GRANTS TO ASSEMBLY

HC Deb 03 February 1998 vol 305 cc863-901 4.39 pm

Mr. Richard Livsey (Brecon and Radnorshire)

I beg to move amendment No. 387, in page 38, line 28, leave out from 'Parliament' to end of line 29.

The Second Deputy Chairman of Ways and Means (Mr. Michael Lord)

With this, it will be convenient to discuss the following amendments: No. 369, in page 38, line 29, at end insert ', and the totality in any financial year of such amounts shall be no less than a totality produced by the application of the Barnett Formula. (1A) In this section "Barnett Formula" means the non—statutory mechanism for calculating, on the basis of proportions of population, the equivalent changes to the budgets of the territorial departments following changes to programmes and budgets in England.'.

No. 388, in page 38, line 29, at end insert— '(1A) The amount of money referred to in subsection (1) shall be the current block grant as determined on the basis of the Barnett Formula for the first full year of the Parliament's operation commencing on 1 April 2000. (1B) Adjustments to the Barnett Formula to take account of population changes shall be made following the publication of census and mid-census population figures. (1C) In this Act "Barnett Formula" means the non—statutory mechanism for calculating on the basis of proportions of population, the equivalent changes to the budgets of the territorial departments following changes to programmes and budgets in England. (1D) The Assembly and Parliament shall conduct a joint review of the funding formula for the Assembly for implementation in the tenth year following the establishment of the Assembly.'.

No. 371, in page 38, line 31, after 'Assembly', insert 'out of money provided by Parliament'.

No. 18, in page 38, line 32, at end insert— '(3) No payment may be made under this section until the Secretary of State, Minister or government department (as the case may be) has laid before the House of Commons a statement certifying that the payment is based on the needs of Wales in relation to the United Kingdom as a whole.'.

No. 435, in page 38, line 32, at end insert— '(3) In determining the amounts of payments made under this section, Ministers of the Crown shall have regard to objective indicators concerning Wales, which shall include—

1. (a) Gross Domestic Product per head as a percentage of the average for the United Kingdom,
2. (b) indicators of relative deprivation, and
3. (c) an indicator of the divergence of sparsity of population from the average sparsity of population for the United Kingdom.'.

No. 438, in clause 81, page 39, line 18, at end insert— '(4A) The statement shall include details of the arrangements referred to in section 80(3).'.

Mr. Livsey

Amendment No. 387 removes the words of such amounts as he may determine", but permits the Secretary of State to make payments to the assembly. It paves the way for amendment No. 388, which represents the input and impact that Liberal Democrats seek.

The purpose of the amendments is to put the Barnett formula into the debate on the assembly and how the assembly should be financed. They seek to remove the Secretary of State's flexibility in determining payments to the assembly. Clause 80 uses the phrases "from time to time" and of such amounts as he may determine". That does not provide a concrete funding formula on which the assembly can develop long-term funding plans.

The Barnett formula has been used for Wales since 1980. The fact that it has been used for almost 20 years is an indication of its success and widespread acceptance as an adequate solution to the problem of funding Wales and Scotland to take account of the particular needs of those countries. The Barnett formula has tended to preserve higher expenditure per capita in Wales than in England. That is important because the cost of providing many services in Wales is much higher than in England. Although that is largely due to the sparsity of population in mid-Wales and north Wales, it is also due to quite high levels of social deprivation in south Wales and other parts of the country. That will not change when the assembly begins its work, so its budget should be based on the same principles as now.

The Barnett formula is non-statutory. Our amendments would provide a statutory basis for securing its principles, which, of course, relate to the annual change. Amendment No. 388, however, recognises that the formula may not be the most appropriate long-term solution to the problem of funding Scotland and Wales. Perhaps some of us would prefer even higher funding, given the low level of gross domestic product that Wales has achieved, particularly over the past 10 years. Proposed subsection (1D) therefore includes provisions for a joint review of the funding formula after the assembly has existed for 10 years.

Page 25 of the White Paper states that the present arrangement for deciding the size of the budget allocated to Wales will be retained. Our amendments seek to include that commitment in the Bill, so that it is quite clear from where funding for Wales is derived.

We also support amendments Nos. 435 and 438, which would allow the particular problems of deprivation and sparsity of population in Wales to be considered when the assembly's budget is determined. As an hon. Member who represents a rural constituency, I know only too well the problems of population sparsity and the importance of achieving a fair settlement on sparsity factors. One has only to consider local education authority school transport bills, for example, to realise the enormity of the problem. I have great pleasure in commending the amendments to the Committee.

4.45 pm

Mr. Denzil Davies (Llanelli)

I shall speak to amendments Nos. 369 and 371, which are in my name and the name of my hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands). Amendment No. 369 deals with the Barnett formula, and I shall return to it later.

I should mention to the Under-Secretary of State for Wales, my hon. Friend the Member for Neath (Mr. Hain), that amendment No. 371 is a probing amendment to clarify what is meant by clause 80(2), under which, apparently, any Minister of the Crown will be able to make payments to the assembly. Apparently, those payments will not specifically be from money provided by Parliament. What payments are envisaged and why are they not from money provided by Parliament? I suspect that such payments would have been from money provided by Parliament before the transfer.

The hon. Member for Brecon and Radnorshire (Mr. Livsey) explained the Barnett formula. Given that—I think—we are all well aware of its intricacies and details, I shall not have to try to explain it again either to myself or to anybody else. There is a magical figure of 6.02 somewhere or other, which is supposed to indicate the relationship between the populations of Wales and England. The figure is higher than it would otherwise be, which means that any increase in the block grant for the Welsh Office is slightly greater than the corresponding increase for England. Conversely, of course, if there is a decrease, the resulting decrease is greater. We shall, therefore, lose out if there are reductions in expenditure.

I have no doubt that the Minister will give a number of reasons why the Barnett formula should not be incorporated into the Bill. We shall be told that the Barnett formula covers only the block grant to the Welsh Office and not other expenditure in Wales. For example, about 8 or 9 per cent. of total United Kingdom social security expenditure, including income support and spending on disability, is spent in Wales. That is higher than the percentage of the United Kingdom population who live in Wales and higher than the figure in the Barnett formula, which shows—I say this as an aside—how dependent Wales is on those social security payments.

It will be argued that there is no need to include the Barnett formula in the Bill because the Government say—I entirely accept their statements—that they have no intention of changing it. Another argument against the formula's inclusion is that no Parliament can bind another Parliament.

I broadly accept those arguments—there may be others—but the Barnett formula is all that we have. My hon. Friend the Minister looks as though he agrees with me. If he wants to introduce a better and more sophisticated system, we shall accept it. I accept that this Parliament cannot bind its successors, but it is better that such provisions are included in a Bill than in an order or Government statement. If there is nothing better on offer, the Barnett formula should be entrenched in the Bill.

Last week, I think, my hon. Friend the Member for Cardiff, West (Mr. Morgan) rightly said that a scheme of devolution needs both a dispute resolution procedure and a resource allocation system.

Mr. Rhodri Morgan (Cardiff, West)

A resource transfer mechanism.

Mr. Davies

As my hon. Friend says, a resource transfer mechanism. The Bill provides, to some extent, for a dispute resolution procedure. We find tucked away in schedule 6 the proposal that, in any dispute between central Government and the devolved assembly, the Wales and Chester circuit will have the opportunity to appeal to the Judicial Committee of the Privy Council. No doubt the lawyers will be delighted at that—I see the hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd) perking up. There is an irony in that proposal. Traditionally, the Judicial Committee of the Privy Council has heard such appeals from overseas territories, dependent territories and colonies. Nevertheless, at least there will be a dispute resolution procedure.

The Bill contains nothing about a resource transfer mechanism. That is why I argue for the inclusion of the Barnett formula, which would provide some means—albeit imperfect—through which to decide how resources can be transferred. The lack of such a mechanism is a substantial weakness in the Bill. We are engaged in finding a constitutional settlement. Whenever one makes a criticism, one is immediately put in the "No" camp, but I have no objection to devolution. I object to the lack of a proper constitutional settlement for the protection of Wales. England does not need a Barnett formula, and I suspect that the Scots do not any longer need a Barnett formula, either—their budget just about balances.

Mr. Tam Dalyell (Linlithgow)

What the right hon. Gentleman says is not the received wisdom in Edinburgh.

Mr. Davies

I shall not stray further into Scottish matters and the question of Scottish wisdom or otherwise.

Wales needs such a mechanism, however, and it should be entrenched in legislation to protect the Welsh against the English. I have great respect for the English as a nation and as a people, but I have never trusted them.

I am surprised that the Welsh nationalists, having accepted some of the baubles offered by the London Government, now seem to trust the English. Personally, I do not trust them, although I respect them, which is why I want the Barnett formula included in the Bill—I want Wales to be protected.

During the referendum campaign and in our consideration of the Bill, there has been a romantic belief that everything will be the same after devolution and after the Scots have all gone back to Edinburgh to practise their received wisdom. A few days ago—I think that it was when we debated the order-making powers—my right hon. Friend the Secretary of State referred several times to the unitary Government. I made a mental note of it: he kept saying that the unitary Government will do this but not that.

I do not want to split hairs, but there will be no unitary Government—in any meaningful sense—after the Bill has been enacted and after the Scottish Parliament has been established. There will be a central Government, but not a unitary Government in the form that we have known for many hundreds of years.

The central Government will try to balance the conflicting interests of the three nations of Britain—the Scots, the Welsh and the English. I exclude Ireland, as I am talking about Britain, not the United Kingdom. There will be competition for resources. Decisions that a unitary Government would naturally make behind closed doors—no one would even think about it—will have a greater transparency, and resources will be the prime subject of dispute between the three nations of this British state.

We are told that the Secretary of State, be it my right hon. Friend or anyone else, will fight hard in Cabinet to maintain the block grant for Wales. Alas, the Secretary of State will have no Department in a Cabinet where everyone else—with the exception of the Secretary of State for Scotland—will have one. The system in Whitehall is governed by Departments—civil servants and Ministers carry the views of their Departments into Cabinet. The Secretary of State for Wales will be in a weaker position than his Cabinet colleagues.

Mr. Gareth Thomas (Clwyd, West)

I am intrigued by the fact that my right hon. Friend does not have more ambitious aspirations for Wales. Does he accept that, if the process of allocation of resources is more transparent, a genuine debate will be fomented about the assessment of need within the constituent parts of what will remain the United Kingdom? There may be no unitary Government, but there will be a unitary Treasury, so to speak.

Mr. Davies

My hon. Friend trusts the English: I do not. The argument will be between Secretaries of State who will see themselves more and more as Secretaries of State for their responsibilities in England. The Secretary of State for Trade and Industry will be a Secretary of State for English trade and industry, and the Minister of Agriculture may go the same way. The Cabinet will more and more be a Cabinet for England, because England will be the prime concern of its members. Once we have unbundled the unitary state, we shall have three nations in Britain.

5 pm

Mr. Rhodri Morgan

I may be confused about the timing of the invention of the Barnett formula—which has operated reasonably successfully in protecting the level of the Welsh and Scottish block grants—but I thought that it was developed to cope with the devolution that was anticipated in 1979. I recognise my right hon. Friend's expertise as a Treasury Minister at that time. Does he agree that the real risk to the Welsh block grant—and any preferential levels of Welsh public expenditure—would have arisen if Welsh devolution had never been proposed in 1978 and 1979, even though it subsequently went down in flames? Without the proposal, the Barnett formula would never have been invented.

Mr. Davies

I understand that point. The Barnett formula was not entirely new, and there was a previous formula under Goschen some years before. As a Chinese philosopher once said, there is little new under the sun. The Barnett formula was devised to cope with devolution, but I do not understand my hon. Friend's point. Once the unitary state is unbundled, the question of resources will assume—

Mr. Gareth Thomas

The point that my hon. Friend the Member for Cardiff, West (Mr. Morgan) makes is that the Barnett formula was predicated on administrative devolution. What distinction is there in principle between democratic devolution to accompany the administrative devolution that exists, and the original presupposition behind the formula?

Mr. Davies

We are not arguing that point. I approve of the Barnett formula and I was a Treasury Minister when it was devised, although my colleague Lord Barnett dealt with it. I want to see the formula in the legislation, and I take it that my hon. Friends agree with me.

Mr. Rhodri Morgan

I agree that, had it not been for the devolution measure of 1979, which went down in flames, the Barnett formula would never have been developed.

