Tories keep ‘open mind’ on future of the Barnett formula

Apr 28 2008 by Tomos Livingstone, Western Mail

A TORY government would have “an open mind” on whether to scrap the controversial formula that sets public spending levels in Wales, Scotland and Northern Ireland, Shadow Chancellor George Osborne said last night.

The Barnett formula was devised as a stop-gap measure to end Whitehall turf wars in the 1970s, but it remains in place to this day.

Crucially, it is based on population levels rather than how much public services actually need, leading to persistent claims that Wales is under-funded while Scotland does particularly well.

The Conservatives have been reluctant in the past to suggest that change is needed, but Mr Osborne said a debate was needed.

He told The Western Mail: “If we’re going to have a debate about Barnett, let’s start with the facts. Nobody has done a needs-based assessment of how much each part of the UK would get if there were changes.

“I don’t think we can have a debate about Barnett without that.

“I did ask Alistair Darling to commission a needs-based assessment and I’m still waiting.”

Mr Osborne said he appreciated there was a nuance to the debate, with arguments over changes in Wales very different from those in Scotland.

Estimates vary on how much Wales stands to gain from a move to a needs-based system, but Plaid Cymru have estimated it would be around £200m a year.

In 2006-07, the Government spent £7,121 per head in England, while the figure for Scotland was £8,623 and Wales £8,139.

Mr Osborne said: “I’m certainly open-minded about change, but I do want to know what a [new] funding formula would look like. And the people who are best placed to tell us are in the Treasury.

He added: “Wales may actually be under-funded.”

Mr Osborne would not be drawn on whether he would re-introduce the 10p tax rate to help lower earners, although he said a Tory administration would retain tax credits.

He said: “I’m not, at this moment with the General Election two years away, going to set out changes to income tax. I’m not writing my 2010 budget in 2008.”

The Treasury and the Assembly Government argue the Barnett formula is easy to understand and any reforms may leave Wales with less cash, not more.

A review into the future of the formula is being set up in Cardiff Bay, while the Treasury – which has the final say on changes – is preparing a “factual paper” on how it works.

A Treasury spokesman confirmed the Government “had no plans” to review the Barnett formula.

Even Lord Barnett himself, the man who drew up the formula in the first place, believes it should be changed.

The former chief secretary to the Treasury told a committee of MPs they were “raving mad” to have retained the system for so long.

With local elections looming this week, Mr Osborne said the party still had “lots more to do” to ensure it could challenge for power come the General Election.

He rejected the idea that people in Labour heartland areas still had negative memories of the Thatcher and Major governments.

Mr Osborne said: “If you look at what the Conservative government had to do, we took a country that was bankrupt and turned into a modern economy.

“I don’t think people have these terrible memories, I know that’s what the Labour party would want us to believe. But the Conservative governments were successful and were re-elected.”

The Barnett formula is likely to be discussed at a meeting between the Scottish, Welsh and Northern Irish First Ministers and Justice Secretary Jack Straw next month.