Speaking in a debate in plenary on the independent report of the Holtham Commission – set up to look at funding and finance in Wales – the Finance Minister said that the so-called “Barnett Squeeze” has led to a possible £300m a year funding shortfall for Wales.
“The Barnett formula has passed its sell-by date. The report makes a strong case that the funds made available to Wales - and to the other nations of the UK - should in principle be determined by needs. Barnett does not do this.
“The Barnett formula has an in-built mechanism that gradually chips away at the levels of relative funding for Wales. We have long been aware of this “Barnett Squeeze” and knew that the time would come when the funding system would need to be revised.
“Put simply, spending per person in Wales is higher than in England - quite rightly because we have greater needs. But each year, when the Barnett formula is used to calculate our increase in funds, it delivers the new money to us at the same rate per head as in England.
“Over time, this reduces relative spending per head in Wales ever closer to the average for England, irrespective of our needs.
“Expressed in cash terms, the Holtham Commission's estimate of the gap between what Wales currently receives from the UK Government (via the Barnett formula) and what it would receive using the various formulae that the UK Government applies in England is of the order of £300 million per annum.
“The Assembly Government takes the Commission's recommendations extremely seriously and we are pursuing the Commission's recommendations with the UK Government. We firmly believe that a new needs based formula is ultimately the only way forward, and we also support the Holtham Commission’s recommendation for introducing a “funding floor” in the meantime.
“I am under no illusion that there will be tough discussions ahead. All parts of the UK will have strongly held views about how the funds for public services should be distributed. All will fight their corner. The current state of the public finances will not make this process easier.
“Nevertheless this is something that we must resolve. The Commission's Report makes it clear: the Barnett Formula must go before it undermines the standard of public services in Wales.”
14 October 2009