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Tuesday, November 18, 2008

Reforming Barnett

Interesting article in this morning's Western Mail on moves to reform the funding formula which determines how much the Welsh Assembly Government has to spend on services.

The paper tells us that an independent body, known as the Calman Commission, is investigating possible changes in the way the Scottish Government is funded. Its recommendations could lead to a wholesale shake-up affecting all the countries of the UK.

They go on to explain that one of the options being mooted would involve replacing the Barnett formula with a new arrangement under which countries would get a funding allocation based on the tax revenue gathered within their borders.

They say that without any adjustment for social need, that could lead to a substantial reduction in the amount of Treasury money coming to Wales, because of the nation’s relatively low tax base. It is feared that the UK government would be tempted to follow such a course of action because of the perception in England that the Celtic nations are effectively being subsidised.

In many ways this highlights the dangers of looking at the funding formula afresh, however it has to happen because of the disparity that exists in Wales between need and the ability to fund services to tackle poverty and other problems.

The Assembly Government needs to argue strongly for a proper formula based on the comparative need of Wales together with powers to vary taxes and to borrow money. Unless we get a balanced solution that is fair to the whole of the UK then any reform will be a disaster for Wales and elsewhere.
What does "tax base" mean? If it includes non-domestic rates, then Wales and Scotland may not do so badly.

However, my guess is that the proposal will fail, whatever definition is used, because there will be opposition from the regions of England.
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