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Wednesday, March 04, 2015

Fair funding for Wales

The First Minister's response to the St David's Day agreement can best be summed up as sniffy in my view. This is particularly the case on the proposed funding floor, which has been a major objective of the Welsh Government for the last five years:

On funding, the UK Government has agreed to "introduce a floor in the level of relative funding provided to the Welsh Government". 

Without a floor, Welsh funding levels will fall further below what is needed for our front line public services. So I welcome the fact that the UK Government has – at last – recognised the need for it. 

We have been working towards implementation of a floor since the Holtham Commission recommended it in July 2009. And I know it is something other parties here in the National Assembly have supported.

But last week’s announcement was a missed opportunity. 

It provided no assurances about how a floor would work in practice, when it would commence or what it would mean in terms of public spending for Wales. 

A vague commitment to a floor of some sort at some point is just not good enough. We can only be confident that funding for Wales has been put on a fair, sustainable footing for the future when the detail is agreed. And that will be a matter for the next Government – after the General Election at the next Spending Review. 

There is an important intervention by Gerry Holtham, who wrote the original and authorative report on how Wales is underfunded on the Institute of Welsh Affairs blog which puts right an important misconception in the First Minister's statement. I hope he does not mind if I quote it in full:

We used to talk about a gap between Welsh funding and what Wales would get if it were treated like an English region. The gap was estimated back in 2009 at £300 million at least and probably around £450 million. Wales was getting a 2 or 3 per cent smaller budget than was  fair. The evidence seems to be that the gap has closed since then for reasons that are not entirely clear but imply that austerity has hit English regions harder than Wales.

I do not think we have an accurate figure but the gap has shrunk and is small enough for the Treasury to argue it is negligible. Some Welsh politicians have therefore moved the goalposts and are talking about the gap between Wales and Scotland. The work in 2009 suggested Scotland was wildly over-funded and got several billion pounds a year more than it would get as an English region.. The Scots keep this not because it is fair but because of brute politics; they have an oilfield and 45 per cent of them are prepared to vote for independence. They get too much money to keep them and the oil in the Union.

Wales has no claim in fairness to get what Scotland gets and does not have the political assets that would enable it to bludgeon its way to an over-generous settlement. So I think we should drop talk of the gap with Scotland.. It was fine to ask for fairness; it is unworthy and undignified to plead for unfair special treatment.

The floor we want is a different matter. It is not a floor under the money Wales gets. It is a floor in the ratio of our spending per head to spending per head in England. It is a floor on a relative, not absolute measure. The Barnett formula means when public spending grows it grows at a slower rate in Wales than in England so our spending while going up is falling as a proportion of English spending. There is no justification for that. A floor would give Wales the same percentage increases as in England so the ratio of our spending to theirs would stay constant.

That is a big deal. Suppose public spending in England grows at 5 per cent a year. The floor means after ten years Welsh spending would be over £1 billion or some 7 per cent higher than it would be without the floor. Even if public spending grew at just 2 per cent, the floor would be worth over £400 million to Wales after ten years. This is an entirely justifiable demand and if the Cameron Clegg announcement means we have got it then we shall be as near as dammit to fair funding for Wales.

The funding floor, once it has been worked through and put in place is as valuable to the Assembly as reserved powers. It gives us some certainty on funding and enables us to proceed with the referendum to test whether the Welsh people want us to have tax varying powers or not.
The problem with this whole Welsh funding debate is that it doesn't take account of who is funding whom. And for what.

A United Kingdom had a purpose, a purpose thought worthy of funding by the English taxpayer. A devolved or federal UK doesn't afford the English taxpayer quite the same incentive.

The Scots are paying for their belligerence, the on-going decimation of north sea oil cannot be easy to accept. But accept it they must.

Here in Wales we need to reach an accord with the English, essentially the English taxpayer, on what sort of relationship we want in future years and how and why we expect them to continue contributing the lions share.
Yes, the Scots really are paying for their belligerence. I've heard that they're not getting any further powers, and also that they're getting their Barnett funding cut back. Also, those rumours about the Scots deciding the next UK Government? Wouldn't believe it.
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