The Barnett Formula - Select Committee on the Barnett Formula Contents

Examination of Witnesses (Questions 640 - 646)


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

  Q640  Lord Moser: That is a very important point. Thank you.

  Mr Davies: It is a very interesting contrast, if I may say, on the word "convergence", which is used in the European context in order to try and bring people up to a common level. It seems to me that convergence in terms of the Barnett Formula is that it gives you precisely the opposite effect.

  Mr Price: Exactly.

  Mr Osmond: To be specific, as I understand it, when devolution began, for every £100 spend in England we were spending £125 in terms of the block, and that is now down to £114. If this goes on and we do not put a floor underneath it, our relative spending per head in Wales is going to fall below the poorest of the English regions, and I do not think that is tolerable.

  Q641  Lord Sewel: Are we not here in the area of common cause, because the one thing I would have thought that all the territories do not want is convergence?

  Mr Dafis: Convergence on the basis of per capita

  Q642  Lord Sewel: By strict Barnett, Wales has had most likely the purest Barnett application of all the territories. Post devolution the sorts of things done before devolution become much more difficult, so pure Barnett is likely to emerge as the basis upon which the territories are funded. I would have thought there would be common cause throughout the territories to avoid convergence!

  Mr Dafis: We were asked some time ago about the indicators we would advocate. There was a discussion this morning, was there not, about whether as a fall-back or whether as an overall indicator, a proxy, you referred to GVA or to disposable household income. Professor Foreman-Peck was arguing that you should use disposable household income. If all you wanted to do was to devise a method of helping people who are disadvantaged to get an equivalent level of service, there is a case then for using disposable household income; but if you want to get to the root of the problem and bring about a radical change in the nature of the economy and society and the community in a place like Wales, then we would argue that GVA is a better way of doing that. If you look at the kinds of problems we have got in Wales that are identifiable and measurable, we have got serious health requirements; we have levels of economic inactivity with all the attendant difficulties that come with those: they are a consequence of economic failure. In the South Wales valleys they are the consequence of economic collapse as a result of the collapse of coal and to some extent iron and steel. If you want to enable the people of those areas in those regions to improve their health and quality of their communities, then you have got to do something about the nature of the economy. That is the only way the valleys are going to pull themselves out of the difficulties that they are in—if their economy improves. That is why we say if you take GVA as an indicator or as a proxy, then you would be transferring resources in a way that would create a reasonable chance of tackling things at the root level; and that is a better way of doing it than constantly providing a subsidy in order to enable high levels of service need to be provided. That may be the difference between the Foreman-Peck approach and—

  Q643  Chairman: I think that is probably outside our terms of reference. I regret it, but the way in which you revive the valleys I do not think is something that we can get into.

  Mr Dafis: Can I not persuade you to regard that as an aspect of need?

  Q644  Chairman: It is a good try!

  Mr Jarrold: Peter Price's made an earlier comment about relative prosperity and relative health or relative educational attainment: if you wanted to take as part of our needs approach an approach that would generate the investment to create those improvements, what we would be looking for there is convergence in terms of attainment.

  Mr Davies: It may be outside the terms of reference, but it is very, very germane to any sense of fairness. As somebody who spent a lot of my life working in Newcastle and the north-east of England, there is an element of that within England itself. I would argue that certainly since 1979 the notion of reducing these spatial disparities within the UK has not had a very high priority in the policies of government. That underlying fact, which takes you outside the question of identifiable public expenditure, is still a very real factor in people's perceptions of how these arguments are made.

  Mr Osmond: By analogy—you have probably seen the operations in the EU and have experience of the Republic of Ireland—we all know that Ireland for many decades was a poor country, but partly as a consequence of EU subsidy in the form of Objective 1, it managed to reinvent the so-called Celtic Tiger. Then it began paying money back in as a net contributor to the EU, and that was partly a consequence of the operation of distribution of funds. I do not see why the same principles cannot apply to the way we operate distribution of funds within the UK.

  Chairman: It is very interesting that we are charged with looking at the Barnett Formula and seeing the way it works and if it is not, what we are going to do about it!

  Q645  Lord Sewel: I hope we do not return to Ireland ....

  Mr Price: You have picked up my colleague Cynog's comments specifically about the regeneration of the South Wales valleys and we do not expect that you would make that an objective, but within the context of what you are looking at in examining a possible alternative to the Barnett Formula, you are clearly examining a needs-based formula of some description. What we are arguing for is much more than principle: that a goal of that formula, if it is to reflect fairness and need, is to reduce disparities for prosperity over time. We take that, as it were, as a factor that ought to be included in a good needs-based formula which looks to the future of the United Kingdom.

  Mr Davies: I agree entirely with Peter there because you could take one example as proof of the fact that the current policy actually specifically excludes that from Barnett, and that was the question of the Olympic Games. Within a £9 billion budget there is a line within the budget of £2 billion for regeneration of East London, which is not included in the Barnett baseline. So that wider objective seems to be to be specifically excluded from the Barnett Formula, if you take that example.

  Q646  Chairman: As I understand the Olympic example, what has happened there is that the Treasury suddenly decided that the regeneration bit should be a UK expenditure, which does not attract Barnett consequentials, as opposed to an English expenditure which would attract Barnett consequentials.

  Mr Davies: Would that decision have been taken by an independent—

  Chairman: No, of course not; it was taken by the Treasury behind closed doors without telling anybody what they were doing, as far as I can see. I am not here to defend the Treasury; on the contrary. In that part of the operation of the Barnett Formula there are very serious criticisms indeed that it may well be that this Committee at the end will wish to make. What I am concerned about is where we go from here. The message that I have from all of you is that we should move away from the existing formula to something based upon needs: precisely what sort of needs and how we define the needs, or what variables we use in order to assess the needs, I think all of you seem to say that that depends upon either the Calman Committee in Scotland or down here, or perhaps even with this Committee. We will do our best.

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