Barnett Floor (Wales)

Tuesday 10th November 2015 Westminster Hall

[Nadine Dorries in the Chair]

16:00

[Nick Thomas-Symonds (Torfaen) (Lab)]

I beg to move,

That this House has considered a Barnett floor for Wales.

It is a privilege to have secured my first Westminster Hall debate, which is on an important topic affecting funding for Wales in general and my constituents in particular. We all know how difficult the funding settlements have been in recent years. The Welsh Government have faced great funding challenges, and local councils, including my own Torfaen County Borough Council, are struggling to make ends meet and doing their best to protect front-line services when less and less money is coming from Westminster.

[Christina Rees (Neath) (Lab)]

My hon. Friend is absolutely right to highlight the losses that local authorities have experienced and will continue to experience. In 2014-15, Neath Port Talbot’s budget was cut by £17 million. It has been predicted that, from April 2016, Neath Port Talbot will lose £18 million or possibly more, depending on the autumn statement. Public services have already been cut severely—

[Nadine Dorries (in the Chair)]

Order. Please make an intervention not a speech.

[Christina Rees]

I am simply making the point that we should not suffer from the Barnett formula.

[Nick Thomas-Symonds]

I am grateful to my hon. Friend for that intervention. The Neath Port Talbot example further illustrates and reinforces the point that I made about Torfaen.

The debate deals with an aspect of Westminster funding, the so-called Barnett floor. As Members are aware, Joel—later Lord—Barnett introduced the Barnett formula in 1978, when he was Chief Secretary to the Treasury, in the context of the devolution debate of that era. He did not originally intend that it should become a permanent feature, yet here, some 37 years later, it still governs the Wales-Westminster fiscal relationship.

More recently, in 2009, the interim report of the Holtham commission, “Funding devolved government in Wales: Barnett and beyond”, was published. It suggested that Wales was underfunded.

[Carolyn Harris (Swansea East) (Lab)]

Does my hon. Friend agree that, despite the 2009 Holtham report suggesting the implementation of a floor, it is frustrating that six years later we have still not seen it happen?

[Nick Thomas-Symonds]

My hon. Friend is entirely right. I will come to that in a moment.

The report suggested that Wales was underfunded by £300 million a year compared with how much English regions would receive were the Barnett formula applied to them. In 2010, when the final Holtham report, “Fairness and accountability: a new funding settlement for Wales”, was published, the underfunding gap was even wider, at about £400 million a year, using a needs-based formula.

As my hon. Friend has just pointed out, to prevent a further decline in relative funding per head for Wales, the Holtham interim report had called for a Barnett floor as a temporary solution until a new needs-based formula could be agreed.

[Huw Irranca-Davies (Ogmore) (Lab)]

May I take my hon. Friend’s thoughts back to 2008, when I was a Wales Office Minister? The budget for Wales had gone up from £7 billion to £14 billion; by the time we left office, it was £16 billion. It has now decreased significantly. Any false arguments over additional tax-raising powers are nothing compared with the fact that we now need the Barnett floor. When Labour was in government, it was Barnett-plus; we now need a Barnett floor.

[Nick Thomas-Symonds]

My hon. Friend makes a powerful point. Record investment in public services in Wales was made under the Labour Government. Indeed, the Conservatives were so impressed that in September 2007 the then shadow Chancellor of the Exchequer—now Chancellor—adopted our spending plans for the next couple of years. That is how impressed they were, although these days they seem to be taking a different view of that record investment.

The Barnett floor works by multiplying positive funding increments to Wales not only by the comparability factor and population share, but by a further percentage increment. The qualifier is that the formula is not intended to work in reverse, with negative funding increments, because that would simply widen the underfunding gap.

In October 2010, the National Assembly for Wales unanimously endorsed a motion for the implementation of a funding floor, to be followed by wider funding reform. Nevertheless, the coalition Government of 2010 to 2015 did not deliver.