Mr. Davies

That may be true, but I still do not see what conclusion my hon. Friend is trying to draw.

Mr. Michael Ancram (Devizes)

I wish to take advantage of the fact that the right hon. Gentleman was a Treasury Minister at the time. Was not the Barnett formula a secret for two years, before George Younger announced it to a Select Committee? Does that tally with the formula being developed to cope with the coming devolution?

Mr. Davies

The right hon. Gentleman is correct. The formula was in existence before it was revealed to make the position more transparent. However, we are all now in agreement that the Barnett formula is marvellous. My right hon. Friend the Secretary of State will be pleased that Labour Back Benchers are completely unanimous—not for the first time—in wanting to see the Barnett formula in legislation.

Mr. Rhodri Morgan

indicated assent.

Mr. Davies

My hon. Friend agrees.

In some ways, our debates on the Bill are very romantic. Yesterday, the hon. Member for Ynys Mon (Mr. Jones) suggested that the First Secretary of the Welsh assembly could sit in the Council of Ministers and negotiate on behalf of the United Kingdom, even though he or she would not be a member of the Cabinet or of the Government. That is an illustration of the cloud-cuckoo-land nature of some of our debates.

Mr. Ieuan Wyn Jones (Ynys Môn)

If the right hon. Gentleman cares to read the contribution from the Under-Secretary of State for Wales, the hon. Member for Bridgend (Mr. Griffiths), at the end of the Second Reading debate, he will discover that those words came from his hon. Friend's mouth.

Mr. Davies

I am sorry if the romanticism I mentioned has even infected those seated on the Treasury Bench. I have no doubt that my hon. Friend the Under-Secretary of State will make up his mind without my intervention.

As our debates have proceeded, concordats have been mentioned. They have not been trotted out yet, because they are still frantically being drafted. What are the concordats for, except to try to plug the gap that I have mentioned? Did someone at the Institute of Welsh Affairs say, "Yes, we have a problem. The Secretary of State will no longer have a Department and the Welsh assembly will not have the entrée into Whitehall that a Department has. Let us think of something to try to plug the gap in the devolution scheme." The result is the concordats, which are an acceptance that a problem will arise in the relationship of the First Secretary and the assembly with other Departments, including the Treasury.

Who will be party to the concordats? Will there be a concordat between the assembly and the Treasury? Is such a concordat being drafted already for the Treasury's consideration? Will it contain the Barnett formula?

Mr. Dafydd Wigley (Caernarfon)

It will be too late then.

Mr. Davies

I do not know whether it will be too late. A concordat would be second best, but it would be an attempt to plug the gap. If there were no gap, there would be no need for the concordats. I hope that when the Secretary of State winds up, he will tell us whether the assembly will have a concordat with the Treasury. If so, I take it that the Barnett formula will be a central part. At least it would then be in the concordat, although that would not be as satisfactory as having it in legislation.

The second reason why we need the Barnett formula—or something better—in legislation is a continuation of the first reason. Sadly, Wales is the poorest country in Britain. It is probably not quite as poor as Northern Ireland, although there is not much in it. Wales is a dependent nation. Dependency is considered bad these days, but Wales—and we must be realistic, especially as we move towards devolution—is dependent on the English taxpayer. As I said before, England does not need a Barnett formula. The Scots may need one, but Wales certainly needs one because it is the poorest country. If it came to negotiation in the future without such a formula entrenched in legislation, Wales would be at the mercy of those terrible English who cannot be trusted on such matters.

I shall briefly describe the unpleasant state of Welsh dependency which means that we need a Barnett formula. Over the years, the Welsh Office and other Departments have produced regional budgets. I commend them for that because it is not easy to produce a regional budget. It is perhaps easier now, with computers, than it used to be 20 years ago, and more statistics are now available. However, the relevant figures are easy to extrapolate and we have debated them before. The last Welsh regional budget was for 1995 or 1996 and it showed that the difference between the income raised in Wales by taxation and the amount of total public expenditure spent in Wales can amount to £4 billion or £5 billion a year.

That figure may not mean anything, but if I were to translate that into the Maastricht criteria on budget deficits, which is a rule of thumb that people use, my calculations, which have never been properly challenged, show that the Welsh budget deficit would be about 14 or 15 per cent. of Welsh gross domestic product. Greece has a budget deficit of about 7 per cent. of GDP. No country could ever fund the sort of deficit that Wales has—it would be impossible to operate with a deficit of nearly 15 per cent. of GDP.

The Administration would have either to cut expenditure or to try to raise taxes, but raising taxes in that situation would be absolutely hopeless. Somebody calculated that to balance the Welsh budget—balancing budgets is fashionable these days; everyone tries to do it and apparently President Clinton has managed not only to balance the budget, but to produce a surplus—our public expenditure levels would have to be on a par with those of Slovakia, which is one of the poorest countries in central Europe. That is the reality of the situation.

I sit here listening to speeches from the Welsh nationalists in which they call for more power for this and more power for that, but they do not make any attempt to consider or discuss where the money will come from to enable that power to be exercised. The Welsh Liberal Democrats are even crazier; they want to have a power to vary taxation—

Mr. Livsey

Quite right.

Mr. Davies

A power to vary taxation means putting it up or bringing it down, but if there is a budget deficit of 15 per cent. of GDP and if the economy has not got a tax base that comes anywhere near to covering public expenditure, the idea of putting up taxes is simply mad. If public expenditure is not covered by taxes to the tune of a 15 per cent. difference, cutting taxes is also mad. I cannot understand why the Liberal Democrats, who obviously have not looked at the Welsh economy, want the power to vary taxes in an economy with a budget deficit of 15 per cent. of GDP.

Mr. Cynog Dafis (Ceredigion)

Local government has that power, and plenty of local authorities have that sort of deficit.

Mr. Davies

Yes, and the position is becoming worse, if I am to believe what I read in the Western Mail today, but that is no real answer. My point is that it is irrelevant and nonsensical to have powers to increase or reduce taxes when the Welsh economy is in such a dependent state.

Mr. Livsey

The right hon. Gentleman is making great play of Liberal Democrat policy, but that policy is strictly limited in terms of upward or downward variation of taxation—it is marginal in terms of the overall situation, and I am sure that, as an economist, he recognises that.

Mr. Davies

I certainly do not accept that I am an economist and I hope that the hon. Gentleman will withdraw that statement.

Mr. Livsey

indicated assent.

Mr. Davies

I am glad to hear that the Liberal Democrat party's policy is marginal in this respect, but whether marginal or not, the point is one of principle; it makes no sense to increase taxes even marginally in an economy such as that of Wales.

The same is true of the Welsh establishment. There is now a body called the Institute of Welsh Affairs which churns out paper and, if my analysis is correct, it is wholly funded by the English taxpayer. One of its suggestions was that the number of Members of the Assembly should be doubled from 60 to 120, but there was no attempt to say where the money would come from. We know that the Secretary of State will take a chunk out of the budget first and that the assembly then will have to pay its way out of the budget for hospitals and schools. The Institute of Welsh Affairs has shown no awareness or understanding of the real economic problems facing Wales, and it gives me no great pleasure to point that out.

The city of Cardiff would disappear down an economic black hole if Wales had to balance its budget, because that city exists because of public expenditure. Every establishment is parasitic on public expenditure, but the Welsh establishment is more parasitic than any other in the western world, because it is almost totally dependent on public expenditure. There is, however, no awareness in Wales of the real enormity of the problems of the Welsh economy. That is why we need to have a proper financial resource settlement in the legislation, so that in future, Wales will not be at the mercy of cuts or of attempts to create surpluses in public expenditure—or whatever the latest economic fashion might be.

I hope that my right hon. Friend the Secretary of State will consider my points, although the time to do so was probably before the White Paper was drafted in that dreadful Cabinet Committee chaired by the Lord Chancellor. The opportunity was either missed or stopped—I do not know which, and I doubt that my right hon. Friend will rise to speak on that subject. Having said that, there may be an opportunity before the Bill returns to the House of Commons to look at this issue again. It is in the interests not of any of us here, but of Wales, that Wales is protected in future in terms of public expenditure.

5.15 pm

Mr. Ancram

It is always a pleasure to follow the right hon. Member for Llanelli (Mr. Davies) and, although I do not necessarily agree with his solution to the problem as set out in his amendments, I agree with much of his analysis.

I am sure that we all agree that we are now discussing one of the central parts of the Bill. Devolution was sold to the people of Wales on the basis that financial provision from the United Kingdom, which is channelled in part through the Barnett formula, would not change. That was the claim made in the White Paper and the constant pledge made by the Secretary of State during the referendum campaign. It is also written into the explanatory and financial memorandum to the Bill, although, as the Secretary of State well knows, the moment the Bill becomes an Act—if he achieves that—the explanatory and financial memorandum will fly off and there will be no mention of the Barnett formula in the statute, so its presence now is of fairly limited value.

The reason all those assurances were given is that, without such assurances, the Bill would be a mess of pottage—and a cold one at that. Because those assurances had been given, we all expected to find them on the face of the Bill, so clause 80 came as something of a surprise. Clause 80 states: The Secretary of State shall from time to time make payments to the Assembly out of the money provided by Parliament of such amounts as he may determine. That is hardly an assurance. There is no definition of "from time to time", whether it means an annual, monthly or five-yearly payment. There is no description of the amounts and no criteria for calculating them. There is even no identification of which Secretary of State is being talked about, because under the Bill it could mean any relevant Secretary of State. Whichever Secretary of State it is, the only thing that is certain is that the determination is not bound in any way but is entirely at his discretion.

That is what appears on the face of the Bill. There is therefore nothing that tells us to what the payment will relate and nothing that assures us that it will not be totally at the whim of the Westminster Government of the day. If the clause does refer to a Secretary of State for Wales who is arguing his case within that Government, we need to remember that he will have lost almost all influence and clout, because his powers will have been transferred to the assembly.

I am sure that we shall be told that such details are not put on the face of Bills, to which my answer is that, in the past, they have not needed to be. I happen to agree—this is why I disagree with the right hon. Member for Llanelli—that detailed formulas should not be included in legislation: circumstances and definitions can change, and formula setting by primary legislation is an inflexible tool; but that does not mean that there should be no criteria whatsoever on the face of the Bill.

I am sure that we shall also be told that what has gone on before will continue and that, in a sense, nothing has changed; but a lot will have changed. What will have changed specifically is that the issue will no longer be one of making financial arrangements and provisions between Ministers and Departments in the same Government, but one involving two different Administrations and sets of politicians who might not see eye to eye. I have spoken before about testing constitutional change against the worst-case scenario, and we must take into account the fact that there may be times when the Administrations in Cardiff and in London are of different political complexions or hold different economic views, yet there is nothing in the Bill that gives us any comfort on that score.

The Parliamentary Under-Secretary of State for Wales (Mr. Peter Hain)

I find the right hon. Gentleman's concern for Welsh finances and the Welsh economy touching. Let us not forget that when he was a member of the previous Government, one Secretary of State for Wales, the right hon. Member for Wokingham (Mr. Redwood), boasted of sending millions of pounds from Wales back to the Treasury. The right hon. Gentleman supported his right hon. Friend's policy.

Mr. Ancram

We welcome the Minister to the Chamber for the debate. We had been wondering whether there was something ideologically wrong with his views on devolution, because he has hardly been seen during our deliberations. It is typical that he should take refuge in that type of argument.

We are talking about the protection of Wales in the future. I expressed my concern about that throughout the referendum campaign, and I was accused of scaremongering. I also expressed my worries when the White Paper was published. We waited until the Bill was published to see if it improved matters, but because it is as it is, I must repeat my anxieties.

I am sure that we will be told that the funding will be agreed under concordats. Hon. Members may remember that, yesterday, the Under-Secretary, the hon. Member for Bridgend (Mr. Griffiths) said that concordats could not be binding beyond one Parliament. It would not take primary legislation, or even secondary legislation to change them, merely a decision to abandon them—a decision that could be taken unilaterally.

I am fascinated by the concept of concordats. Will they be presented to the House for parliamentary approval? If so, does that give them an enforceable standing that they would not have otherwise? I would love to know the answers to those questions because we talk about concordats as though they were something special and reassuring, but none of us know what they are other than that they are informal agreements of a non-lasting nature. If I were a lawyer advising my client as to whether to sign away his birthright on that basis, I would tell him that he was off his head even to consider what was on offer.

