Holtham - The next stage

The Holtham Commission's first report was an impressive piece of work, setting out clearly why the Barnett Formula ought to be scrapped in favour of an allocation based on need ... a situation which already applies to the regions of England.

However the Commission said that—as an immediate short term measure—any money Wales is due to receive in future as a Barnett consequential should be modified by a factor of 1.14 pending a long term solution.

But this was only the first part of the Commission's task. The second part is to take a wider view about how Wales is financed. This will include looking at assignment of taxes, the ability to set or vary the rate of taxes, and the ability to borrow. The Commission will also have the advantage of seeing what the Calman Commission recommended for Scotland ... especially since the UK government's response to those recommendations has been positive, so that a good case can therefore be made for Wales to get similar fiscal responsibility.

This article was in the Western Mail last Friday, although not on the WalesOnline website:

Review of public spending vital for a devolved Wales

 
     
     
     Gerry Holtham, chairman of the independent commission
     set up to look at the funding of devolution in Wales,
     discusses the next stage of the commission's inquiry.

 
EVERYONE should know by now that public spending in the UK is likely to be under the cosh in the next few years. Less well-known is that the basis on which public spending is shared out among the nations of the UK could be in for a radical change.

For 30 years, the UK Government has made an annual block grant to finance each of the devolved administrations in the British Isles - Scotland, Wales and Northern Ireland. The relative sizes of those grants derive from what they happened to be when the system began in the late 1970s. Those baselines are linked to the present situation by the operation of the notorious Barnett formula.

Over the past decade, this system has delivered significant absolute increases to the Welsh budget as public spending grew fast UK-wide. However, Barnett has, over time, resulted in a “squeeze” on the relative resources available to Wales, reducing the gap between what's available for us to spend per head on public services in Wales and what is spent in England on comparable activities.

If left unaltered, the Bamett formula will cause spending per head in Wales to move ever closer to the average spending per head in England, irrespective of whether or not needs in Wales are also converging with those of England.

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Last year, the Assembly Government set up an Independent Commission on Funding and Finance to look at that situation. Our first report, recently published, proposes a number of changes.

Spending per head varies substantially (and quite rightly) across English regions, with areas of relatively high need receiving extra resources.

Why should Wales be treated any differently?

There is no rationale for any further convergence in public spending per head in Wales towards an English average. We argue for a new needs-based formula to take over from the outdated Barnett approach.

A House of Lords Committee has also recently reported on the Barnett formula and has come to similar conclusions, which may give another push to reform.

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But introducing a needs-based formula could be complex and will take time. Any durable settlement based on needs would have to be implemented as part of a comprehensive reform encompassing all the devolved administrations, not just Wales.

In the meantime, we have proposed a simple modification to the Barnett formula that would place a floor under the Barnett squeeze in Wales and that could be implemented in advance of wider reform.

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However, changes to the Barnett formula are, not the only reforms afoot. The Calman Commission, set up by the Scottish Parliament and backed by the UK Government, has accepted that in future the block grant should be determined by relative need. The Commission has called for widespread taxing powers to be devolved from Westminster to the Scottish Parliament. Among other changes, UK income tax in Scotland would drop from 20p to 10p and the block grant would be cut by the lost revenue.

The Scottish Parliament would get the power to decide whether to set a "Scottish rate" that would put the 10p back, or alternatively to set a rate that was higher or lower than 10p, with its budget affected accordingly.

Over the coming months, our Commission will be considering the case for devolution of tax and borrowing powers to Wales. The work of the Calman Commission in Scotland is relevant to the debate in Wales. Of course, the constitutional, economic and social circumstances of Wales and Scotland differ and what is appropriate for one country need not be for the other.

On the other hand, there is no reason to assume that Wales should always have less discretion or autonomy than Scotland. This is a matter ultimately for the Welsh public through the political process.

As we consider the case for Wales to acquire the ability to vary taxes and enhance its borrowing powers, we welcome and invite input from everyone in Wales, expert and non-expert alike, that will help us to clarify the judgements that Welsh politicians must soon make.

Information on the call for evidence issued by the Independent Commission for Funding and Finance for Wales can be found at walesfundingreview.org

So, why not do what the man asks? Tell the Commission why you think Wales needs to have more fiscal responsibility. We have until 31 October to submit evidence.