Thursday, March 06, 2008

The Barnett Formula

Well, now we'll find out whether a review of the Barnett Formula will be beneficial for Wales or not. Its been a question that has rattled around in Welsh politics for many years. While most Welsh Assembly politicians seem to have taken a view that Barnett is out of date, unfair to Wales, and ought to be fundamentally reviewed, I have never been convinced - at least about the certainty of any review being of benefit to Wales.

I spent quite a bit of time as Conservative Finance Spokesman while I was in the Assembly, and this issue was always bubbling under the surface. There could be no argument that it was anything but 'out of date'. Joel Barnett, the Treasury Minister after whom it was named, established the formula about 30 years ago - and it was intended to be a temporary measure (one year I think). In general, Plaid Cymru and the Lib Dems were always keen on a review, because they thought Wales was being short changed. I thought there was more than a bit of the 'victim culture' influencing this opinion. Both Labour and we were much more cautious - but not on the principle. I can't speak for Labour, but I felt that any independent review which informed this policy had to to be commissioned by the Government. Even then, I was not convinced that an independent review that transferred large sums of money from Scotland would not result in some dodgy horsetrading before it would be implemented - there being too many Scottish Ministers at the top of the UK Government! If today's reports that a review is to be commissioned by the UK Government are correct, we are soon going to find out if the various claims and caution was justified.

The most worrying part of the debate I've heard on this issue are the siren voices calling for the per capita Government spending to be the same in England , Scotland and Wales. This is the language of breaking up the United Kingdom. The basis on which Government spending should be distributed is need. Because the level of need is different in Scotland, Wales and regions of England, there must inevitably be different per capita payments - higher in Scotland and Wales, as it is now. Another reason I was cautious about calling for a review of the formula was that it opens a can of worms, which could have unforeseen consequences. Still times move on, and everybody (in Wales anyway) now seems to be in favour of this review - so lets bring it on. I just hope today's decision doesn't come back to haunt us.


Dr. Christopher Wood said...

Glyn: any comment cometh on the latest Lib-Dem implosion? Three front benchers in the Lib-Dem "team" have resigned. There's the party of the damned, the party of the really damned, and then there's the Lib-Dem 'party'.

The Lib-Dems are the only party that can implode on a pin-head and despite their "for the people" credentials, discriminate against the disabled as evidenced by the recent Lib-Dem decision in Cardiff to ban wheel chair access to The Friary in Cardiff city center. What a party the Lib-Dems r.

Ian said...

Glyn, You may well have a point in terms of risk, but we are currently facing an annual squeeze on our budgets due to Barnett and in such circumstances I believe it is a risk worth taking. Scotland have everything to lose but Brown will not risk giving the SNP such ammunition at this stage of their Government.

We cannot simply accept a formula that we are finding more and more difficult to live on.

Toque said...

Because the level of need is different in Scotland, Wales and regions of England, there must inevitably be different per capita payments

The Formula determines the money given to Scotland, Wales and Northern Ireland as a proportion of money spent in England.

English regions do not come into it.

The allocation of funds within England will be a matter for the future English parliament to discuss because there is no doubt that some regions are being short-changed within England (though I stress again that this has nothing to do with Barnett).

Comparing Scotland with London, or Scotland with the North East of England, is a ploy to detract from the salience of the issue, which is in fact a matter of nationalism.

Stuart Rendel said...

Interesting the minutes leaked to the Telegraph show that the review was decided on Jan 28th in Downing street. No Welsh ministers were present and the running is being made by Jack Straw. People in Wales should never underestimate the effect of the free goods policy on English voters. The populist decision to scrap car park fees in hospitals will not help the perception that both Scotland and wales are being subsidised by English taxpayers. It didn't matter when there were no devolved administrations but this is no longer the case. In aworld where public expenditure will be much tighter no one should assume that areveiew of Barnett will automatically benfit Wales. Many Treasury civil servants in London would see the way that the assembly often spends money as a complete waste of public resources.

Glyn Davies said...

Christopher - only that it appears that Nick Clegg does not have what it takes.

ian - I've yet to be convinced that Barnett does contribute to the squeeze on the Assembly budget - though I accept that it may do. Independent Government commissioned research is needed. I did not thinkit a risk worth taking 5 years ago - but would have been content to go along with the review agreed by the Assembly last year. Its a 'running sore' that needs to be dealt with. You make my maun point for me, when you refer to Scotland. Would Brown really be willing to transfer many millions away from the Scottish Parliament - which would be a factor in any change?

toque - English regions do not come into it, but a comprehensive review may well conclude that it should - this has been part of the debate over recent years.

I don't quite understand your 'nationalism' point. Money is distributed to areas, which happen to be nations by a Formula that was loosely based on the needs which existed 30 years ago. And review will be based on needs as they apply today - which would still mean higher per capita public spending in Wales, etc. Logically, the same principle should apply to the North of England, South-West, etc - though I do not know what mechanism should be used for this. Perhaps it will evenyually be an English Parliament, or some arrangement in the UK Parliament where England based MP's decide.

Stuart - I could have written your comment myself. Its precisely what I think. I recall discussions about differential waiting lists that I had with healthcare managers in England (which had a big impact on the area I represented just over the border in Wales) when free prescriptions were introduced. Sympathy for my arguments was diminished overnight - "You can afford free prescriptions - you can afford to pay for treating the sick". And Alex Salmond would use any reduction in the Scottish budget to further undermine the Union.

