The Barnett Formula - Select Committee on the Barnett Formula Contents

Examination of Witnesses (Questions 623 - 639)


Mr Phil Jarrold, Mr Peter Price, Mr Cynog Dafis, Mr John Osmond and Mr Geraint Talfan Davies

  Q623  Chairman: Can I thank you all very much for coming this afternoon. As you know, I think, what we are charged with doing by the House of Lords is looking at the Barnett Formula, how it operates and whether there should be an alternative to it. You have also seen the restrictions there are upon the scope of this inquiry: we cannot go very much outside of it to consider, for example, whether or not Scotland should have full remedy-raising powers. That is a little outside. Subject to that, we will be extremely interested in what you all have to say. Can I say from the start that the evidence sessions are being taken and broadcast, and will be live I think! A full transcription is obviously going to be made of them. If at the end you would like to alter the transcript, rather like Hansard you can correct the grammar but you cannot actually change what you said. Subject to that, gentlemen, I will start. I understand that you would all like to make an opening statement. Can we start with Mr Dafis?

  Mr Dafis: (Mr Dafis spoke in Welsh) I am told that it is not possible for me to speak in Welsh, so I am hoping I might persuade you. A special resolution—

  Q624  Chairman: Can I just say one thing about it? It is a point that, having been raised, is something that we would have to go back to the Committee in the Lords to make sure it is possible for all sorts of internal and rather foolish bureaucratic reasons. I will do that, and if therefore we get down to Wales again, I would ensure that there are proper interpretation facilities. I am afraid on this occasion I cannot do it.

  Mr Dafis: In that case, can I thank you very much for the opportunity to give evidence. Tomorrow's Wales's submission is concerned with getting primary law-making powers for the Assembly, but we felt it right to give evidence on this matter for two reasons: first, we think that Wales suffers under the present arrangements; but also because we think it is relevant to the constitutional arrangements that exist. On the unfairness issue there are ample data, and I do not need to bore you with too many of those, except that there is one set that is just worth mentioning. According to what we read from the academics, Wales gets something like £5,000 per head of identifiable public spending minus social support, whereas Scotland and Northern Ireland both get in the region of £5,600 per head, and that is a clear difference. We think that a formula that generates outcomes of that kind is clearly perverse and needs to be changed. Secondly, we think in relation to the constitutional matter that the method of determining allocation to the territories is now inappropriate in a system where devolved government is embedded, and in which we are moving towards some kind of federal system. It is already described as a "quasi federal system". Being that we are living in a union state, on what one set of academics described as "a state of unions", we think that in those circumstances it is right to argue that the allocation of resources should reflect the principle of cohesion. I am using terminology that the European Union uses, which implies that there should be a redistribution of resources to compensate for disadvantage, but also to try over time to correct disadvantage. That is a fundamental principle as far as we are concerned. That implies that we should allocate resources, first of all based on the principle of need, and certainly not have the allocation converged on English per capita spending levels; we cannot see that that is appropriate within the framework we are proposing. That brings us then to the mechanisms that we are proposing for the new system—and they are not in the least bit original, of course, they are culled from various academics, including Bristow and McLean and others particularly. We do think that the idea of an independent territorial grants commission of the kind they have in Australia and elsewhere is the right solution. Such a commission would in the first place devise a new formula based on need, and then it would negotiate the allocation of resources, I suppose on a three-yearly basis co-ordinating with the CSR but also according to what is necessary on an annual basis as well. That kind of commission, we believe, should be constituted and would operate on a basis of equality. We cannot pretend of course that the relationship between the territories and the centre will be an equal relationship but it should be based on the notion of equality. The decisions that it should take should be unanimous because currently one of the problems is that Wales finds itself in a very unequal position and a very unequal bargaining position, and has done so for a long period of time; and that needs to be corrected in the structure. Finally, the last point I want to make now is that it is crucial that the autonomy of the devolved administrations in spending decisions be guaranteed. It should not follow at all from the idea of a needs-based formula, which would allocate on the basis of needs perhaps in certain services areas, that that implies there should be any direction from the centre to the devolved administrations as to spend equivalent sums in those areas—not at all; that would be contrary to the principle and to the whole purpose of devolution. I mentioned in the paper the example of health. Health needs might very well be an indicator, and that might be catered for in a formula, but it should not follow that the Assembly—it would not be sensible if the Assembly were to be obliged to spend that health allocation on the NHS. It might decide to spend it on appropriate economic development or environmental improvement or housing, as a way of raising the quality of health in a place like Wales.

