Show me the money
Bubble — By Darren Millar AM on March 23, 2010 7:00 am
Tom Cruise as Jerry Maguire, the eponymous hero who gave the world (and this article) a catchphrase
THERE can be no doubt that devolution has had a major impact on the Welsh economy. Statistical indicators will tell you that the wealth gap which exists between Wales and the rest of the United Kingdom is fast becoming a gulf – with higher unemployment, lower levels of economic activity and a proportionately smaller private sector than any of the British nations.
These facts should not be too surprising. But underpinning this poor performance is a structural problem which, like so many issues in politics, is based on power and money. It is the way that the Assembly is funded. Every year since devolution, the Barnett Formula kicks in and Wales gets a funding pot which is based on an abstract notion of financial requirement – and without any examination of how the Assembly is performing.
Therefore the Welsh Government has no incentive, under the current funding arrangements, to govern for wealth creation. The UK Treasury sends its annual cheque for the block grant to Cardiff Bay, no matter what the state of the Welsh economy. There is thus no reward for improved prosperity and a failure to punish for wealth erosion.
“No taxation without representation” was the marching cry of those who led revolution and independence from Britain by the 13 colonies that subsequently became the USA. This is not the same as advocating Assembly powers for raising taxes, but there is another serious but aligned point here. Ultimately in Wales we have a system of representation without any financial accountability for the way that money is raised. Only what is spent matters. This was a point which Gerry Holtham brought to the fore quite directly in part one of his recent review of Assembly spending powers. And it is a point which has struck home right across the party political spectrum.
The current arrangement creates a comfort zone where Welsh ministers can largely afford to ignore the economy and focus on the public sector instead. Their emphasis is on spending and growing the public sector – an agenda which they have pursued with some vigour in the last decade – rather than improving prosperity levels.
We can only speculate about how different the priorities of Welsh Government ministers would be if the performance of the Welsh economy had an impact on the funding the coalition had available to spend. Perhaps business rate relief would be extended? Perhaps the economic development budget would be growing rather than facing a cut in the next financial year? Perhaps the government would be a little more realistic about the way it spends money, and make a genuine attempt to reduce bureaucracy and waste?
One thing is for certain, though: priorities would be different and we wouldn’t be seeing the juvenile bias against the private sector which has prevailed over the past 10 years. The culture of “public sector good, private sector bad” is the most unpleasant mantra by which Labour and Plaid politicians have lived.
A mature government must take responsibility for the success or failure of the economy it manages. And recognise that the private sector is integral to the success of that economy.
The way Wales is funded through the Barnett formula is now certainly past its sell by date. My party has been ready to acknowledge this clearly in the Assembly. Further, David Cameron himself addressed the issue directly when he spoke to our recent party conference in Llandudno. Speaking to the Western Mail that morning he said:
The Barnett formula is coming to the end of its life, there is no doubt about that – even Lord Barnett says it’s coming to the end of its life.
I think it’s very important that there should always be a proper needs-based formula which respects the fact that Wales has some areas of deep poverty and some needs and requirements greater than other parts of the United Kingdom, there’s no doubt about that.
And so the real test, I think, is not what politicians say in Wales, but actually what they say in the rest of the country. This is a United Kingdom, a united family, and we should distribute grants according to needs and Wales has great needs.
So don’t anyone pretend that there is some pot of gold from ending the Barnett formula, there isn’t. It’s just a question of what is the best way, the fairest way, of recognising the needs of the different parts of the United Kingdom.
Thanks to the Holtham Review, funding reform seems now to be firmly on the agenda. A time for change is coming. But that change must also see the principle of economic responsibility introduced in order for any new system to work. The hand out culture which has been fostered by the current arrangements cannot be allowed to continue for long. Future funding for Wales must reflect not only need alone, but it must also include elements which provide incentives for wealth creation.
Imagine if need alone were the driver behind funding for Wales. It could lead to perverse unintended outcomes – Welsh ministers only getting more funding if we fell further behind the rest of the UK. This would amount to a reward for failure.
Far better that we have a Finance Minister in Cardiff Bay who can go to the Treasury and say, “We have delivered the improvements – so show me the money.”
Tags: Barnett Formula, Darren Millar AM, Economy, Gerry Holtham, public spending, taxation, Welsh Conservatives
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10 Comments
Scary stuff.
The notion that the Treasury should punish the Assembly for the performance of the Welsh economy is at best disturbing and at worst perverse. The entire legitimacy of the political system would be called into question if this ever became reality.
Say the UK Government continues developing a high-speed rail system that does not reach Wales- as both Labour and the Tories are signed up to this, it’s quite real. The Welsh economy continues to grow modestly (dependent on global factors beyond the control of the UK government, let alone the Welsh one), but the UK one grows far more quickly, with new jobs springing up along the futuristic high-speed rail routes that link London to the Midlands.
Under the Tory mentality the Assembly is subsequently punished for this, even though it had no say in the decision over high-speed infrastructure.
If you think there is a “public sector good, private sector bad” mentality amongst Labour and Plaid (which there isn’t), then surely “private sector good, public sector bad”, is just as flawed?
If the Welsh Government was openly financially punished by a UK Government that might not even have a majority of support in Wales, then there could be social upheaval and political crisis.
This article even rules out fiscal powers for the Assembly! Rather than giving us the tools to do the job you’d treat us like an unruly child.
This is a deeply, deeply disturbing article but hopefully represents the individual needs of one person rather than a wider political party.
Accepting that responding to need does not have to completely exclude the creation of wealth and
that there are limits to creating wealth whilst addressing needs
One approach would be to provide a WAG with additional tools and maybe money to create wealth which would go with the tools and money a WAG already uses to respond to needs.
