Lord De Mauley: It’d be “quite wrong” to rush into replacing Barnett Formula

It would be “quite wrong” to rush into replacing the controversial Barnett Formula given the size of the deficit, Government whip Rupert Ponsonby, 7th Baron de Mauley, has told the Lords. Questioned by peers on the future of the formula by which Westminster determines the levels of funding for Scotland, Wales and Northern Ireland, Lord De Mauley said:

“In the light of the grave financial situation the country faces it would be quite wrong for a new Government to rush to a decision on this complicated matter.

“We are carefully considering the various reports but there is as yet no consensus on what a needs-based assessment would take account of. In the meantime the Coalition’s priority is to reduce the deficit.”

The Government’s stance comes despite a growing feeling of discontent with the way that the formula is now working, with calls for a new, needs based system. In its report on the issue, the Lords select committee on the Barnett Formula, comprised of Peers across the political spectrum made clear (page 8):

“The changing populations of the devolved administrations and the failure of the Formula to take account of population changes over time within the baseline create a significant problem for the Barnett Formula today.

“In our view, the resulting per capita allocations are arbitrary and unfair. In essence the baseline of the grant provides funds for a level of population that has changed.”

It continued (page 9):

“We find the argument that devolution funding should be based on relative need to be a compelling one. Public spending per head of population should be allocated across the United Kingdom on the basis of relative need, so that those parts of the United Kingdom which have a greater need receive more public funds to help them pay for the additional levels of public services they require as a result.

“Those levels of need—and which parts of the United Kingdom need them—may well change over time. Historically, they have certainly done so.”

To demonstrate the problems that exist in the operation of the formula, in its interim report - published last year - the Holtham Commission, commissioned by the Welsh Assembly Government into how Westminster finance the devolved bodies reported that the formula meant Wales is loosing out by £300 million a year, underfunding which could total £8.5 billion over the next decade.

Responding to Lord De Mauley’s remarks, Lord Barnett, who as Chief Secretary to the Treasury devised the formula in the 1970s, said:

“There is approximately £1,600 per head more spent in public expenditure in Scotland than in England which has very serious implications for the coming cuts.”

From the Conservative benches, former Chancellor Lord Lawson, a member of the committee that looked into the Barnett Formula, made clear his view that the reforms suggested would assist the Government in coming to grips with the deficit, and the former Labour minister, Baroness Hollis, who also served on the committee, said:

“Given that the Barnett formula funds on the basis of population and not need, it is profoundly unfair to overfund Scotland by the extent of £4bn to £5bn a year while requiring underfunded local authorities in the rest of the country to make further savage cuts as their contribution to reducing the deficit.”

The Coalition’s policy will raise further fears among those such as Plaid Cymru, who now campaign for a new needs-based funding system, coming as it does weeks after Cabinet Office minister Francis Maude seemed confused on the issue of paying for devolution.