HL Deb 09 June 1998 vol 590 cc900-47

4.30 p.m.

The Parliamentary Under-Secretary of State, Home Office (Lord Williams of Mostyn)

My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.—(Lord Williams of Mostyn.)

On Question, Motion agreed to.

House in Committee accordingly.

[The DEPUTY CHAIRMAN OF COMMITTEES (The Viscount of Oxfuird) in the Chair.]

Clause 82 [Grants to Assembly]:

Lord Roberts of Conwy moved Amendment No. 205:

Page 41, line 15, after second ("time") insert (", recognising the needs of Wales in relation to the United Kingdom as a whole,").

The noble Lord said: We have just had an important debate involving noble Lords in all parts of the House. Important though that debate was, we are one-and-a-half hours short of time for this all-important Government of Wales Bill.

If the national assembly is at the heart of the Bill and the assembly's functions are its arteries, Clause 82 provides the assembly's life blood—its finance. It has come as a surprise to most readers of the Bill that the entire financing of the assembly and all its works is largely dependent on that one clause and the absolute discretion of the Secretary of State. There is no guarantee to the assembly that it will be provided with adequate funds to perform its statutory duties and to enable others within its sphere of responsibility to do so.

There is no mention in the Bill of needs in the context of Wales alone or in relation to the whole of the United Kingdom. We regard a reference to the needs basis of spending—the traditional basis recognised by successive governments—as all important. We include such a reference in Amendments Nos. 205 and 206.

It is well known that public spending per head is higher in Wales than in England for a variety of factors, including lower gross domestic product, that add up to the need to spend at a higher rate. Without some acknowledgement of that fact and an assurance that the needs of the Welsh people will be properly and fairly considered, and that the assembly's grants will not be entirely dependent on the whim of the Secretary of State, the people of Wales will be taking an almighty gamble with their future. The bareness of Clause 82 as it stands sends a shiver down most Welsh backs.

Underlying it all is the uncertainty of the Government and Ministers as to the resources that will be available and who will be there to claim them. Will the Secretary of State have a strong voice in the Cabinet after the assembly is established? More importantly, will he have a strong voice in the Treasury? The fear is that the Secretary of State will be a fading figure in the higher reaches of government.

Clause 88 does make provision for the assembly to consider its financial requirements and to state them publicly before the start of the financial year, but that is far removed from the statement of estimated payments required of the Secretary of State in Clause 83. What is to be the relationship between the two statements? What will happen if the financial expectations of the assembly greatly exceed the expenditure proposed by the Secretary of State—as I suspect will be the case? Will the matter be resolved by some Star Chamber procedure involving the Treasury? The least we should expect is consultation and dialogue between the Secretary of State, assembly and other interested parties—as proposed in our Amendment No. 207.

I note in the Guide to the Transfer of Functions Order that the Treasury is withdrawing from the position where its consent and approval is required in the exercise of a multiplicity of functions and powers. When I was a Minister, I could never quite understand why the Treasury had to be so deeply and intimately involved in day-to-day matters. I came to appreciate its value as a long-stop guardian of the public purse. I am not sure whether to welcome or regret the Treasury's withdrawal from many areas of the assembly's expenditure. That development suggests a disinterested view of detailed expenditure and concentration on the main allocations on the part of the Treasury.

There has been much discussion here and in the other place of the Barnett formula. I am delighted to see the noble Lord in his place. That formula decides the public expenditure increases appropriate to Scotland and Wales following agreement on similar increases in the budgets of major Departments of State in England. The formula, which is based on population shares, deals only with year-on-year increases in public expenditure. The noble Lord, Lord Barnett, believes that there is a case for a review and revision of the formula 20 years after he devised it, and the Treasury Select Committee is of the same opinion.

Assurances are given in the Financial Memorandum in this Bill and in the Scotland Bill that the Barnett formula, with minor modifications, will continue to apply—at least in the initial stages of Welsh and Scottish devolution. One understands the Government's reluctance to write the formula into the Bill but I hope that the Government appreciate the wish to see something more concrete than the Secretary of State's discretion. Amendments Nos. 207A and 208B in the name of the noble Lord, Lord Elis-Thomas, express the desire for greater certainty.

Even more important than the Barnett formula are the baseline allocations that are the real foundations of public expenditure in Wales. It is argued that they have developed over time in relation to perceived and proven needs, but the needs of different parts of the United Kingdom are relative and constantly changing. We heard recently the demands of north-eastern England for parity of treatment, and south-west England is also becoming increasingly vociferous. The Government are undertaking a comprehensive survey of public expenditure and it is becoming increasingly clear as time passes that a special survey of the needs of the regions is required, to ensure fair and equitable distribution of resources. If such a survey clearly to spell out the common criteria by which needs are assessed and allocations made is not undertaken, there will be bitter wrangles for resources and recriminations that can only damage the unity of the kingdom.

The Government appeared to acknowledge that argument obliquely in response to the Treasury Select Committee's second report of 10th March. The Government, after referring to their undertaking to update population figures underlying the application of the Barnett formula from 1999 to 2000 and annually thereafter, quoted the Scottish White Paper, stating that any more substantive revision of the Barnett formula would 'need to be preceded by an in-depth study of relative spending requirements and would be the subject of full consultations between the Scottish executive and the UK Government'. An equivalent commitment was given in the Welsh White Paper. I am sure that the Minister is aware that GDP in Wales is well below the UK average, and that full-time earnings, household income and economic activity rates are also lower, so Wales should be expected to gain from any equitable reallocation of resources on a needs basis. But meanwhile Wales is being asked to rest content with the status quo and to take a gamble as to the future.

The Welsh Affairs Committee is rightly concerned about the non-statutory basis of the Barnett formula and agrees with the Treasury Committee, that the needs assessment within the Formula should be brought up to date". That appears in paragraph 90. The longer this issue is allowed to lie on the table, the more agitated people will become at the unfairness of the system within the United Kingdom as a whole. Feelings both within and outside the assembly may be exacerbated by the capital and running costs of the assembly itself, which will be subtracted from other expended areas at a time when the anticipated receipts from Europe are falling away.

While the assembly will have no tax varying powers "initially"—as the Secretary of State once famously said—there is clearly the looming possibility that it could raise extra money in Wales through the local authorities, especially after rate capping is abolished and the business rate returns to local authority control. Local authority grant from the assembly can be reduced and council taxes increased. We hope to return to that subject in due course, but meanwhile Ministers may care to enlighten us as to the Government's intentions in this area where there is a great deal of anxiety which some of us have expressed time and time again. I beg to move.

Lord Barnett

First, I wish to make two apologies. I apologise for interfering in Welsh affairs. I hope that Members of the Committee will not mind if I do so and that after our discussions on the previous business it is not out of order to do so. The previous business is one of the reasons for my second apology. I had thought that we would start our debates at three o'clock and I have an appointment at a quarter-past five which I cannot cancel. I shall be brief.

I wish to refer to Amendment No. 207A in the name of the noble Lord, Lord Elis-Thomas, which refers to the Barnett formula. When I invented it, if that is the correct word, I did not expect it to become a formula. My noble friend Lord Callaghan referred to the formula at some length in his Second Reading speech. He said that he found a "slight odour of sanctity". I did not expect any odour of any kind in relation to the Barnett formula.

On Second Reading, my noble friend said that the formula is really quite simple. It is in one sense, but in another it is complex, as my noble friend made clear. He said, if I am allowed to quote—I have lost track of what one can do and what one cannot do. All I know is that I am not speaking with my hands in my pockets, or in any pocket, although I gather that now one can speak with both hands in one pocket! I am not sure how one does that. To continue, my noble friend said: It was adding something which was fairly rational on to something which was completely irrational".—[Official Report, 21/4/98; col. 1055.] He is right, because the Barnett formula, while it is simple, as the noble Lord said—although he said that any increases would be in the ratio of 85:10:5—applies also to any decreases. However, I am not expecting the present Chief Secretary to propose any decreases in public expenditure. My noble friend Lord Callaghan concluded his remarks by saying that the formula will have to be re-examined. Of course, he is quite right.

First, we need to know what the formula is. It is more than just 85:10:5. It is more than being based only on population. Again, as my noble friend rightly said, it is based on the needs of the population. And rightly so; it should be based on the needs of the population.

I am astonished that what is now called a "formula" has lasted for 20 years under the former Prime Ministers, Margaret Thatcher and John Major. In another sense, I am not astonished because my experience is that governments do not like to change anything if they can help it. They would rather do very little—

Lord Simon of Glaisdale

Quite right!

Lord Barnett

Who said that? However, the formula has lasted all this time, so if the current levels of expenditure are to provide for current needs, clearly something needs to be done. While Scotland, for example, now has a per capita income well in excess of many regions of England, Wales does not, as I have said on a number of occasions. Certainly, one does not need to change the formula simply to help Wales. Wales is helped by having the Barnett formula. However, it is not right that there should be such irrational haggling between the Chief Secretary and Cabinet colleagues in order to set their departmental budgets and then exclude the Scottish and Welsh.

My noble friend Lord Callaghan was right in saying that one of the reasons I invented the formula was to make life a little simpler. At least when Cabinet colleagues had accepted that, I could deal only with England, which was difficult enough.

The simple formula is quite complex. Perhaps I may quote the fourth Special Report from the Treasury Committee, to which I was honoured to give evidence. Paragraph 10(c) informs us that: The difference in spending per head between England and the other countries of the Union on some non-Block programmes, though greater, is significantly narrower than the overall average: for example; social security spending per head in Scotland, which accounts for close to 40 per cent. of all identifiable government spending in Scotland, is only 9 per cent. above the equivalent figure in England, so that once it is excluded and its dampening effect removed, the difference in spending per head widens". I mentioned that to show that the issue is complex. It is not as simple as working on the basis of whatever happens to be the population because other factors are involved.

Paragraph 10(e) of the Treasury Select Committee Report refers to a range of external factors such as sparsity and climate, which would add to the costs of providing services in Scotland and Wales even if policy and demand were broadly the same as England". I am sure that that is right and those who have greater knowledge of Wales than I would agree. I know that it is the case in Scotland because it is one of their arguments for keeping it.

There is a need for a re-examination. It is important that that takes account of all kinds of factors referred to in another part of the Treasury's response. Appendix 1, paragraph 5, states: In view of these commitments, the Government sees no case for reviewing the appropriateness of the Barnett formula now". I emphasise the word "now", although the committee did not do so in the response. The paragraph continues: As the Committee itself observed, the formula is simply used to share out changes in public spending plans in public expenditure surveys. It does so on the basis of population", which provides a fair and objective basis. With great respect to my friends in the Treasury, it does nothing of the kind. Of course, it was not done on a fair and objective basis; it was done in order to make life a little simpler for me. Astonishingly, it has existed for 20 years. I am honoured. I have grown fond of my name and therefore of the name "the Barnett formula". The Government are and were committed in the devolution debates, in the referendum and so forth to maintaining the Barnett formula. I should be delighted but, basically, I am not because I believe it is wrong. However, rather than losing the words "Barnett formula" I suggested to the Treasury Select Committee—and I believe it has accepted the suggestion—that it should be "Barnett formula mark II"; that is, it should be reviewed to take account of current circumstances. I am sure that must be right. We know that the Government are committed not to change it. I regret that and I hope that they will reconsider the matter.

Amendment No. 207A states: All Ministers of the Crown and all government departments making payments to the Assembly shall have regard", and I emphasise the words "shall have regard", to the arrangements known as 'the Barnett Formula' and any future arrangements which may be substituted for it". That is a lot better than the amendment which I gather was moved in another place. That sought to place the Barnett formula into the legislation. That clearly would be crazy and far too rigid and inflexible. I totally disagree with any such amendment.

However, I see no harm in this amendment. Any Treasury Minister—and I include my right honourable friend the present Chief Secretary to the Treasury—would be bound to have regard to the arrangements known as the Barnett formula because that still exists. But regard must be had also to, any future arrangements which may be substituted for it". Therefore, I believe that the amendment does no harm and I could support it in that way. I do not believe that it is necessary but if the Committee agreed to it, I should not object. For the moment, we have the Barnett formula. I am not unhappy to have my name associated with something which for a long time has been relatively rational and intelligent. But today, it is long overdue for reform. Does the noble Lord wish me to give way?

Lord Dixon-Smith

I was merely trying to ascertain whether the noble Lord, Lord Elis-Thomas, wishes to speak to his amendment next.

Lord Barnett

Happily, that is not a matter for me. I hope that the Government will, in the very near future, review the Barnett formula in order to change it to take account of current circumstances. If they happen to call it "Barnett formula mark II", I shall not object.

Lord Elis-Thomas

To give living proof of the intervention, I shall now speak. However, I thought it was preferable to hear from the prophet himself, although I shall not refer to him by his first name because that would be out of order. He is a good prophet Joel on this and other matters.

I refer now to Amendments Nos. 207A and 208A and 208B, which stand in my name. Amendment No. 207A proposes that the Barnett formula or any formula or its equivalent should be included in the legislation. I am grateful for the indications of support for it. The argument is that there should be some objective basis for the allocation of resources to the assembly and, indeed, to the Scottish parliament and, I would argue, to the regional spend in England which is perhaps even less apparent in that the whole of England is still lumped together for most expenditure purposes in the allocation between the different functional departments.