[Gerald Jones (Merthyr Tydfil and Rhymney) (Lab)]

Does my hon. Friend agree that the Government should be acting with greater urgency on implementing the funding floor, given the Holtham commission statement that Wales could be underfunded by between £5.3 billion and £8.5 billion over the 10 years to 2020? Does he also agree that the Government’s lack of action on the matter suggests a lack of interest in achieving a funding floor and fairer funding for Wales?

[Nick Thomas-Symonds]

I agree entirely. The matter is urgent, but we are concerned about the Government’s lack of interest. The coalition’s programme for government in the previous Parliament stated that the priority was to reduce the deficit and that changes to the system could await stabilisation of the public finances, although why exactly the coalition Government were incapable of paying sufficient attention to Wales to deal with the issue—or even to start dealing with it—remains entirely unclear.

[Liz Saville Roberts (Dwyfor Meirionnydd) (PC)]

Given that the Barnett formula has been in question since 1978, why did the hon. Gentleman’s party not rectify the Welsh funding shortfall while it was in government?

[Nick Thomas-Symonds]

I repeat to the hon. Lady a point made powerfully by my hon. Friend the Member for Ogmore (Huw Irranca-Davies): in 1997 to 2010, we had what he called “Barnett-plus”, which was record investment in public services in Wales, to the benefit of both my constituents and hers.

[Wayne David (Caerphilly) (Lab)]

I had the privilege of succeeding my hon. Friend the Member for Ogmore as a Wales Office Minister and I held that post in the run-up to the 2010 general election. One of the things that we were proud of was the firm commitment in our manifesto to address that very issue.—Unfortunately, we lost the election.

[Nick Thomas-Symonds]

My hon. Friend makes a good point. In 2015, we also had a manifesto commitment on the Barnett floor; but unfortunately, we were again not in government after the election.

In 2012, consideration was given to how Wales’s share of future funding would not fall again when public expenditure started to rise—the so-called “Barnett squeeze”. In the autumn of that year, the UK Government formally agreed that there was a squeeze and that such convergence had taken place. They said that they would review the position at each spending review, to assess whether it would recur, and address the issue. Alas, I am afraid that they did not.

On 8 July, the Government’s lack of interest in Wales was perhaps summed up in the Chancellor’s Budget speech. In one short reference, he said:

“In Wales, we are honouring our commitments to a funding floor and to more devolution there, and investing in important new infrastructure such as the M4 and the Great Western line.”—[Official Report, 8 July 2015; Vol. 598, c. 329.]

That promise came five years after the Assembly had voted unanimously on the matter—five years later. Put simply, the people of Wales have waited long enough for the UK Government to deliver.

[Jonathan Lord (Woking) (Con)]

I congratulate the hon. Gentleman warmly on his first Westminster Hall debate. I am sympathetic to fairer funding for Wales in a needs-based system, but should not any adjustment or floor to make things fair come from the financial settlement of any country that has gained under the current, outdated Barnett formula?

[Nick Thomas-Symonds]

I agree with the hon. Gentleman that, during this Parliament, we have an opportunity to debate all such matters. The Scotland Bill continued its passage through the House only yesterday. This is the time to look at fair funding throughout the United Kingdom.

I ask the Minister to answer some specific questions. First, the Secretary of State for Wales said in the spring that the Government would deliver on a Barnett floor by the autumn. I would be grateful if the Minister gave us a more exact timescale, given that we are already into November.

Will the Minister confirm whether the proposals on the Barnett floor will be as proposed by the Holtham commission? Will he update us on what the indexation figure is likely to be? I hope that he will give us a cast-iron guarantee that the Holtham recommendation on a Barnett floor will be implemented in full before any further debate on fair funding for Wales. In this Parliament, as I said a moment ago, the Scotland Bill and the Wales Bill provide an ideal opportunity for such a debate to take place.

On Second Reading of the Scotland Bill on 8 June, I said that the Government must not see the different nations of the United Kingdom entirely in isolation; they must look at changes across the board and how they impact on each other. That said, the devolution settlement has become a central part of our constitution and we should not forget the positive benefits that devolution has brought since Labour introduced it in 1999.

