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Lord Desai: My Lords, I spoke rather late in the course of the Bill's passage, at Report stage, on a similar amendment proposed by the noble Lord, Lord Roberts, and my noble friend Lord Elis-Thomas. I attempted to argue that in the case of the Welsh assembly, which does not have tax-raising powers--that is an important distinction between the Welsh and the Scottish case--the formulation presently on the face of the Bill is probably as good as we shall get, and we should stick with it. It allows for flexibility and does not lay matters down in writing. I attempted to argue that if matters are laid down in writing, what may seem advantageous now is likely to cause a problem when circumstances change.

The noble Lord, Lord Dixon-Smith, has proposed that the Barnett formula should be on the face of the Bill and the question is: should it be adopted? Matters which may appear harmless in administrative or political office calculations are extremely dangerous when they are set down in a piece of legislation. That is partly because expenditure per capita, GDP per capita, and population will become great matters of contention if they are set out on the face of the Bill. As I said previously, we do not know the population of Wales accurately, except in census years. They would be calculations, albeit good calculations.

We referred to regional per capita GDP estimates when we discussed the form of the European structural funds. The UK stands to lose quite an amount as a result of the reform of the conditions adopted. Now, the regions of the UK are arguing that the per capita income

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formula is not good enough, and that it should relate to unemployment. But our unemployment is lower than in the rest of Europe. We should not take just any unemployment, but the full cycle. We should try for a definition under the current cycles which is as advantageous as possible. There will be a lot of battles about variable definitions and so on.

What happens currently, so far as I understand it, is a mixture of an administrative and a political process. My right honourable friend has not changed the Barnett formula in his latest Statement. Because he has upped the expenditure for the whole of the United Kingdom, the Welsh Office and the Scottish Office will receive more money.

I say to my noble friend Lord Dean of Beswick that £300 million is roughly what the Government spend on the whole country. To take round figures, for 60 million people it is about £5,000 per capita. About 54 million--

Lord Dean of Beswick: My Lords, on the figures that I received today, Scottish per capita spending is presently nearly £600, not £500. That difference represents quite a lot of money spent on 5½ million people.

Lord Dixon-Smith: My Lords, before the noble Lord, Lord Desai, continues, perhaps I may make two observations. I love to listen to economists, but I am reminded of the old cliche about the exam questions always being the same but the answers different. Of course, one could put it the other way round.

I wish to ask the noble Lord whether he agrees with this point. I have used figures that are either available in the Library or could be easily calculated. They are sufficiently generally available to be regarded as facts in my formula, so it is not what I would call a speculation; it is pretty finite. One would go back to the last census for an accurate figure for the population of Wales. Even that figure is projected forward in official figures to take account of what is happening.

Lord Desai: My Lords, I do not doubt that. However, if it is made a legal matter, the projections will become the subject of debate. The noble Lord was rightly sceptical about economists, just as one can be sceptical about statisticians. Projections are not easy to make.

What I am saying is that we will not remove contention by putting something down on paper. I wish to illustrate for my noble friend that if we spend £300 billion and England's population accounts for the bulk of the 60 million, England's portion is easily calculated. All we are doing is to make a marginal adjustment for Wales and Scotland which allows for the sparsity of population. The noble Lord may argue that it could turn out that the English portion could be higher or lower. There is no rule that equal per capita expenditure across the country is necessarily any more equitable than expenditure which depends on various other calculations, such as one relating to sparsity of population.

I would rather leave the matter to be decided by administrative and political bargaining outside legislation than include it in legislation. That would

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make the process much more contentious. If my noble friend Lord Dean wants the Barnett formula to be reformed, he should oppose the amendment because the only hope of the formula being reformed is not to put it on the face of the Bill.

9.30 p.m.

Lord Hooson: My Lords, I very much agree with what the noble Lord, Lord Desai, said and with his approach. It seems to me to be asking for trouble to spell out any kind of formula on the face of the Bill.

I heard the noble Lord, Lord Dean, refer to the product of Northern Ireland taxation and the cost. I believe he has done the same for Scotland and Wales. Let us take the Welsh economy as an example. Most of the companies which operate in Wales have their headquarters in England. They pay their taxes in England. How does one account for that? There is the sparsity of population problem, both in Wales and Scotland, but it is particularly acute in Wales.

I entirely agree with the noble Lord, Lord Desai, that the relationship and the financing are best left as a matter of political judgment to the common sense of the negotiators. They generally end up with something reasonable and fair.

Lord Prys-Davies: My Lords, perhaps I may make a contribution from my place on the Back Bench. I wish to say a few words about Amendment No. 39. It refers to a principle, not a formula. It is a fair point to make because on Report, the House had the choice between a principle and a formula. The noble Lord, Lord Roberts of Conwy, has pursued persuasively the principle of the amendment at every stage of the Bill's progress through the House. That is an indication, in my view, of the importance which he, with his long experience as a Minister at the Welsh Office, attaches to the amendment.

