Coalition reveals that Barnett Formula “is coming to the end of its life”

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IN a statement little noticed by the Scottish media, a senior Coalition minister has revealed the Tory-Lib Dem administration at Westminster thinks the Barnett formula, which equalises public spending levels between England and the devolved nations, is “coming to the end of its life”.

The shock admission was made by Cheryl Gillian, Tory Secretary of State for Wales, during departmental questions in the Commons. Gillian is MP for Chesham and Amersham, in Buckinghamshire in England. In 2009, it was revealed she had claimed for dog food on her second home allowance.

Tory and Lib Dem spin doctors are claiming that Gillian’s remarks do not mean Barnett will be scrapped soon and must await “stabilisation of the public finances”. However, as the Coalition is committed to an austerity programme aimed at clearing the structural debt inside one parliament, that could mean as soon as 2015.

 

Scrapping Barnett would leave the Coalition (or its successor) to set the block grant to Holyrood at any level it wished. At present, the system ensures (roughly) that any spending increase in England is matched in Scotland on a per capita basis. The Scottish Government is then free to spend that money as it sees fit. An end to Barnett would probably see a significant cut in the Scottish block grant.

Labour in Wales is conspiring in this Coalition plan. Following the recent Welsh elections, Labour has chosen to govern in a minority administration. Previously there was a Labour-Plaid coalition. The Labour First Minister, Carwyn Jones, is out of step with his counterparts in Edinburgh and Stormont over fiscal devolution. He opposes giving the Welsh Assemby the power to set taxes. Instead he wants Barnett reformed in order to give a bigger annual lump sum to Cardiff.

In February, Jones told a press conference in Pontypridd: “I’m not in favour of tax-raising powers. I don’t think it would be in our interest.”

He calls this plan “Fairer Funding”. It would certainly mean realocating cash from elsewhere in the UK. Breaking ranks with the other two devolved administrations – both of which want control over corporation tax – is music to the Treasury’s ears in London. Dividing and ruling between the three administrations makes it easier for the Treasury to keep centralised control of taxes.

However, Labour in Wales are increasingly out of touch with local opinion. Last July the independent Holtham Commission recommended the Welsh Assembly be granted borrowing and tax-raising powers.

In November, First Minister Jones was forced into a rambling defence of his position. Appearing before the Assembly finance committee, he said: “If there is a consensus within Wales, and across the parties within the National Assembly, that would welcome those sorts of greater financial freedoms in relation to taxation and borrowing, along the sorts of lines that we are shortly to start legislating for in relation to Scotland, then I would respond positively to that.”

But so far Jones appears content to side with the Coalition in London and put off arguing for fiscal autonomy, in favour of bigger handouts from Westminster. London has responded with its own stalling tactics. In May 2010, the Tory-Lib Dem coalition agreement promised: “We will establish a process similar to the Calman Commission for the Welsh Assembly.”

In other words, a commission to come up with a new fiscal settlement for Wales. But since the publication of the agreement, nothing more concrete than this statement has been forthcoming from the Coalition. Cheryl Gillian, the Secretary of State for Wales, says any Calman-like review won’t happen till after UK public finances are put in order. She also says that any plans for tax-raising powers in Wales would require “another referendum”. The Unionist parties refused such a referendum over the Calman proposals in Scotland.

Labour in Wales is in no hurry to make the Coalition deliver its promised commission on Welsh fiscal devolution. Replying to Cheryl Gillian in the House of Commons, Paul Murphy (Labour MP for  Torfaen) said the Coalition should take “great care” as there was not an “appetite for tax-raising and tax varying powers”.

At the recent meeting of the three First Ministers in Edinburgh, Carwyn Jones was noticeably cool towards Scottish and Northern Ireland demands for control over corporation tax. The Edinburgh tripartite summit is to be followed by a meeting with the Coalition in London next week.

The aim of the Edinburgh meeting was for the three devolved governments to discuss those issues before confronting Whitehall. Speaking afterwards, Alex Salmond said: “What’s making things happen is the views of the people of Northern Ireland and Scotland. That is the locomotive behind change in these islands.”

Note the lack of any reference to Wales or Carwyn Jones.