The Treasury Select Committee in another place, to which reference has been made, discussed that issue in some detail. It emphasised the nature of the formula and I shall not go through that debate. I wish to stress that there are two components in this regard—the inherited expenditure and the incremental expenditure, the increase.

My first concern is the future basis on which the inherited expenditure is to be assessed. Is there to be some form of political, if not objective, public expenditure round which takes place involving the Treasury, or are we to move towards the very interesting suggestion made publicly, and also in evidence to the Treasury Select Committee, by Professor Heald, on page 9 of its report, that there should be some kind of territorial exchequer board which would be involved in UK-wide needs assessments. It seems to me that there is much merit in that proposal. We should be looking for a body which is removed from both the immediate political process of the government of the day and that of the funding and spending activities of the assembly and Parliament in order that there should be an assessment of the need and the spending plans.

Indeed, in the memorandum to the Select Committee from the Welsh Office, there is a series of statements on comparisons between the need to spend in Wales and England. I shall not go through that at this stage but it refers to education and training, health indicators, employment indicators, housing, transport, environment and demographic indicators. They indicate the difference in levels of need in those countries. Therefore, there is a need for that to be included in an assessment of spending if we are to avoid continuing political argument between the assembly and the Treasury. As Professor Heald said of the Barnett formula in his evidence, it was a rough rule of political judgment. What is important about rough rules of political judgment is that they should have some socio-economic basis to them in terms of indicators. That will then provide a serious basis for political debate rather than having what we have suffered from over the years in Wales; that is, a tendency to blame what some nationalists call the "London government" for all the ills of the nation. We must move on from that kind of discourse in the national assembly.

I have tabled Amendment No. 208A which relates to Europe. That seeks to make transparent the transfers from the European Union to the UK Treasury for purposes relevant to the assembly. This relates not to transfers of expenditure from the UK Treasury but from the European Union. In the past, there has been criticism about Treasury claw-back. The amendment seeks to make transparent any such funding which appears in the Treasury and then appears as part of the funds of the assembly. The statement referring to that makes it even more transparent.

Lord Dixon-Smith

Perhaps I may speak first to Amendment No. 207A in the name of the noble Lord, Lord Elis-Thomas. I have in this grouping Amendments Nos. 208 and 209 which apply to Clause 83. As the Bill is drafted, they must inevitably appear after we have the debate as to whether Clause 82 shall stand part of the Bill, which I oppose. Therefore, it may be for the convenience of the Committee if I address that particular issue also.

I am not competent to answer the question of whether or not it is proper to use the Barnett formula as the exclusive denominator in this instance, but I suspect that it is not. It is a remarkably simple and durable formula and like many simple and durable things, it has stood the test of time. Therefore, it is right that we still have it and the amendment in the name of the noble Lord, Lord Elis-Thomas, is drafted sufficiently openly not to impose any unreasonable restrictions.

A large part of the funding to the national assembly of Wales will consist of local government funding. For years, that has been calculated on—dare I say it?—a more sophisticated and complex formula than the noble Lord, Lord Barnett, had the wisdom to provide. When I was dealing with it intimately, I always said that if you programmed that formula to produce lamb chops, it would come out with lettuces. It was a wonderful mechanism for causing dissatisfaction in local government. It was adjusted every year to take account of demographic change and the effects of that obviously delighted some people and vexed others. The result was a considerable lack of both transparency and clarity which ordinary members could not understand and those of us who were deep in the workings of the system learned to live with it and perhaps had a glimmering of light in respect of it on some occasions.

Perhaps I may now move on to the issue of whether Clause 82 should stand part of the Bill. I am opposing the inclusion of Clause 82 for the very good reason that, in my view, it is almost the very ultimate in obscure legislative drafting. The question I ask myself is whether we are dealing with the intention of the Bill here or whether we are dealing with the words that are actually written; in other words, which is superior in this particular instance? Whenever I am dealing with a contract outside of this place—and I take legislation as being in the form of a contract—my lawyers always advise me very clearly that it is the wording of the contract that matters and that, if we make a mistake in the wording, the consequences could be rather difficult.

As has already been pointed out, Clause 82 says: 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 accept that the Secretary of State is answerable to Parliament and that, therefore, he must appear before it to explain and justify himself. But it seems to me that that drafting is just a little too whimsical to be satisfactory. Therefore, I have attempted—although I may not have done so adequately—to remove that element of "whimsy" from the Bill by opposing the Question that Clause 82 should stand part and by seeking to amend Clause 83 by way of Amendment No. 208. That would both ensure clarity as regards the funding that will go to Wales and also ensure that the authority of Parliament is stamped on those payments. That is the reason for Amendment No. 208.

Amendment No. 209 deals with a very simple and basic matter which I hope the Government will accept in principle, even if we do not have to put it on the face of the Bill. The amendment would ensure that, when the new assembly comes into being, it knows what funds are available to it from day one. It would require the government statement to be made, before the Assembly takes up its authority". I believe that to be an essential administrative procedure. What I have proposed is a package, which I do not believe to be unreasonable. I wait with interest to hear the Minister's reply because he may be able to allay my worries.

5 p.m.

Lord Davies of Coity

Perhaps I may comment in relation to Clause 82 and the amendments which have been tabled by the noble Lords, Lord Roberts and Lord Mackay. There are two subsections in question, the first of which says: 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". Subsection (2) of the clause is set out in exactly the same vein and refers to a Minister or a "government department". Amendments Nos. 205 and 206 seek to insert in that clause the words, recognising the needs of Wales in relation to the United Kingdom as a whole". In my view that is absolutely superfluous. In fact, if any amendment were to be inserted, it would have been sufficient to say, recognising the needs of Wales". Indeed, it is totally unnecessary to add the words, in relation to the United Kingdom as a whole", given what the noble Lord, Lord Roberts, said about the circumstances facing the Welsh people. It would have been sufficient to describe it in the way that I have suggested, without taking into account what was happening in the rest of the UK.

Amendment No. 207 says: The Secretary of State shall receive representations and consult interested parties, including the Assembly".

The assembly will be the bona fide government of Wales. It does not require any legislation to mandate the Secretary of State to receive representations or to consult anyone. Presumably, that will be done as a matter of form. As regards revenue, I should tell noble Lords opposite that the Government will be providing the money for the Welsh assembly and it will not be raised by way of taxation. This Government are a government who want to democratise at local level. This Government want to ensure that the Welsh assembly succeeds. Therefore, it is this Government who will provide the money to enable it to do the job that it has been established to do.

It strikes me that noble Lords opposite seem to be tabling amendments and seeking to insert caveats in the legislation which can only frustrate the activity of the Welsh assembly and perhaps not let it work as successfully as it otherwise would. Then they might be able to say, "Well, we told you so; we didn't want it in the first place".

Lord Crickhowell

I do not believe that any of the three amendments under discussion would do anything to frustrate the work of the assembly. On the contrary, they seek to obtain guidance as to the effect and meaning of Clause 82, and of the related Clause 83, so as to give us a clearer understanding of the financial arrangements for the assembly. I am sorry that the noble Lord, Lord Barnett, had to leave the Chamber for reasons that we fully understand, because I should like to say a few words about the Barnett formula. It is absolutely appropriate that the name of the noble Lord should be so commemorated because of his introduction of the formula in the manner described by the noble Lord, Lord Callaghan, at Second Reading.

However, in that context, I believe that we should perhaps also commemorate the name of Goschen. In my time in the Welsh Office, whenever we discussed Scottish affairs we remembered the earlier formula dating back to the end of the 19th century, which was the basis upon which money had been distributed to the Scottish Office for many years. What the noble Lord, Lord Barnett, did was to update Goschen in a sense and thereby bring Wales into the formula.

We were told that one of the intentions of introducing the formula was to eliminate some of the conflicts that previously took place. However, if that was the objective, it was not entirely successful. Certainly, during my time in government, there were frequent and sometimes stormy discussions in Cabinet, and in Cabinet committees, about the application of the formula and whether it needed change and reform. Indeed, I recall one such debate in which the Scottish Secretary took part. In those days I was in a happy position because the Barnett formula, as it applied to Wales, was rather favourable to the Principality. It was the Scots who came under the most attack. The balance was pretty reasonable for Wales in that there were no great grounds for the English wanting to give us less or for our formula to come under attack.

However, that was not the case in Scotland. There were strong moves to say that the problems of the north-east of England had become much more severe relative to those in Scotland than had previously been the case, and that there should be a change in the formula. On the occasion to which I referred there was a vigorous debate. Strong words were advanced on behalf of the north-east and, finally, my right honourable friend the Scottish Secretary, as he then was, had to give some ground and a change was made in the formula. But that change had to be so small that it could not be recognised outside because it would be politically unacceptable.

The Barnett formula has survived largely because, up until now, it has not been thought politically acceptable to change it. But that is not a situation which can continue forever. Indeed, the noble Lord, Lord Barnett, set out the reasons why change will be necessary. The Barnett formula no longer accurately reflects the balance of needs among Scotland, Wales and England or, indeed, among the component parts of England which, in some cases, are perhaps in great need of support.

Change will undoubtedly come. We should not get too carried away by these references to the Barnett formula in the sense that we should not be misled into thinking that all we are concerned with in our consideration of the future financing of the assembly is the application of the Barnett formula. As has already been pointed out, it basically deals with incremental changes. But even on that basis it was always possible for Ministers, faced with a particular need or a particular situation, to make a change. I can think of a number of occasions on which, whatever the Barnett formula stated, I negotiated a specific amount to meet a specific need for Wales. I am sure that my successors did exactly the same.

As my noble friend Lord Dixon-Smith rightly pointed out, a different formula applied—certainly in my time—to local government. In my time Wales did rather well out of the local government formula. There was always a certain tension in English local authorities because Welsh local authorities appeared to be treated so favourably with regard to the rate support grant. I make these points because at times even Ministers appear to be guilty of inserting in the Barnett formula characteristics that it does not have. The noble Lord, Lord Williams of Mostyn, seeking to respond to points that I had made on 2nd June about the funding of the university sector in Wales, turned his attention to the Barnett formula. He said that he could not see why the Higher Education Funding Council for Wales, should be treated any differently vis-á-vis assembly decisions, decisions with respect to the Welsh Development Agency, funding for local government or, for instance, plans for improving the trunk road network".—[Official Report, 2/6/98; col. 226.] In fact local government funding was not—and I do not believe is—covered entirely by the Barnett formula. On that occasion because of the grouping of amendments I was not able to respond to some of the points that were made during the brief discussion we had on the funding of the university. However, I return to the issue again because it illustrates well the point I wish to make.

During that debate I expressed concerns about the funding for the university institutions in Wales. I pointed out that it appeared that the funding would come out of the block grant on the basis of the Barnett formula, which is substantially related to population. I expressed concern because the university institutions in Wales have a large number of students who do not come from Wales. Their requirements have to be set in the context of the United Kingdom as a whole. On that occasion the noble Lord, Lord Callaghan, did not side with me because he felt that I sought to do away with the arm's length principle and he feared interference. That was far from my thoughts. I am as robust a defender of the arm's length principle in this connection as he is. However, I fear that the Minister did not reply to the point that I had made. He stated, again at col. 226 of the Official Report of 2nd June, in relation to the Higher Education Funding Council for Wales, The functions of that council will remain the same. All that the assembly can do is what is presently capable of being done by the Secretary of State for Wales. It is possible, of course, that the assembly might wish to give increased funding to HEFCW within its budgetary constraints". My fear is not that it might wish to give more, but that it might be forced to give less because the funding formula that establishes the block grant does not adequately provide separately for university funding. It is possible for the Secretary of State for Wales, or for any other Minister, to make special arrangements each year and to negotiate them with the Treasury and with colleagues to meet the specific needs of any institution, whether it be a university institution or any other institution in Wales.

I hesitate to write formulae into Bills which establish exactly how money should be allocated for the obvious reason that has already been enunciated; namely, that the formulae become outdated. However, I have much sympathy with the amendment of the noble Lord, Lord Elis-Thomas, which at least does not fix the formula on the basis of the existing Barnett arrangements but envisages a future change. It seems to me that we do not know exactly what the Government's intentions are. We are told by the noble Lord opposite that the present Government's intentions towards the assembly are entirely warm-hearted. But that is hardly the basis on which to prepare legislation to last for many decades. We do not really know how this process will work. The paragraph entitled, Financial effects of the Bill, states, The Bill requires the Secretary of State to make payments to the Assembly out of money provided by Parliament. The Assembly will thus become responsible for most of the £7 billion annual budget which is currently controlled by the Secretary of State for Wales. This budget will be updated in future using the existing (population-based) "Barnett" formula, so that its amount will change in line with changes in comparable English spending programmes. The Assembly may also receive payments from Ministers and government departments". That leaves a good deal of uncertainty as to exactly what money will be allocated under what arrangements. We owe a debt of gratitude to those who tabled these amendments in that they will enable Ministers to give us some greater understanding of what they have in mind.