The great socialist thinker, R. H. Tawney, thought that dispersal of power was best because

“It makes people more accessible to each other than a system where power is highly centralised and society is a tapestry of authoritarian links”.

That notion of accessibility, with decisions being made closest to the people they affect, has a modern resonance. He also said:

“The only sound test, in the first place, of a political system, is its practical effect on the lives of human beings”.

That is absolutely right and that is why today’s debate is so important.

The idea of a Barnett floor is not an abstract notion; it is a practical step that could make a difference to people’s lives and the services that they rely on. It has a short and medium-term aspect. I accept that it has less impact in a declining budget, but the principle should be implemented as soon as possible for its impact on positive increments. Put simply, the Government should act, and act now.

16:12

[The Parliamentary Under-Secretary of State for Wales (Alun Cairns)]

It is a pleasure to serve under your chairmanship, Ms Dorries, for what I think is the first time. I congratulate the hon. Member for Torfaen (Nick Thomas-Symonds) on securing the important debate, particularly as it is his first Westminster Hall debate. We have had an interesting discussion and I am grateful to the hon. Members for Neath (Christina Rees), for Swansea East (Carolyn Harris), for Ogmore (Huw Irranca-Davies), for Dwyfor Meirionnydd (Liz Saville Roberts), for Caerphilly (Wayne David) and for Merthyr Tydfil and Rhymney (Gerald Jones) for their contributions. I will do my best to answer all the points made.

I want to underline that the Government remain committed to delivering the St David’s day Command Paper, which will create a stronger, clearer and fairer devolution settlement for Wales. That, of course, includes the funding floor that the hon. Member for Torfaen and others have called for. The St David’s day agreement led to the draft Wales Bill, which was published on 20 October and is being considered as we speak.

The Bill will build a stronger Wales in a strong United Kingdom by devolving important powers over energy, transport and local government and Assembly elections. It will also make devolution work better, as the Assembly and the Welsh Government will be clear about the powers they have and the challenges to which they need to be able to respond.

I reaffirm the Government’s commitment to the introduction of a funding floor alongside the next spending review. It is worth clarifying the current positon of funding, which is an ever-dynamic environment. The Holtham commission’s report, to which the hon. Member for Torfaen and others referred, was established by the Welsh Government to analyse the relative level of needs in Wales compared with England in 2009 and 2010.

The work by Professor Holtham and his commission has had a significant impact on informing the debate in Wales and I pay tribute to him for his work. The report set out a range from 114% to 117% of comparable English funding per head in which it thought that funding for the Welsh Government would be “fair.”

The report also highlighted that the relative levels of funding provided to the Welsh Government had converged towards the average level of funding for comparable activities in England since the start of devolution. It was therefore interesting to hear the hon. Member for Ogmore talk about the increase in the Welsh block grant from £7 billion to £14 billion, because relative funding for Wales in that period deteriorated. It was from the commission’s range that the Welsh Government claimed that they were underfunded by £300 million back in 2010.

[Nick Thomas-Symonds]

On the Barnett squeeze, the coalition Government conceded that that had happened in 2012. Why has nothing been done in three years?

[Alun Cairns]

I will come to that point in a moment, but it is worth remembering that the Command Paper, which was agreed by all parties, was published earlier this year and that committed specifically to acting within the next spending review period. As I said, the Barnett floor and spending commitments for Wales will be published alongside that.

The £300 million spoken about compared with a budget of roughly £15 billion. It is also worth noting that when Holtham reported, there was total identifiable spending in Wales of approximately £29 billion.

A lot has changed since 2010, both financially and politically. A joint statement in 2012 by both Governments recognised the resonance of this issue in Wales. In particular, it recognised the Welsh Government’s concerns that their funding would converge further towards English levels. However, joint work with the Welsh Government at the previous spending review confirmed that funding is not forecast to converge during the period to 2015-16. That refutes the points made by several Opposition Members; that was joint work agreed with the Welsh Government. Furthermore, Holtham’s logic also illustrated that the relative level of funding per head had risen, or diverged to use the technical term, and it is now in the range that the commission regarded as fair.