The next cry we will hear is, "Why are we worrying about it?" We will be told that the current Barnett formula has been in operation for a long time and that the Government have no intention of changing it—that is what the Treasury says. It is perfectly true that, when we were in government, we faithfully, and, frequently, even generously applied that formula to Wales and Scotland. There is every reason to worry, however, perhaps not in the short term, but in the medium and longer term, because times change, as do needs and democratic demands.

The Conservative Government believed that the Barnett formula generally reflected need in the area at which it was directed. It is worth remembering two salient features of that formula. First, it does not affect the baseline provision, which has remained based on historic criteria. It therefore does not impinge upon the fundamental area where any calculation of basic need would be made. Secondly, Barnett provides that where comparable changes to programmes in England are made, it results in equivalent changes in the budget of Wales, calculated on the basis of population shares.

If the baseline generally reflects need, Barnett provides a population-based formula for dealing with changes to expenditure. We took the view that that generally kept the system in line with need.

There are two elements at work. The historic element that should be based on need and the Barnett formula, which is the means of making adjustments. That arrangement is now being questioned, not by Conservatives, but by many who are associated with the Labour party. Labour Members representing the north-east have already demanded that the Barnett formula should be reviewed because they believe that it operates adversely to their interests. The Treasury Select Committee has called for a needs assessment to show whether Barnett remains the best way in which to allocate increases. When Lord Barnett appeared before that Committee, he agreed that there was a case for a review of the formula.

The fact is that devolution has rubbed the lamp, and the genie of needs assessment has been let out. He will not so easily be put back in the lamp despite the Treasury's bold attempt in its document, which was published on 8 December. We understand that the formula will continue but that it will be amended to meet the requirements of devolution. Factors relating to domestic agriculture, forestry and council tax rebates will be brought into the relevant blocks. In future, an annual update of the Barnett formula to take account of mid-year population estimates will start in 1999 and 2000, noticeably safely after the assembly elections have taken place. My concerns do not stem from the Treasury document, but from a number of comments and statements that have been made. The clearest one was that contained in the publication entitled "A guide to the Scotland Bill". I accept that that document does not relate to the Bill, but it discusses the Barnett formula and admits that it is—I choose my words carefully—an administrative arrangement, which will not be prescribed in legislation. It is nothing lasting, certainly nothing in any enforceable form, let alone in tablets of stone.

In evidence to the Treasury Select Committee, Lord Barnett rubbed the lamp yet further by proclaiming in paragraph 9: there should be a Barnett Formula Mark II based on needs. The review would have to take account of needs, income per head and expenditure per head. In annex D.12 of the Government's White Paper, they admit that any substantial revision of the formula would need to be preceded by an in-depth study of relative spending requirements. Essentially, that means needs.

The Treasury Select Committee went further in paragraph 12, when it stated: The Committee was disappointed that no Government studies have been made in relation to the appropriateness of the Barnett Formula and how it relates to needs. The Committee only took evidence relating to the formula. We believe, however, that it is time to bring the needs assessment up to date; this would help to show whether the Barnett Formula remains the appropriate method of allocating annual expenditure increases … to the four nations of the Union. There again, the needs element is the genie that has been taken out of the lamp.

Concern about the need for a review is not new. Paragraph 11 of the Treasury Select Committee report cites the evidence of John Gieve, the deputy director of general expenditure at the Treasury, who agreed that there is a long-established practice of looking at the allocation of spending across programmes and across regions to try and get the right distribution. I cannot think of any government which would say that it was not interested in whether the distribution between areas or between services did not reflect relative need … all governments would subscribe to the fact that spending should broadly reflect needs. Once again, it is clear that the pressure caused by the development of the devolution package has reopened the issue of needs.

I am not arguing for a change in the current arrangements. I am merely reflecting the fact that the demands for change in the formula are already running hard and that, in particular, the Bill offers no defence against them and no limits on them. Indeed, it does not even start to try to do so. We always warned that the demand for change would be one of the corollaries of devolution, but at the time we were accused of scaremongering. It gives me no pleasure to see that we have been proved right.

We now must find a way in which to protect the position of Wales to ensure that, despite the best endeavours of the Secretary of State, the people of Wales are not asked to sell their birthright for such a mess of pottage. Anecdotal evidence suggests that Wales would not fare badly from any assessment of need or anything that recognised that as the basis for making provision.

We look first to the Bill to protect that position, but it is not only silent but complacently so on the issue. There are no indications of how, when or in what circumstances, and according to what criteria the assembly would be funded, or by whom. There is no provision for the assembly to make any representations to Westminster about what Wales needs. Even the Stormont Government had that right. All we have is a complacent fallback on an administrative arrangement and the past. Perhaps those arrangements and the Barnett formula work where the demander and the provider are part of the same Administration, operating a friendly formula for resource allocation, but that ball game will have passed to one where internal United Kingdom opposition will increasingly raise its head. That is already happening. If the plan of the Labour Government to regionalise England goes ahead, that competition will become even more intense.

Where there are disagreements, there are no guarantees that the position of Wales would be protected. Under the Bill, that would depend on the Westminster Government and the Secretary of State—a Secretary of State with no clout or influence.

Mr. Jon Owen Jones (Lord Commissioner to the Treasury)

They can change it now.

Mr. Ancram

I thought that the Secretary of State had clout and influence now, but if the Whip says not, I will accept that from him. The position will have changed after devolution.

The Bill cannot afford to be silent on the issue. There is no point in trying to entrench a formula, as suggested in amendment Nos. 369, 388 and 436, because circumstances change, as do political imperatives. A lack of flexibility could be damaging. The right hon. Member for Llanelli argued that that was not so, but an administrative arrangement could be changed and if such an arrangement had been mentioned in a Bill, that legislation could begin to look pretty sorry. There must be some reference point, some criteria in the Bill; that is why we tabled amendment No. 18. We did so because we believe that what we are suggesting will create the discipline needed and provide more than a transient agreement or a political whim.

With clause 80 as it stands, the Bill is a hostage to fortune. It is vague, ill-defined and circumventable, and it offers neither assurance nor financial protection. It leaves an enormous void which, if left unattended, will focus resentment and dissent for years to come, play into the hands of nationalists on both sides of the border and, ultimately, do Wales no good.

We all know from experience that the Treasury hates criteria that might bind it, but amendment No. 18 seeks to introduce the element of criteria, which will, we believe, protect the interests of Wales. The amendment may not be cast iron. It may indeed be little more than indicative, but, by requiring a statement showing that the payment is based on needs in Wales relative to the United Kingdom as a whole, it imposes certain duties on the Government of the United Kingdom. It will require the Westminster Government, or the Secretary of State, or the Treasury, to make their determination of the sum to be paid according to criteria that are more than mere political and transient judgments—which the present Bill allows for—but are based on facts that reflect the genuine long-term requirements of Wales.

On any view, our amendment must be better than the void in the Bill. I seriously hope that the Government will accept it and get themselves out of what is an enormous hole which, by their actions, they are making deeper each day by the digging in which they are engaging.

5.30 pm

Mr. Ted Rowlands (Merthyr Tydfil and Rhymney)

I shall speak to amendment No. 369, which is in the name of my right hon. Friend the Member for Llanelli (Mr. Davies) and myself.

I want to say two things to the right hon. Member for Devizes (Mr. Ancram). First, he made several pertinent points, which I appreciated, but drew curious conclusions from them. He laboured long over the fact that an assessment of needs would be a dangerous threat to Welsh expenditure. However, if a proper objective needs assessment were made at this moment, the amount of money coming to Wales—regrettably, and for the reasons that my right hon. Friend the Member for Llanelli cited—would increase beyond what the Barnett formula provides. It would not decrease, unless there was total political malice.

Mr. Ancram

indicated dissent.

Mr. Rowlands

Well, one got the impression that, during half of his speech, the right hon. Gentleman was threatening us with a needs-based assessment, not saying that it was a good thing—but I give way.

Mr. Ancram

I am grateful to the hon. Gentleman for giving way, because I may not have made myself clear. Amendment No. 18 actually proposed that a needs-based statement be made to Parliament. I said what I did because the Government found their arguments on the fact that a needs-based assessment is unnecessary because the Barnett formula exists. I am saying that, the way that things are moving, I am not sure how much longer it will be used. We must provide against that eventuality.

Mr. Rowlands

We have it at the moment, so amendment No. 369 suggests that the Barnett formula, however imperfect, is at least a basis on which one can plan and think about the short to medium-term financing of the assembly.

I have read with interest the Treasury Select Committee Report on the Barnett formula—its second report of 1997-98. The description of the Barnett formula that was made in the Committee and endorsed by Treasury officials was:

a non-statutory policy rule based on mutual understanding between parties within the policy network, the implementation of which is subject to both sides observing the behavioural 'rules of the game'. I should not like to rest the future funding of a Welsh assembly on a system that was merely the behavioural 'rules of the game being observed by all the parties. Therefore, I agree that, whatever the Barnett formula's other imperfections, it should be given a statutory base. I should not like to rest the assembly's funding on that weasel-worded description of the Barnett formula. It is important to give the formula better standing and status than it apparently has in the Treasury's eyes. That is my first point.

Secondly, from what have I read of the origins of the formula—I do not want to go over the exchange between my right hon. Friend the Member for Llanelli and my hon. Friend the Member for Cardiff, West (Mr. Morgan)—Joel Barnett rather denied that it was purely devolution-driven and argued that it was a more convenient way of negotiating these matters for the nations within the United Kingdom.

Joel Barnett argued—I put the point to my right hon. Friend the Secretary of State—that the strength of the formula was the fact that it avoided an annual negotiation on a territorial basis. If that is the case, presumably the future Secretary of State for Wales will have no negotiation to conduct. If we had the Barnett formula, at least we would know that that was a basis and that, whatever happened, the Secretary of State for Wales's negotiating position would not be a main determining factor. Is not that the case, and is it not a possible case for giving greater status to the Barnett formula, to avoid annual negotiations by the Secretary of State to obtain money for the Welsh assembly? Treasury officials said that that was the value and purpose of the formula.

Mr. Gareth Thomas

Does my hon. Friend accept that enshrining the Barnett formula, with all its imperfections, in legislation will serve as a disincentive to the type of needs-based re-assessment that we all need in Wales?

Mr. Rowlands

I do not think so, because everyone accepts that the Barnett formula—as the report says—does not take into account or reflect spending needs. It never did.

The Barnett formula is a formula for calculating the block expenditure, based on the annual changes in the English departmental programmes. That is one weakness of the scheme—that the future funding of the Welsh assembly will depend on the changes of English departmental spending, as will funding for Scotland—but the formula is the only one that we have at the moment and, until we get a proper needs-based assessment, we had better put up with it.

Anyone who has studied the effort that was made in 1978-79 knows—this is why amendment No. 18 probably is not realisable—that it will take quite a long time to determine and organise the needs-based redistribution of such money. Therefore, I think that we had better hang on to what we have. I do not say that because I believe the formula to be perfect, and I do not agree with my hon. Friend the Member for Clwyd, West (Mr. Thomas) that, if we hang on to it, it will stop Whitehall thinking about needs-based arrangements.

I have some questions for my right hon. Friend the Secretary of State. First, I want to probe him on what will be included in the funding from the Secretary of State. The Barnett formula does not take account of some things; for example, in-year changes of expenditure are not subject to the formula. I understand that if, during a financial year, the Government run into some bother and have to cut public expenditure, those cuts in public expenditure in the English Departments concerned do not trigger the Barnett formula. The Barnett formula does not cover in-year changes of expenditure one way or the other. Alternatively, if, for some reason, expenditure is drawn down on the contingency reserve fund, that is not included in the Barnett formula.

When the Minister replies, will he tell me how such situations will be dealt with in an assembly-Westminster-Whitehall relationship? If, for example—and it will happen to Governments in future—there is a bit of a spending crisis and a Budget is introduced, or an expenditure cut is ordered within the financial year, changing the basis of the funding, how will that be reflected in the Welsh assembly's funding? We need an explanation because that, as I understand it, is not covered by the Barnett formula.

Similarly, if changes take place in the opposite direction—if extra spending takes place for a situation that has arisen—that is not, within the year, covered by the Barnett formula. In such circumstances, how would the funding of the Welsh assembly be influenced by such changes?

My second question to my right hon. Friend the Secretary of State is as follows. One talks about Welsh block expenditure as being £7 billion. Not all that amount is covered by the Barnett formula, as such. There is about £250 million worth in the Secretary of State's budget relating to agricultural spending of one kind or another. What will be the position of that £250 million—not a meagre sum, although a large proportion of it, £200 million, consists of EU receipts from the common agricultural policy?

