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Lord Roberts of Conwy: Before the noble and learned Lord sits down, will he clarify one point for me? He said that our amendments, Amendments Nos. 205 and 206, would mean the abandonment of the Barnett formula. Can he explain that comment further?

Lord Falconer of Thoroton: The Barnett formula is based solely on applying a particular formula to increase the baseline figure year on year. It is not calculated by reference to need. It is simply a formula.

Lord Roberts of Conwy: As we had expected, we have had an interesting debate in which a variety of significant points have been made. It seems to me that the key issue is whether or not we should include the Barnett formula in Clause 82. We heard a statement from the noble Lord, Lord Barnett, to the effect that the formula should be reviewed to take account of current circumstances. The noble Lord pleaded for Barnett mark II. I should add that I listened carefully to the remarks made by the former Prime Minister, the noble Lord, Lord Callaghan of Cardiff.

Members of the Committee are taking two views of the future. Uncertainty has been expressed by my noble friend Lord Crickhowell. The noble Lord, Lord Thomas of Gresford, said that it was inconceivable that a government should starve Wales of funds. Perhaps "starve" is not the right word, but it is not inconceivable

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that a future government may preside over a reduction of funds to Wales or an absence of an increase in the funds available to Wales in future years.

Lord Thomas of Gresford: Does the noble Lord agree that even when the Barnett formula was applied by the previous government the then Secretary of State for Wales, Mr. Redwood, returned £135 million from Wales to the central Treasury? We have never understood why that happened.

Lord Roberts of Conwy: I am not sure that it did happen. I believe that the noble Lord should address that question to the right honourable Mr. John Redwood. It may be that there was an underspend at the end of a particular year. However, the Barnett formula operated throughout the 18 years of the previous Conservative government and Wales had an increase under that formula year upon year.

I believe that we heard the authentic voice of the English regions from the noble Lord, Lord Dean of Beswick. I am sure that we shall hear that voice further in future. It is very much with that thought in mind that we have adopted the form of words that the Committee sees in Amendments Nos. 205 and 206. We speak of,

    "recognising the needs of Wales in relation to the United Kingdom as a whole".

I do not believe that there is any fairer form of words.

Although I agree with my noble friend Lord Dixon-Smith that the clause is the ultimate in obscure legislative drafting, I cannot support him in his intention not to vote for Clause 82 stand part, for the simple reason that if we do not vote that the clause stand part the assembly will get no money at all. We have been confronted with that situation before in connection with the rate support grant. Although one may be very critical of the Government's proposal, there is no option but to vote for it; otherwise, the local authorities will get nothing.

The Minister said that it would be wrong to incorporate the Barnett formula. I am inclined to agree with him. Nevertheless, his statements about the comprehensive spending review, as he called it, or the fundamental spending review, as my noble friend Lord Mackay of Ardbrecknish called it, were not entirely clear. It is possible that such a review can affect the working of the Barnett formula. As the noble Lord, Lord Barnett, himself told us, the formula covers the situation where spending decreases as well as increases. It may very well be that the comprehensive spending review decides that too much is being spent in Wales on, say, health, in which case there may be an adverse effect on that area of spending through the operation of the Barnett formula.

I am concerned that the inclusion of our words that require the Secretary of State from time to time, recognising the needs of Wales in relation to the United Kingdom as a whole, to make payments to the assembly out of money provided by Parliament should mean the abandonment of the Barnett formula. That gives me pause. Were that not to be the case I would divide the Committee on this issue.

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6.15 p.m.

Lord Davies of Coity: I did not intervene when the noble Lord, Lord Roberts, wound up the debate. I am sure that tomorrow's Hansard will confirm that, in responding to my noble friend Lord Dean, he emphasised that the words,

    "recognising the needs of Wales in relation to the United Kingdom",

expressed sympathy for the English regions, whereas when he sought to justify the argument at the outset he expressed sympathy with the needs of Wales.

