Barnett Formula

Baroness Morgan of Ely Excerpts

Wednesday 15th June 2011 Lords Chamber

[Baroness Morgan of Ely]

My Lords, I have had a really pleasant surprise tonight. I came here expecting to see an ogre in the shape of the noble Lord, Lord Barnett—such, I am afraid, is his reputation in Wales—but he will be delighted to hear that after his discourse tonight I shall be going back and singing of his many virtues to the people of Wales.

Ever since I entered the political scene about 17 years ago, the need to reform the Barnett formula has been top of the political agenda in Wales. Sometimes I feel that it dominates the political agenda too much because it hampers our ability to talk about other issues where we need to increase our GDP and work on other methods in order to do so. None the less, I am afraid that the term “Barnett” has become synonymous with unfairness in Wales. It is something that we need to correct and the only way of doing so is to reform the formula. Of course, there is unanimous cross-party support within the Welsh Assembly for such reform. The current formula, as we have been told, rests on an allocation based solely on population. This year alone, £50 billion of public sector funding has been distributed to the devolved Administrations without even the most cursory attempt to see whether it is based on need or not.

The Assembly set up a panel, led by Gerry Holtham, which concluded that through the methodology that is currently used based on the English regions, Wales is being short-changed to the tune of about £300 million compared with its needs. The problem is that this situation will persist and will become worse if and when we see an increase in public expenditure. Something needs to happen. We need an intermediary step to ensure that we put a floor in the system, to ensure that things do not get any worse when that happens. I do not think any of us believe that this will happen any time soon. We need an immediate response and I would like to know whether the Minister has any plans to put that floor in place sooner rather than later.

I endorse the setting up of an independent commission. We need to ensure that there are representatives from all the devolved Administrations on that commission. I agree with my noble friend Lord Barnett that it does not need to impact negatively on the attempts at budget reduction. Indeed, a member of the Holtham commission, David Miles, made it clear that there is no reason to believe that replacing the Barnett formula with a needs-based system should be costly in aggregate for the UK Government. In fact, the reverse is true. Reform would be completely consistent with the UK Government’s focus on deficit reduction. The key point to remember tonight is how unjust the current system is. A civilised society should distribute on the basis of need and not on the basis of the number of the population.

I have a number of questions for the Minister. In the mean time, what is the current thinking on introducing a floor to the current Barnett system so that we have an intermediary step? Will the Minister commit to an open-minded dialogue, particularly with the Assembly, to progress the wider issue of Barnett reform? What is the timeframe for reform? We need to take account of much broader constitutional issues which are at play here.