There is expenditure outside the Barnett formula, in the Secretary of State's £7 billion block budget, which is not dealt with in the same way as the expenditure determining the block expenditure of the other 96 per cent. What happens to the £250 million at present in my right hon. Friend's £7 billion budget, which is not covered by the same rules? Where will that money go? How will it be accounted for? How much will stay with the Secretary of State, how much will go down to the Welsh assembly, and how much will go back to other Whitehall Departments? I should be grateful if my right hon. Friend would explain.

That touches on a point that has been mentioned over and over again, and sooner or later we will have to come to terms with it. What reserve powers will the Secretary of State have? What budget will he have, after the assembly has been established? Serious issues are involved.

Thirdly, the clause deals with the amount that the Secretary of State will hand over to the Welsh assembly. He has said repeatedly that the assembly's running costs of £15 to £20 million will be covered by the savings that he intends to make in the quangos even before the assembly is established. How far are we down that route of savings to offset the cost of running the assembly? Those are questions thrown up by the argument.

I return to the point made by my right hon. Friend the Member for Llanelli. We need some kind of formula enshrined in legislation or in a concordat that will have some power or force to it. The Barnett formula is the best that we have at present. As my hon. Friend the Member for Clwyd, West suggested in his intervention, it is not perfect by any means.

For example, our gross domestic product is 18 per cent. lower than England's, our household disposable income is 11 per cent. lower, our personal income is 17 per cent. lower, and our average earnings are 17 per cent. below those of England.

Two conclusions emerge from those astonishing figures: we need at least the Barnett formula, but we will need Barnett-plus to ensure the effective financing of the Welsh assembly. As my right hon. Friend argued, we cannot cut the umbilical cord of redistribution of resources in the United Kingdom at present. With the Welsh economy in its present state, this is not the time to do such a thing. It is vital that that umbilical cord is not cut. The pressures for redistribution that continue in the United Kingdom should not be taken off, because by any objective analysis we shall need more, sadly, not less, in the short to medium term.

5.45 pm

Mr. Wigley

I shall speak to amendment No. 435, and amendment No. 438 which is grouped with it. Before I go into the substance of our amendment, which picks up some of the themes that hon. Members have been running on, I want to dispute the myth that is continually perpetuated, that poor little Wales will never be able to afford anything and must depend for ever and a day on an umbilical cord to somebody or other, and that we can never stand on our own two feet and do anything for ourselves.

Figures have been generated by the Welsh Office over the years—especially during the 18 years of Tory rule—to justify the amount of money that was going by the formula to Wales to sustain public expenditure. Yes, on certain expenditure headings, Wales has a greater per capita expenditure, but on others that are not in the block, we have significantly less. About 1 per cent. of the expenditure on the defence of the realm comes through into the economy of Wales.

There was a series of theoretical errors in the paper produced by the Welsh Office during the Conservative regime—taking into London the money that came from Brussels on account of the Welsh economy, for example; and taking in the tax that is paid for civil servants who are based in London as an income into the UK, rather than crediting it to a Welsh account. The paper was totally flawed.

We must approach the question from the reality that we know in Wales now, not on the basis of spurious figures generated for a political purpose. The reality is, however, that the income per head in Wales has dropped from about 92 per cent. of the UK average 20 to 25 years ago, to 83 per cent. now. That is the result of the 18 years of government that we had, our dependence on the Barnett formula and the assumptions from which it was projected. That is what is basically wrong.

There is room to challenge the Barnett formula. I note with interest that Lord Barnett himself recognises that it is time to look at the matter again, because Wales is not doing well enough out of the formula. Over those 18 years, because the Barnett formula existed, it was taken as a fig leaf to justify the levels of public expenditure in Wales, when the economy in Wales, with the problems that we had with the run-down of the coal industry and the steel industry, and the problems in the rural areas, justified a significantly greater injection of money there. Had there been that injection, the economy would by now have been much stronger than it is.

Mention was made earlier of the fact that countries cannot balance their books. There is one country that is balancing its books—the Irish Republic—no doubt because of the munificence of the English taxpayer, who has paid money to Brussels [Interruption.] It makes me sick—the way that Tory Members sneer at the efforts that Ireland has made to pick itself up by its bootstraps. They denigrate Ireland at every opportunity. Now that Ireland has succeeded in getting its GDP per head not only higher than Wales but higher than the UK, they want to say, "Ah, but it is our money that has done it." It is high time that people in the Tory party paid tribute to Ireland for what it has done, rather than trying to draw it back time after time.

Mr. Richard Shepherd (Aldridge-Brownhills)

Will the right hon. Gentleman give way?

Mr. Wigley

To come back to Wales—[HON. MEMBERS: "Give way."] I know that hon. Members in the imperial party do not like this, because it is always their game to run down Ireland, to sneer at Ireland and, whenever possible, to have wars with Ireland. That is partly why we have the problems that we have now. If they go to Dublin—

Mr. Shepherd

On a point of order, Mr. Martin. Is it in order for an hon. Member to make aspersions and judgments on the internal process of another man's thoughts, without giving way?

The First Deputy Chairman of Ways and Means (Mr. Michael J. Martin)

What I can say at this point is that it would be in order to speak to the amendment.

Mr. Wigley

I am, perhaps, too easily tempted to go down that road when I hear attacks on Ireland.

Mr. Shepherd

Will the right hon. Gentleman give way?

Mr. Wigley

Out of kindness, yes.,

Mr. Shepherd

The essence of the amendment and of the right hon. Gentleman's argument was the size of transfer payments. No one was making a critical judgment one way or the other. The fact is that the Irish Republic has had huge transfer payments, as much as 5 to 6 per cent. of GDP in recent years. The point arising from some of the arguments on the amendments was that Wales similarly receives large transfer payments.

Mr. Wigley

The point that is material to the argument is the success that the Irish Republic has had in generating its economy to the point that the GDP per head of Ireland is higher than the GDP per head of the UK. Even if one takes out the current transfer payment from Brussels to Ireland, it is still higher. That is because over the years the Irish Republic succeeded in using those transfer payments to build up the economy. That brings us back to the core of the argument, as advanced by the right hon. Member for Devizes (Mr. Ancram) and earlier participants.

Over the period from 1978, when the Barnett formula came in, to the present time, when we have seen the GDP per head of Wales go down, we did not have the transfer payments that were necessary to meet the economic circumstances of Wales at that time, because the Barnett formula does not do that. It increases or decreases in line with the changes in England, where circumstances were entirely different. Because of that reliance on the Barnett formula, there was no attempt to address the stark reality of the Welsh economy that has seen incomes per head drop to a tragically low level in many parts of Wales, where there is rank poverty and deprivation. The Barnett formula has not begun to address those problems because the base situation is inadequate.

Working within a United Kingdom framework—although Plaid Cymru is more than happy to see Wales become a self-governing country making its own way in the world—any payments that are made to the National Assembly for Wales should have regard to objective criteria. That is where I return to the comments of the right hon. Member for Devizes. Our amendment spells out what those objective criteria should be, and I commend them to hon. Members.

First, we believe that there should be a reference to the disparity in GDP per head between Wales and the United Kingdom.

Mr. Alan W. Williams (East Carmarthen and Dinefwr)

Does the right hon. Gentleman concede that the criteria that would work well for Wales—we are poorer, so the Barnett formula should give us more—would penalise Scotland, where GDP is about the same as in England, very heavily?

Mr. Wigley

I am certain that our Scottish friends are capable of looking after themselves. In the context of this Bill, we shall look after Wales as best we can.

I believe that the question of GDP per head in Wales and the disparity compared with England, which has widened over time, should be addressed. The disparity within Wales is even more significant. There is desperate poverty in parts of Wales, such as the old slate quarrying and coal mining areas of Gwent and particularly Glamorgan. There must be equalisation the like of which we have not seen in the past 18 years under the formulae that have applied. GDP is not the only factor—there are other indices of deprivation, such as health and morbidity figures, housing and unemployment. There are many large pockets of youth unemployment in our country.

We believe that sparsity of population is another factor that must be taken into account, as the hon. Member for Brecon and Radnorshire (Mr. Livsey) said in opening the debate. We should bring some objective criteria into play. If we are to discuss the matter logically, we must consider the base and not merely the adjustment mechanism.

Mr. Lembit Öpik (Montgomeryshire)

Is the right hon. Gentleman trying to introduce, through the amendment, a needs-based consideration into the Barnett formula, thereby satisfying some of the concerns that were raised earlier?

Mr. Wigley

Yes, but I would not introduce it into the Barnett formula. As defined and described, the Barnett formula is related to yearly changes. That is another characteristic of the formula that fills me with hesitation. If we are moving to an era—heaven forbid—when parties compete with each other to cut public expenditure, in terms of social security or in other directions, applying the Barnett formula could lead to a greater reduction in Wales than in the United Kingdom. That would cause problems.

Mr. Denzil Davies

rose—

Mr. Wigley

I am drawing my remarks to a close.

For both those reasons—the size of the base and the appropriateness of the adjustment mechanism—we believe that amendment No. 435 provides a safeguard and should be built into the Bill. I ask the Minister to respond to that point.

Dr. John Marek (Wrexham)

I agreed with almost every word of the speech tonight by the right hon. Member for Devizes (Mr. Ancram)—not the first time in 15 years, but it happens rarely. We must recognise that he made a sensible contribution on behalf of the Opposition. Rather than trying to denigrate and wreck the Bill, the right hon. Gentleman pointed out that the formula as expressed in clauses 80 and 81 is not quite right. He said that we should do a little more to ensure some clarity and avoid problems in the future when the national assembly is up and running. I think that that is true.

I think that most hon. Members who have spoken in the Committee believe that clauses 80 and 81 are all right; they will do. The national assembly will be established and it will be able to operate. However, the situation could be improved. My hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) expressed the view that is probably nearest to my own when he said we need Barnett plus. We could probably make do with Barnett for the first five, 10 or 15 years, but it is clear that we will need a little more than clause 80 provides at present.

Mr. Denzil Davies

Amendment No. 369 refers to "no less than" the amount produced by the application of the Barnett formula. Therefore, it allows room for that kind of variation.

Dr. Marek

I am grateful to my right hon. Friend for making that point. I cannot support the Conservative amendment, which is a probing amendment; if the Opposition seek to divide the House, I shall not vote for that amendment. However, hon. Members have recognised that there is a problem, and we must consider it carefully.

The right hon. Member for Devizes asked how the money would be transferred from the Treasury to the national assembly. There is no Welsh consolidated fund, although there will be provision for such a fund in the Scottish legislation. The Minister should consider that point. He may have argued for a Welsh consolidated fund and have been bound hand and foot by Treasury solicitors saying, "You cannot have a Welsh consolidated fund or anything like it." I do not know. However, I will be interested to hear the Minister's comments about that.

A Welsh consolidated fund—comprising money from the Treasury upon which the assembly could call at will—would assist me and other hon. Members who worry about how money will be transferred from the Treasury to the assembly.

Mr. Rowlands

From memory, I think that a Welsh consolidated fund was written into the earlier devolution legislation.

Dr. Marek

My hon. Friend is quite right. Why is there no consolidated fund for Wales when there is one for Scotland? Clause 80 states: The Secretary of State shall from time to time make payments to the Assembly out of money provided by Parliament of such amounts as he may determine. I can imagine a Secretary of State who is not on friendly terms with the national assembly leadership withholding its money. In such circumstances, the First Secretary of the national assembly would be forced to telephone from Cardiff, Swansea or Wrexham every morning to ask, "Have you put the cheque in the post, because we want to sign a contract or provide funding for a hospital or school? Is the cheque on its way?" Will the money be provided in the form of a banker's draft? Will the assembly have to wait until a cheque has cleared? That is not satisfactory.

To the extent that I perceive a conversion in the Opposition's view regarding the Welsh assembly, I am less concerned that things will go badly wrong if there are different ruling parties in Westminster and in the assembly. Even so, we are talking about primary legislation and we should address that point. I ask the Minister: why is there no Welsh consolidated fund to help this process? If there will be no such fund, will the Government introduce an amendment—perhaps in another place—that will make it clear that adequate moneys will be transferred in good time and in sufficient quantities from the Treasury or the Secretary of State for Wales to the national assembly in order to avoid any cash flow problems?

