My Lords, things do not seem to have changed or moved since we debated my amendment to the Finance Bill in May. For reasons that I hope to explain, they have since deteriorated. In order to understand the implications of the Bill before us today, we need to have regard to two key co-ordinates. The first is the UK Government’s definition of need. This is provided by the Holtham formula—an adjustment to the Barnett formula—which the UK Government
embraced between 2012 and 2016. It is important to remember that the purpose of adjusting the Barnett formula through the Holtham formula was not to make sure that each part of the United Kingdom received identical funding per head of the population, which is arbitrary and meaningless. Rather, it was to ensure that each part of the United Kingdom receives the funding per head that it needs, mindful of the challenges it faces in order that we all enjoy comparable public services.
This provision of comparable public services underpins the reality of our common community. We recognise that, to be part of a common community underpinned by a common citizenship, we must have the same effective rights, including in relation to public services. In this context, it is no more appropriate to suggest that all parts of the United Kingdom receive identical levels of funding, regardless of need, than it would be to say that some parts of the United Kingdom are worthy of better public services than others. The common body politic of our union cannot make these distinctions. The political community that we enjoy is predicated on a common citizenship wherein the equal value of all citizens is testified to by the provision of comparable public services.
In the words of the Holtham Commission, its purpose was to
“set out our proposal for aligning relative funding with relative needs in a way which we believe is workable, simple to operate and fair to all parts of the UK”.
Crucially, although it was commissioned by the Welsh Government, it was to generate not a Wales needs-based formula but a UK needs-based formula. We can all be grateful to the Welsh Government for performing an important task for every part of the United Kingdom.
The result has been a sophisticated formula that demonstrates that spending per head in Wales must be £115 for every £100 spent in England for there to be comparable service provision. Spending per head in Scotland must be £105 for every £100 spent in England for there to be comparable service provision. For there to be comparable service provision in Northern Ireland, spending per head must be £121 for every £100 spent in England. The UK Government formally adopted this definition of need in 2012. In that year, it indicated a willingness to intervene to align spending in Wales to the definition of the Holtham formula because the Barnett squeeze was such that it would inevitably happen.
In 2016, this commitment was brought into more direct effect through the agreement between the Welsh Government and the United Kingdom Government on the former’s fiscal framework. This consisted of two elements. First, a 5% budget uplift was applied for the purpose of slowing down the Barnett squeeze and thus the point in time when spending per head would reach need. Secondly, a Holtham floor was set at the level of need to ensure that, notwithstanding what the Barnett squeeze might otherwise have done, spend could not fall below need as defined by the Holtham formula. This has been in place ever since. Because spend in Wales has not fallen below need, it has benefited from millions of additional pounds of taxpayers’
money to slow down the Barnett squeeze. Consequently, the level of spend in Wales remains slightly above need.
Although the Holtham formula has not changed, it became necessary to recalculate the Northern Ireland definition of need using that formula because the Holtham calculations were made before the devolution of justice. Earlier this year, the Northern Ireland Fiscal Council used the Holtham formula to update the Northern Ireland figure so that it was fully cognisant of the breadth of current devolution. The outcome of this project was the publication on 2 May of a seminal Fiscal Council document demonstrating that the current Northern Ireland definition of need is £124. This is our first co-ordinate.
The second co-ordinate is the UK Government’s definition of spend for the current spending review period, set out in the Treasury’s block grant transparency document. When aspects of this document are updated, as in July this year, the basic definition of relative need between Wales, England, Scotland and Northern Ireland is calculated only by the block grant transparency document at the start of each spending review period.
This is because the task of coming up with fair, comparable figures, mindful of administrative and other difficulties within the UK, is resource-intensive. As such, the block grant transparency measure of spend provides the only robust comparable measure of spend across England, Wales, Scotland and Northern Ireland for the three-year spending review period. It is on this basis that decisions are made for the period about what needs to happen in Wales to ensure that its funding does not fall below the definition of need provided by the Holtham formula.
The Treasury defines relative spend between England, Wales, Scotland and Northern Ireland as relative funding per head averaged over the SR21 period 2022-23 to 2024-25. This is found in table 4C of Block Grant Transparency: December 2021. In dealing with the current spending review period of 2022 to 2025 in Wales, decisions protecting the Holtham floor definition of need and the 5% uplift are made for the spending review period on the basis of this block grant transparency average measure of relative spend for the three years—and not any other definition.
This does not mean that other figures will not emerge but, crucially, to be treated consistently and fairly, decisions about requisite interventions in Northern Ireland with respect to protecting spending to the Holtham definition of need—and an uplift in the event that our spend was still slightly above need—must be based on the definition of spend in Block Grant Transparency: December 2021. In Wales, the definition of spend in the document for the spending review period is £120, while in Northern Ireland it is £121. That means that in Wales, spending for the spending review period has been deemed to be £5 above need, so it has not been necessary to apply a spending floor at the Wales level of need of £115, but Wales benefits throughout from the provision of the 5% uplift, which slows down the Barnett squeeze and involves spending taxpayers’ money to keep spending in Wales above need.
By contrast, Northern Ireland’s situation has deteriorated such that we have missed out on uplift because spending has not fallen to need but to £3 below need. This is a hugely disruptive change, visited on us very suddenly since 1 April 2022. It means that, in this spending review period, in 2022-23 we were underfunded by £322 million. In this year, 2023-24, we are underfunded by £341 million and in 2024-25, we will be underfunded by £458 million. This injustice is greatly compounded by our being required to pay back £297 million across this and the next financial year.
When we confront the scale of the underfunding, the fact that Northern Ireland is currently in the midst of an acute funding crisis—and there is a need for funding cuts in the round—is no surprise at all. It is affecting all aspects of life, from SEN funding to childcare provision, which a recent report by the campaign group Melted Parents NI shows is more expensive in Northern Ireland than any other part of the United Kingdom.
I thank the Minister for bringing this budget to your Lordships’ House. I wish it would go to Stormont. Maybe one day things will dictate that it goes that way. Until then, this is the only way and the Government have a responsibility. When things crank up, the Government have to do some heavy lifting. They are refusing to do it at this time but I thank the Minister for this report today.
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