  Mr Price: Perhaps I can add just one brief comment to what Cynog has said on behalf of Tomorrow's Wales. I noted the word "objective" coming up this morning and a little this afternoon from time to time, but it is not something that your Lordships have focused on greater, and it strikes me that that is the starting point. There are several objectives under discussion here with the word "needs" being applied to them. Really, what we are taking—Cynog referred to the European Union approach and it is very much along those lines. That approach is about how one narrows the gap of prosperity over time. That means that there is an objective being set if you go down the principal route that we would propose, to try and seek to narrow over time the levels of prosperity, the disparities in prosperity in the United Kingdom. It is difficult to achieve and impossible to achieve perfectly, but there should be some objective of that kind. That compares with, if you wanted to reflect needs as they stand at any given moment in time—you might choose less ambitious needs indicators. The ideal, we suggest, is that one should be going down that road of cohesion within the United Kingdom, and it is of the essence of a United Kingdom to approach it in that kind of way. All of that, of course, takes us away from the Barnett Formula, which appears to have only one merit, and that is that you do not need to agree upon any particular system to change it. Apart from that, the Barnett Formula, recognised as being really a very, very rough formula in the first place, now historic in its nature can only be described as one of these quaint curiosities which the United Kingdom has in various sectors; but given the nature of the United Kingdom as it is today, made up of the four nations, the Barnett Formula is wholly inappropriate and should not survive any longer.

  Mr Jarrold: Just a word about WCVA: we are the umbrella body for the voluntary or third sector in Wales, and a major part of our work has been about the relationship between third sector organisations and government, both UK and devolved government. Certainly since the onset of devolution we have been very active in trying to raise awareness and build confidence and interest from our sector in government. Our perspective of today's debate is very much from outside government; we do not claim to be experts on the intricacies of government finance. However, we can share the perspective of other organisations that have an interest in government, including how it is financed. In talking about the Barnett Formula with our members, there are two main thrusts of their comments. First, there are concerns about the transparency, or lack of transparency of the current system and how it works; and second, of course, the question of whether the current arrangement fairly meets the needs of Wales. There are a number of issues that have concerned people. One is that clearly the Formula only applies to new expenditure, and that assumes that the pre-Barnett settlement is a fair settlement. I do not think we have the ability to comment on that, but that must be an important factor. The only trigger is the commitment of funding in England, so that puts Wales and the other devolved nations in a catch-up situation. Whilst it is right that new expenditure in England leads to a commensurate increase in the devolved nations, I am unclear about what the mechanisms might be for the devolved nations to propose additional expenditure out with the existing settlement that applies to their own needs. Our members are regularly confused, I think, by the way the Formula applies, or maybe does not apply, to individual announcements. Spending announcements are frequently silent on whether they apply to the devolved nations and whether or not there is any consequential. I do think that that lack of transparency creates problems for organisations that are trying to track these issues. For example when the expenditure on regeneration in south-east England was announced, the decision was taken that there was not Barnett consequential for that. We were not aware of any means of challenging that. It does seem to have been an arbitrary decision made by the Treasury. In terms of the process, we would like to see much clearer arrangements, whether it is the existing Formula or a new alternative formula which is much more on a basis of negotiation between all governments. We would like to see a formal way for devolved nations to negotiate around the implications of England expenditure for policy here. We would like to see simultaneous announcements that additional spend announced in England was hand-in-hand with the consequences for other nations, other than the amount of catch-up that we now have. Finally, on the question of fairness, we would echo many of the comments that have been made about the need for a formula that takes account of need. We cannot see any evidence for a case for Wales receiving significantly less funding than Scotland or Northern Ireland, and certainly in terms of levels of social need there is a case for higher levels. The Europe convergence funding programme is just one very graphic example of levels of need. We would echo the evidence of others, that we want to see investigation of a new formula which would take account not just of population, but the need for services and the cost of services in terms of population and sparsity.