Most hon. Members would agree with the application of the Barnett formula if clauses 80 and 81 contained a little more substance. I think that that is the general view—and it is probably also the view of Ministers. I wonder whether we can do something about that, although we clearly do not want to see formulae in primary legislation. I agree with the right hon. Member for Devizes about that. It would be better to have a needs-based formula than a Barnett formula. I think that we would all agree on that. I am not under any illusion that that could be done in one or two weeks or a month, or before the latest time for the tabling of amendments in another place. But could they table a proposal to amend primary legislation so as to commit the Secretary of State for Wales to abide by certain criteria when determining the sum that is to be transferred to the national assembly? At present, the Bill contains no such provision. It merely refers to the Secretary of State providing such amounts as he may determine. There is no reference to the Secretary of State providing according to needs, to the Barnett formula or to anything else.

6 pm

We have the Judicial Committee of the Privy Council to resolve disputes. Perhaps we could use it to settle any dispute over whether any criteria have or have not been followed sufficiently by the Secretary of State for Wales in determining how much money he should transfer. From the point of co-operation, we need something. I have no intention of supporting the amendments tabled by Members of the Liberal Democrats or of Plaid Cymru. I shall definitely not be supporting the Conservative amendment, although I agree with what the right hon. Member for Devizes said. However, if the Government would at least consider the points that have been raised by many right hon. and hon. Members this afternoon, we should be making progress. Our debates on this Bill have been unusually co-operative and forward-looking and in this instance, we deserve a response from the Government.

Mr. Shepherd

I shall speak briefly because we are under enormous time constraints. Secondly, I shall take up a point raised by the right hon. Member for Llanelli (Mr. Davies).

Mr. Denzil Davies

Pronunciation?

Mr. Shepherd

The right hon. Gentleman must forgive me; I am an alien. He is right not to trust the non-Welsh on these matters.

The right hon. Gentleman makes the point that as we come to the end of the unitary state as we have known it, the transfer payments within what was the unitary state will come under more open discussion. We have only to listen to the hopes and aspirations of the Liberal Democrats and the Welsh secessionist party, with their Prime Ministers, Cabinets, research assistants and the huge paraphernalia of additional expenditure that will be given to a political class for Wales, to reflect on the wisdom of the Welsh people—or 75 per cent. of them—in refusing to support the Government's proposals.

I merely note that 75 per cent. must have heard the speeches of the right hon. Member for Llanelli over many years, in which he has highlighted the real difficulties where there is a poorer region within our island and the transfer of payments to it. Most of us who believe in Britain believe profoundly in the principle of transfer payments. We see ourselves as equal citizens in a commonwealth. Each British citizen contributes through tax and financial arrangements to the benefit of the whole.

However, we hear words such as "assumption" and "grabbing" used across the Chamber in relation to the Welsh people. The Government's case was, of course, predicated on the Welsh electorate, not the Welsh people. Half a million Welsh people live within the confines of England. A huge proportion of the Welsh electorate is excluded from discussion of these matters. Family, love and community mean that we, the melting pot in England, with Welsh Members elected as English representatives, have a fundamental interest in ensuring the well-being of each part of the Union.

We have heard the prattling, if I may so, of the Welsh secessionist party, which appears to think that Wales is a fiscally self-contained unit and could launch itself on the international stage, maintaining the standards of living and the aspirations of most of Britain on its own economic base, for which it condemns 18 years of Thatcherism or Conservative government? The rigamarole goes on through each debate, but in this instance we are talking about a matter of substance. We are one small island in the world. We are intermingled by blood and common language. The nonsense that I so often hear is expressed as a form of irritation by many in Wales, who say that they are corralled in Welsh-speaking schools when their heritage for more than a millennium has been integration with England. Indeed, when we divide the Union and talk about it, England and Wales is the unit on which we reflect; that has been the position for most of us for most of our lives.

The secessionists now see that unit as an inconvenient association. They now postulate to the Welsh people that without funding from across Britain—Welsh, Scottish and English taxpayers as well—it would float off into some glorious financial future as a free-standing independent nation, separate from the other nations of this commonwealth of Britain. That has been the tone and temper of our debates as they have developed on these most delicate subjects. I genuinely think that that is why Wales has been so cautious about going for the route proposed by the Government. I genuinely think that.

That is no criticism of the Government. I think that they were fixing a political fix in the Welsh Labour party. Wales got what it wanted, and that was a Labour Government. That was the substance of it all. We are now hearing demands and interpretations of matters within the remit of the White Paper that are far beyond anything to which the Government have committed themselves. As a result, caution is urged by English elected representatives. I say that because my neighbouring constituency Member is the hon. Member for Walsall, South (Mr. George), who is Welsh born. The hon. Gentleman is proud of his associations with Wales.

Divisiveness is introduced by those who think that they are mounting a separate state within the Union of Britain while at the same time expecting others to fund their ambitions.

Mr. Wigley

Will the hon. Gentleman give way?

Mr. Shepherd

No. I have finished.

Mr. Gareth Thomas

I well understand the thrust of the arguments that have been presented to us so forcefully by my right hon. Friend the Member for Llanelli (Mr. Davies). My right hon. Friend believes that, in the new era of devolved government, Wales needs an insurance policy. He thinks that it should have reassurance that it will not be worse off than it is now. As I understand it, that is the basis of my right hon. Friend's amendment.

Perhaps my right hon. Friend takes the view that I have outlined because, having had the benefit of long experience in Parliament, his estimation of human behaviour may be rather more pessimistic than mine. On any level, however, I believe that there are fallacies in his argument.

Why should a more transparent and devolved system of government preclude a genuine debate on what the various regions of the United Kingdom require to produce equalisation and parity in terms of prosperity? That sort of debate is common elsewhere in Europe. I know that my right hon. Friend is antipathetic towards the concept of Europe, as are various Opposition Members. However, there exists a system for regional transfers within Europe that is entirely consistent with the concept of member states—let alone the modest form of regional government that we propose. There is an open debate in Europe about which regions within Europe should receive transfers. We expect that there will be a healthy debate in Wales about the structural funds for which Wales will be eligible under the Agenda 2000 proposals. These funds should most certainly be based on gross domestic product and should reflect the fact that Wales is far less prosperous than other regions of the United Kingdom.

I do not agree with my right hon. Friend the Member for Llanelli, with respect, because I believe that we need a healthy and open debate that takes on board an assessment of real needs. As I am sure my right hon. Friend knows, I shall refer to five issues that show that there is a need to reconsider the present formula, non-statutory though it is, for the redistribution of resources. He says that he cannot trust the English, in perhaps somewhat intemperate language, although I understand the spirit with which it was stated: that, if we do not enshrine the formula in legislation we will be far worse off. But if the formula is enshrined in legislation, I do not trust this Parliament to be prepared to improve the present situation and to embark on a genuine open debate as to what the regions and nations of the United Kingdom require. If the formula is enshrined, it may be the minimum, within which we shall be trapped.

Wales has the lowest gross domestic product per head of any region in the United Kingdom. It also has the lowest level of personal disposable income of any region in the United Kingdom. The level of economic activity in Wales is very low. I am speaking specifically of my constituency, where economic activity and prosperity are among the lowest in the United Kingdom. Economic activity in Wales is above only that of Merseyside and the north-east of England. Average earnings in Wales are the second lowest in Britain, and are above only those of the north-east of England. Wales has the highest proportion of the population in the United Kingdom reporting long-term illness. Those facts serve to underline the point that the Barnett formula, based as it is on the historical, somewhat unscientific, inherited baseline, does not really address the objective criteria of relative deprivation.

I see strength in the Plaid Cymru amendment, which would import objective criteria into the assessment of budgetary transfers in the United Kingdom, but I suspect that it will be unworkable. What is needed is an open and transparent debate. Britain will continue to exist. Many Labour Members accept that the United Kingdom consists of various nations, and are proud to be Members of the British Parliament, which will, of course, continue and retain sovereignty.

Mr. Rhodri Morgan

I am grateful to you, Mr. Martin, for allowing me to participate in the debate. I shall make some observations on the Barnett formula and whether it could be improved on, and whether it can be caused to survive or be strengthened, so that there is a guarantee that it will continue beyond the process of democratic devolution—in so far as we can overcome the absence of a written constitution and the fundamental principle of this Parliament that we have never found a mechanism to bind our successors.

I do not agree with everything that my right hon. Friend the Member for Llanelli (Mr. Davies) said, and I certainly do not agree with a great deal that the hon. Member for Aldridge-Brownhills (Mr. Shepherd) said. There has been a general call from both sides of the Committee that we should try to find a way of causing the Barnett formula, or another resource transfer mechanism based on objective criteria of relative need, to be written into the Bill, and that there should be another means of the Government declaring that they will produce a resource transfer mechanism, which is undoubtedly one of the fundamental features that can make or break successful devolution, before all the Parliamentary proceedings are over, so that, whatever the disputes resolution mechanism, it is there for guidance—for judges in judicial review cases, or whatever it is needed for. If they do that, we will have had the firmest possible declaration from Ministers about how they propose that the resource transfer mechanism will operate in future.

It is precisely because of devolution that the Barnett formula, and its predecessor, the Goschen formula, came into existence, not despite devolution, as my right hon. Friend and the hon. Gentleman seemed to argue: that a further act of devolution is a threat to the Barnett formula. That is a totally unhistoric view. The Barnett formula came into existence because of the expectation of devolution. Some have said, "You cannot prove that," and, of course, it cannot be proven, because the formula is somewhat shrouded in mystery.

The right hon. Member for Devizes (Mr. Ancram) said that the formula emerged only two years after it had been agreed between the Government Departments. He is right. Trying to get back to the origins of the formula and to see a document that clearly states it is difficult. It is like one of those theorems. As has been said of other formulae, trying to find out who understands the Barnett formula is difficult. Only three people understand it: one is mad, one is dead and the other one is an academic who, unfortunately, is on a sabbatical bicycling across the Gobi desert.

6.15 pm

There is an element of truth about that. The formula is open to dispute. However, it is certainly true that, fortunately, the academic in this case, Professor David Heald of Aberdeen university, is not on sabbatical bicycling across the Gobi desert, but quite recently gave evidence to the Treasury Committee. Appearing before the Select Committee might be far worse than bicycling across the Gobi desert, but he was there. As far as I am aware, he is the only academic to have taken much interest in the Barnett formula. I quote briefly what he said about it: With a view to regularising the financial relationship between the UK Exchequer and the proposed Scottish Assembly, the Labour Government in 1978 established a formula which linked changes in 'Scottish block expenditure' to changes in 'public expenditure in England on those services within the Scottish block'. There are not many academics with an interest in this subject, and I take that as a fairly definitive statement from the only academic who is interested.

Lord Barnett differed slightly from that view when asked about this in the Treasury Committee, but he was asked the wrong question. He was not asked: "Was it because of devolution?" but "Was it because of devolution and the rise of Welsh and Scottish nationalism?" He said that that was part of the picture, but that there were other reasons. There were, of course, reasons other than resource transfer. These related to devolution, but were not to do with resource transfer. One of those issues was raised by my hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands)—to avoid the annual punch-up. That was the basis of the Goschen formula, which was brought in shortly after the Secretary of State for Scotland and the Scottish Office were introduced in 1885.

The Goschen formula was developed by the Liberal Government at the time to avoid annual punch-ups involving the Scottish Office and the Secretary of State for Scotland. Devolution causes formulae to be brought in. It is not a threat to the formulae. So long as we can agree on all that, we might be able to agree on the strongest formula that we can devise, given the absence of a written constitution and our inability to bind our successors. I hope that Ministers will be able to deal with that.

The other issue that the Barnett formula enshrined was delegation within the block. The Treasury ceased to control the expenditure of the Secretaries of State for Scotland and Wales, and a year later the Secretary of State for Northern Ireland. They could spend the money any way that they chose within the block that had been agreed. If they wanted to have a big year on roads and a lower year on health, or if they wanted to do the reverse, they did not have to justify it to the Treasury. That was in expectation of devolution. It is clearly inconceivable to have Treasury control over individual items of expenditure if there is democratic devolution. They were freeing up the Treasury control mechanisms on individual items of expenditure.

Those are the three principles of the Barnett formula. First, it enshrined higher expenditure per head in the block by fixing the baseline and tying the changes to an agreed formula. Secondly, it avoided the annual punch-ups by that means. That is why it has lasted for so long. Thirdly, there was no Treasury control over individual expenditure decisions within the block. My right hon. Friend also made the point that Wales is a poor country. We all know that. There is no question about that. Therefore a resource transfer mechanism is critical.