It seems to me that what is important in the Bill as it is drafted is the relationship between Clause 82 and Clause 83. Clause 83 tells us that the Secretary of State has to prepare a statement which shows how the money is to be distributed and made up. It tells us, incidentally, that the statement is to be laid before the assembly. That prompts me to ask, "What about Parliament'.'" I recall that whenever I allocated funding for institutions in Wales—certainly for local government in Wales—I had to make a statement in the House of Commons and I was vigorously cross-examined. I am not clear whether it is the intention that when this statement about an important matter is made in future it should be made in both Houses so that questions can be asked in Parliament about it. It seems to me an issue which is of some importance.

To my mind I suppose the best defence for the assembly—that is to say, the best guarantee that it will be adequately funded by future governments, whatever their political make-up—is that there should be full and adequate statements, preferably made to Parliament and to the assembly, concerning the detail of the funding, how it is made up and whether there are any special allocations included that do not come under the Barnett formula, for example in order to provide for higher education on a basis that compares with university institutions in other parts of the United Kingdom. If we are to have full and comprehensive statements made in both parliaments—if it is appropriate to use that term—then we shall begin to have a defence in future and we shall begin to have a basis on which we can proceed, not on the basis of a rigid formula, or of a formula that may be subject to subsequent change but will always be flawed, imperfect and inadequate, but to a formula and a clear declaration by Ministers of what other factors they have taken into account in making their allocations, what additional items they have included, or what they may have taken away in allocating the funds.

It is only by having openness and the ability of Parliaments to audit and debate what they have done that we provide an adequate defence both for the Parliament of the United Kingdom that the money is being properly distributed and allocated in an appropriate manner and for the assembly in Cardiff that it is being adequately provided for and knows the basis on which its provision is made.

Lord Dean of Beswick

One mistake is being made. It was made by my noble friend Lord Davies. It is that the new assembly, once it is under way, will decide how much it wishes to spend, and on what, and that it is bound to be given the okay on spending levels by the Parliament at Westminster. My noble friend referred to the assembly being brought into being to govern Wales. That is not the case. It is being given certain areas of responsibility. The final governance of Wales will happen in another place, as will that of Scotland, and of Britain. So we shall never arrive at a stage when the Secretary of State for Wales makes out his tab for what he wants, goes in to see the Chancellor of the Exchequer and automatically receives that amount. The Chancellor of the Exchequer may well say, "I'm sorry, but that is far too high. The ratio is not correct. You are even exceeding the amount that Scotland receives per capita". So it will not be as easy as all that.

Amendment No. 207A can be construed as having various interpretations. During the passage of the Scottish Bill, I shall attempt to wreck the Barnett formula. I shall move an amendment seeking a fresh start as regards allocations of finance based on equal distribution. Does the amendment tabled by the noble Lord, Lord Elis-Thomas, accept the very generous settlement that Scotland presently receives, and the much poorer one for Wales?

In Scotland, per capita spending is £871 more than in England; the excess is over twice the amount. I am sure that anybody who wants to battle the case for Wales will not accept Scotland being so generously treated. If we start to cut back on that £871 differential for over 5 million people, there will be a lot more money to spend in Wales and the English regions.

Members present may recall that, some time ago, I tabled a Question on the different per capita spending in England, Scotland and Wales. I asked the Minister what it would cost to bring up the levels of spending per capita for the English regions, for the 50 million people in England, so that it is equal to spending for Scotland, instead of reducing the amount for Scotland. The figure was over £300 billion. It is a sum that cannot even be contemplated.

Whatever happens in relation to this Bill, we have to be careful if we change the Barnett formula. The Scots will say that that is the sort of differential they have, that is the sum they wish to remain in place. It may well be that the pressures are now starting in the English regions. Some of those regions, like the regions of Wales, are probably much poorer than the poorest parts of Scotland. There are now terrible areas in the English regions. In some of the big cities, deserts of squalor have appeared. Houses have been bulldozed that were built less than 20 years ago at enormous expense. Industrial buildings have been bulldozed. They were a total waste of time. There is nothing in their place, merely desert.

My point is that, if more money is required, we should not be too ready to talk about the Barnett formula unless we are prepared to think that government will cut the funding for Scotland. Money of the dimension that is asked for will not be available.

I shall say no more on this Bill. However, I give notice now that I shall attempt to wreck the special financial arrangement which is totally over-generous to the Scots.

Lord Thomas of Gresford

We are opposed to the Barnett formula appearing on the face of the Bill, or indeed any formula. What is necessary is maximum flexibility.

Two arguments are advanced to support the idea of having a formula, guidance, reference to needs, and so on, on the face of the Bill. One is a fear that is said to be widespread in Wales—though I confess that I have not come across it myself—that this Government will starve Wales of funds as soon as the Welsh assembly is in position. I rather agree with the noble Lord, Lord Davies of Coity. This being the important part of the present Government's legislative programme, it is inconceivable that they will starve Wales of funds in the years to come. Should they do so, or should any future government of a different hue attempt to do so, they will meet their nemesis in the usual democratic way through the ballot box. They will lose their seats in Wales, and there will be pressures from all parts of Wales to ensure that fairness continues and that the needs of Wales are met.

The second argument appears to be this. Unless there is guidance, a reference to needs, or a formula—as the noble Lord, Lord Dixon-Smith, said, that causes problems with local government—there will be rows and arguments. The people of Wales will use London government, to use a phrase that the noble Lord, Lord Elis-Thomas, now eschews completely in his vocabulary. There will be rows about London government.

I do not see it that way at all. My view is that there will be constructive argument as to what are the needs of Wales. There will be constructive debate and discussion. Different responsibilities will be exercised by the assembly from those of the current Secretary of State for Wales. They may not be all that different; but they will be different. Over a period of time, arrangements which are practical and achieved in a flexible way may result in some formula which will avoid future argument. But that day is in the future. It will be for the parties on both sides, for the assembly and for the Westminster Government to discuss among themselves what is the appropriate level of funding to cope with Welsh needs and to see whether that cannot be reduced at a later date, after all the arguments have been gone through, into something that is sensible and acceptable and avoids further problems.

To say now in this Chamber that we must adopt this or that formula, or even to suggest that the Government will have no regard to the needs of Wales, and to say that the Government will have no regard, as the noble Lord, Lord Dean has put it, to the needs of other parts of England is fanciful. Keeping the approach simple, straightforward and without formulae in the Bill is in our view the way to proceed.

Lord Dixon-Smith

Before the noble Lord sits down, perhaps he will answer one small concern that I have. I have a great deal of sympathy with what he said, not least with his point about the problems that we shall all face in the future. What is a sensible and rational debate in the Westminster Parliament may be portrayed as such here, but may be portrayed in a totally different way, as a destructive debate, in far-flung parts of the country such as Wales or Scotland. I believe that that is a danger we all face, which has the potential to do great harm to the future unity of the United Kingdom.

5.30 p.m.

Lord Hooson

I did not intend to intervene, but I wish to make one or two comments about a point raised by the noble Lord, Lord Crickhowell. In a debate of this kind we tend to illustrate the division which is apparent in this House. Although I had doubts when I first saw the Bill, I entirely approve of the Government's flexible approach. I think they are entirely right that devolution is a process and not a formulation of something that is to be set in stone. People tend to forget that there will be Welsh MPs. The Secretary of State for Wales will be answerable to Members of Parliament in the House of Commons. He can be interrogated at Welsh Question Time. There will be a Welsh Grand Committee in the other place. That committee, unlike the Scottish Grand Committee, will be concerned with all legislation that affects England and Wales.

If we were concerned with the Scottish Bill, in which there is legislative devolution, or were concerned with giving Wales a federal government, then we would be concerned about the exact words and the dots and commas, because they would be very strictly interpreted. But this is a process. I have no doubt that adaptation will be necessary along the line. For the success of this process, a great deal depends on good will in both Cardiff and London.

The noble Lord, Lord Dixon-Smith, referred to taking legal advice when entering into a contract and being very concerned about the exact meaning of the words. I think lawyers would tell him that, where there is to be an ongoing process and there is a great need for flexibility of approach on both sides, the most dangerous form of words would be one that would restrict that flexibility.

The debate on these amendments seems to me to illustrate the division. Dozens of amendments have been submitted to us by various bodies and individuals suggesting that this or that would improve the Bill. I have come to the conclusion that the basic government approach to the Bill is the right one. We must not write things in the Bill in a way which could be interpreted as being embodied in stone, which would prevent the developing relationship which is so necessary if the assembly is to succeed.

Lord Prys-Davies

I am more cautious in my approach to Clause 82 than my noble friend Lord Davies of Coity and the noble Lords, Lord Thomas of Gresford and Lord Hooson. I have some sympathy with the idea behind Amendments Nos. 205 and 206. My noble and learned friend the Solicitor-General was unequivocal in stating that the present Government had no intention of departing from the existing arrangements. That is excellent, up to a point. That point could come during a process of change. Governments come and go; circumstances change. There is no assurance that the present intention, as expressed by my noble and learned friend the Solicitor-General, will outlive the present Government. Surely we have a duty to Wales to consider that position.

The omission seems to me to raise two wider issues. First, if a future United Kingdom government decided to apply different criteria for deciding the allocation to the assembly which was less favourable to Wales than the current arrangements, there would be a grave possibility that the assembly would not be able properly to perform the functions over which it has statutory responsibility as it has no revenue-raising capacity of its own. That was a point made by my noble Lord, Lord Dean. That situation would be a recipe for trouble.

Secondly, the Welsh assembly will be a powerful body, its members directly elected. Those members will be men and women of ability. An assembly made up of such members, which has no statutory say in the amount of the block grant given to it by the UK Government to perform its statutory functions, could quickly become dissatisfied with its position and could blame the UK Government for its shortcomings. I believe that in that situation the members would have a genuine grievance. That again seems to me to be a recipe for trouble and would offer no hope of stability.

It has been clear from day one of the Bill that it is a compromise between the status quo and the Scottish Bill. But the Welsh assembly must be a stable assembly if it is to have a future. It seems to me that this clause and another clause which we shall discuss at Report stage may be a recipe for instability. Surely that is not what we want.

Lord Davies of Coity

I addressed earlier the amendments put down by the noble Lords, Lord Roberts and Lord MacKay. I think I must have missed something in what the noble Lord, Lord Dixon-Smith, said in respect of his Amendment No. 208. That amendment relates to Clause 83(1), which states: The Secretary of State shall for each financial year of the Assembly make a written statement showing— The noble Lord wishes to amend paragraph (a), which states: the total amount of the payments which he estimates will be made by him for that year under section 82(1)", by replacing "under section 82(1)" with, to the Assembly as approved by Parliament". With the removal of Clause 82, which is what the noble Lord proposes, what payments will be referred to?

Lord Dixon-Smith

That question is simply answered. If Clause 82 is removed, so that Clause 83 becomes Clause 82, the Bill would then read: The Secretary of State shall for each financial year of the Assembly make a written statement showing— (a) the total amount of the payments which he estimates will be made by him for that year to the Assembly as approved by Parliament". That gives a statement of what the payments are; a statement that the Secretary of State will make them; and the authority of Parliament for the payment of those sums. It seems to me that in one simple phrase we encapsulate the totality of Clause 82 and the first part of Clause 83. I suggest that the Bill would therefore be that much simpler, more straightforward and more understandable, which is surely what we should all be aiming for.

Lord Davies of Coity

It seems to me that, if the clause which gives Parliament the authority to provide the money is removed, it will be extremely difficult for the Secretary of State to provide a written statement.

Lord Dixon-Smith

Perhaps we should not continue this exchange.

Lord Simon of Glaisdale

This is obviously an important group of amendments, because if there is any area which is likely to cause trouble, it is finance. All of us want to see this assembly succeed. In view of that there seem to me to be two overriding principles of approach. The first is to eliminate areas of contention and misunderstanding; the second is not to devolve power in any niggardly way.

As for the first, there seems to me to be advantage in the proposal of my noble friend Lord Elis-Thomas to write in the Barnett formula, provided that there is provision—as there is in his amendment—for its improvement. Whatever the position was in the past, in the operation of the Barnett formula we have seen that Wales received less than it should on considerations of comparative need and population. As the noble Lord, Lord Dean of Beswick, pointed out on several occasions, Scotland has done well and, as he never fails to point out, has been considerably better off than the North East of England. The Barnett formula therefore needs to be brought up to date, and that is what the amendment provides for.

I can see no objection to specifying the Barnett formula by name. It is known as such to political scientists, to students of the constitution and to students of public finance. It is a perfectly well understood precept and we should be no more afraid of introducing it than we were afraid of introducing the term "Prime Minister" in the process that took so long before we got round to admitting that there was such a creature in our constitution. Finally, after centuries, it was admitted that there was and that title was admitted to legislation.

We should not be afraid of the Barnett formula. Its advantage is its certainty—that was emphasised by the noble Lord, Lord Dixon-Smith—and its retentiveness; it has stood up to time and does not really admit much room for argument. Although the devolution should be in no niggardly spirit, I do not believe that the suggestion of the noble Lord, Lord Davis of Coity, is acceptable; that is, that we should merely say that it should be a payment according to need. That is an open formula which gives ample scope for contention.