  Mr Davies: My colleague, John Osmond, and I represent the Institute of Welsh Affairs, which is a relatively small think-tank in UK terms, but unlike a lot of think-tanks in London, we have 1,200 individual members, about 130 corporate members, and branches across Wales; so I think we feel comfortable that we are in reasonable touch with opinion, not just here in Cardiff but elsewhere. There are only a few points that we wanted to make because I think you will find quite a lot of unanimity around this table on many of the issues you have raised. We do welcome the inquiry not only because we hope that it will be a prelude to some change but also it is a chance to make the debate rather more intelligent than would appear if you read coverage of public spending in Scotland and Wales in the press. It is often caricatured quite severely. That is a real problem because the public in Wales consume overwhelmingly media produced in London, so when they read about announcements, which as Phil Jarrold has mentioned are without any reference to consequentials, you get a very significant level of mis-information. Mis-information affects the public in Wales just as much as it affects the public in England. The other thing that popular coverage does not do is differentiate between the situations of Wales, Scotland and Northern Ireland; neither does it, on the whole, recognise that fiscal transfers or territorial allocations are commonplace in many developed countries. We would regard it as a hallmark of a civilised society. I certainly want to echo the points made about the whole question of allocations within the UK being not simply about meeting people's immediate needs, but about producing some kind of economic convergence. That may be a "promised land", but it has to be a very real objective in these very unbalanced islands. Briefly, we certainly agree that the Barnett Formula as it stands needs reform. Population allocation is too crude and does not take our objective circumstances into account. I think that its very deficiencies, in a way, are purely a resentment towards spending in the devolved administrations, a resentment in England that is actually not warranted by the objective circumstances. The second point is that the notion, the concept, of basing the Formula on spending decisions in departments in another country, as it were, and within the UK within another administration, would strike most people as fairly bizarre. On the convergence factor, I know that Tomorrow's Wales has written about the convergence factor in its own paper. In the Institute we looked at this issue in a policy research project that we did before the last Assembly elections, and certainly it was our feeling then that our conclusion was that when you compare Wales with England's poorest region, the north-east of England, we are very similar in terms of our economic circumstances, but certainly we concluded that the comparison between Wales and the north-east provides the strongest objective case to, as you may say, freeze and squeeze solely for Wales and not necessarily for Northern Ireland or for Scotland. Since Wales, I gather, is now generating a GVA per head of rather less than the north-east of England, then equity would probably demand that the convergence factor be suspended in Wales's case. I would have thought that there is actually some urgency about this because Wales and the other devolved administrations, as with all government, are facing a very severe Treasury claw-back in 2010-11, as outlined in the pre-budget report. The prospect of, say, a decision to suspend the convergence factor coming after that started to kick in could lead to some really wasteful spending decisions. The convergence factor would certainly be one. The other issue, and the main issue, is that there is no way currently of ascertaining that the Formula is being applied fairly. I know that in one seminar on this issue I raised the question of who audits it. Certainly we know that the Wales Audit Office does not apply itself to the application of the Barnett Formula and neither does the Auditor General in the UK; so the Treasury remains judge and jury in its own cause—I suppose you might say subject to Cabinet. That is a real issue, and it is complicated by the fact that UK ministers do sometimes have difficulty in distinguishing clearly between their British and their English roles. I will give you one example, which cropped up when I was chairing the Arts Council for Wales, when Gordon Brown was Chancellor of the Exchequer. He made an announcement of allocation of some £12 million to develop leadership and management skills in the cultural sector. The money was then given to the Arts Council for England, which thought that this was actually a dollop of money for England. The Skills Council got involved and the Skills Council was a UK body, and so thought differently; so there was a period of immense confusion for some months as to how and where that money should be allocated. That is all I wanted to say. We believe that the formula should be based on need and should avoid complexity, both in the interests of transparency and in order to prevent pressures to reduce the discretion of devolved governments. We do believe that the new formula has to be subject to not so much independent adjudication but having some independent statistical basis that is decided independently of government. There are plenty of bodies in this country that were set up to guarantee the independence of statistics. They could be used at the front end of the process. That is a slightly lightweight variation, I think, of the full territorial board that I know academics have proposed. That really summarises what we would like to convey.

