26/11/2009

New future funding arrangements for Wales will ensure the people of Wales continue to get the funding they need for the years to come, Secretary of State for Wales Peter Hain announced today.

Following negotiations with HM Treasury, Mr Hain has secured for the first time commitment from Chancellor, Alastair Darling, that the UK Government will take action if Wales becomes disproportionately disadvantaged by the Barnett Formula.

The announcement has been welcomed by Gerry Holtham, chair of the Assembly-commissioned Independent Commission on Funding and Finance for Wales. The Commission’s report earlier this year claimed pressures in the Barnett Formula for additional funding convergence towards the English average could in future disadvantage Wales.

Mr Hain said: “This commitment is a major breakthrough for Wales. The Barnett Formula has served Wales well over the years but the evidence showed that action was needed to ensure that funding did not fall below Wales’ future needs. The House of Lords Report on the Barnett Formula, the Holtham Report and the response to the Calman Commission for Scotland all made it essential to reform the Welsh funding mechanism as Wales could lose out.

“Although the financial situation is tough right now Wales must be funded fairly.

“This shows that this Government is committed to making devolution work - and providing the funding to back this up. Next year the Welsh budget will rise to almost £15.5 billion, helping to ensure the delivery of front-line services that the people of Wales need.�

Mr Hain added: “Holtham made clear that, if we do not take action, spending could decline relative to the rest of the UK, and especially to the most comparable region, the North East of England. That is not acceptable. And that is why I insisted on this new commitment from the Treasury to assess the impact of future spending reviews on Wales. If a spending review results in a bad deal for Wales, if Wales is disproportionately disadvantaged compared to other parts of the UK, then we now have a mechanism to take action.�

The agreement reached by the Welsh Secretary with the Chancellor states:

The Government welcomes many aspects of the Holtham report, which it continues to study in detail.

The new arrangements are as follows:

the Government agrees that the Barnett formula could lead to convergence to an extent that would be regarded as unacceptable although further convergence is not currently expected in the coming years. The Government will make a full assessment of the extent of convergence with consideration of Wales’ position relative to other parts of the United Kingdom as part of each spending review.

Following this assessment the Government would be prepared to take action if appropriate to ensure Wales is not disproportionately disadvantaged.

Gerry Holtham said: “It is gratifying that the UK Government has welcomed and is studying the Independent Commission’s report. I welcome the promise to reconsider convergence under the Barnett formula and to take steps to ensure that Wales is not disproportionately disadvantaged in the future. Evidently there is work to be done to make the pledges operational, and also to consider the other recommendations that are not covered by the UK Government’s statement. Backed by the work of the Commission, I look forward to being able to contribute to further discussions in any way that I can.