Nor, for once, do I agree with the noble Lord, Lord Thomas of Gresford, or the noble Lord, Lord Hooson, although it is even rarer for me to disagree with him. These matters cannot be airily dismissed by referring to "constructive discussion". It is over a quarter of a century since I was a Treasury Minister. But the phrase "constructive discussion" is not what sticks in my memory, and I suspect that the noble Lord, Lord Callaghan, who was First Lord of the Treasury, would bear that out.

The great advantage of the formula is that it limits discussion. Therefore it would be most safe for us to adopt Amendment No. 207A in the name of my noble friend Lord Elis-Thomas. I venture also to comment on the amendment which is rather on its own, Amendment No. 209, tabled by the noble Lord, Lord Dixon-Smith and the noble Earl, Lord Northesk. It is important that everybody should know where they are before the assembly meets.

I have one final query on Clause 82 which the noble Lord, Lord Dixon-Smith, described as "whimsical". Does subsection (1) cover the ground that is at present covered by the Barnett formula? Is subsection (2), those other contributions mentioned, not covered by the formula? In other words, what are the ministerial payments that are not made by the Secretary of State for Wales at the moment?

5.45 p.m.

Lord Callaghan of Cardiff

I regret to say that in my experience the elevated tone of the discussion this afternoon is not reflected in the Bear Garden of the Cabinet at 10 minutes to one before lunch on a Thursday morning when we are arguing about the last £1 million. That was put in a more vernacular and less elevated way than the noble and learned Lord, Lord Simon, puts it now.

When we deal with the realities of the situation, the Secretary of State is protected by the Barnett formula in the sense that he has a fixed ratio upon which he can rely without fighting too hard. He can sit back and watch the Secretary of State for Defence defend himself against the Secretary of State for Education in the Cabinet discussions that take place and say, "However these two chaps fight it out, at least I have got a formula that I know will be of great benefit to me and I have got a fixed amount".

We must have regard to the realities of the situation. The Secretary of State joins in the argument on the side of the Secretary of State for Education; he does not get much out of defence, but he gets an awful lot out of education. I am talking about the reality of the discussions and not, I regret to say, the rational arguments that affect Members of the Committee.

The Government therefore would be ill advised to depart from the Barnett formula. It is a formula that is well known. It gives protection in a different situation from the one we have had so far. Whether it works out better or worse for Wales in the long run, I am not sure; that may be argued both ways. I notice that the former Secretary of State, the noble Lord, Lord Crickhowell, appears to agree with me.

Recognising that this Government clearly have, as a major preoccupation, the necessity of ensuring that the national assembly starts well, works well and has adequate finance to carry out its duties, I have little doubt that the Barnett formula will be under no pressure to whittle it away from the Government.

As regards the future, with respect to my noble friend Lord Elis-Thomas, I would not wish to tie us down to a specific formula of that sort. If one has a good Secretary of State for Wales he will have plenty to do. He will have to argue the matter in Cabinet and get the benefit that he can. He will be backed by a very powerful public national assembly which can easily rouse the opinion of Wales for what he is going to do. Therefore, I would not write in firmly the Barnett formula. I remember all the rough and tumble that goes on in Cabinet.

The Solicitor-General (Lord Falconer of Thoroton)

In responding to this debate I shall speak to Amendments Nos. 205, 206, 207, 207A, 208, 208A, 208B and 209. As the Committee is aware, all these amendments relate to the financing of the assembly's activities. We are very aware of the importance of Clauses 82 and 83. Therefore, this is a very important debate. I am grateful to be given the opportunity to explain how the financial arrangements are intended to work.

I start by saying as clearly and simply as I can the intentions as regards the funding of the assembly. I hope that I shall put many of the Committee's concerns at rest. The Government made it clear in the White Paper A Voice for Wales that we were committed to retaining the present arrangements for deciding the size of the budget allocated to Wales. We have no plans for a fundamental review of the block and the Barnett formula rules. That formula has been in operation for nearly 20 years and it has been accepted and used by successive governments. We are going further than simply using it; we are making it transparent in its operation. For the first time, last December we published the principles to the block—

Lord Simon of Glaisdale

Does the noble and learned Lord really dispute that the formula is now out of date and that it has operated to the disadvantage of Wales?

Lord Falconer of Thoroton

We do not accept that it is out of date. We believe that it still has considerable life in it. It is appropriate for the present circumstances. As I was saying, we are making its operation transparent. Last December we published the principles to the block and formula arrangements. We shall be publishing the detailed rules in due course. Therefore, as regards the points made by the noble Lord, Lord Crickhowell, it will be clear as to how the sums are calculated.

It goes further than that because as the noble Lord, Lord Crickhowell has pointed out, Clause 83 of the Bill requires the Secretary of State to publish a written statement for each financial year showing what sums will go to the assembly both from him and from other departments and sources. If and in so far as the sums being paid to the assembly do not fall within the application of the block, increased by the Barnett formula, such as for exceptional items of various kinds, that will have to be made clear on the face of the statements made by the Secretary of State. So the people of Wales will be able to see how the sums are calculated.

We do not believe that the formula gives Wales a disproportionate share of the United Kingdom's resources; it is a purely mechanical exercise based on relative populations. Criticism of Barnett often arises because of confusion between the absolute size of the block and the mechanism for adjusting—

Lord Dean of Beswick

During my short speech on this amendment I brought in the Scottish factor as regards the Barnett formula. I was making the point that the Scottish allocation should be a more realistic figure. There must be something wrong with the Barnett formula because, per head of population, Scotland is much richer than Wales, but it can still draw £871 per capita more than England. Wales comes about one-third of the way in between. I do not accept the Government's statement that the Barnett formula has worked well. It has worked very well for the Scots, but not for those south of the Border.

Lord Falconer of Thoroton

It is a formula that has stood the test of time. It has many of the advantages that have been referred to in the debate, particularly those referred to by the noble and learned Lord, Lord Simon of Glaisdale, as to certainty and the noble Lord, Lord Callaghan. It gives the Secretary of State for Wales a great degree of protection in his disputes with other Ministers.

It does not take into account, or seek to reflect, spending needs; it is simply a fair way of dealing with year-to-year changes in public expenditure. Our basic position is that we stick with that approach. We believe that it brings certainty and sense to the position and that it has stood the test of time. We believe that we bring transparency to the arrangements. We also believe that it would be wrong to try to incorporate into the Bill the provisions of the Barnett formula.

Lord Simon of Glaisdale

Is the noble and learned Lord being more "Barnett" than the noble and eponymous Lord himself?

Lord Falconer of Thoroton

I am sorry that the noble Lord, Lord Barnett, is not in his place at the moment. I believe that he was being too modest in defending his own formula. We believe that it is the appropriate means for dealing with the spending needs of Wales at present. We have no intention of changing it at the moment. If there were to be a change in the expenditure system, it would be only after a full spending needs assessment had been undertaken. The review would have to take into account factors such as the levels of GDP, deprivation and unemployment. The assembly would be fully involved in any such review. But we have no plans for such—

Lord Dean of Beswick

Is the Minister saying that there is a review under way at present?

Lord Falconer of Thoroton

I am saying two things. There is certainly no review under way at the moment and there is no intention to start one. I said that if there were one—

Lord Dean of Beswick

Then why did the Minister use the word? Why did he bring in the word "review"?

Lord Falconer of Thoroton

Simply to say that there is neither a review going on nor any intention to have such a review. I apologise if, by using that word, I gave rise to any other impression. I did not intend to do so. I hope that I have made that clear.

Lord Elis-Thomas

I am trying to be helpful. Would the Minister care to speculate on the scenario of a possible review? For example, the noble Lord, Lord Dean of Beswick, quite rightly spoke for the English regions. Were those regions to have regional assemblies, would there not then perhaps be a case for reviewing public expenditure and its allocation throughout the regions and nations of these islands?

Lord Falconer of Thoroton

I do not believe that it would be particularly helpful for me to speculate about the circumstances in which it might be appropriate to have a review. I hope that I have made it clear that no review is taking place at the moment and that there is no intention at present for such a review. We believe it important that that is made clear so that the people of Wales know the basis on which the sums of money will be allocated to Wales once the assembly is operating.

Lord Mackay of Ardbrecknish

I wish to be clear in my own mind. I presume that we are talking about a review of the Barnett formula. There is a review going on of government expenditure called the fundamental expenditure review. It is being conducted by the Treasury. In my capacity as the Treasury shadowman here, I am assured that it is looking at all aspects of government expenditure. The Minister should be careful because of the review that is going on covering all aspects of government expenditure.

Lord Falconer of Thoroton

There is a comprehensive spending review going on, but it is not looking at the application of the Barnett formula.

Lord Dixon-Smith

I accept entirely that the review may not be looking at the "Barnett formula". That deals with year-on-year change. Can the Minister also tell the Committee whether that review might involve the base line which is where the fundamental debate lies?

Lord Falconer of Thoroton

Of course it may. The comprehensive spending review will be looking at expenditure in all major departments of state. If there are changes in those departments, they will extend into Wales through the Barnett formula. But with great respect to the noble Lord, that is a completely different point. The suggestion that any government does not look at their expenditure for such things as health, education or whatever, is absurd. I simply point out that we are looking at expenditure, but that does not seem to me to take the debate very much further forward.

In the light of that basic structure, which we have set out as our policy in relation to payments to the assembly, perhaps I may deal with the amendments proposed, first making the point that there has been much debate about whether we should put the Barnett formula on the face of the Bill. We believe that it would be wrong to put on the face of the Bill any formula or statement in relation to funding. That would almost certainly lead to unworkable complexity.

However, there is a further fundamental constitutional point. The money that will go to the Welsh assembly ultimately has to be voted to it by the UK Parliament. As noble Lords opposite have repeatedly made clear, supply is ultimately a matter for the other House, which is sovereign in that respect. Irrespective of what might be put on the face of the Bill, Parliament—in effect, that means the other place—must approve the supply for the government of Wales, for the assembly. In the light of that fundamental constitutional point, it seems wrong to specify on the face of the Bill how those sums should be calculated. However, I hope that I have made clear on behalf of the Government our policy on the funding of the assembly.

Finally, on the detail, money could not go from the Secretary of State to the assembly without Clause 82 because, despite the ingenious argument of the noble Lord, Lord Dixon-Smith, Clause 83 deals only with statements of what is to come; it does not give the Secretary of State the power to release that money. We have to have Clause 82; otherwise there will be no power for the Secretary of State to give the assembly any money.

6 p.m.

Lord Crickhowell

I am grateful to the noble and learned Lord for giving way. He has made some helpful remarks about the details to be provided under Clause 83. However, can he answer my question about the way in which Parliament is to be informed of those details? The Bill states: The Secretary of State shall lay before the Assembly any statement made under this section". That Vote must not be lost in any general Vote which provides funds. We need a clear statement of detail to be given to this Parliament as well as to the assembly in Wales.

Lord Falconer of Thoroton

The noble Lord is right to point out that Clause 83 relates to written statements made to the assembly, not to this House. The amount to be given to the assembly will have to be referred to in the supply provisions considered by the other place. I cannot give the detail of how that will be done, but I shall write to the noble Lord about it.

I turn now to the detail of the amendments. Amendments Nos. 205 and 206 would require the Secretary of State to take into account the needs of Wales in relation to the United Kingdom as a whole in determining the money he makes available to the assembly. The amendments would require changes to, or even the complete abandonment of, the Barnett formula and I have already said that we have no plans to do that.

Amendment No. 207A seeks to require that payments made to the assembly should have regard to the Barnett formula or any arrangements which replace it. As I have just said, to include any references to the Barnett formula on the face of the Bill would mean that the whole system would need to be built into the Bill and we do not believe that it would be helpful or practical to freeze the details in statute. The amendment would also require the Secretary of State to consult the assembly about any proposals to change the Barnett system. I have already given my assurance that the assembly would be consulted; there is no need for the requirement to be included on the face of the Bill. In view of this, Amendment No. 207A is unnecessary.

Amendment No. 207 provides for statutory consultation. The assembly will be able to make any representations to the Secretary of State about funding that it wishes. We gave this commitment in paragraph D.14 of the White Paper, which stated: The Secretary of State will provide the channel through which the Assembly can conduct any discussions it might wish to have with the Government on financial matters. Thus, for example, if it has any concerns about the detailed operation of the Block formula, the Assembly will be able to make representations to him". Clause 34 of the Bill already allows the assembly to consider and make appropriate representations about any matter affecting Wales. So the assembly may make such representations to the Secretary of State, if it so wishes. During Committee stage in another place, my honourable friend, the Parliamentary Under-Secretary, gave the Government's commitment that there would be discussions about funding between the Secretary of State for Wales and the assembly during the public expenditure survey. No doubt the assembly will wish to give its views on the resources which should be made available to it and any special factors it believes the Government should take into account in reaching their decision. It may also want to give its views on the operation of the block formula.

