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Tuesday, October 19, 2010

Barnett Floor revisited

Tomorrow's Comprehensive Spending Review announcement will inevitably impact on the Welsh Government's budget. It is pointless speculating here as to how much we will lose or even how we will accomodate that until the announcement is made. It is though worth noting that even under Labour's plans the Welsh Government would have lost £2.8 billion over the next four years from the block grant.

So far Welsh Minister's response has been to call for a Barnett floor to be established so as to protect Wales' share of the UK budget. This measure is designed to prevent convergence in expenditure per head that occurs when spending is increasing overall. It is then singularly inappropriate in the current circumstances though I understand that the UK Government are receptive to the idea nevertheless.

Just to underline the point that a Barnett floor will not assist Wales in mitigating the cuts, here is an exchange with Gerry Hotham, who first suggested the idea, at the Assembly Finance Committee on 30th September:

Peter Black: I have some questions on the comprehensive spending review, which of course is coming up next month. A number of Ministers have suggested that it is crucial to protect Wales because we are looking at £2.8 billion or £3 billion of cuts over the next three years, according to the projections of both the present and the previous Government. Therefore, it is argued that we need the Barnett floor in place to protect us from those cuts. Is that an argument that you would support?

Mr Holtham: That we need the Barnett formula in place to protect us from the cuts?

Peter Black: No, the Barnett floor. This has been said on a number of occasions by Government Ministers.

Mr Holtham: The answer on the Barnett floor is ‘no’, in a word. You must make a distinction between relative expenditures and absolute expenditures. The point is that if public expenditure is growing, the Barnett formula ensures that Welsh public expenditure grows at a lower percentage rate than UK public spending. That is the so-called Barnett squeeze. You probably do not even notice it, because if public expenditure is growing, you are getting more every year, which is nice, but you are not getting quite as much more in percentage terms. Once there are cuts, you get less and it feels horrible, but there is no squeeze then. In fact, your percentage cut is also slightly smaller.

So, the Barnett formula forces convergence on the English expenditure per head when public spending is growing. If public expenditure is falling, there will be a small divergence. So, if Wales is getting a bit more per head than England on average, that bit more will go up a little. The floor, as we conceived it, was an attempt, if they could not get rid of the Barnett formula, to remove its worst effect, which is that, as time goes by and public expenditure, normally, grows, the Welsh relative share goes down. The floor would stop that. I do not think that the floor would make a big contribution in a situation in which public expenditure is falling.

That seems fairly clear.
It is clear, Peter. But it is only one side of what Gerry Holtham had to say.

His point was that we should introduce a Barnett floor now precisely because public spending is not going up. If we introduce it now it can be done on the basis of principle, without the practicalities of the actual sums of money involved clouding the issue.

He called the previous Westminster government "silly billies" for not doing it when they had the chance to. And I'm sure he won't have changed his mind just because a different set of bottoms now sit on the government benches.
Yes, I think I made it clear that the Westminster Government is open to considering this. My point though was that the floor is being misrepresented by Government Ministers in Wales.
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