Or the approach you suggest
That in addition to using the available tools and money to respond to needs the WAG uses these tools and money to create wealth.
and
If it didn’t create wealth it would get less money than Wales needed the next year.
If it created wealth it would get more money than Wales needed the next year.
Darren
Agreed, even though we do rather well out of the Barnett Formula, it is well past its sell by date.
However given the way WAG squanders its funding, a simple replacement based on need would not necessarily mean that our quality of life would improve.
Currently, as you point out -” the Welsh Government has no incentive, under the current funding arrangements, to govern for wealth creation. ”
WAG also has no incentive to manage the devolved functions (NHS, Education, etc.) in an effective way.
A coalition Government between Labour and Plaid is the likely outcome of any near future Assembly election.
The electorate are emotional and historically socialist – even given a rejection of the government performance, many voters will remain true to Labour, and Plaid is sure to retain its 20% (10% Nationalist Activists & 10% the Welsh party) .
Even if the Tories become the major single party the Plaid Labour block will hold the ring.
There is therefore, nor will be in the foreseeable future, any incentive for the Assembly Government to Govern or manage prudently.
They can continue as at present, – Posturing and bleating about “More Powers” but failing to deliver effective services, ignoring waste, with no regard for the bureaucracy or costs imposed (especially on business and local government), and all the while progressing the great Celtification experiment.
I find it difficult to think of a way of forcing WAG to take fiscal, or mature, National Government responsibility.
The idea of granting taxation powers terrifying – one doesn’t give matches to children and send them to play in the hay loft.
Illtyd -
High speed links, – Agree with you on rail.
However consider our roads, the Assembly has power there.
The A40 and A477 main links for Ireland with the UK and the rest of Europe, but dueling and bypasses taken out of the budget, as has the link from the M4 to Cardiff Airport.
There is no North South link – no East West mid Wales link, improvements.
If anyone is interested, I’ve posted a response to what Darren has written here.
What Alun Cairns said a few weeks ago about where the real levers that control the Welsh economy lie, gives the lie to Darren’s opening paragraph.
MH
As your reply is published under a banner of an Independent Wales (not defined), will you please publish your budget that assumes an independent Wales that receives no money from the rest of the UK and relies for its revenue on taxes raised within Wales and EU grants. I am presuming that Wales will still be in the EU and so bound by its fiscal regulations.
Please will you give both a capital and revenue budget for the next five years and also include your assumptions regarding defence, energy etc?
Financier, the subject has been discussed by many people over the years.
If you, or anyone else reading this, want some answers to questions such as budget, defence and energy in an independent Wales I suggest you look at the Syniadau Forums where these subjects, and all the others I can think of, are set out. People are welcome to join the forum to respond to what has been said or contribute something new.
Alternatively you can look at what I myself have to say on subjects like energy by using the labels on the Syniadau blog, like this.
MH – just read the post you linked too above.
You suggest Darren is lying when he proposed – “THERE can be no doubt that devolution has had a major impact on the Welsh economy”.
Your argument is based on Alun Cairns’ explanation that he wanted to become an MP because “the powers for economy and business are held in Westminster” in a TV interview.
Well – As Darren points out;
Statistical indicators will tell you that the wealth gap which exists between Wales and the rest of the United Kingdom is fast becoming a gulf – with higher unemployment, lower levels of economic activity and a proportionately smaller private sector than any of the British nations.
Is that also a lie – if not how do you explain it.
Malevolent actions by the Westminster Labour Government perhaps!
While you’re at it – perhaps you would also like to explain why the IWA (among others) has harsh things to say about the performance of WAG and Welsh Public Services?
Please, let’s not have a discussion centred on whether one of our contributors is a liar. Darren has made an assertion which may or may not be at odds with an assertion made by Alun Cairns. We should be able to discuss the merits of those claims without resorting to accusations of dissembling.
Thanks.
I trust others will read what I’ve written more carefully, LlD. Let me give an example that might show you the deficiency in Darren Millar’s reasoning:
France has just won the Six Nations. True.
Alistair Darling has just significantly raised the duty on cider. True.
… but to claim these two facts are evidence of cause and effect is clearly fallacious.
As for your suggestion; although I wouldn’t go so far as to call the Labour Government’s policies at Westminster “malevolent” I would certainly criticize many of them. And I am critical of many of Labour’s policies in government in Cardiff Bay too, although I think these are a little better now than they were in earlier years – partly as a result of Welsh Labour AMs putting some red water between themselves and the policies of Labour in Westminster, and partly because of the good influence of Plaid as a partner in government.
But poor performance—and what constitutes that is often a matter of political opinion—by any Welsh Government has nothing to do with devolution itself … unless of course you believe that Welsh people are inherently incapable of making decisions about Wales.
Assuming that you haven’t made the common mistake of confusing the National Assembly with the Welsh Government, my answer is that if you or anyone else doesn’t like the way that a Welsh Government manages or organizes the services it is responsible for, you are free to vote for parties that you believe will perform better. That’s democracy. But Darren Millar seems to think that the opinion of Welsh voters, expressed through the ballot box, should be over-ridden by providing Wales with less money if a Westminster government doesn’t agree with the policies that the AMs we’ve elected want to pursue.
MH and his friends claim the decline in the Welsh economy has nothing to do with devolution.
Imagine what they’d be saying if the figures has gone up not down since 1999.
Bit like unemployment. When it goes down, it’s Ieuan’s brilliant management. When it goes up, it’s Westminster’s fault.
You lot make me laugh.