Amendment No. 208 seeks to amend Clause 83 to insert a reference to the approval by Parliament of the payments the Secretary of State made to the assembly. I remind your Lordships that Clause 82(1) already makes clear that the grant paid by the Secretary of State to the assembly will be out of the moneys provided by Parliament. Thus Parliament will have already approved the money available to the Secretary of State and I hope that the noble Lord, Lord Dixon-Smith, will therefore agree that his amendment is not needed.

Amendment No. 209 seeks to require the statement under Clause 83 in respect of the first financial year to be made prior to the assembly taking up its authority. The first financial year is defined in Clause 155 and means the period from the first elections on 6th May 1999 to 31st March 2000. While the Government have not taken a final decision yet, we would expect that the final transfer order might come into effect in June or July 1999. There is no need for the Bill to spell out when the Secretary of State is to give the statement. For obvious reasons, the assembly will need to know the amount of money available to it before it starts business. There is no need to have a specific provision in the Bill.

I would submit to the noble Lord, Lord Elis-Thomas, that his amendment, Amendment No. 208A, is inappropriate. Subsections (1)(b) and (1)(c) of Clause 83 already require the financial statement to include details of payments received from a Minister or government department, thus covering EU payments received through the intervention board for example, and otherwise than from a Minister or government department, which would cover any payments received direct for the European Union.

The Government very much appreciate the concerns that the noble Lords in whose names these amendments stand have shown for the funding of the assembly. However, I respectfully suggest that their solutions are not practical. We have thought this through carefully and this is the best method of funding, legally, from the point of view of Wales. I invite noble Lords not to press their amendments.

Lord Roberts of Conwy

Before the noble and learned Lord sits down, will he clarify one point for me? He said that our amendments, Amendments Nos. 205 and 206, would mean the abandonment of the Barnett formula. Can he explain that comment further?

Lord Falconer of Thoroton

The Barnett formula is based solely on applying a particular formula to increase the baseline figure year on year. It is not calculated by reference to need. It is simply a formula.

Lord Roberts of Conwy

As we had expected, we have had an interesting debate in which a variety of significant points have been made. It seems to me that the key issue is whether or not we should include the Barnett formula in Clause 82. We heard a statement from the noble Lord, Lord Barnett, to the effect that the formula should be reviewed to take account of current circumstances. The noble Lord pleaded for Barnett mark II. I should add that I listened carefully to the remarks made by the former Prime Minister, the noble Lord, Lord Callaghan of Cardiff.

Members of the Committee are taking two views of the future. Uncertainty has been expressed by my noble friend Lord Crickhowell. The noble Lord, Lord Thomas of Gresford, said that it was inconceivable that a government should starve Wales of funds. Perhaps "starve" is not the right word, but it is not inconceivable that a future government may preside over a reduction of funds to Wales or an absence of an increase in the funds available to Wales in future years.

Lord Thomas of Gresford

Does the noble Lord agree that even when the Barnett formula was applied by the previous government the then Secretary of State for Wales, Mr. Redwood, returned £135 million from Wales to the central Treasury? We have never understood why that happened.

Lord Roberts of Conwy

I am not sure that it did happen. I believe that the noble Lord should address that question to the right honourable Mr. John Redwood. It may be that there was an underspend at the end of a particular year. However, the Barnett formula operated throughout the 18 years of the previous Conservative government and Wales had an increase under that formula year upon year.

I believe that we heard the authentic voice of the English regions from the noble Lord, Lord Dean of Beswick. I am sure that we shall hear that voice further in future. It is very much with that thought in mind that we have adopted the form of words that the Committee sees in Amendments Nos. 205 and 206. We speak of, recognising the needs of Wales in relation to the United Kingdom as a whole". I do not believe that there is any fairer form of words.

Although I agree with my noble friend Lord Dixon-Smith that the clause is the ultimate in obscure legislative drafting, I cannot support him in his intention not to vote for Clause 82 stand part, for the simple reason that if we do not vote that the clause stand part the assembly will get no money at all. We have been confronted with that situation before in connection with the rate support grant. Although one may be very critical of the Government's proposal, there is no option but to vote for it; otherwise, the local authorities will get nothing.

The Minister said that it would be wrong to incorporate the Barnett formula. I am inclined to agree with him. Nevertheless, his statements about the comprehensive spending review, as he called it, or the fundamental spending review, as my noble friend Lord Mackay of Ardbrecknish called it, were not entirely clear. It is possible that such a review can affect the working of the Barnett formula. As the noble Lord, Lord Barnett, himself told us, the formula covers the situation where spending decreases as well as increases. It may very well be that the comprehensive spending review decides that too much is being spent in Wales on, say, health, in which case there may be an adverse effect on that area of spending through the operation of the Barnett formula.

I am concerned that the inclusion of our words that require the Secretary of State from time to time, recognising the needs of Wales in relation to the United Kingdom as a whole, to make payments to the assembly out of money provided by Parliament should mean the abandonment of the Barnett formula. That gives me pause. Were that not to be the case I would divide the Committee on this issue.

6.15 p.m.

Lord Davies of Coity

I did not intervene when the noble Lord, Lord Roberts, wound up the debate. I am sure that tomorrow's Hansard will confirm that, in responding to my noble friend Lord Dean, he emphasised that the words, recognising the needs of Wales in relation to the United Kingdom", expressed sympathy for the English regions, whereas when he sought to justify the argument at the outset he expressed sympathy with the needs of Wales.

Lord Elis-Thomas

My noble friend referred to the Barnett formula operating in relation to a decrease in expenditure. Surely, a problem would arise if hypothetically the fundamental spending review proposed a reduction in health expenditure for England and there was a subsequent decline in the resources available for health in Wales hypothecated within the block as a result of that variance. That would be entirely against the health indicators as set out in the memorandum of the Welsh Office to the Treasury Select Committee. It is when the Barnett formula operates in a negative way that there are cuts if the needs of Wales are shown to be greater than the needs of England in a particular area. Health may not be a good example. The Committee will be able to think of a number of examples—one is education and perhaps a better one is road spending—where there may be a reduction in the Wales block as a result of the reduction in England which is carried through in percentage terms to a reduction in Wales.

Lord Dixon-Smith

Perhaps the noble and learned Lord the Solicitor-General will permit me to probe slightly the question of the comprehensive spending review that is taking place. I believe that the point raised by the noble Lord, Lord Dean, is a very important one. The comprehensive spending review might reveal that some of the English regions were at present disadvantaged. It might reveal that particularly the Scots and in some respects even the Welsh were advantaged. Let us suppose that as a result of that the Government decided to enhance expenditure in those English regions. That would enhance the volume of the English block. If that occurred and the Barnett formula was applied it would also enhance the Welsh and Scottish blocks and thereby defeat the purpose of the exercise. I believe that that illustrates the concern of the Committee about this particular area.

Lord Elis-Thomas

That was precisely the reason I suggested that any review should take place in the context of the English regions. I had in mind that particular example, and I am grateful to the noble Lord.

Lord Falconer of Thoroton

In principle, the Barnett formula looks at changes in expenditure in England and applies formulaically that increase to Wales and Scotland. The comprehensive spending review involves looking at expenditure in all major departments of state. It means that there can be changes in the amount of such expenditure in England. The Barnett formula will then be applied to that, as it has been for the past 20 years. There is nothing sinister or secret about it. Therefore, one can see precisely how it works.

Lord Hooson

Can the noble and learned Lord confirm that the Barnett formula, whether in its present form or a future amended form, will apply to Wales whether or not it is embodied in the Bill?

Lord Falconer of Thoroton

I confirm what the noble Lord has just said. I hope that I have made clear that it is the policy of the Government to continue with the present arrangements. Those include the Barnett formula, which we believe should not be incorporated into the Bill.

Lord Roberts of Conwy

It is on the basis that the noble and learned Lord said that the inclusion of our Amendments Nos. 205 and 206 would mean the abandonment of the Barnett formula that I withdraw the amendments in my name. But we shall study the matter further and possibly return to it on Report.

Amendment, by leave, withdrawn.

[Amendments Nos. 206 to 207A not moved.]

On Question, Whether Clause 82 shall stand part of the Bill?

Lord Dixon-Smith

I have listened with great interest to the full explanations that have come from the Front Bench opposite. I am most grateful for them. Not only I but others will need to study those answers. We may need to return to this, but I am otherwise happy to withdraw the Motion that this clause should not stand part of the Bill.

Lord Simon of Glaisdale

I think that this is probably the time that I should have asked the question that I did ask, namely what is the relationship between subsection (1) and subsection (2). In other words, what are the moneys in general which the Secretary of State pays to Wales at present and will in future pay to the assembly, and what relation does that have to the Barnett formula? And for subsection (2), which Ministers of the Crown make payment to Wales separately from the Secretary of State?

Lord Falconer of Thoroton

There are certain payments that are made by the Secretary of State at the moment but will be made directly by the Secretary of State to the assembly after the assembly is set up. Clause 82(2) will include payments which do not come through the Secretary of State for Wales. These will include, for example, agriculture payments for the common agricultural policy which come through the intervention board and from MAFF. These are dealt with outside the block and Barnett formula arrangements. Payments made by the Secretary of State under Clause 82(1) will obviously be calculated using the Barnett formula. I hope that answers the question, but if there is any part I have not answered, I shall be more than happy to do so.

Lord Simon of Glaisdale

That answers it with admirable clarity, if I may say so.

Clause 82 agreed to.

Clause 83 [Statement of estimated payments etc.]:

[Amendments Nos. 208 to 209 not moved. ]

Lord Mackay of Ardbrecknish moved Amendment No. 209A:

Page 42, line 7, after second ("the") insert ("House of Commons and the").

The noble Lord said: I beg to move Amendment No. 209A and with it to speak to Amendment No. 211A.

These two amendments link Clauses 83 and 88. Clause 83 lays out quite clearly that each year the Secretary of State has to produce a written statement that shows how much money he intends to pay the assembly that year, how much other Ministers of government departments are expected to provide and any other sources of revenue to the assembly and other relevant financial information.

This bringing together of the money which is to go to the national assembly of Wales, as I should properly call it, is to be laid out, interestingly enough, by the Secretary of State, who is not a member of the national assembly of Wales. The Secretary of State is to lay before the national assembly of Wales any statement made under this section, in other words a statement about the money which will be provided.

I am adding in, as my amendment, that he should also lay that information before the House of Commons. The Minister may well say that that has already been done because the Votes laid before the House of Commons will contain all that information. But they will contain it in different and diverse places. It seems to me that if the Secretary of State is to go to the trouble of bringing this altogether in order to lay it before the assembly, it would not cause any additional work to lay it before the House of Commons. That seems to me to be a mild request. The information is already going before the House of Commons in the various Votes, but the bringing together would be important, especially as that bringing together is happening as far as the assembly is concerned. It is important that the Welsh Members of the other place—indeed all the Members of the other place—see how much money is going to the assembly.

Clause 88 is linked to that money because it deals with the expenditure. On the one hand, Clause 83 tells us how much money is going to the assembly and then Clause 88 is a statement which lays out the expenditure of the assembly. Clause 87 deals with expenditure by the assembly, but it is Clause 88 that I am dealing with, which is the statement of that proposed expenditure. I have no quarrel with what the clause says. It quite rightly lays out that the assembly will have to know how the money is to be spent. Subsection (4) says: A statement under this section shall be published by the Assembly as soon after being made as is reasonably practicable". I am suggesting that when the assembly publishes this information it should also be laid before the House of Commons so that the House of Commons can see how much money it has voted in various Votes and has ended up in the Welsh assembly. It can also see how that money is being spent. I think that is wise. I am being careful here because I was reprimanded by the noble Lord, Lord Elis-Thomas, for attempting to take back powers from the assembly on the last Committee day. I am not doing that; I am just saying "inform the House of Commons". It will be informed about the amount of money it sends. I think it should also be informed properly about how that money will be spent. That seems to me to be logical. As the Secretary of State is doing the one partly, he should do the whole thing, and bring the House of Commons in.

If that is not done and the justification for the expenditure is not laid out—because that is what I am asking for—here is this great pot of money. How will it be spent? That is how it is to be spent, and Members of the other place will be able to see that. I think it is important that Welsh Members of the other place can see that. They are rapidly going to become the forgotten men and women in Wales if they are not careful.

It is also important that the other Members of the House of Commons clearly see, as we have said, why Wales is getting more money per head than England. I am sorry that the noble Lord, Lord Dean of Beswick, is not in his place because we have heard from him this afternoon, as we have already heard from other English regions—not just about Wales because I shall be looking at the same problem with Scotland—and we have heard it in London. Every person from wherever they come in this place who fancies himself as mayor of London is busy saying that the Scots and the Welsh are getting too much money.

I believe that Scotland and Wales can show why their expenditure per head should be higher. I hope that one day we will be able to say that it no longer needs to be higher. That is an ambition which the previous government certainly had. They went a long way along the road to getting that income for Scotland and Wales increased. We brought new jobs and new prosperity to Scotland and Wales. But we have to be prepared in the future. It is not my doing that the United Kingdom is being partially broken up, but the more that happens the more people will look over the garden fence and ask "Why is Wales and Scotland getting this extra money?"