[Liz Saville Roberts]

None the less, the Minister cannot ignore the 78% of 10,000 people responding to a YouGov poll who said that Wales should be funded to the equivalent level of Scotland, which would bring in an extra £1.2 billion.

[Alun Cairns]

I am grateful to the hon. Lady, but Scotland’s devolution settlement, and therefore its financial settlement, is naturally different. However, I pay tribute to her for her earlier point, when she asked why Labour did not act in its 13 years in government, when there was a greater divergence between the relative funding in Wales and England, and Wales was getting worse off.

[Craig Williams (Cardiff North) (Con)]

I apologise for joining the debate late and I commend the hon. Member for Torfaen (Nick Thomas-Symonds) for introducing it. Given Labour’s 13 years of inaction on this issue and the clear commitment the Chancellor has made to dealing with it, may I ask the Minister what the Labour party’s position is on the Barnett funding floor and the Barnett formula in general? I thought that the Leader of the Opposition wanted to tear it up.

[Alun Cairns]

I am grateful to my hon. Friend for that. I smiled as various points were being made in the Chamber that underlined not only the inaction during that period of Labour Administration, but the differing messages that are coming from Labour in Westminster and in Cardiff Bay.

[Nick Thomas-Symonds]

On the first point, given the intervention from the hon. Member for Cardiff North (Craig Williams) and the Minister’s response, I assume that they are now praising the last Labour Government’s investment and not trying to make out that it was our spending that caused the crash. On the second point, it is quite clear that we see the Barnett floor as a useful first step towards a needs-based solution in the future. There is no inconsistency in that.

[Alun Cairns]

The position has already moved since the hon. Gentleman’s first contribution to this debate.

To make some progress on the specific points raised, a lot of questions were asked about the timing. I remind hon. Members that earlier this year in the St David’s day Command Paper we committed, for the very first time, to introducing a floor to the level of relative funding provided to the Welsh Government, alongside the spending review. This Conservative Government made that historic commitment and we absolutely stand by it. On the question of urgency, we stand by what we said before the election and will deliver that.

The right hon. Member for Leigh (Andy Burnham) has admitted that when the Labour party was last in power and he was Chief Secretary to the Treasury he knew that the Barnett formula

“wasn’t fair to Wales and there would need to be changes”,

yet Labour did absolutely nothing about it. I will not accept any crocodile tears from Opposition Members. Although the right hon. Member for Leigh has since made that explicit comment, no action was taken in that whole period other than a diverging funding settlement for Wales relative to the rest of the United Kingdom.

[Susan Elan Jones (Clwyd South) (Lab)]

It strikes me when listening to the Minister that I am not sure whether we are extravagant spenders or penny-pinching individuals. Whichever it is, the money went up from £7 billion to £16 billion, and that does not sound like either to me. Will the Minister answer one point he has not yet answered: does he not agree with Holtham that Wales is underfunded to the tune of £300 million a year?

[Alun Cairns]

The figures of £7 billion to £16 billion have been repeated time and again, but Holtham identified that during that period Wales’s relative position was worse. As I have said, the changes made over the past five years have put current spending in Wales within the Holtham range, as acknowledged by the Welsh Government.

[Carolyn Harris]

Will the Minister assure this Chamber that Wales will not be further disadvantaged in the upcoming spending review?

[Alun Cairns]

The spending review is a matter for the Chancellor. We, as a Conservative Government, are delivering on our commitment to introduce the Barnett floor, as we have announced, alongside the spending review. That commitment was repeated in our manifesto and the floor will be introduced, as announced.

[Wayne David]

The operation of the Barnett formula and the Barnett floor is complicated, but does the Minister accept—this is fundamental to our whole discussion—that at a time of falling public expenditure, when cuts are being made, the Barnett floor is not really an issue? It is only an issue at a time of increasing public expenditure. It is relatively easy for the Government to introduce the Barnett floor now, and I suggest they should, but its real impact will be in the future, when expenditure increases.