  Mr Osmond: I would like to add a broad political point to all of this. If you survey the territory of this discussion across academia, and by and large across the political landscape, certainly here in Wales, you find by now extraordinary consensus around these arguments. By and large people agree with the critique, a fairly trenchant critique as you will have heard, of the operation of the Barnett Formula. There is also across academia and the political world reasonable consensus about what ought to be done about it, which is broadly what we have just heard. Given, it seems to me, the really trenchant nature of the critique—parts of the way the system operates is quite outrageous in terms of what happens as a consequence, what is called the Barnett consequence—it is fair to ask: why has more fuss not been made about it? We have been trundling along with devolution now for a decade, ten years; and yet no real fuss of great consequence has been heard, it seems to me, above the parapet as it were. Why is that? It seems to me that there are two reasons why that is the case. The first and most important is that public expenditure in the devolved fields has been rising quite extensively over the last 10 years. The Barnett consequence, especially for health and education, has been going up. The overall block grant has risen quite substantially. In those circumstances, the administration, certainly here in Wales and almost certainly in Scotland, does not want to rock any boats. There has been the feeling in particular, "Do not open this can of worms because we are fearful about some results in terms of our relative autonomy in terms of making decisions within the block." There has also been a fear of any change that might end up as being worse, and cautious, risk-averse civil servants will have advised the minister, "better to leave well alone; we are doing all right". That would have been the tone. That is the main reason why I think there has not been a very big fuss. The second reason is that by and large, as you know, there has been the same administration running Wales and Scotland as the Labour administration in London, and any critique of the system seemed to be a critique of your colleagues. Both of these circumstances, we all know, are changing substantially. We all know about the coming expenditure cuts. The claw-back so far as Wales is concerned next year is £500 million. We all know that the administrations in Scotland and Wales are changing colour and not the same as those in London. It seems to me that unless we have the foresight now to engage, which I am very pleased you are doing in this sense, to pre-empt—we could be entering a period of very, very choppy waters indeed around bitter arguments around money because most divorce cases end up being around money, do they not? That is my final point.

  Q625  Lord Sewel: On that cheery note I am going to jump in and just challenge John Osmond's basic thesis that there is an anti-Barnett consensus! There certainly has been in this room today, but let us go through the players individually. The Treasury is not anti-Barnett by any means. Scotland on the whole takes the view that it most likely does better under Barnett than it would under a needs-based assessment. Put it this way, it is either being moderately supportive of Barnett or keeping quiet! It would not take kindly, I think, to a move away. Northern Ireland, similarly, considers that it does relatively well out of Barnett and would not like a move. So who is against Barnett? Wales seems to be against Barnett because it feels that it is being treated badly. England might be against Barnett because it is fed up dishing out loads of money to Scotland, Wales and Northern Ireland, and it thinks that it is completely on the wrong end of the stick there. I am challenging you to come up with an argument that is at least attractive to the other territorial areas, if you move away from Barnett.

  Mr Osmond: If I could add and respond very quickly, my point—I was not claiming a consensus in the Treasury—Heaven forfend! I was claiming consensus in Wales. Of course, the Scots do very well out of the current system and are unlikely to want to change, or if there is to be change it will have to be eased in gradually over many years. The Treasury does not want to have this argument every day of the month. It seems to me, from the Welsh perspective, across both academia and the political landscape there is the kind of consensus that I have described. It is not purely on the basis of "we are being done down", in that pure sense; it is arguably objectively the case.

