculated. They thought that, if they calculated a tax-and-price index, inflation would look lower than it looked in the CPI. They soon found that the tax-and-price index did not do what they wanted it to do and so they quickly dropped it. I have spent a great deal of my life making up formulas and I caution noble Lords about getting into that.

It should be sufficient if it is understood and recorded in Hansard--and I am sure my noble friend will say this from the Front Bench--that, by and large, no one envisages any drastic alteration to the rough proportions in which the money is spent. As noble Lords have said, other moneys which are not in the Barnett formula are given to Wales, for example through MAFF or the Ministry of Transport. There may be special schemes, for example. Therefore the Barnett formula does not represent the total amount of resources which go to Wales. It is more flexible to leave things unsaid, especially if one wants to negotiate more money in the future.

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I wish to mention one more point, which was referred to by the noble Lord, Lord Crickhowell; namely, the European dimension. At the moment structural funds come to Wales, or to some parts of Wales, through the European Community. We know that that formula is also about to change drastically, first with the Agenda 2000 document, which will be decided next March, and, secondly, with enlargement. The existing 15 members will all receive less money than they have been receiving. We should be thinking about such matters as how Wales and other regions will deal with the fact that European funds coming to the UK will be smaller than at present. That is something outside the Barnett formula which is definitely worth thinking about.

Lord Prys-Davies: My Lords, I listened with great care to what my noble friend Lord Desai said, but I have to say that there is concern in Wales that there is no reference in the Bill to the guiding principle which should govern the funding of the assembly. The issue before the House is whether the Bill should contain such a guiding principle.

Amendments Nos. 103 and 105 were discussed in Committee. I was in sympathy with the principle behind both amendments, in particular the amendment moved by the noble Lord, Lord Roberts. However, we were told in Committee by my noble and learned friend the Solicitor-General that the Government were rejecting the relative needs criteria because,

    "The amendments would require changes to, or even the complete abandonment of, the Barnett formula".--[Official Report, 9/6/98; col. 923.]

That argument has not been addressed this afternoon. To my way of thinking, the risk of abandoning the Barnett formula is unacceptable and that is why I cannot support Amendment No. 103.

Lord Roberts of Conwy: My Lords, in fact, I addressed the very quotation to which the noble Lord, Lord Prys-Davies, referred. I pointed out that there was a difference of opinion as to the content of the Barnett formula because the noble Lord, Lord Barnett, referred to the element of need as well as population involved in that formula. Therefore, I could not understand how the recognition of need as in our amendment would enforce the abandonment of the formula.

Lord Prys-Davies: My Lords, I accept that correction. I was five minutes late coming to the debate and no doubt that is why I missed the contribution of the noble Lord, Lord Roberts.

I turn now to Amendment No. 105, also discussed in Committee. This amendment requires Ministers to,

    "have regard to the arrangements known as the 'Barnett formula'".
My noble and learned friend the Solicitor-General was opposed to the inclusion of the reference to the Barnett formula being on the face of the Bill because it,

    "would mean that the whole system would need to be built into the Bill and we do not believe that it would be helpful or practical to freeze the detail in statute".--[Official Report, 9/6/98; col. 923.]

Must the whole system be built into the Bill? Is it not possible to insert in the Bill a reference to a guiding principle which would not involve the freezing of any

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details? What worries many people in Wales is that we have no assurance that the present arrangements or the underlying principle will continue to apply, particularly if the Welsh assembly and Parliament are under different political control, as might frequently be the case in the future. Therefore, it is not this Government's intention that worries me, but that another Parliament of a different party may not adhere to the present arrangements.

I believe that I speak for a number of people who wrote to me expressing the wish to see a guiding principle in the Bill, not just the details. The financial settlement--as was mentioned by one or two speakers this afternoon--is one of the major pillars which underpin the devolution settlement. Another Parliament, at some time in the future, should not be in a position to remove or weaken that pillar without at least the need for primary legislation to get around the provision which an amendment would insert into the devolution Act. I believe that we could be accused by a future generation of not having thought as carefully as we could about the financial arrangements if the Bill proceeds without an amendment to Clause 80.

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