Barnett and Fair Funding

Economy A picture of a building
NewsSeptember 22nd, 2011

The fairness of Wales’s funding is entering a critical phase, said Jane Hutt, Minister for Finance, and Gerald Holtham, Chair of the Holtham Commission. Speaking at a Bevan Foundation breakfast briefing on 22nd September, the Minister outlined the challenges that lie ahead in her negotiations with the Treasury. A strong sense of support from organisations and the public in Wales would be very helpful to Wales’s case, she suggested. Gerald Holtham highlighted the impact of the debate about the future relationship between Scotland and the rest of the UK on Wales’s position, with a possibility that how Wales is funded would be decided not in Wales or London but over the Scottish – English border.

Different ideologies underpin different perceptions about the fairness or otherwise of Wales’s funding, Gerald Holtham explained. In Wales, the view is that the central taxation pot should be shared out according to need. Holtham even described this view as ‘Marxist’ – from each according to his ability, to each according to need. In contrast, the stereotypical English view is that the tax pot should be shared out ‘per head’ – a ‘per capita rebate’ in which everyone is treated equally (even though ironically this approach is not used in allocating funding within England). And just to confuse still further, the Scottish Government is floating a third approach, namely that the allocation of funding should reflect the contribution made – the logic of which results in the rich paying in the most and getting out the most.

The argument about the Barnett formula is then a struggle between different political principles – with the argument that Wales’s funding should reflect the needs of the people of Wales being a matter of social justice as much as a matter of devolution. This is of critical importance to the second key point discussed at the seminar – the likelihood of change.

Jane Hutt AM graphically described the difficulty of negotiating with a Scottish Treasury Minister when all arguments point to Scotland being over-funded in terms of both need and per head. Gerald Holtham pointed out that if Scotland moves to a position of ‘devo-max’ (i.e. a sort of federal position rather than full independence) in which it retains taxes raised in Scotland, the consequences for Wales – with its tiny tax base – could be horrendous. And all this in the context of a widespread belief in England that Wales is over-funded anyway.


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