  Mr Dafis: The consensus exists, as far as I have been able to identify, in the academic community. Those who have carried out detailed studies of the topic, universally as far as I have been able to find out, have come to the conclusion that the current arrangements are completely unacceptable and no longer appropriate, if ever they were, but certainly not appropriate in the kind of emerging quasi federal system that we have got in the UK. I take the point of course that it would be very difficult indeed in the case of Scotland and Northern Ireland, but Scotland particularly, from what I read—it would make things politically difficult in Scotland. But if one looks at the whole issue of the union and the credibility of the union, it seems to me that over time, and looked at comprehensively, the best way to protect the union is by giving it intellectual coherence, and to base it on the principle of justice and the just disbursement of resources. That is a much more powerful way of arguing the case for the union.

  Q626  Lord Sewel: Can I interrupt for a moment? We are going to protect the union in Scotland by telling Scotland it is going to receive less money!

  Mr Dafis: I acknowledge there is a difficulty, a practical difficulty there, and we said in our paper of course that there should be a convergence on the basis of need, which means that we would move to this over time. If it is possible to raise one's view of things above immediate issues of political expediency, and if it is something that one would want to do to present a case for the maintenance of political union here, it seems to me that spelling out the way in which these countries belong together and therefore owe a debt of allegiance to each other, and therefore want to redistribute resources among each other for the general benefit, is a good way of doing it.

  Mr Price: It seems to me that the context which John Osmond referred to of public expenditure being squeezed in the next few years is a context which we ought to think about on an England basis. The public in England are increasingly concerned at news that in Scotland they have the benefits of this, that or the other thing, which they do not have in England. English politicians are increasingly finding ways of riding on that particular bandwagon—suggestions of who should vote in the House of Commons, and suggestions even of an English parliament. These things are increasingly being under active debate. The West Lothian question is becoming a more active subject of debate. It seems to me that the way in which you defuse it, in which people in England would be prepared to go along with differential expenditure, allowing more to Scotland, Wales and Northern Ireland, is if there was recognised to be a fair objective needs-based formula. If you have that kind of basis, it is seen as being fair. Put quite crudely, Scotland will not get away with it for much longer; and it can end up either with some crude cutting free of Barnett with huge political implications, or we can move now to something that is intellectually coherent, which is manifestly objective. People will complain about the detail whatever formula is devised and whatever principles you come up with; but if overall it is a sense that this is something objective and intended to be fair, then I think it has some quality of durability about it. If you look specifically at Wales, in the context of the squeeze on public expenditure in the next few years, if you add that to a sense that the whole Formula is unfair and has a mechanism inbuilt within it to increase the degree of that unfairness, the squeeze, then you have created a very deep schism for the future years if, as I rather suspect, we are going to have quite a number of years of very tight public expenditure real-terms cuts.

  Q627  Lord Moser: Chairman, just picking up your approach, which I welcome, rather than what the outcome of the Formula is you mentioned four criteria on which it should be killed, so to speak. One is that it is not needs-based. That is not what we are talking about, so let us leave that on one side—it is not needs-based. The second point—though it was not in this order—was that it is not fair, and you have given examples of that. I would welcome more examples on the other two criteria that I wrote down; one that it is not objective—what was in your mind and how that works—and the other one was that it was not intellectually coherent, and I wondered what was in your mind on that. I do not disagree with either but I welcome your expansion of those words; that it is not objective and not intellectually coherent.

  Mr Dafis: On the objectivity question first of all, the story of Barnett suggests that at its inception it was as much a matter of accommodating the needs of Scotland, and it was more about that particularly than about devising a system for the allocation of resources that would be fair. In that sense it was not objective. There were no criteria set out by which a new formula would be devised. Your esteemed Special Adviser, Alan Trench, in one of his articles, describes the way in which, when a needs-based assessment was made in the 1970s, civil servants came to the conclusion that there was indeed a case for higher levels of spending in Scotland, Wales and Northern Ireland, but that there was no case for the level of spending in Scotland that existed, and that is why the convergence mechanism was introduced, as a way of squeezing spending in Scotland so that it would come more into line. There has been the whole issue since then of course of Barnett by-passes, which are mysterious, which even the academics say they have been unable to clearly identify. In that sense, there has been a complete lack of objectivity.