Dr. Christopher Wood said...

Glyn: so applying "Dr. Christopher Wood's 2+2 logic" Nick Clegg will be in Cameron's prayers much the same as Ming Campbell was. Great stuff all round.

PS Isn't it bad when Welsh speakers use Welsh to make wise cracks in the presence of English only speakers? I think so.

Glyn Davies said...

Christopher - I have been surprised at the poor impression that Nick Clegg is making. The dishonesty of his call for an in/out referendum on the EU has backfired spectacularly. A good word heer for Mark Williams, Lib Dem MP for Ceredigion who was the only Welsh Lib Dem not to renege on the promise made.

I don't mind anyone correcting my Welsh on this blog. I still have a Welsh Language blog which I intend to reactivate when this one reaches 1000 posts (probably around May). I have learned to speak the language, but not write it - next big challenge.

Dr. Christopher Wood said...

Glyn: so are you happy with Clegg’s performance so far?

I do agree with that lifting the hood off the Barnett Formula presents a serious downside risk to the Welsh economy. Wales might get more or LESS subsequent to such a review. I imagine that some English voters are fed up to the back teeth hearing about Wales wanting more handouts, "isn't it time Wales with its calls for self-determination actually sorted out its own under performing economy and stopped asking for handouts?" Having lived in London for about 10 years I can sympathize with that English sense of fair play.

On another front, some “Dr. Christopher Wood’s 2+2 logic” in combination with some largely unpublished ‘news’ (the media largely ignores issues on which both the Democratic Party and GOP (Republican Party) agree). I am constantly amazed that news journalists and UK politicians in the UK don’t pick up on what’s not written about in the US press.

So what should we be hearing from the USA instead of the largely synthetic arguments between Obama and Hillary Clinton?

How about the big "moves afoot" with regard to plans over here between Canada, Mexico and the USA; the reason for such moves – well, the “golden rule” in US politics that American economic clout must be protected at all costs – both the Democrats and GOP are one on this issue – hence y you don’t hear much about it in the media/press.

So, ‘what’s up’? Well, a LOT actually; let’s start with some startling plans that are only just starting to leak out … a certain designated highway between Mexico and Canada for handling Mexico-Canadian trade traffic; Merodollar or Amerodollar currency to replace the dollar and robustly tied to a piece of plastic (like a credit card, but not a credit card) to render hardcopy paper notes obsolete (if not illegal tender) to render moot the gang/drug/extortion/anarchy/growing problem in Mexico. It’s a startling set of Think Tank out of the jack-in-a-box set of economic solutions that could set off a huge surge in economic growth along the NAFTA corridor. Specifically, an economic boom that will that will mean a massive boost to the Mexico-America-Canada trade axis that will be a supercharged version of the EU.

Applying “Dr. Christopher’s 2+2 logic” to peel away the evidence that’s already ‘out there’ that speaks to this strategic game plan include, but are not limited to, the following observations based on some 10 years living in the USA, particularly inside the Beltway/“M25” around Washington DC: (1) Bill Clinton signing the NAFTA trade agreement (in which Canada, Mexico and America are the main actors) – the GOP did not object to NAFTA in any serious way; (2) Bush’s recent decision to allow Mexican trucking companies to run as commercial operations in the USA largely unobstructed by the laws and regulations currently used to regulate domestic US trucking companies (this time the Democratic party did not object to this proposal in any serious way; (3) actions by the Federal Bank that have undermined the value of the dollar (with no serious disagreements from the Democrats); (4) often overlooked by folks who fail to engage brain before mouthing off about American dependence on Middle East Oil: Canada is the #1 supplier of oil to the USA, Mexico and Saudi Arabia vie for the #2 slot; also note that electricity generating plant in the USA largely runs independently of oil imports - USA supplies much of its own energy resources to run electricity generating plant (coal, methane and nuclear); (5) the US “Pentagon-Industrial Complex” is the world’s largest manufacture of advanced battle field, navy, tactical and strategic defense (and combat) systems – Canada/America developed a recent new understanding concerning US/Canadian military (hardly reported in the press, but there was a small story about it a few weeks ago); (6) Mexican Mayors (often powerful political figures in Mexico) complaining bitterly about organized crime kidnappings of US citizens holidaying in Mexico for ransom and the devastating impact this is having on those Mexican towns heavily dependent on the US tourist dollar; (7) the USA increasingly regards Mexico and Canada as part of the US economy irrespective of the synthetic arguments presented by the Presidential Candidates for “protecting our borders” - meaning the US border with Mexico and the alleged illegal immigration from Mexico; (8) Canada needs access to what it sees as Mexico’s cheap labour market; (9) the need to reel in powerful criminal gangs in Mexico which now control some Mexican border towns where local Mexican police and even Mexican Federal army personnel can’t maintain order – this is growing into a national security issue for the USA; and (10) the ‘golden rule’ wherein both the Democrats and the GOP are desperate to maintain American economic clout on the world stage.

Disclaimer: I am not an economist and have no formal training in this area whatsoever; I also have zip access to any confidential stuff not available to the general public. Everything I wrote here is based on publicly available information and is expressly not tied to ‘insider’ information – I don’t have any ‘insider’ information, and I don’t need it and I don’t want it.