I believe we need to lay out the "whys" and "wherefores" as clearly as we possibly can. There is no better place to do that than in the other place. There is no better occasion than once a year, coinciding with the Statement made and published by the assembly about the various ways in which the money it has received will be spent. That is the right way to do it.

I have little doubt that there will be a few Members of the other place who will want to debate those issues. If the information is there, it will at least be an informed debate. If the information is not presented to the other place, it will be an uninformed debate. That will put Wales—we shall come to Scotland—in a poorer position with regard to the arguments with the rest of the UK, as there assuredly will be. There has always been a bit of argument. My noble friend Lord Crickhowell and I have been present when the Treasury tried to take back money from Scotland and Wales. They are not alone. The Treasury tried to take back money from every department. It does so under every government, if the gossip in the press is to be believed.

What one needs to fight the Treasury, and perhaps other parts of the Kingdom, is information. I do not believe that my amendments damage the Bill in any way. They are small, sensible amendments. I wonder whether I may perhaps join my noble friend Lord Balfour, who is in his place, and become the second Member of the Committee who has achieved a victory with the Government accepting my amendments. I beg to move.

6.30 p.m.

Lord Crickhowell

My noble friend has, with great clarity, and with more thought than I have given to it, elaborated upon the demand that I made during the previous group of amendments. I set out my reasons then for saying that we should have clear presentation to Parliament so that there would be an absolute understanding of what the money was going for, in order to avoid conflict and not create it.

It is important that we should have openness. I did not challenge the noble and learned Lord, Lord Falconer, who replied on that point, but his response about how the matter was going to be put to the other place was less than complete. If he has now had a greater opportunity to ponder upon the question, it would be helpful were we to have a clear statement as to how information is to be put to the assembly and Parliament.

I would add just one further comment. It was prompted by the little aside made by my noble friend about the Secretary of State's role. As I have listened to the debate this evening, I have remembered again and again the extraordinary debate we had, many weeks ago now, about the remarkable possibility apparently being considered by the Government that the Secretary of State should also be leader of the assembly. Every time I hear the assembly's duty and the Secretary of State's duty being discussed, the more extraordinary a proposition I believe it to be. It is one to which I shall wish to return at a later stage.

Lord Elis-Thomas

I try not to become provoked, but I have been provoked again by the noble Lord, Lord Mackay. Surely he is into second-guessing again. How much of the activity of and decisions taken in Cardiff Bay are to be second-guessed by Westminster in his scenario? As we have said before in our debates, this is a serious devolutionary measure, where responsibility for the allocation of resources, once transferred, lies with the elected people who will make those decisions. That is, once the block has been determined, subject to the variants of the Barnett formula and once it has been—to use the expression—sent down by the 125, it is Cardiff's allocation. If there are to be continual debates at Westminster second guessing the assembly's activities, that is a certain way of undermining it fiscally.

As to the continual persistence by the former Secretary of State on the issue of Mr. Ron Davies, that is a red herring. If Mr. Ron Davies is to be elected, possibly by one member, one vote, as I read in the press by the Labour members in Wales, of whom there must be about 20,000, to become the assembly's first secretary, there is no way he could be Secretary of State for more than a short period. It could form an effective part of the transitional period were the Government to decide that. Surely we do not need to repeat the argument again. There would be nothing better than the first secretary negotiating with the Secretary of State on the block grant were he to be the same person.

Lord Hooson

It is an extraordinary proposition that one should embody in a Bill such as this a clause that would require that information be provided to the other place. The other place is a sovereign body. This is the devolution of powers to a Welsh assembly. The suggestion that the 40 elected Welsh MPs and the Secretary of State for Wales would not give the information to the other place is ludicrous.

Lord Molyneaux of Killead

I hesitate to intervene in something of a family discussion as an outsider, although one with a great deal of sympathy for the Principality and the new Welsh assembly. I would utter one word of caution, because we in Northern Ireland, until now, when the UK has started to break up, had what was called a separate Appropriation Fund debate, usually twice a year. Colleagues representing hard-pressed regions of England, such as the north-east and north-west, invariably inquired why the headage contribution for Northern Ireland schoolchildren, people in hospital and road expenditure was more than that for their region.

The Northern Ireland Members had to fight a rearguard action in which we said that it was not our fault that the housekeeping accounts were kept separately from those of Great Britain, whereas Northern Ireland had its own, wherein all was revealed. That might be an honest thing to do, but I issue one word of warning. It might bring down upon the heads of the Welsh representatives a degree of criticism from those areas of England which, as yet, do not have separate Secretaries of State.

Lord Falconer of Thoroton

I shall speak to Amendments Nos. 209A and 211A. Without amendment, the Bill provides that Supply will be dealt with by the other place; the other place can debate in extenso the amounts of money that will go to the Secretary of State for Wales in relation to the assembly. After Supply has been voted by the other place, the Secretary of State must then make deductions for the running of his own office and for the provision of the lord lieutenants of Wales.

The Secretary of State then provides the net balance to the assembly. In providing the net balance to the assembly, he must make the written statement required by the Bill. The statement will set out the amounts of money available to the assembly, including credit approvals. The statement will explain how those amounts have been calculated; the calculations will of course be based on the block and formula rules, including the Barnett formula which was debated earlier. That will provide a reassurance to assembly members that the grant made available to them has been calculated correctly.

The statement will, for the first time, make publicly available details underlying the Welsh block grant, and goes well beyond the current Vote arrangements. Those are principally issues, after Supply has been voted, for my right honourable friend the Secretary of State and the assembly. When the assembly has prepared its expenditure plans, it is obliged to publish the written statement required by Clause 88.

As I understand them, the amendments tabled by the noble Lord, Lord Mackay of Ardbrecknish, would provide that the Secretary of State would have to make his statement to the other place about the sums of money going to the Welsh assembly and, what is more, the Welsh assembly, before it tells itself what its expenditure proposals are, has to publish a statement to the other place, which, with the greatest of respect to the noble Lord, appears to involve a degree of not accepting devolution. Surely the Welsh assembly should publish to itself its expenditure programme rather than be forced to send it back to the House of Commons.

The noble Lord's amendment suggests that he does not accept the principle of devolution but presupposes that everything, including the most important element of the assembly, should be supervised by the House of Commons. That is not what devolution is about. I invite the noble Lord to withdraw the amendment.

Lord Mackay of Ardbrecknish

The noble and learned Lord introduces a red herring when he says that I want the House of Commons to supervise. If I had wished the House of Commons to supervise, I would have inserted the words "and approve". I did not insert those words but simply provided that the statement shall be laid before the House of Commons. If the order in Amendment No. 211A bothers the noble and learned Lord, I am happy to change it at the next stage of the Bill, to insert that, A statement under this section shall be published by the Assembly and laid before the House of Commons". I want the House of Commons to know what is happening to its money, rather than to approve or disapprove. The noble and learned Lord made it clear that supply would remain a matter for the House of Commons. Having accepted that, I do not see the problem with laying before the House of Commons the same statement that will be made to the Welsh assembly.

I was not sure whether the noble Lord, Lord Molyneaux of Killead, suggested that it was best to keep the matter so grey that no one can see through it, otherwise they will all start to complain. I can see some argument for that as regards the English regions. But we shall not get away with that. The noble and learned Lord could easily have argued that whether or not the statement is laid before the House of Commons, anyone who wants to know about it will find out. Unless the minutes of the Welsh assembly are to be secret—I do not believe that they will be—it will be easy for Members of another place to find out what has been laid before the assembly.

I do not see the problem. I say this to the noble Lord, Lord Hooson. If the House of Commons raises the taxes, then it has a right to be at least informed of the expenditure.

Lord Hooson

If the noble Lord will give way, surely he is consistently confusing two issues. This is an act of devolution, not of abrogating the sovereignty of the House of Commons. The noble Lord has been a Member of another place, as I have. He knows that there would be no difficulty at any time in raising questions that would disclose all the information before the assembly.

Lord Mackay of Ardbrecknish

I am not sure that there is much between the noble Lord and myself except that I wish the information to be placed publicly in the House of Commons and he sees no problem in the House of Commons devilling around and finding it out.

It is not a question of second guessing, as the noble Lord, Lord Elis-Thomas, suggested. It is simply informing the House of Commons where the totality of money is and how the Welsh assembly proposes in the headlines of its statement to spend it.

We shall come to this issue. I find it impossible to believe that the same person can be the Secretary of State for Wales in one government, with Cabinet responsibility, and the first secretary of another entirely separate government. I believe that that is a constitutional impossibility. However, at present it is a red herring that the noble Lord introduced. No doubt we shall discuss it later.

Lord Elis-Thomas

The noble Lord, Lord Crickhowell, introduced it. It is becoming an obsession with him.

Lord Mackay of Ardbrecknish

I am not sure that it has become an obsession with my noble friend, but it is a matter to which we shall have to return. I cannot see how such a system can work. If it works—I hate to say it—it suggests to me that the Secretary of State from Whitehall will run this devolved assembly. That is total contradiction of devolution. My little amendments are as nothing compared with the suggestion that the Secretary of State for Wales should run the assembly. It does not bear thinking about. If noble Lords want devolution, that is not the way to go about it.

The issue is complicated and difficult. Not only shall I study what the noble and learned Lord said, although I heard it clearly enough, I shall consider again in particular Clause 83(3). It refers to the total amount which the Secretary of State proposes to expend in that year out of the money provided by Parliament. The provision is vague as to whether the proposal is in global terms or in detail.

I shall return to the matter. I take on board some of the points made. I am reassured that the House of Commons will be able to discuss how its money is being spent. However, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 83 agreed to.

Clause 84 [Loans to Assembly by Secretary of State]:

6.45 p.m.

The Earl of Balfour moved Amendment No. 210:

Page 42, line 26, after ("greater") insert ("or lesser").

The noble Earl said: Unfortunately, from time to time circumstances can change quite dramatically. In the course of this century we have had to go through two terrible wars to preserve our democracy; and in the 1930s we had the worst depression ever. My idea is to create some flexibility for the Secretary of State by allowing him to provide a greater or lesser amount of money. I beg to move.

Lord Falconer of Thoroton

Amendment No. 210 seeks to allow the Secretary of State, with the consent of the Treasury, to raise or lower the total amount of loans he might make available to the assembly from the National Loans Fund.

It may be helpful if I explain the purpose of Clause 84. The clause enables the Secretary of State to advance temporary loans from the National Loans Fund to the assembly. The Treasury will set the terms of the loans, including the repayment dates and interest rates. This power is necessary to meet such possibilities as a natural disaster in Wales, which requires the assembly suddenly to incur more expenditure than it had planned.

The option of issuing a temporary loan to the assembly gives the necessary flexibility to meet circumstances such as these where the assembly's outgoings are greater than its income. But I stress to the Committee that the decision on whether to advance a loan would rest with my right honourable friend and the Treasury, not the assembly. The upper limit of £500 million was decided by the Government, and also applies in the Scotland Bill. I stress that it is an upper limit, and a lower amount could be advanced in a particular case if the circumstances demanded.

The value of money rarely, if ever, goes down and I do not believe that it would be appropriate to lower the £500 million limit set down in Clause 84, which would be the effect of the noble Earl's amendment.

I hope that that reassures the noble Earl, and I therefore invite him to withdraw his amendment.

Lord Rees

Before my noble friend withdraws the amendment, should he decide to do so, I wish to be assured. Can the time limit on such loans endure from financial year to financial year? Alternatively, must they be repaid within the course of the financial year in which they were originally made? It is a most important point. Loans could drag on for a long time. Is there any limit in the aggregate? Let us suppose that there is a loan of £500 million in the aggregate in one financial year that is not fully repaid in the course of that financial year. Can the Secretary of State make a further loan which would take it over the £500 million limit in the next year? These points are left a little unclear. Perhaps I have not read the Bill with sufficient exactitude. I hope that I can be reassured on those points.

Lord Falconer of Thoroton

The loans must be repayable within the financial year. The precise repayment date within the financial year is a matter for the Treasury. The aggregate outstanding at any one stage cannot exceed £500 million. I think that that answers all the noble Lord's questions.

Lord Rees

Is the time limit to be found in the Bill?

Lord Falconer of Thoroton

I do not think that it is. The relevant provision is Clause 84(3) which states that, Any loans which the Secretary of State makes under this section shall be repaid to him at such times, and interest on them shall be paid to him at such rates and at such times, as the Treasury from time to time determine". That aspect is not on the face of the Bill but it is envisaged that loans will always be repayable in the financial year, and the aggregate cannot be more than £500 million.

Lord Mackay of Ardbrecknish

If I heard the noble and learned Lord correctly, he told my noble friend Lord Rees that any money under subsection (1)(a)—because it is unlikely that there will not be a time when the assembly will need a working balance under subsection (1)(b)—would be for temporary excess expenditure. I understand the sort of reasons that may require a loan, when the government in Wales needs money for which it has not budgeted. I want to ask when that money will be paid back. The noble and learned Lord told my noble friend that every loan given would have to be repaid in the same financial year. If funds are given under subsection (1)(a), the problem for the assembly may be that it might exceed its expenditure for that year. I was surprised to hear the Solicitor-General say that. If at the end of the financial year any surviving unpaid loan remained, would that be taken off the top of next year's money as a more sensible way of dealing with crises? If the noble and learned Lord's answer to my noble friend is correct, that is fine—but I thought that the assembly would at the very least be able in special circumstances to repay a loan the following year; otherwise, the need for the loan may not be as urgent as I expected when I read the Bill.

