Commission calls for greater financial freedom for Wales

The Welsh Government should have limited powers to vary taxes according to the final report of a commission looking at the future financing of Wales. Established in 2008, it calls for Cardiff Bay to gain a degree of control over income tax, stamp duty, landfill tax, aggregate levy, air passenger duty and potentially capital gains tax.

The commission, chaired by Professor Gerald Holtham, concludes:

“Enhancing the accountability of the devolved government to the people of Wales by reducing reliance on a grant from the UK government and increasing reliance on revenue that comes directly from its voters has advantages.”

Prof. Holtham and his team further built on their interim report, which concluded that under the Barnett Formula, Wales was losing out to the tune of £300 million a year. Writing in the Financial Times on Monday, he and fellow commissioner David Miles said of the formula:

“Remarkably this does not assess needs in Scotland, Northern Ireland and Wales against those in the various regions of England. Instead, it adds an amount each year to the block grant each authority receives, depending only on population and growth in total English spending.”

As a result, the report calls for a new needs-based formula (see pages 11 – 20), concluding:

“At a time when public spending is under unprecedented pressure, it would be regrettable if the UK Government persisted with an unfair, outdated and arbitrary system for allocating funding to the devolved nations.

“This year, over £50 billion pounds of public money will be handed out to the devolved administrations without even the most cursory attempt to see if what is provided is in line with what is needed. The allocations are not only unfair to Wales but also to many regions of England.”

The recommendation for a funding system based on need was echoed just a matter of weeks before by the formula’s founder, Lord Barnett.

Responding, the business and budget minister at Cardiff, Labour’s Jane Hutt, commented:

“Building on the analysis in the Commission’s previous publications, the report takes forward the arguments for aligning funding with needs and also provides a thorough analysis of the scope for devolution of additional fiscal powers to Wales.

“I welcome both the report’s demonstration of how a needs-based funding regime could be made to work in practice and also how its reassertion of the case for the introduction of a floor in the Barnett formula for Wales, pending further reform.”

For Plaid Cymru, its finance spokesman, Chris Franks, urged the Westminster Government “to realise the importance of the issues raised in the report and respond positively”. Perhaps the most intriguing responses however came from the opposition.

Whilst Conservative leader, Nick Bourne, admitted there was a need for a new needs-based formula, and Lib Dem leader, Kirsty Williams, described the report as  “a good basis for the Westminster government to build on”, in May the UK Government announced that no replacement to the Barnett Formula would be considered until the budget deficit had been addressed.

And speaking during a hustings event in Cardiff at the weekend, Labour Leadership hopeful Ed Balls ruled out any changes to the funding system if he were in charge.

The Holtham Commission report will heap yet more pressure on the Government to look seriously at how best to fairly fund the nations and regions of the country to address what a House of Lords committee has dubbed an “arbitrary and unfair” system.