We must remember that public expenditure comes in three categories. There is the Welsh block—what the Secretary of State for Wales spends. There is a little outside the block, but by and large we are talking about expenditure on health, education, roads and highways, and most agricultural expenditure. Then there is the critical area mentioned by my right hon. Friend the Member for Llanelli: social security, which has nothing to do with the Secretary of State for Wales.

Another item is included in the resource transfer calculations relating to how dependent Wales is on the English taxpayer. Because Wales is a big retirement area, a large proportion of pensioners live there, and, relative to the population as a whole, a large proportion depend on benefits. That is an inheritance from our history of heavy industry: the right hon. Member for Caernarfon (Mr. Wigley) mentioned slate quarrying and coal mining.

Defence procurement is said to be completely outside the area of identifiable regional defence expenditure. We have only 1 per cent. of defence procurement relative to 5 per cent. of the population, which is a loss—if we want to call it a loss—of some £400 million in annual payments towards wages that would be earned in Wales if we had the same share of defence procurement as we have of population. Obviously, that means that there are many fewer well-paid jobs in Wales than there would be otherwise, but defence procurement cannot be distributed region by region or nation by nation in the United Kingdom.

In a sense, defence procurement is the regional policy of areas with a large number of defence establishments. It is, for instance, the regional policy of the Preston area, which is near the constituency of the hon. Member for Ribble Valley (Mr. Evans), an Opposition spokesman. There is the question of the vast taxpayer funding for British Aerospace—

Mr. Rowlands

It was the Neville Chamberlain Government.

Mr. Morgan

There are greater experts than me in the Chamber, so we will not go into the issue now.

I hope that Ministers will take on board what has been said by hon. Members in all parties. We have asked for the solidest possible enshrining in legislation or in declaration that would be proof against judicial review, and would help the Welsh assembly. We want something that will say, "There shall be a resource transfer mechanism"—a mechanism that will be based on the Barnett formula, or on something better and more lasting. It will strike people as odd, when they look at regional devolution measures throughout Europe, that the Bill makes no reference to the need for and provision of a resource transfer mechanism.

Mr. Martin Caton (Gower)

For the time being, I too support maintenance of the Barnett formula as a mechanism for ensuring that Wales receives its fair share when Budget changes occur. That formula, however, just ensures that Wales receives any increase due to it on the basis of proportion of population, as was made clear earlier. That is why the formula could not prevent Wales from falling further behind England in terms of gross national product per head between 1976 and last year—and that is why I am attracted to amendment No. 435. The amendment, tabled by Plaid Cymru, tries to address need in Wales as compared to other parts of Britain.

I agree with the intention of the amendment, which is to establish objective indicators that can identify and realistically compare need. GDP, relative deprivation and sparsity are certainly factors that need to be included if we are serious about establishing a new needs-based formula. Apart from GDP per head, however, in terms of any comparators for economic activity—unemployment, the proportion of people out of work and not seeking work, youth unemployment, household disposable income or average earnings—Wales is markedly worse off than England in regard to wealth and the ability to create it.

How would we measure relative deprivation? Would we relate it to age and condition of housing stock? Wales has almost twice as many unfit homes as England, in percentage terms, and far more old homes. Rates of homelessness are also higher in Wales. As for health, the picture in Wales—as compared to England—is even bleaker. Wales has more long-term health problems; a much higher proportion of people receive sickness, invalidity or disablement benefit; there are higher death rates from heart disease; there are more cancer registrations; and there are longer waits for hospital treatment.

What does sparsity mean in real terms for real people? It means smaller primary schools—although, ironically, classes are frequently larger. It means twice the road length to maintain per head of population compared with England. It means that public transport—although even more vital—is often very expensive for both the individual and the public purse.

I am not convinced that amendment No. 435 adequately provides the framework for a new needs assessment formula, or whether it should be part of the Bill. If, however—as hon. Members on both sides of the Committee have said—there is a growing belief that spending in Wales, as compared to spending in the United Kingdom as a whole, should be reviewed, we must find a way of analysing comparative need objectively. I am convinced, on the basis of my experience and observation in my constituency and elsewhere as well as on the basis of statistics, that any fair review would result in an acknowledgement of the need to increase Wales's share of the cake rather than cutting it.

Mr. Hain

I agree with the right hon. Member for Devizes (Mr. Ancram)—which will worry him—that the debate has been crucial. I am disappointed that the hon. Member for Aldridge-Brownhills (Mr. Shepherd), who makes a valuable contribution to our debates, treated us to a rant rather than the intelligent speech that we have come to expect from him. I note that last night the hon. Gentleman voted for the proposition that there should be a Prime Minister of Wales; I am not sure how that squares with what he said this evening.

I particularly enjoyed the speech of my right hon. Friend the Member for Llanelli (Mr. Davies), which was typically witty and erudite. He does not trust the English—I assume because English clubs have been nicking all the best Llanelli players.

I apologise if my speech takes a little longer than ministerial speeches of this kind normally do, but many important points have been raised. First, let me deal with what my right hon. Friend the Member for Llanelli said about amendment No. 371, which deals with a slightly different aspect of the assembly's funding. The amendment would have the undesired effect of preventing the assembly from receiving money that Ministers or Departments have received from sources other than Parliament, which happens now in regard to some European money that the European Commission pays to a Department which, in turn, pays it to the Welsh Office. One instance is the European social fund, which comes via the Department for Education and Employment. I am glad that my right hon. Friend has tabled only a probing amendment, as amendment No. 371 would stop such arrangement from continuing.

My hon. Friend the Member for Wrexham (Dr. Marek) referred to the consolidated fund. The existing parliamentary arrangements would oblige the Treasury to release the amounts voted by Parliament from a consolidated fund to the Secretary of State for Wales. I cannot imagine any circumstances in which a Westminster Executive would seek to defy the sovereignty of Parliament and abandon those arrangements.

My hon. Friend mentioned Scotland. Scotland is different: it has its own consolidated fund because revenues from any income tax levied there will go into it. I should add, however, that the Scottish consolidated fund will not protect the concerns raised by my hon. Friend, because it will still be largely dependent on payments into it by the Secretary of State for Scotland. The Government's White Paper "A Voice for Wales" committed us to retaining the present arrangements for deciding the size of the block that is allocated to Wales. That means linking changes to the Welsh block to changes in Government spending on comparable English programmes.

The Barnett formula, as it has come to be known, has operated in Wales and Scotland for many years and it has clearly achieved some acceptance. No obvious replacement of it would be fairer.

Dr. Marek

My hon. Friend has gone on to another section of his speech. I thought that I should wait until he finished his point before I intervened.

What assurance can he give the Committee that any money voted by Parliament for the national assembly will be paid forthwith into the bank for the national assembly?

6.30 pm

Mr. Hain

I realise that my hon. Friend is concerned about cheques being delayed in the post and so on, but I am sure that any Parliament will want to ensure that its relationship with the assembly is stable, honest and open, and that the procedures allow for that.

The Barnett formula is clear and easy to understand. It does not give Wales a disproportionate increase—it is purely a mechanical exercise that is based on relative populations. Criticism of Barnett often arises because of confusion between the absolute size of the block and the mechanism for adjustments.

The right hon. Member for Devizes quoted somewhat selectively, although accurately, from the Select Committee's report. It did not really challenge the case for Barnett. If the Government decide on a needs assessment, I am confident that Wales will not suffer. That point was made well by my hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands), who I understand is to star in a "Panorama" programme that examines precisely the problems in his constituency that are a legacy of 18 years of Conservative rule. That is the background against which we are discussing this matter.

My hon. Friend the Member for Merthyr Tydfil and Rhymney raised in-year changes to the block. It is correct to say that such changes are not reflected through the Barnett formula, but there are exceptions and they are explained in the principles of the block budget for Wales, which were published by the Treasury in December. Paragraphs 10 and 11 describe circumstances in which access to the reserve can be obtained by the Secretary of State for Wales and of course subsequently by the Welsh assembly.

Mr. Rowlands

If there were an expenditure review and an urgent cut in public expenditure in the year, how would that be translated into assembly spending?

Mr. Hain

A Labour Government are not going to make any proposals for such adjustments. In the event of a disaster or similar event, a claim on the block could be made. Under the principles and rules that were published in December by the Treasury, a claim on the reserve could be made.

I agree with my hon. Friends the Members for Gower (Mr. Caton), for Cardiff, West (Mr. Morgan) and for Clwyd, West (Mr. Thomas) and with the right hon. Member for Caernarfon (Mr. Wigley) that Wales has higher needs. They are demonstrated by major economic indicators.

The latest figures available show that Wales has the lowest gross domestic product in Great Britain; it is only 83.1 per cent. of the UK average—and it has fallen, by the way, in the past 10 years or so under a Conservative Government. Wales also has the lowest personal disposable income of any region in the UK—that, too, has fallen since 1979. Average earnings in Wales are the second lowest in Great Britain. They too have fallen proportionately since 1979. Economic inactivity in Wales is more than 4 per cent. higher than it is in England; for men of working age, the figure is more than 5 per cent. higher. Apart from those economic indicators, the need to spend more in Wales is reflected in the statistics on the health of the Welsh population, the poorer housing conditions and the lower educational achievements.

It would not have been meaningful or practical to include the details of the formula and block rules in the Bill, as hon. Members have requested. As I have explained, the formula does not determine what the base line of the Welsh block is. I suspect that it would have been a novel use of primary legislation to specify that the Secretary of State should pay to the assembly no less than a particular sum of money. That would have flown in the face of the usual supply procedure by which Parliament approves the Government's requests for funds and authorises expenditure through the annual Appropriation Act. Inclusion of the formula in the Bill could not, therefore, have guaranteed that the assembly would receive a particular level of resources. In short, it would not have been meaningful.

The practical objection to including the formula and the block rules in the Bill is that the formula and rules are complicated, detailed and subject to change, for reasons that I shall explain. There would either have to have been an order-making power to amend the formula and rules in the Bill or, more likely, acceptance from the outset that the formula and rules would appear only in subordinate legislation.

Both the formula and the block rules are subject to regular revision. For example, the current rules will need to be amended to allow for the inclusion of forestry and domestic agriculture programmes in the Welsh block when they are transferred, as they will be, to the assembly. The Government have also announced that the population ratio that underpins the formula will be updated annually from 1999–2000 onwards. It would therefore not be possible to put the population share in legislation without the ability to amend the legislation annually.

Nor does the formula tell the whole story of adjustments to the block. Increases or decreases can occur because of asset sales, changes in responsibilities or the imposition of new burdens, whether by the UK Government on the assembly and on its spending programmes or by the assembly on Government Departments.

Mr. Wigley

In case we do not have time otherwise, will the Minister clarify whether the assembly will be entitled to keep the revenue obtained by asset sales?

Mr. Hain

That depends on what the asset sale is. If it is a property owned by the assembly—an office block, say--there would be a case for that. If there were a privatisation in Wales—such as the privatisation of Welsh Water—the returns would go back to the Treasury.

The assembly will not be responsible for all Government expenditure in Wales and some of the expenditure for which it will be responsible will continue to be outside the block arrangements, such as most Europe-funded agriculture expenditure—a point that was mentioned by my hon. Friend the Member for Merthyr Tydfil and Rhymney.

Any reference to the Barnett formula in the Bill would mean that the whole system would need to be built into legislation. It may not be in the Bill, but the formula—this is an important point; it has not been lightly done—is referred to in the financial memorandum to the Bill, which again shows the Government's continuing commitment to retaining the present arrangements. However, it would not be meaningful or practical to include the details of the formula in the Bill itself. Changes to the Welsh block will continue to be determined by a formula, not by annual negotiations, as the amendments would require.

I remind the Committee that the formula and block rules have operated for nearly two decades without being included in legislation. During that period, they have operated entirely satisfactorily in terms of their mechanical operation, even under a Conservative Government who were hostile to Wales—[Interruption.] The Conservative Government were indeed hostile to Wales, as any of my constituents would confirm, in terms of the repeated attacks and insults heaped on Wales and the denial of our democracy.

To ensure that the formula and block rules are entirely open and subject to scrutiny, the Government, for the first time since the Barnett formula came into being—we deserve credit for this—published the principles that govern the block and formula arrangements on 8 December. I did not hear a chorus of criticism in the House when that document was published.

We are committed to publishing the full rules in due course and any revisions to them. Any major changes to the block and formula rules will be carried out only after a full study of relevant spending needs. That would be the time to consider such factors as GDP, sparsity of population and relative deprivation. The National Assembly for Wales would be fully involved in any such study.