Lord Elis-Thomas: My noble friend referred to the Barnett formula operating in relation to a decrease in expenditure. Surely, a problem would arise if hypothetically the fundamental spending review proposed a reduction in health expenditure for England and there was a subsequent decline in the resources available for health in Wales hypothecated within the block as a result of that variance. That would be entirely against the health indicators as set out in the memorandum of the Welsh Office to the Treasury Select Committee. It is when the Barnett formula operates in a negative way that there are cuts if the needs of Wales are shown to be greater than the needs of England in a particular area. Health may not be a good example. The Committee will be able to think of a number of examples--one is education and perhaps a better one is road spending--where there may be a reduction in the Wales block as a result of the reduction in England which is carried through in percentage terms to a reduction in Wales.

Lord Dixon-Smith: Perhaps the noble and learned Lord the Solicitor-General will permit me to probe slightly the question of the comprehensive spending review that is taking place. I believe that the point raised by the noble Lord, Lord Dean, is a very important one. The comprehensive spending review might reveal that some of the English regions were at present disadvantaged. It might reveal that particularly the Scots and in some respects even the Welsh were advantaged. Let us suppose that as a result of that the Government decided to enhance expenditure in those English regions. That would enhance the volume of the English block. If that occurred and the Barnett formula was applied it would also enhance the Welsh and Scottish blocks and thereby defeat the purpose of the exercise. I believe that that illustrates the concern of the Committee about this particular area.

Lord Elis-Thomas: That was precisely the reason I suggested that any review should take place in the context of the English regions. I had in mind that particular example, and I am grateful to the noble Lord.

Lord Falconer of Thoroton: In principle, the Barnett formula looks at changes in expenditure in England and applies formulaically that increase to Wales and Scotland. The comprehensive spending review involves looking at expenditure in all major departments of state. It means that there can be changes in the amount of such expenditure in England. The Barnett formula will then

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be applied to that, as it has been for the past 20 years. There is nothing sinister or secret about it. Therefore, one can see precisely how it works.

Lord Hooson: Can the noble and learned Lord confirm that the Barnett formula, whether in its present form or a future amended form, will apply to Wales whether or not it is embodied in the Bill?

Lord Falconer of Thoroton: I confirm what the noble Lord has just said. I hope that I have made clear that it is the policy of the Government to continue with the present arrangements. Those include the Barnett formula, which we believe should not be incorporated into the Bill.

Lord Roberts of Conwy: It is on the basis that the noble and learned Lord said that the inclusion of our Amendments Nos. 205 and 206 would mean the abandonment of the Barnett formula that I withdraw the amendments in my name. But we shall study the matter further and possibly return to it on Report.

Amendment, by leave, withdrawn.

[Amendments Nos. 206 to 207A not moved.]

On Question, Whether Clause 82 shall stand part of the Bill?

Lord Dixon-Smith: I have listened with great interest to the full explanations that have come from the Front Bench opposite. I am most grateful for them. Not only I but others will need to study those answers. We may need to return to this, but I am otherwise happy to withdraw the Motion that this clause should not stand part of the Bill.

Lord Simon of Glaisdale: I think that this is probably the time that I should have asked the question that I did ask, namely what is the relationship between subsection (1) and subsection (2). In other words, what are the moneys in general which the Secretary of State pays to Wales at present and will in future pay to the assembly, and what relation does that have to the Barnett formula? And for subsection (2), which Ministers of the Crown make payment to Wales separately from the Secretary of State?

Lord Falconer of Thoroton: There are certain payments that are made by the Secretary of State at the moment but will be made directly by the Secretary of State to the assembly after the assembly is set up. Clause 82(2) will include payments which do not come through the Secretary of State for Wales. These will include, for example, agriculture payments for the common agricultural policy which come through the intervention board and from MAFF. These are dealt with outside the block and Barnett formula arrangements. Payments made by the Secretary of State under Clause 82(1) will obviously be calculated using the Barnett formula. I hope that answers the question, but if there is any part I have not answered, I shall be more than happy to do so.

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