I listen, as always, with great care to my noble friend Lord Desai, when he casts light on economic and financial issues. I take the point, which was supported by the noble Lord, Lord Hooson, that at times there are dangers in setting down a principle in print. However, a matter which at the outset appears to involve a point of mere administration, may turn out in the end to involve a point of principle. What is missing from this clause in the Bill is the principle.

I had hoped that the Government would bring forward an amendment to meet the anxieties which a number of us expressed. But be that as it may, I listened also to what my noble friend Lord Dean of Beswick, said. In addition to the technical arguments for or against the amendment, a political issue arises in relation to Clause 80 which should not be overlooked; namely; that an assembly of the Welsh people which cannot call in aid an objective statutory principle for determining the fairness of the block grant with which it is funded, could quickly become dissatisfied with its position. The dissatisfaction therefore may not just come from the English regions; there could be dissatisfaction also within Wales.

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I have sought to emphasise that point to Ministers and to emphasise that all this could create a grievance. I have received no assurance on the point and can only hope that the Government have taken that risk fully into consideration.

Lord Kenyon: My Lords, my noble friend Lord Dixon-Smith is too modest. If there was a vacancy for Chief Secretary of the Treasury and he was there, we would now be debating the Dixon-Smith formula. I agree with the noble Lord, Lord Prys-Davies, that we should not be asking to put a formula such as his on the face of the Bill, so I am sorry to say that I shall not be supporting him in that respect.

However, I believe that there is a genuine anxiety here which I expressed in my speech on Second Reading. I can see that the English regions may become restless at the fact that Scotland and Wales may receive more by virtue of the Barnett formula, and the noble Lord, Lord Dean of Beswick, drew that to our attention. A debate, probably in relation to the Barnett formula, has gone on throughout the passage of this Bill and no doubt the Scottish Bill as well, to a much greater extent than it has done for the past 20 years. It may be that the time has come to review the Barnett formula.

Earlier today we had a Statement on the settlement in education and were told what is going to come next year, the year after and the year after that. But the government of Wales have not got a clue what is to come next year, the year after or the year after that. I believe that the amendment as tabled by my noble friend Lord Roberts of Conwy is a modest amendment which will give some certainty to making sure that Wales is not ignored should the colour of the government change at the next election, or should other circumstances change. I hope therefore that the House will support him in his amendment.

Lord Williams of Mostyn: My Lords, the noble Lord, Lord Roberts of Conwy, was certainly economical when introducing his amendment. I hope to emulate his economy. The question he put on the last occasion, which I think he graciously accepted was substantially dealt with by the letter I sent to him, was: would his amendment jeopardise the Barnett formula? We have no doubt that it would because the Barnett formula does not seek to recognise the needs of Wales,

    "in relation to the needs of the United Kingdom as a whole",

which are the words of the noble Lord's amendment.

The Barnett formula has applied to the Welsh block a proportion of changes to comparable English-- I underline the word English--spending programmes which emerge from the Government's spending decisions. The proportion applied, as your Lordships know, is that of the population of Wales relative to that of England. To introduce an assessment of need into the annual payment mechanism, as the noble Lord's amendment would require, would involve radically altering the basis for current arrangements, if not doing away with it altogether.

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I turn to the formula of the noble Lord, Lord Dixon-Smith. His amendment demonstrates the difficulty of trying to put a funding formula on the face of any legislation. It is not workable. First, it does not seek to define relevant average government expenditure per head. Secondly, it relates the level of Welsh funding to the average figure for the United Kingdom. But I remind the House again that the Barnett formula does not work with reference to the United Kingdom. It works to relevant spending programmes in England. Thirdly, the noble Lord's amendment would involve a never ending spiral because the figure produced by subsection (2B) could be increased, as mentioned in subsections (2C) and (2D), which would then, in turn, affect the average government expenditure per head of the United Kingdom which had earlier been used as the basis for the calculation in subsection (2B). I shall not say "touche", but I did think about it.

I entirely understand the spirit of the noble Lord's amendment, which is perhaps to draw out some anomalies. But I think that he simply substitutes further anomalies for his presently observed anomaly. It is on occasions like this, when I study the noble Lord's amendment, that I deeply regret that I was not brought up in a Jesuit school.

We believe that what is on the face of the Bill is right, not least for the reasons set out more authoritatively than I can do by the noble Lords, Lord Desai and Lord Hooson. We cannot accept these amendments. That may come as no surprise. I think that the noble Lord, Lord Roberts, has been partly satisfied by the explanation that I gave in the letter and I hope that the noble Lord, Lord Dixon-Smith, will understand that we cannot in all the circumstances, not least because it is not workable, accept his amendment.

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