My right hon. Friend the Member for Llanelli raised important points about concordats with the Treasury. There will indeed be a concordat between the assembly and the Treasury. It will cover, for example, the information to be exchanged between the assembly and Treasury. The Barnett formula and block rules will be published separately from any such concordat. The principles of the formula and the block rules were published in December, and we are committed to publishing the full block and formula rules and any significant changes to them.

Mr. Denzil Davies

Is my hon. Friend saying that the Barnett formula principles will not be in the concordat—the agreement—between the assembly and the Treasury?

Mr. Hain

The Barnett formula principles have already been published. The rules will also be published and the financial arrangements between the assembly and the Treasury will be published in a concordat.

The Government's view is that the determination of the Welsh block is best handled administratively, as it is now, but in a much more open and transparent fashion. Clause 81 obliges my right hon. Friend the Secretary of State to lay before the assembly a written statement of its estimated resources for each financial year. That will include details of how the total amounts have been calculated through the block and the formula system. That statement is the proper one in which to set out how the formula has been operated in any given year.

I welcome the wish to ensure that Wales's needs for a proportionately higher share of UK resources continue to be recognised, but it would not be appropriate to insert that sentiment in the Bill. I hope that my full explanation will satisfy the Committee why it is inappropriate to include the Barnett formula in legislation. The new openness that we propose about the detail of the formula and its operation each year is a much better guarantee of a fair settlement, and Parliament and the assembly will, for the first time, be able to see exactly how the formula operates. That is a stronger and more efficient form of accountability than attempting to capture the procedures in primary legislation.

Amendment No. 18 would involve unnecessary bureaucracy. It would strangle the assembly with bureaucracy—but perhaps that is not surprising because it is a Conservative amendment. It would require certificates to precede each payment by a Minister or Department. The overall position will be adequately set out in the statement for which clause 81 provides. The amendment is typical of the Opposition's churlish and niggling approach to the Bill.

There is adequate protection in our proposed arrangements to secure the financial basis for the assembly's budget. I ask the hon. Member for Brecon and Radnorshire (Mr. Livsey) not to press his amendment to a vote, and I hope that the Committee will support the clause.

Mr. Livsey

The debate has been wide-ranging, and many important principles have been enunciated in an effort to define how the assembly will be funded. Hon. Members have tended to focus on the Barnett formula, which has been operating for two decades.

The right hon. Member for Llanelli (Mr. Davies) raised several important issues and said that much more money is coming in than is calculated by the Barnett formula because of social security and other payments. The resource transfer mechanism needs to be better defined in the Bill, and the amendments relate to the Barnett formula. As the right hon. Member for Devizes (Mr. Ancram) raised similar issues, there seems to be some agreement that the method of funding should be defined. There is no complacency in the Treasury. The Secretary of State has taken a great interest in trying to ensure adequate funding for the assembly.

The hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) said that the Barnett formula was convenient because it avoided negotiations. That is a strong point. I understand the views of the right hon. Member for Caernarfon (Mr. Wigley) who tabled amendment No. 435 on the crucial issue of need. As hon. Members have said, Wales has many needs. It has low wages, a low gross domestic product, high unemployment and high social deprivation. I did not quite understand the rather intemperate speech made by the hon. Member for Aldridge-Brownhills (Mr. Shepherd). I am not a nationalist, but many members of my family lost the Welsh language because of discrimination. There are historical reasons for the majority of people in Wales no longer speaking the native tongue. Only about 20 per cent. of its people speak Welsh.

6.45 pm

The hon. Member for Clwyd, West (Mr. Thomas) spoke about an insurance policy in relation to the Barnett formula advanced by the right hon. Member for Llanelli. We have certainly had a healthy and open debate on many matters. The hon. Member for Cardiff, West (Mr. Morgan) rightly said that there was a need for a defined formula. The debate has identified the many problems that arise from rural and urban deprivation in Wales and has shown the requirement for a definition of need. That has not been spelt out in the Bill. We have debated the complex issues. In some respects, the Barnett formula has stood Wales in good stead, but there has been a reduction in GDP.

I was glad to hear the Minister say that the concordat will be different from the statement in the explanatory and financial memorandum, in that the Barnett formula will be acknowledged. He spoke about deprivation in Wales. The Bill must refer to the principles of resource transfer. If it is not acceptable to put the Barnett formula in the Bill, some kind of statement must be made about how to proceed.

In the light of the full debate on it, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Robert Syms (Poole)

I beg to move amendment No. 15, in page 38, line 32, at end insert— '(3) The Secretary of State shall receive representations and consult interested parties, including the Assembly, as to payments made under this section.'. The Secretary of State will continue to be accountable to Parliament, but he will become the paymaster of the assembly. That is made clear in the notes on clauses, which state that he will be free to determine the amount of such payments. His role will be as a conduit for resources and it is important to amend the Bill to make him more accountable to the people of Wales.

The assembly will be one of the few examples of an elected body with no direct financial link with voters. Local authorities and even parish councils have some sort of financial link. The briefing paper in the Library states: Indeed Executive Devolution is unlikely to be stable or long lasting because it is so heavily dependent on co-operation between Cardiff and Westminster. We are not so sure about Cardiff. Those of us who love the Union wish to strengthen the arrangement by trying to get around the disadvantages of the arrangements in the Bill.

Administrative devolution is an unusual creation and will require creative and imaginative suggestions—such as our amendment—to make it work. We therefore feel that incorporating amendment No. 15 would be an improvement. We feel also that it is not unreasonable that the assembly should be consulted on financial matters. Indeed, there is no reason why it should not be consulted.

We can now clearly discern in the Bill the shape of the assembly. We cannot, however, discern the Secretary of State's role. Our amendment would ensure that the Secretary of State's future role is defined. As Secretaries of State, Members of the Assembly, hon. Members and Governments come and go, our amendment would provide a safeguard by establishing a formal consultative process so that people in Wales may feed their views back to Westminster through the Secretary of State.

We believe also that the consultation process should include other bodies, such as trade unions and the Confederation of British Industry. A formal consultative procedure could be useful to the Secretary of State in establishing a financial background for those from Wales who provide advice and participate in consultation.

We have heard that the Bill is not an event but a process and that further powers may be given. If we provide a consultative role for both the assembly and the people of Wales, there will be a useful check in ensuring that the assembly's and people's views are fed back, via the Secretary of State, to the House.

We have heard much about accountability, inclusiveness and openness, yet clause 80 states nakedly the power of the Secretary of State. Although—to give credit to the Secretary of State—some of the proposals that we are debating are meant to reduce that power, our amendment would help to achieve that end. Creating a formal consultation process would help over a period of years to improve the role and relationship between the assembly and Westminster.

Mr. Hain

I congratulate the hon. Member for Poole (Mr. Syms) on his first appearance at the Dispatch Box. It was a very confident and pleasant performance.

The Secretary of State for Wales (Mr. Ron Davies)

In contrast with the rest of the Opposition Front Bench.

Mr. Hain

I am far too nice to make such a point. I welcome the hon. Member for Poole to his new role.

On amendment No. 15, I should first make it clear that the assembly will be free to make any representations on funding that it wishes to make to my right hon. Friend. Paragraph D.14 of the White Paper made it clear that that was our intention, and clause 34 gives the assembly the power to make representations on any matter affecting Wales. Nothing will prevent anyone who wishes to make representations from doing so. Therefore, amendment No. 15 is unnecessary for that purpose.

The amendment attempts also to ensure that my right hon. Friend will consult the assembly about its funding. I give the Committee an absolute commitment that discussions about those matters will take place between the assembly and my right hon. Friend during each public expenditure survey—subject to the operation of the Barnett formula, which we discussed in the previous debate.

We can be sure that the assembly will want to give the Secretary of State its views on the total level of resources that should be made available to it, any special factors that it wishes the Government to take into account in reaching their decision and its views on the detailed operation of the block formula. I expect a chorus of views from the assembly, through the Secretary of State, to the Cabinet.

The assembly and the Secretary of State's office will also have to discuss technical matters, such as settling the schedule of instalments of payments made by the Secretary of State to the assembly. There is no need for legislation to spell out how those discussions should be held. Moreover, the amendment would risk creating a more formalised and costly process by adding further statutory requirements for a potentially wide consultation process with undefined "interested parties".

I realise—undoubtedly I will be accused of being churlish for saying this—that the Tories need something to vote on today to justify their role as an Opposition, but amendment No. 15 should not be it. Behind the official Opposition's criticism of the Bill is an assumption that there will be massive conflict between the assembly and the Secretary of State—who the Opposition regard both as powerless and, conversely, as the powerful block to the assembly achieving its objectives. He cannot be both.

The Government are engaged in creating a new democracy and a new pluralism in Britain's democracy. The nation of Wales, the nation of Scotland and, eventually, the regions of England will be engaged in a process of dialogue, debate and—yes—pressure, and in a listening process.

Mr. Andrew Robathan (Blaby)

As someone who is Welsh by descent, I think that it is rather peculiar that the Minister should talk about creating a new democracy. One in four electors in Wales decided that they would like an assembly, whereas three in four either did not bother to vote or voted against the assembly.

Mr. Hain

That really is like an old gramophone record. The hon. Gentleman simply does not wish to accept the results of a democratic decision of the Welsh people. The referendum result was clear. It stands, and no one can challenge it.

Mr. Ancram

I wonder whether the Minister can explain to the Committee how that new democracy and new friendship were demonstrated by the argument between the Secretary of State and the leader of Cardiff county council—a member of the Labour party—over the location of the assembly?

The First Deputy Chairman

Order. We are debating a specific amendment, to which the Minister is replying.

Mr. Hain

As I understand it, my right hon. Friend and the council leader were engaged in a loving and intimate dialogue—

Mr. Ron Davies

Politically.

Mr. Hain

They were engaged politically, yes—not in any sense personally. I should like to comment—if you will allow me, Mr. Martin—on the supreme irony of the Conservative party's claim that it is listening to Wales. It would be the first time in its history that it has listened to Wales. Wales was not listened to by a Conservative Government for 18 long years—during which our jobs were attacked, our coal mines were closed and all the indices of deprivation—in housing, wealth, education and employment—plunged in comparison with the rest of Britain. Wales was left behind by the Conservative Government. The Conservatives did not listen to Wales and that is why, on 1 May, they were wiped out of Wales in the general election.

The Government are confident that we will establish a new democratic relationship between the people of Wales and the House. Their views will be communicated through the House to the Government, and through the Secretary of State to the Cabinet. The Bill and its specific provision for finance for the Welsh assembly will guarantee a strong and lively democracy rather than one that is strangled from the centre—which is what Conservative rule has been all about. I urge the Committee to resist amendment No. 15 and to resist the Conservative party.

Question put, That the amendment be made:—

The Committee divided: Ayes 114, Noes 350.

