The Barnett Formula - Select Committee on the Barnett Formula Contents

Memorandum by the Wales Council for Voluntary Action

  1.  WCVA represents the interests of voluntary organisations, community groups and volunteers in Wales. It has over 2,600 members, and is in contact with many more groups through national and regional networks.

  2.  Its mission is to strengthen voluntary and community action at the heart of a civil society in Wales that:

    — Is inclusive and offers equality of opportunity;

    — empowers people to participate and fosters community leadership;

    — encourages and promotes the independence of voluntary action;

    — celebrates and reflects linguistic and cultural diversity and choice; and

    — engages in genuine partnership with other sectors on a "who does what best" basis.

  3.  WCVA has consulted widely with the third sector throughout the process of devolution and recognises its role in promoting the interests of the sector in this process. We have been actively engaged in debates around the role of the National Assembly for Wales and its relationship with the sector from the original proposal to establish the Assembly, through the Richard Commission, the implementation of the Government of Wales Act 2006, and most recently the work of the All-Wales Convention established to explain to the Welsh public about the powers currently available to the National Assembly for Wales and assess the implications of moving towards full law making powers.

  4.  The third sector is broad and diverse and makes a major contribution to the economic, cultural, social and environmental life of Wales. Third sector organisations can provide valuable evidence of how government policies are affecting Welsh citizens, facilitate often marginalised voices to be heard, and contribute to the delivery of public services. Effective governance depends on government working with the sector and ensuring that its mechanisms for doing so are as transparent and effective as possible.

  5.  WCVA does not claim to be familiar with the internal workings of government finance. Our perspective is primarily a lay view from outside government. Our evidence is not technical, but is informed by the way in which a wide range of third sector organisations and networks experience government finance policies and arrangements.

  6.  In discussing the Barnett formula with third sector organisations, there are three main issues that have been raised.

  7.  Firstly, there is the question of whether any formula (either the current Barnett formula, or a potential alternative arrangement) is applied in a transparent manner that is clearly understood by organisations with an interest in government funding.

  8.  Secondly, there is of course the question of whether the existing formula fairly meets the distinctive needs of Wales, particularly with reference to levels of social need, and to providing services in sparsely populated areas.

  9.  Thirdly, there are occasions when the Barnett Formula is used as a basis for the negotiations regarding the division of non devolved funding or as a benchmark against which to measure the "fairness" of any allocations. The fact that the formula is not related to need or cost of service provision means that these allocations may disadvantage Wales compared to the rest of the UK.

  10.  The current formula is in fact relatively straightforward, using population share and comparable functions as the basis of the calculation. Its application leads to a stable, predictable and automatic increase in the funds available to the Assembly Government.

  11.  However, there is no doubt that many organisations are confused by the Barnett formula. Although there are reasonably clear explanations of how it works available, these are not well known or understood.

  12.  There are a number of questions that arise from the current arrangements.

  13.  As far as we understand, the formula is only applied to new expenditure. We are unable to comment on whether the historic settlement that pre-dates the application of the Barnett formula provided a fair allocation across the UK, but this is clearly a key consideration in determining the fairness of the current arrangements.

  14.  We also understand that the trigger is the commitment of new funding in England, providing a "catch-up" mechanism for the devolved administrations. Whilst it is right that UK government decisions for initiatives in England should lead to a commensurate increase in Wales, we are not clear about how the Assembly Government might seek additional Treasury resources, over and above the existing settlement, for initiatives in Wales that may not be desired in other parts of the UK.

  15.  Our members are regularly confused by the way in which the formula applies (or does not apply) to individual spending decisions and announcements. Spending announcements are frequently silent on whether a particular initiative is England only and funded from within existing English budgets (and therefore with no consequential for Wales); or whether there is new funding for which there is a consequential for Wales.

  16.  It is important that there is both transparency and debate about the way in which the Treasury applies the formula. As an example, we gather that the Treasury has determined that the additional local regeneration expenditure in south east England associated with the Olympics—which we had understood were to benefit the UK as a whole—does not lead to consequential funding for the devolved administrations. We are not aware of a formal mechanism for the devolved administrations to debate or challenge this decision.

  17.  Whilst the formula does provide more predictable funding levels, it takes no account of the particular needs of Wales. We are not aware of any evidence that supports the case for lower levels of comparable expenditure in Wales compared to that in Scotland and Northern Ireland. The very fact that two-thirds of Wales qualifies for European Convergence funding demonstrates the case for higher levels of expenditure.

  18.  The Barnett formula was not intended as a permanent arrangement, and the progress of devolution has inevitably focused attention on the formula. We do agree that it is timely for a review to be undertaken.

  19.  We are not in a position to suggest specific alternatives; but we do believe that it is important to investigate the following:

    — Will a formula based on a combination of population, need and costs of service delivery would lead to a fairer allocation of resources?

    — Will a formula that is implemented in an open and transparent way improve the confidence of the public, and third sector organisations?

  20.  An assessment of need could take account of:

    — The relevant population base in relation to the expenditure being allocated;

    — The need for services, reflecting relative social deprivation factors;

    — The cost of delivering services, taking account of rurality and population sparsity.

  21.  This approach could target higher levels of funding at areas of greater deprivation, where there is a greater need for public services is greater, and to low population density rural areas where service delivery is more costly. We would expect Wales to warrant above average expenditure levels on both counts.

  22.  This approach could also be considered as a basis for the negotiations regarding the division of non devolved UK funding or as a benchmark against which to measure the "fairness" of any allocations. For example, the government is allocating Unclaimed Assets according to the Barnett formula so that the four countries of the UK will receive a population-based share of the assets available on a UK-wide basis. Again, an alternative to consider is a formula based on population, needs and service cost for such calculations.

  23.  Finally, the future application of any formula—either the existing Barnett formula or a new mechanism, will need to be easily understood and transparent in order the address the problems identified with the current arrangements. The government's partners, including the third sector, and the electorate, need to have confidence in the system.

  24.  We believe that formal arrangements between the Treasury and the devolved administrations should be introduced to ensure that decisions which affect funding allocations are transparent and are not taken without formal agreement from devolved governments. These arrangements could:

    — Ensure that the implications for devolved administrations of policies developed in Whitehall were fully understood.

    — Enable dialogue and agreement between devolved administrations and the Treasury before changes to funding arrangements are made.

    — Require announcements about expenditure to be made simultaneously for England, Northern Ireland, Scotland and Wales, giving a greater sense of coherence and equity rather than the "catch-up" confusion that presently often exists.

    — Enable third sector organisations to have an opportunity to comment to their government on the implications of spending proposals.

19 March 2009

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