Welsh First Minister urges Barnett Formula rethink

Historically, the population-based formula has favoured Scotland over other parts of the UK such as Wales. Picture: PA
Historically, the population-based formula has favoured Scotland over other parts of the UK such as Wales. Picture: PA
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THE Welsh First Minister has called for wholesale reform of the funding scheme which has historically given a multi- million-pound advantage to Scotland.

As David Cameron and Nick Clegg unveiled major new powers for Wales on Friday, Carwyn Jones, the First Minister of Wales, revealed he would be campaigning for an overhaul of the Barnett Formula – the complex system which allocates cash around Britain.

Historically, the population-based formula has favoured Scotland over other parts of the UK such as Wales which, Jones claims, has a shortfall of £300 million a year.

Welsh government figures now say reform is overdue to tilt the funding balance to one based on social need, which would likely remove cash from Scotland and England, and hand more to Wales.

The call prompted SNP figures last night to warn that Scotland’s block grant could be reduced if the country decides to remain in the UK next year.

Offered the chance to devolve income tax powers to Wales last week, Jones said he would not do so until the 
underlying question of Wales’s funding by Whitehall was 
sorted out.

He said: “We are not pursuing the devolution of income tax, certainly not at this time.

“The reason for that is we believe that income tax devolution cannot come unless there is reform of the Barnett Formula.”

He added: “We’re not funded by enough – we’re £300m down on where we should be. That’s got to be addressed first before we look at income tax.”

Jones is understood to be demanding a “floor” on the cash coming to Wales, so that its costly social needs are taken into account.

In 2010, a Commission in Wales said that Barnett should be scrapped and replaced with a system that reflected its higher than average social needs.

Jones has now agreed with the Treasury to review the 
system once public spending begins to rise again in the 
future. Experts acknowledge that any extra cash for Wales would likely come from England and Scotland, which are both relatively better off.

Pro-UK figures say that such changes – combined with extra tax powers for both Scotland and Wales – may form the 
basis of a new settlement across the UK, in the event that Scotland opts to remain in the Union, which is fairer for all parts of the country, helping to reinforce “social 
solidarity” across the nation.

Jones is expected to travel to Scotland in the next few weeks to give a speech backing the Union, and using his own agreement with Cameron and Clegg as evidence that the Scottish Parliament will receive more powers if it does opt against independence next autumn. However, questions over the Barnett Formula have become a key plank of the SNP’s pro-independence campaign in recent weeks.

One privately commissioned poll last week showed that, if people believe Scotland would get less UK spending than at present, 48 per cent of voters are inclined to vote Yes, compared with 38 per cent who would say No.

However, it is understood that Scottish Labour will likely rule out a reform of the system when it reports back on further changes to Scottish devolution.

Last week’s announcements by Cameron and Clegg will mean the Welsh Assembly will be handed many of the powers already planned for transfer to Holyrood, including stamp duty and a facility to borrow money for capital projects.

SNP MSP Stuart McMillan, who sits on the Referendum Bill Committee, said: “A recent poll shows people are more likely to vote Yes when they know Scotland’s budget is threatened – the comments from Carwyn Jones are the latest from the anti-independence parties attacking the Barnett Formula.

“It is clear only a Yes vote will protect Scotland’s finances. With the powers of an independent Scotland we can ensure that Scotland’s resources are put to work to benefit people living here, rather than squeezed at will by Westminster governments.”

Of Wales’s plan, Scottish Secretary Alistair Carmichael said: “This is now the second occasion on which the coalition government has delivered on promises for extra powers to the Welsh Assembly, and we’ve also delivered more substantial powers to the Scottish Parliament through the Scotland Act.

“This is proof that when we say we will deliver powers that we do it.”