Division No. 146]	[6.57 pm
AYES
Ainsworth, Peter (E Surrey)	Cormack, Sir Patrick
Amess, David	Curry, Rt Hon David
Ancram, Rt Hon Michael	Day, Stephen
Arbuthnot, James	Dorrell, Rt Hon Stephen
Atkinson, David (Bour'mth E)	Duncan, Alan
Atkinson, Peter (Hexham)	Evans, Nigel
Baldry, Tony	Faber, David
Bercow, John	Fabricant, Michael
Beresford, Sir Paul	Fallon, Michael
Body, Sir Richard	Flight, Howard
Boswell, Tim	Forth, Rt Hon Eric
Brady, Graham	Fowler, Rt Hon Sir Norman
Brazier, Julian	Fox, Dr Liam
Browning, Mrs Angela	Fraser, Christopher
Bruce, Ian (S Dorset)	Gale, Roger
Burns, Simon	Garnier, Edward
Butterfill, John	Gibb, Nick
Cash, William	Gill, Christopher
Chapman, Sir Sydney (Chipping Barnet)	Gorman, Mrs Teresa
	Gray, James
Chope, Christopher	Green, Damian
Clappison, James	Greenway, John
Clarke, Rt Hon Kenneth (Rushcliffe)	Grieve, Dominic
	Gummer, Rt Hon John
Collins, Tim	Hamilton, Rt Hon Sir Archie
Colvin, Michael	Hammond, Philip

Hayes, John	Robathan, Andrew
Heathcoat-Amory, Rt Hon David	Robertson, Laurence (Tewk'b'ry)
Horam, John	Roe, Mrs Marion (Broxboume)
Howarth, Gerald (Aldershot)	Ruffley, David
Hunter, Andrew	St Aubyn, Nick
Jenkin, Bernard	Sayeed, Jonathan
Key, Robert	Shepherd, Richard
Kirkbride, Miss Julie	Simpson, Keith (Mid-Norfolk)
Laing, Mrs Eleanor	Spelman, Mrs Caroline
Lait, Mrs Jacqui	Spring, Richard
Lansley, Andrew	Steen, Anthony
Leigh, Edward	Swayne, Desmond
Letwin, Oliver	Syms, Robert
Lewis, Dr Julian (New Forest E)	Tapsell, Sir Peter
Lilley, Rt Hon Peter	Taylor, John M (Solihull)
Loughton, Tim	Townend, John
Luff, Peter	Tredinnick, David
MacGregor, Rt Hon John	Trend, Michael
MacKay, Andrew	Tyrie, Andrew
McLoughlin, Patrick	Viggers, Peter
Madel, Sir David	Walter, Robert
Malins, Humfrey	Waterson, Nigel
Maude, Rt Hon Francis	Wells, Bowen
Mawhinney, Rt Hon Sir Brian	Whitney, Sir Raymond
May, Mrs Theresa	Widdecombe, Rt Hon Miss Ann
Moss, Malcolm	Wilkinson, John
Nicholls, Patrick	Willetts, David
Norman, Archie	Woodward, Shaun
Ottaway, Richard	Yeo, Tim
Paice, James	Young, Rt Hon Sir George
Paterson, Owen
Pickles, Eric	Tellers for the Ayes:
Prior, David	Mr. Oliver Heald and
Redwood, Rt Hon John	Mr. James Cran.

NOES
Ainger, Nick	Byers, Stephen
Ainsworth, Robert (Cov'try NE)	Cable, Dr Vincent
Alexander, Douglas	Caborn, Richard
Allan, Richard	Campbell, Mrs Anne (C'bridge)
Allen, Graham	Campbell, Ronnie (Blyth V)
Anderson, Janet (Rossendale)	Campbell-Savours, Dale
Armstrong, Ms Hilary	Cann, Jamie
Ashton, Joe	Caplin, Ivor
Atherton, Ms Candy	Casale, Roger
Atkins, Charlotte	Caton, Martin
Austin, John	Cawsey, Ian
Baker, Norman	Chapman, Ben (Wirral S)
Banks, Tony	Chaytor, David
Barnes, Harry	Chidgey, David
Bayley, Hugh	Clapham, Michael
Beard, Nigel	Clark, Rt Hon Dr David (S Shields)
Begg, Miss Anne	Clark, Dr Lynda (Edinburgh Pentlands)
Bell, Stuart (Middlesbrough)
Benn, Rt Hon Tony	Clark, Paul (Gillingham)
Bennett, Andrew F	Clarke, Rt Hon Tom (Coatbridge)
Benton, Joe	Clarke, Tony (Northampton S)
Berry, Roger	Clelland, David
Betts, Clive	Clwyd, Ann
Blackman, Liz	Coffey, Ms Ann
Blizzard, Bob	Cohen, Harry
Boateng, Paul	Coleman, Iain
Bradley, Keith (Withington)	Cooper, Yvette
Bradley, Peter (The Wrekin)	Corbett, Robin
Bradshaw, Ben	Corston, Ms Jean
Brake, Tom	Cotter, Brian
Breed, Colin	Cranston, Ross
Brinton, Mrs Helen	Crausby, David
Brown, Rt Hon Nick (Newcastle E)	Cryer, Mrs Ann (Keighley)
Brown, Russell (Dumfries)	Cryer, John (Hornchurch)
Browne, Desmond	Cummings, John
Bruce, Malcolm (Gordon)	Cunningham, Jim (Cov'try S)
Burgon, Colin	Dafis, Cynog
Burnett, John	Dalyell, Tam
Burstow, Paul	Darvill, Keith
Butler, Mrs Christine	Davey, Edward (Kingston)

Davey, Valerie (Bristol W)	Howells, Dr Kim
Davidson, Ian	Hoyle, Lindsay
Davies, Rt Hon Denzil (Llanelli)	Hughes, Ms Beverley (Stretford)
Davies, Rt Hon Ron (Caerphilly)	Hughes, Kevin (Doncaster N)
Davis, Terry (B'ham Hodge H)	Humble, Mrs Joan
Dawson, Hilton	Hurst, Alan
Dean, Mrs Janet	Hutton, John
Denham, John	Iddon, Dr Brian
Dewar, Rt Hon Donald	Ingram, Adam
Dismore, Andrew	Jackson, Ms Glenda (Hampstead)
Dobbin, Jim	Jackson, Helen (Hillsborough)
Dobson, Rt Hon Frank	Jamieson, David
Donohoe, Brian H	Jenkins, Brian
Doran, Frank	Johnson, Miss Melanie (Welwyn Hatfield)
Dowd, Jim
Drew, David	Jones, Mrs Fiona (Newark)
Drown, Ms Julia	Jones, Helen (Warrington N)
Eagle, Angela (Wallasey)	Jones, leuan Wyn (Ynys Môn)
Edwards, Huw	Jones, Ms Jenny (Wolverh'ton SW)
Efford, Clive
Ellman, Mrs Louise	Jones, Jon Owen (Cardiff C)
Ennis, Jeff	Jones, Dr Lynne (Selly Oak)
Etherington, Bill	Jones, Martyn (Clwyd S)
Ewing, Mrs Margaret	Jones, Nigel (Cheltenham)
Fatchett, Derek	Jowell, Ms Tessa
Feam, Ronnie	Keeble, Ms Sally
Field, Rt Hon Frank	Keen, Alan (Feltham & Heston)
Fisher, Mark	Keen, Ann (Brentford & Isleworth)
Fitzpatrick, Jim	Keetch, Paul
Fitzsimons, Loma	Kemp, Fraser
Flint, Caroline	Kidney, David
Flynn, Paul	Kilfoyle, Peter
Follett, Barbara	King, Andy (Rugby & Kenilworth)
Forsythe, Clifford	King, Ms Oona (Bethnal Green)
Foster, Don (Bath)	Kingham, Ms Tess
Foster, Michael Jabez (Hastings)	Kirkwood, Archy
Foulkes, George	Kumar, Dr Ashok
Fyfe, Maria	Lawrence, Ms Jackie
Galbraith, Sam	Laxton, Bob
Gapes, Mike	Lepper, David
Gardiner, Barry	Levitt, Tom
George, Andrew (St Ives)	Linton, Martin
Gerrard, Neil	Livingstone, Ken
Gilroy, Mrs Linda	Livsey, Richard
Godsiff, Roger	Llwyd, Elfyn
Goggins, Paul	Lock, David
Golding, Mrs Llin	McAllion, John
Gorrie, Donald	McAvoy, Thomas
Grant, Bernie	McCabe, Steve
Griffiths, Win (Bridgend)	McCafferty, Ms Chris
Grocott, Bruce	McCartney, Ian (Makerfield)
Grogan, John	Macdonald, Calum
Hain, Peter	McDonnell, John
Hall, Mike (Weaver Vale)	McGuire, Mrs Anne
Hancock, Mike	McIsaac, Shona
Hanson, David	McLeish, Henry
Harman, Rt Hon Ms Harriet	McNulty, Tony
Harris, Dr Evan	MacShane, Denis
Harvey, Nick	Mactaggart, Fiona
Heal, Mrs Sylvia	Mahon, Mrs Alice
Healey, John	Mallaber, Judy
Henderson, Doug (Newcastle N)	Marek, Dr John
Henderson, Ivan (Harwich)	Marsden, Gordon (Blackpool S)
Hepburn, Stephen	Marsden, Paul (Shrewsbury)
Heppell, John	Marshall, David (Shettleston)
Hesford, Stephen	Marshall, Jim (Leicester S)
Hewitt, Ms Patricia	Marshall-Andrews, Robert
Hill, Keith	Martlew, Eric
Hinchliffe, David	Maxton, John
Hoey, Kate	Meacher, Rt Hon Michael
Home Robertson, John	Meale, Alan
Hoon, Geoffrey	Merron, Gillian
Hope, Phil	Michael, Alun
Hopkins, Kelvin	Michie, Bill (Shef'ld Heeley)
Howarth, Alan (Newport E)	Milburn, Alan
Howarth, George (Knowsley N)	Miller, Andrew

Mitchell, Austin	Skinner, Dennis
Moonie, Dr Lewis	Smith, Rt Hon Andrew (Oxford E)
Moore, Michael	Smith, Angela (Basildon)
Moran, Ms Margaret	Smith, Miss Geraldine (Morecambe & Lunesdale)
Morgan, Alasdair (Galloway)
Morgan, Ms Julie (Cardiff N)	Smith, Jacqui (Redditch)
Morgan, Rhodri (Cardiff W)	Smith, Llew (Blaenau Gwent)
Morris, Ms Estelle (B'ham Yardley)	Smith, Sir Robert (W Ab'd'ns)
Mountford, Kali	Snape, Peter
Mudie, George	Soley, Clive
Mullin, Chris	Southworth, Ms Helen
Naysmith, Dr Doug	Spellar, John
Norris, Dan	Squire, Ms Rachel
Oaten, Mark	Steinberg, Gerry
O'Brien, Bill (Normanton)	Stevenson, George
O'Brien, Mike (N Warks)	Stewart, Ian (Eccles)
O'Hara, Eddie	Stinchcombe, Paul
Olner, Bill	Stoate, Dr Howard
O'Neill, Martin	Stott, Roger
Öpik, Lembit	Stringer, Graham
Organ, Mrs Diana	Stunell, Andrew
Palmer, Dr Nick	Sutcliffe, Gerry
Pearson, Ian	Taylor, Rt Hon Mrs Ann (Dewsbury)
Pendry, Tom
Perham, Ms Linda	Taylor, David (NW Leics)
Pickthall, Colin	Taylor, Matthew (Truro)
Pike, Peter L	Temple-Morris, Peter
Plaskitt, James	Thomas, Gareth (Clwyd W)
Pollard, Kerry	Thomas, Gareth R (Harrow W)
Pond, Chris	Timms, Stephen
Pope, Greg	Tipping, Paddy
Pound, Stephen	Todd, Mark
Powell, Sir Raymond	Tonge, Dr Jenny
Prentice, Ms Bridget (Lewisham E)	Touhig, Don
Prentice, Gordon (Pendle)	Trickett, Jon
Primarolo, Dawn	Turner, Dennis (Wolverh'ton SE)
Prosser, Gwyn	Turner, Dr George (NW Norfolk)
Purchase, Ken	Twigg, Derek (Halton)
Rammell, Bill	Tyler, Paul
Raynsford, Nick	Vaz, Keith
Reed, Andrew (Loughborough)	Ward, Ms Claire
Reid, Dr John (Hamilton N)	Wareing, Robert N
Rendel, David	Watts, David
Robertson, Rt Hon George (Hamilton S)	Webb, Steve
	White, Brian
Robinson, Geoffrey (Cov'try NW)	Whitehead, Dr Alan
Roche, Mrs Barbara	Wigley, Rt Hon Dafydd
Rooney, Terry	Williams, Rt Hon Alan (Swansea W)
Rowlands, Ted
Roy, Frank	Williams, Alan W (E Carmarthen)
Ruddock, Ms Joan	Williams, Mrs Betty (Conwy)
Russell, Bob (Colchester)	Willis, Phil
Ryan, Ms Joan	Wills, Michael
Sanders, Adrian	Wilson, Brian
Sarwar, Mohammad	Winnick, David
Savidge, Malcolm	Winterton, Ms Rosie (Doncaster C)
Sawford, Phil	Wise, Audrey
Sedgemore, Brian	Wood, Mike
Shaw, Jonathan	Wright, Anthony D (Gt Yarmouth)
Sheerman, Barry	Wright, Dr Tony (Cannock)
Sheldon, Rt Hon Robert
Shipley, Ms Debra	Tellers for the Noes:
Simpson, Alan (Nottingham S)	Mr. John McFall and
Singh, Marsha	Jane Kennedy.

Question accordingly negatived.

It being after Seven o'clock, THE CHAIRMAN, pursuant to the Order [15 January] and the Resolution [2 February], put forthwith the Questions necessary for the disposal of the business to be concluded at that hour.

Clause 80 ordered to stand part of the Bill.

Clauses 81 to 86 ordered to stand part of the Bill.