  Q628  Lord Moser: So just on that point, this is a reference to the Treasury doing what it wants to, when it wants to do it.

  Mr Dafis: Yes.

  Q629  Lord Moser: So we are looking for a needs-based system which by-passes subjectivity. It is difficult.

  Mr Dafis: Everybody agrees, I think, that determining needs—the academics say it is a contested concept. It is not easy to do, but we do not for a moment question the need to make the attempt. The attempt should be made. On the question of complexity against simplicity, we would argue that it needs to be as complex as necessary in order to make it fair and in order to make it just, and no more than that. Objectivity in that sense seems to me to be crucial, and it is very, very important in order to establish a sense of justice. There is a very happy coincidence, it seems to us, at this moment, between the whole question of justice on the one hand and what would be good for Wales on the other hand. It is nice to be able to be advocating both of those things at the same time, but I am not sure we would be advocating the—

  Mr Jarrold: Most of our members are charitable, and therefore they focus very much on the objectivity rather than the politics of this issue. That is the very clear message that we are getting, people's unease really about what appears to them to be an unfair and non-objective process. In terms of Treasury decisions it may be about subjectivity but it is certainly about the rather arbitrary approach without any apparent open negotiation or discussion. That puzzles people and does not help people's confidence in government.

  Q630  Lord Sewel: Could that be resolved by having some form of independent review of what is now a totally enclosed Treasury exercise in deciding what is the English expenditure and what is UK expenditure? That is where the lack of transparency is, is it not? If that was sorted, would it remove a fair chunk of your reservations?

  Mr Jarrold: I think you need both. You need a better way of assessing how to allocate expenditure and a much more open way of demonstrating how that is being done. That is why I said earlier that, whether with the existing Formula or a new formula, I still think across the UK there needs to be a much more formal process for determining different amounts and different allocations.

  Mr Osmond: Can I give you an example, which I had not thought of myself until the other day, but it concerns your House, the House of Lords, House of Commons, Westminster!

  Q631  Lord Sewel: I thought you meant my own house, and I was a bit worried!

  Mr Osmond: There is no Barnett consequential on your expenditure on Westminster. That is to say that the cost of running this place is taken out of our block. You may say that is obvious, but why should it be so? This is a new expenditure, consequent upon devolution, which was a change, I would have thought, for the benefit of the whole of the United Kingdom.

  Q632  Chairman: I am not going to stand behind the bill for the Scottish Assembly! I can see a marginal argument which says the centre should support the devolved administrations but not to that extent.

  Mr Osmond: I am talking about the costs of democracy in Britain. Part of it is here, and we are having to pay for that out of expenditure that otherwise we would spend on health, education and so on. It is not an insignificant amount—£48 million a year.

  Q633  Chairman: The trouble with this whole Formula is that it was intended—you elevate it, frankly, far, far higher than it deserves. We talked to Joel Barnett and he gave evidence in front of us and was perfectly clear that it was a short-term formula that was designed to get arguments off the back of the Treasury as to what the various parts of the UK should have. He did not expect it to go on. It was not even called a formula for the first ten years of its existence. The Treasury was doing a huge assessments need. Nobody told Joel that they were doing it. Ministers did not know it was being done. The history is phenomenal. It is quite honestly staggering that we have still got a situation in which somehow we have got to work out a proper system of allocating resources from the centre to the devolved administrations. It seems to me that the main attack on the Barnett Formula is that longevity does not necessarily produce the right result; it keeps it going and it is easy for the Treasury and they sign it off automatically, and that is easy; but in terms of the way in which you want this country to have its resources allocated, it does not do the job. What we would be interested to know is that if you want to change it, or say you want to change it, I have to say to John that the only body that has given evidence in front of us that wants to keep the Barnett Formula as it is, is Her Majesty's Treasury, which one can understand. No-one else seems to want it. But if you want to change it and have a needs-based formula, please what criterion do you want to bring in to use when you assess those needs? Do you want a big one, in which case you spend two or three years going into it, as the Treasury did in the seventies; or a narrow one where you take three or four main indicators and look at those and say, "it is not 100 per cent objective but it is 95 per cent"; and, if so, what would you like those indicators to be?