The Earl of Harrowby

It seems extraordinary to discuss this matter because such payments are by their very nature made in a crisis. The odds are that they will never be repaid but will have to be funded from the following year's budget or another source. Actual repayment will not be possible. Supposing there is a major earthquake or something like that, the money will be spent. Such loans can be funded only from another source and almost certainly at a later date, not the same financial year.

Lord Falconer of Thoroton

It is envisaged that where there is an emergency of the sort that I described, by the end of the financial year in which the disaster has occurred and the need has arisen, the assembly will have the necessary funds to repay the loan—whether from a supplementary estimate or its own resources. That is the answer to the point made by the noble Lord, Lord Mackay of Ardbrecknish.

The Earl of Harrowby

So the assembly would not repay the loan?

Lord Falconer of Thoroton

It would, because there would be a supplementary estimate. The money would come from central government and would be repaid that way. The loan provision is a sensible way of making money available when one cannot go through the usual necessary procedure quickly because a national emergency of some sort has overtaken Wales.

The Earl of Balfour

I am grateful for this short debate because I did not fully understand the meaning of Clause 84. I am grateful also to the noble and learned Lord for his explanation. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 84 shall stand part of the Bill?

Lord Dixon-Smith

I am grateful to the Solicitor-General for his response to the amendment of my noble friend Lord Balfour, which helped clarify the background, and for his letter to me, in which he explained the emergency purpose for which such sums are provided. I am still not wholly convinced as to the need for the clause.

To cite local government precedent in respect of emergencies, it has for a long time operated under the Bellwin formula, whereby a local authority would be required to meet the first product of a penny rate itself. Thereafter, the Government would step in and meet expenditure pound for pound over and above that first sum. That is one way of managing things.

The second problem is that we are dealing with an assembly that will have a budget of around £7 billion. A competent county treasurer—and I assume that the national assembly will employ somebody superior to a competent county treasury—would expect to run his funds with a balance of between 2 per cent. and 3 per cent. at most. On occasion, treasurers have been squeezed down to between 1 per cent. and 2 per cent. The sum of £500 million happens to represent 7 per cent. of budget. I accept that one might be dealing with a great emergency but I find it extremely difficult to conceive of an emergency on the scale that Clause 84 implies that would not involve the UK government immediately, as of necessity. So I have some difficulty with the need for the clause.

Where will the £500 million reside? Clearly it will not reside with the assembly, so presumably it will reside in the English Parliament and in the English Treasury, with the Secretary of State having a right to draw funds down in an emergency situation. I infer that the fund will be part of the Chancellor of the Exchequer's contingency reserve but I am not certain. It would be useful to know precisely where the £500 million will reside. If it resides in the UK, its expenditure will have to be authorised automatically in emergency situations. If so, I am almost convinced that Clause 84 is not needed because the money will be provided anyway from funds that already exist elsewhere in the UK budget. I am sorry to trouble the Solicitor-General further but I must press him for a greater explanation.

Lord Mackay of Ardbrecknish

While my noble friend was talking, I realised that I had a second point to raise with the Solicitor-General. Let us assume that the government in Wales need extra money to meet some eventuality and a loan is granted. It is possible that the government in Wales might not be able to find the money from their budget to pay it back. In that case, the supplementary vote would be called into question, but that vote is of the other place. What would happen if the other place decided not to agree to give a supplementary vote? Would it be possible for the Welsh assembly to carry over the loan to its next financial year? If it is not possible to do that, would it be possible for the assembly to do a sleight-of-hand and obtain another loan in the following financial year in order to pay back the loan for the current financial year? In that circumstance, no loan would be carried over into the next financial year. I should be grateful for guidance on what the Government envisage in such a situation, which is new to this country. However, as my noble friend rightly reminded us, although the Bellwin formula caters for such similarities in local government, there must be a clear understanding of what will happen in the kind of eventuality I have put forward.

Lord Falconer of Thoroton

The noble Lord, Lord Dixon-Smith, indicated that the circumstances in which he thought the national loan fund would be called upon under Clause 84 were difficult to imagine and would be of an exceptional kind. We agree. It is a remote fall-back position. Indeed, it is unlikely that Clause 84 will ever be called upon. However, we believe that it is sensible to make such a provision. It would be an exceptional circumstance in which the assembly could not provide the money in the short-term. If in a substantial national disaster the assembly could not meet the cost, it would apply through the Secretary of State to the Treasury for a short-term loan in order to deal with the matter.

The Government believe it entirely sensible to provide that fall-back arrangement, and it is difficult to see the arguments for not doing so. If the provision were not made, taking the advice of the lawyer of the noble Lord, Lord Dixon-Smith, it would have to be written in. That seems to me to be a very silly circumstance indeed. One should prepare against the day, hoping that the provision will never be used. The noble Lord's comparison with local authorities is, with the greatest of respect to him and his experience, misconceived. The assembly does not have any tax-raising power, whereas local authorities have limited tax-raising powers. It is unlikely that the provision will be used, but it is sensible to make it.

The point made by the noble Lord, Lord Mackay of Ardbrecknish, amounted to asking what happens if the loan is made but the Commons does not agree to it. That is a risk that one must take, but having regard to the nature of the Treasury, one would imagine that it is unlikely to grant the loan unless it is sure that ultimately supply will be granted by way of a supplemental estimate. In effect, a bid is being made on the reserve, a reserve is being held in the National Loans Fund, and I suspect that the situation would be so unique that few people would doubt the correctness of such a loan being made.

For all those reasons, the clause is sensible. It is right that the matter has been raised in the Committee and I hope that I have put everyone's mind at rest as to its "sensibleness".

Lord Dixon-Smith

I thank the noble and learned Lord for his explanation. Perhaps he will allow me to press him on a narrow point. I accept the generality of his argument, but the specific point which causes concern is how the £500 million was arrived at. Clearly, it is an arbitrary sum. However, I am puzzled by the fact that the sum is the same for Scotland. As Scotland has double the budget, one might have assumed that the sums would be different.

Perhaps the noble and learned Lord would prefer not to have to answer that question tonight. He might prefer to reply to it by letter, because it seems entirely unreasonable, if one looks at fairness and proportionality, that the two separate organisations should have the same fund for emergency purposes.

Lord Falconer of Thoroton

It is an upper limit. When one is talking about remote and unforeseeable consequences, it is difficult to provide any mathematical or scientific basis. It simply seems to the Government to be a sensible figure to take for the upper limit. I can take the point no further. I shall not write to the noble Lord because that is as far as we can take it.

Lord Simon of Glaisdale

After dealing with important questions of public finance which the Committee has been canvassing, I feel diffident in raising a small drafting point on subsection (6). I feel all the more diffident because I have raised the matter previously in connection with other Bills without getting anywhere. But hope springs eternal in the legislative breast.

Subsection (6) states: The Secretary of State may from time to time by order made with the consent of the Treasury substitute the amount specified in subsection (5) such greater amount as is specified in the order". The words "with the consent of the Treasury" are utterly unnecessary. They turn up in Bill after Bill and are repeated in subsequent editions and in the Acts. Cumulatively, enormous sums are expended quite unnecessarily. It is only in the Wonderland of Whitehall that a Secretary of State would exercise a statutory power to increase a limit on lending without the consent of the Treasury. The words are included in Bill after Bill simply as a sop to Treasury paranoia, which is terrified that spending Ministers are in some way subverting its strict regime.

I invite the noble and learned Lord to say specifically whether he can conceive it possible that if the words were omitted the Secretary of State would increase the loan limit without consulting and obtaining the consent of the Treasury. That question can easily be asked and I invite the noble and learned Lord to answer it.

Lord Falconer of Thoroton

The noble and learned Lord, Lord Simon of Glaisdale, is right in saying that it is extremely unlikely that the Secretary of State would increase the limit without first obtaining the consent of the Treasury. Indeed, the Treasury controls all access to the loans fund and therefore it could be increased in practice only with the consent of the Treasury. But far from that being a reason for not including the words on the face of the Bill, surely it is a reason for including them. It means that the Bill sets out precisely what has to be done and who has to do it before the limit can be increased. Surely, accuracy in a Bill as to what is to happen is a good thing rather than a bad thing.

Lord Simon of Glaisdale

We have at least been given a reason this time. All too often the reason has been that the words are not necessary or, as my noble and learned friend Lord Mackay of Clashfern used to say, "not strictly necessary". To include unnecessary words in order to make things quite plain is not good enough in drafting. If we were going to adopt that course we should mention every consultation between any two Ministers. No one suggests that we should do that, not even the noble and learned Lord. Therefore, if the words are unnecessary it is no good saying that that is all the more reason for including them. It is not; it is a reason for omitting them.

Clause 84 agreed to.

Clause 85 agreed to.

Clause 86 [Destination of receipts etc.]:

Lord Elis-Thomas moved Amendment No. 210A:

Page 43, line 5, at end insert (", or (c) as a result of the sale of any goods or services by the Assembly or any person or body acting on its behalf,").

The noble Lord said: This is a not very cunning and rather transparent attempt before supper to seek to enable the assembly to retain some resources which it might generate as a result of its own income-raising activities. That would provide it with a little entrepreneurial activity and give it some incentive. The sums that would result from the sale of goods and services by the assembly or on its behalf would not be substantial sums and not of the order set out in our earlier debate on emergencies. It would provide the assembly with a small source of income or revenue which would be of benefit to it in the carrying out of its services. I beg to move.

Lord Roberts of Conwy

It seems to me that the noble Lord has a very fair point. The assembly will have goods of which it may wish to dispose as surplus to requirements. It may also provide services for which it can charge. It would be a shame if all the proceeds disappeared into the Consolidated Fund.

Perhaps I may introduce another item into this amendment; that is, property. I presume that if the assembly were to sell property, the proceeds of the sale would be retained, I hope, by the assembly.

Lord Falconer of Thoroton

It may assist the Committee in considering Amendment No. 210A if I explain why Clause 86 is is in the Bill.

The general effect of legislation is that receipts earned by the Crown have to be paid into the Consolidated Fund. The Treasury, however, has the power under the Public Accounts and Charges Act 1891 to direct that sums do not have to be surrendered but may be used as if voted by Parliament.

Unfortunately, the provisions of the 1891 Act will not apply to the assembly because they relate only to government departments that prepare appropriation accounts. The assembly will not prepare appropriation accounts because it will obtain its funding from the Secretary of State and not directly from Parliament.

Clause 86 is necessary both to make it clear that the assembly's receipts are to be surrendered to the Consolidated Fund but also to provide for certain exceptions. One of those exceptions, which is Clause 86(6), is a power for the Treasury to direct that the assembly does not have to surrender certain receipts to the Consolidated Fund, in just the same way as it can direct the Welsh Office not to surrender certain sums now. The underlying principle is to ensure that the assembly will be in no worse position than the Welsh Office is now.

Amendment No. 210A makes the point that income from any goods and services that the assembly may provide must be retained by the assembly. However, the Bill can allow such income to be retained because it could be the subject of a direction under subsection (6). An example at the present time is the income which Cadw generates from entrance fees, sales of souvenirs and so on. Under a current Treasury direction, the Welsh Office is able to retain this income to help meet Cadw's running costs. These matters are better handled through Treasury directions, which have a flexibility that this amendment lacks. In view of my explanation, I invite the noble Lord to withdraw his amendment.

It goes without saying that the point that I have made in response to the amendment moved by the noble Lord, Lord Elis-Thomas, applies also to the remarks of the noble Lord, Lord Roberts of Conwy. Any property sold could be the subject of a Treasury direction which would permit the assembly to retain the receipts.

Lord Elis-Thomas

I am grateful to the noble and learned Lord for that response. I am pleased to understand that what I propose is covered by Clause 86(6) and that if the national assembly building were to be of such quality that souvenir models were to be sold worldwide, the assembly would be able to retain the revenue. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 86 agreed to.

Clause 87 [Expenditure by Assembly]:

Lord Roberts of Conwy moved Amendment No. 210B:

Page 43, line 28, leave out (", or in connection with,").

The noble Lord said: This amendment tightens the wording of the clause and seeks to remove any laxity or ambiguity in the wording. Amendment No. 210B would ensure that the assembly shall incur expenditure directly only in the exercise of its functions. We seek to exclude the phrase "or in connection with" the exercise of any of its functions which seemed to us to introduce an element of laxity.

Amendment No. 210C seeks to eliminate any vagueness and concentrates expenditure on securing the attainment of the assembly's objectives. As it stands, the wording seems to us to be diffuse. We have highlighted what we consider to be a weakness in the clause which may allow a shade too much latitude in relation to expenditure and the proper control of it. I beg to move.

7.15 p.m.