[Alun Cairns]

I find it a bit rich that the hon. Gentleman is complaining that a Barnett floor has yet to be introduced when we are committed to introducing it. We said we would do it last March and in our manifesto, and we will introduce it alongside the next spending review. When he was part of an Administration, although Wales’s relative position was deteriorating, absolutely nothing was done to introduce a Barnett floor.

Hon. Members will be aware that since 2010 significant commitments have been made, beyond the Barnett formula, to back the Welsh economy. Those include a commitment to fund and upgrade the great western main line through to Swansea and a significant contribution to the cost of the upgrade and electrification of the valley lines, reinforcing the UK Government’s support for improving infrastructure in Wales. Two years ago, the Welsh Government were given early access to capital borrowing powers to use for M4 improvements.

[Craig Williams]

That is a very interesting point. Not only have we promised the funding floor—and we will deliver it—but we have given the Welsh Government access to borrow money to fix a horrendous problem in south Wales, namely the M4 congestion, by delivering an M4 relief road, yet they are still dithering.

[Alun Cairns]

My hon. Friend makes an important point. I can hardly speak to business people or people who travel the border regularly without their complaining about the delays around Newport. We urge the Welsh Government to take the strongest action possible to complete the job of bridging the M4 around the south of Newport.

A new prison is being built in Wrexham, in a £212 million project supporting over 1,000 jobs. Through tax devolution we are empowering the Welsh Government with further levers to support and encourage the growth of the Welsh economy. Business rates have now been fully devolved, something I hope Opposition Members will acknowledge. Stamp duty and landfill tax will be devolved in 2018, as has already been committed to.

We would like progress on the devolution of a portion of income tax, as specified in the Wales Act 2014. Tax devolution will make the Welsh Government responsible for raising more of the money that they spend. Excluding Welsh rates of income tax, the Assembly will be responsible for approximately 10% of all taxes collected in Wales. The introduction of the Welsh rate of income tax would make the Assembly responsible for twice as much, or approximately another £2 billion in revenue. The Government will implement the commitments of the St David’s day Command Paper to build a stronger, clearer and fairer devolution settlement for Wales.

[Jonathan Lord]

I welcome everything the Minister is saying, but, to return to the Barnett floor, may I ask for an assurance that English taxpayers will not be disadvantaged by any adjustments or Barnett floor, and that any money to accommodate a Barnett floor will come from countries that get more than their fair share on a needs basis?

[Alun Cairns]

The specifics on that point will be outlined in the comprehensive spending review by my right hon. Friend the Chancellor.

[Huw Irranca-Davies]

Will the Minister give way?

[Alun Cairns]

With the greatest respect, I need to make some progress in the limited time remaining.

Last month, we published the draft Wales Bill, a key part of providing a clearer devolution settlement. We all want a funding floor for Wales, and it is right that that is accompanied by the devolution of income tax powers, because, by raising more of the money they spend, the Assembly Government will be more accountable to the people of Wales. Since 2010, Wales has recorded the fastest growth per head in the UK outside London, demonstrating the dynamism of the funding and spending position. Wales had the joint fastest growth of all the regions and devolved nations in 2013, with gross value added growing by 3.4%, well ahead of the figure for the UK. It is now time to move the debate forward and encourage the Welsh Government to use both the powers they already have and the new ones they are gaining to drive further growth in the Welsh economy.

Some specific points were raised on funding for local authorities. That is a matter for the Welsh Government—they decide how much money should be distributed to local authorities. I know that many in my constituency complain about how the cake is sliced in Wales, but that is the responsibility of the Welsh Government and it would be improper were this Government to intervene in those sorts of issues.

I underline that this Government are absolutely committed to introducing the funding floor as stated in the St David’s day agreement. We will introduce it as part of and alongside the comprehensive spending review.

Question put and agreed to.