  Mr Dafis: I simply start by saying we do not feel qualified to offer an alternative formula. We do not feel qualified really to suggest what the criteria might necessarily be. We are saying that we need an objective process of determining that. That is why we suggest the establishment of this commission on territorial funding. Its initial task would be to carry out an assessment of need and, secondly, to devise a formula based on new criteria. That would be a starting point for that commission.

  Q634  Chairman: People would still argue about it. Whatever they came up with, some people would perceive themselves as losers and some people would perceive themselves as winners.

  Mr Dafis: That is the human condition.

  Q635  Chairman: So the only effect of the independence is to remove the odium of that argument off the back of the government of the day. That seems to me to be a thoroughly admirable thing, but nevertheless the mere fact that it is independent does not necessarily mean it will be accepted.

  Mr Osmond: It would, wouldn't it, because it would be fairer? It would be seen to be fairer than the current situation. Nothing is perfect in an imperfect world, but we can do better than this—that is all we are saying, I think.

  Q636  Chairman: What variables do you want to take?

  Mr Davies: I think one of the difficulties common to the three organisations this side of the table, three small charitable organisations, is trying to face up to something that has enormous technicality to it. I do not want to put words into the mouths of colleagues, but I have a slight nervousness about the law of unintended consequences. I have seen so many complex papers setting forward a formula. I certainly do not think that our organisation has the capacity to evaluate all those. Clearly, you can see some very simple areas between social security payments or some sparsity factor, the GVA and so on, and it is a question of getting the right combination of those things and choosing a spot on the spectrum between over simplicity on the one hand and over complexity on the other, and allowing this to work in a way that people understand. I would dearly wish the Institute of Welsh Affairs had a team of economists to grapple with this, but I must leave that to the better-resourced people.

  Mr Osmond: As you well know, we have the Holtham Commission working away as we speak, and the Chairman of the board appeared before you; and in Scotland they have the Calman Commission. These people are going to come up with the answers to the technical question. I think what you need to decide is whether you agree with the principle.

  Q637  Lord Moser: I have already heard in this meeting one suggestion about the approach to the choice of indicators, which I have not heard before, which came from Mr Price. If I understood you rightly, at the beginning you urged us to look at needs-based, in terms of prosperity over time.

  Mr Price: Yes.

  Q638  Lord Moser: That is a new thought to me, and a very interesting one. Could you expand on it for a moment, because that is a different dimension to today's measurement, what most people would think of in terms of forecasting indicators? You seem to be urging, if anything, to look at prosperity or lack of prosperity over time—backwards. I am not sure what you meant.

  Mr Price: What I meant by that is that you look at the disparities at the time and that you set as a goal—this influences the factors you choose—to reduce those disparities. They obviously are not going to be reduced quickly, so I use the phrase "over time" so it is an objective that you seek to achieve by putting as at least one of the factors within, something weighted towards determining relative prosperity. That probably is GVA per head. I say it as somebody who is determined not to get involved in identifying precisely all the factors for exactly the same reasons as my colleagues: I am neither a statistician nor an economist. I am not equipped—

  Q639  Lord Moser: You are lucky.

  Mr Price: I am not equipped to know precisely what the consequences would be, and I fully appreciate the expertise in the room specifically on the statistics. May I just add also that in the course of the discussion we have talked about the objective, which I raised, and also we talked about the objective factors. It occurred to me once or twice that possibly some other word than "objective" is needed for the goal of what you are seeking to achieve, just simply to avoid that distinction. I think it is an important part of what is sought to be achieved, because if need is merely a reflection of in effect the services, the spend on services, that is a static sort of reflection. It may obviously change over time, but it does nothing about reducing the disparity, so it is a little more ambitious than merely talking about the need as a reflection of what services have to be provided at that time.

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