Lord Falconer of Thoroton

These proposed amendments to Clause 87 should be seen in the context of Clause 41, which provides supplementary powers to the assembly to do anything which is intended to facilitate, or is conducive or incidental to, the exercise of any of its functions.

The effect of the amendments would be to restrict the assembly's expenditure specifically to the functions of the assembly, or to the attainment of objectives within the competence of the assembly. So the amendments would apparently preclude expenditure on such incidental action, notwithstanding that the Bill authorises such action. Therefore, the assembly can do things incidental to its functions but cannot pay for them if these amendments are accepted.

By tying its hands in that way, the assembly would not be able to support activities unless they were specified as functions, or linked to the attainment of objectives of the assembly itself. In this way, for example, the assembly would be unable to pay for the running costs of the assembly itself as this was not a function per se of the assembly. Nor would it be able to support the activities of another body which lay outside the direct competence of the assembly, but where the assembly had an important supporting role to play.

I am sure that the Committee would wish the assembly to have greater flexibility than is allowed for in these amendments, consistent with Clause 41, and I invite the noble Lord to withdraw these amendments.

Lord Roberts of Conwy

The noble and learned Lord does not carry much conviction when I look at Clause 41, which is one of those "supplementary powers" clauses which enables the assembly to do anything which is calculated to facilitate or is conducive or is incidental to the exercise of any of its functions.

This suggestion that if my amendments were accepted, somehow or other the assembly would be able to do various things but not pay for them is somewhat far-fetched. Nevertheless, I must accept the noble and learned Lord's judgment on this matter and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 210C not moved.]

Clause 87 agreed to.

Clause 88 [Statement of proposed expenditure etc.]:

Lord Dixon-Smith moved Amendment No. 211:

Page 44, line 1, at end insert— ("( ) Where in any year the Assembly proposes to vary the sums received from the Secretary of State relating to local authorities, it may do so only with the prior agreement of the Secretary of State and the local authorities.").

The noble Lord said: Amendment No. 211 standing in my name and that of my noble friend Lord Northesk is an attempt to provide some degree of clarity and certainty in the financial arrangements between the Secretary of State for Wales, the national assembly for Wales and local government.

The matter is not at all straightforward. At present, the financial arrangements for local government are the consequence, if I can call it this, of a bipartite negotiation with the Treasury as a shadowy third party in the background, probably operating a force majeure clause which no one really appreciates but which everyone has to accept exists.

That negotiation is, perforce, very complicated. Mention has already been made of the distribution formula for local government moneys. It is rarely a negotiation which satisfies everyone. I have a strong suspicion that it does not satisfy the Secretary of State for Wales because of the force majeure operated by the Treasury, which is not a party to the negotiation. But now we are about to insert a third party into that negotiation process. The money will go from the Secretary of State for Wales to the assembly, which, as I understand it, has the power to adjust it. Otherwise, it would simply be a post-box and there would be no point in the exercise.

Indeed, part of the purpose of my amendment is to enable the assembly to adjust that sum but also to ensure that it is a negotiated change involving the other two parties rather than, if you like, a power to change the arrangements which have been arrived at in quite a difficult way unilaterally. It is really how we change that negotiating situation from two or three parties to three or four parties that has given rise to the need for my amendment. Without it, we would have a situation where the current negotiations would be meaningless. It seems to me that those negotiations must go on because, in his turn, the Secretary of State has a negotiation going on in parallel with the Treasury to determine his funding which he will then hand back. It is quite a round-about situation.

However, there is a complicating factor behind that negotiation; namely, that local government has its own tax raising powers. It is possible that the assembly could decide, as a matter of tactics, that it wished to adjust the funding that it receives by giving local government less. That would enable it to spend more elsewhere and, thereby, inadvertently, raise or compel additional taxation on the people of Wales. I am not saying that that is wrong and, similarly, I am not saying that the assembly should not do so. However, what I am saying by way of my amendment is that it should be an open negotiation in which everyone plays a part so that the outcome is agreed. It may not satisfy everyone as regards such outcomes; it will inevitably have to be a compromise and one which may well leave an element of distaste in every participant's mouth.

As I said, my amendment is an attempt to clarify a change in a negotiating pattern so as to try to keep everyone in some degree of agreement—certainly the greatest degree of agreement possible—and, at the same time, give local government the greatest degree of certainty that is possible as to what its funding should be in this new situation. I beg to move.

Lord Roberts of Conwy

I am grateful to my noble friend for explaining the purpose of his amendment and its background so clearly. It has been made abundantly clear that, unlike the Scottish parliament, the Welsh assembly will not have a tax varying power. Indeed, unlike Scotland, no such question was put to the Welsh people in the referendum. Therefore, the assembly will be largely dependent on the grants given to it by the Government under Clause 82.

Nevertheless, the assembly will no doubt have its own priorities for expenditure and may find itself with inadequate resources to meet its proposed commitments. Naturally it will look for possible savings and other means whereby it may raise additional finance. One of the major areas of public expenditure financed by direct grant from the assembly will be local government which takes up about one-third of the Welsh block total of £7 billion. Another third is taken up by health and personal social services where the pressure is for ever more expenditure and where there is very little scope to raise extra revenue while the service remains free at the point of delivery.

Therefore, it would be surprising if the assembly did not consider the possibility of reducing its financial support to local authorities, thus forcing them to raise a higher proportion of their total expenditure from council tax and the business rate. The rate support grant has traditionally covered a higher proportion of the totality of local authority spending in Wales than in England because of the lower rateable values prevailing in Wales. Rate support grant is not hypothecated and its level is determined by the Secretary of State. It will be similarly determined by the assembly.

My noble friend's amendment would simply require the assembly to secure the agreement of the Secretary of State and the local authorities before it varied the sums payable. That is very much in tune with the spirit of partnership between the assembly and local authorities that later clauses in the Bill seek to encourage. Local authority spending and the rate of council tax have been restrained in the past by central government control, coupled with rate capping. The business rate has also been constrained by central government.

As the Secretary of State's functions in relation to local government are being transferred to the assembly, it looks as if the rate capping restriction on local authorities will come to an end. Indeed, as late as February of this year, the Secretary of State said: Certainly, I want to get away from the capping regime. I think that it is unhealthy … as a Government we are opposed to the crude and universal system of capping".—[Official Report, Commons, 11/2/98; cols. 385–387.] If the assembly were to reduce the rate support grant, local authorities could make up the shortfall by raising council tax rates. Of course, if rate capping were to be abolished, they could raise council tax rates anyway, and probably would.

If the business rate were to return to local control and cease to be uniform, I fear that, as in the past when that situation prevailed, local businesses would bear the brunt of increased local authority spending. They would be discouraged from investing in and providing local employment.

If those things were to happen, one assumes that they would not go unnoticed by the Treasury. In the other place my colleagues tabled a new clause to stop the assembly forcing local authorities to raise their council tax without Treasury approval. However, as I said earlier, the Treasury's attitude towards the assembly appears to be one of withdrawal from the detailed supervision and concentration on the main spending allocations. An increase in council taxes would mean an increase in the general level of taxation in Wales and might breach the principle of Exchequer control over such matters.

The key points that I have made were very well put by Robert Hazell of the Constitution Unit of the School of Public Policy at University College London in his commentary on the Welsh White Paper, issued in September of last year. He said: If the Assembly's budget is squeezed, it could in turn squeeze revenue support grant to local authorities, and rely on their capacity to increase levels of council tax to make up the difference". He goes on to explain that further. He says, The only other variable source of revenue would be non-domestic rates. If these were returned to local authority control—as local government has demanded—there would be a greater capacity for the Welsh Assembly to precept because local authorities would have a stronger revenue base". He then makes the following interesting point: As with law making powers, the real issue behind revenue-raising power is one of autonomy … if the principal purpose behind devolution is the more efficient administration of policies determined by central government, then it is appropriate for the Welsh Assembly to continue to be funded entirely through block funding. But if the Assembly is to have responsibility for making real choices about the level and nature of public spending in Wales it will need power to raise some of its own revenue. Without such power the Assembly will have no fiscal accountability to the Welsh people". I detected no strong demand during the referendum campaign for the assembly to have tax-raising powers or the fiscal accountability that goes with it. Nevertheless, it would seem to be an imminent possibility, although it seems strange in a country that requires fiscal support from central government rather than additional burdens placed on its people. My noble friend's minimal safeguards would appear to be the minimum necessary to keep the assembly's spending plans in check. Some of us would argue that primary legislation should be required before that kind of back-door taxation is allowed.

7.30 p.m.

Lord Elis-Thomas

The Opposition are yet again falling into this trap of seeking to give devolutionary powers and take them away. Let us introduce some realpolitik into this issue. Let us imagine a governing party or a governing coalition in the national assembly facing election at the end of the first four-year term on the same day as local government elections are held. In year three there will begin to be flexibility. Clearly there will be no flexibility up until year three because the current Welsh Office budget applies until then. As I said, flexibility begins to emerge in year three. As regards negotiations between the national assembly—which will take over from the Secretary of State responsibility for local government funding—and local government surely the various parties that will sit in the national assembly will tell the secretary for local government and environment and the members of the assembly subject committee on local government, "For goodness sake, make sure that you have a good settlement because remember we all face election next year". That is what fiscal accountability is all about. There will be fiscal accountability as regards the Welsh electorate.

Of course the noble Lord, Lord Roberts of Conwy, can argue—he has been involved in discussions with Welsh local authorities—that this is back-door tax raising and an indirect taxation power, but surely devolution is all about granting the block, and the distribution of the block for local government, to the assembly and leaving the assembly to determine the interrelation between local government spending and its own spending, given that that all happens in the full light of day of a political process. That is what it is all about.

Lord Falconer of Thoroton

The amendment of the noble Lord, Lord Dixon-Smith, seeks in effect the agreement of the Secretary of State and local authorities before the assembly could vary the sums it receives from the Secretary of State relating to local authorities. I fear that the amendment starts from a misconception. The Secretary of State's grant to the assembly will not be hypothecated; in other words, the grant will not be allocated for a specific purpose. Therefore the assembly will receive no sums from the Secretary of State relating to local authorities. With the greatest respect to the noble Lord, Lord Dixon-Smith, the amendment starts from the wrong proposition.

But there is a much more important point than that the amendment starts from the wrong basis, and it is the point that the noble Lord, Lord Elis-Thomas, made so effectively. The assembly will get the money from the Secretary of State. It will be for it to decide how it spends its money. The amount of money that it gets from the Secretary of State will be determined in accordance with the block and then the application of the Barnett formula. Having got that money, the assembly will be a directly elected body which will be answerable to the electorate for the decisions it takes. It will be answerable to the electorate of Wales in a much more direct way than the Secretary of State for Wales.

It would be quite wrong to seek to fetter the assembly's resource allocation decisions in the way that the noble Lord, Lord Dixon-Smith, suggests. Moreover, with the greatest respect to him, I suspect that his proposal would simply lead to chaos, where the local authorities, the Secretary of State and the assembly would all have to agree the expenditure of each penny. That seems to me an ambitious target having regard to all of the people involved. For those three reasons—namely, it starts from the wrong basis; it is fundamentally opposed to the basic principle of devolution; and it is impractical—I respectfully ask the noble Lord to withdraw the amendment.

Lord Dixon-Smith

I am grateful to the noble and learned Lord for his explanation. I may well take his advice. However, it is easy to over-simplify what is happening. I am quite prepared to accept that the assembly is taking over the function of the Secretary of State in this regard, and therefore that the negotiation will in future take place between the local authorities in Wales and the assembly. I have no difficulty with that. That is easy to understand. However, it leaves me with a problem. The Secretary of State will, of course, make a block grant to the National Assembly for Wales. He will have to arrive at that sum which will be made up of many parts. Those parts—hypothecated or not—must have an origin somewhere. Unlike the £500 million figure that I was so concerned about a little while ago—which is an arbitrary sum—the one-third or so of the budget of the National Assembly for Wales relevant to local government will be arrived at through a distribution formula (which is a sophisticated and complex distribution formula) which relates, I assume, to that of England and Wales. I have not yet heard that although Wales has a separate negotiation it has a separate distribution formula.

Although I am quite happy with the fact that this negotiation will in future take place between local government and the assembly, the fact of the matter is that the sum of money will originally have been arrived at through the application of a formula. That is not hypothecated and the parties concerned will negotiate something else, but that formula applies different results to different authorities. Therefore the matter will not be straightforward. I shall need to consider further what the noble and learned Lord has said, as I hope he will consider further what I have said. We may need to return to this matter at a later stage of the Bill. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Carter

I beg to move that the House do now resume. In moving this Motion, I wish to make a short business statement.

In view of the late start to today's proceedings, it has been agreed through the usual channels that the Government of Wales Bill will be set down for a further Committee day on Monday 15th June as first business. Once that Bill is disposed of, the House will then proceed as planned to the second business of the day, the Minimum Wage Bill. It has also been agreed through the usual channels that the best endeavours will be used to complete the two Committee stages on the Monday.

In moving the Motion that the House do now resume, I suggest that the Committee is not reconvened before 8.40 p.m.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.