Like many others, I read with interest Gerry Holtham’s explanation of why Wales has suffered disproportionately compared with Scotland and Northern Ireland as a result of the ConDem government’s recent spending review.
At the end of his explanation he added the line:
Got that? If not try reading it again!
I have to admit that I didn’t understand it (or perhaps it would be better to say that I understood some of it but not all of it) and so I read it again. Still not there. So I then made myself a double espresso to get my brain into top shape for the third attempt, but finally had to admit defeat. It was at that point I emailed a friend.
We met up last night, with some others, and it was one of the things we talked about. The consensus seemed to be that a lot of people hadn’t really understood the point he was making either, including those (even in the House of Commons) who we thought would have understood. But our friend didn’t let us down, and I am relieved to say that I now understand the point Gerry Holtham was making.
It’s not that the details weren’t already there. In fact, it was probably the detail that got in the way of me seeing the big picture. But having it explained from a slightly different angle, I can now re-read Gerry Holtham’s article and see that it all makes perfect sense. Therefore, in the hope that it might help some others, this is the simpler version:
• Non-Domestic Rates are collected from businesses by local authorities. In England and Wales they are then forwarded to the Treasury in Whitehall and put into a common pot. The Treasury then adds additional money to that pot and redistributes it.
• In Scotland and Northern Ireland Non-Domestic Rates do not go to Treasury in Whitehall, but the Treasury still forwards the same percentage of additional money to the individual pots of the governments of Scotland and Northern Ireland, who then redistribute it.
• In both cases the collected NDRs are about 82% and the top up is about 18% of the final redistributed total.
• The UK government has decided to cut the amount of the top up by a total of 27% over four years.
So far, everything is fine in principle. We might not agree with the cuts, but we have to live with them. The problem is that the Barnett Formula is only designed to determine what is paid out to the devolved nations from the Treasury, and doesn’t take into account what these nations pay in. As a result of this anomaly:
• Scotland and Northern Ireland get to keep all of the NDRs they collect because they didn’t go into the Treasury pot, and will only suffer a 27% cut in the top up.
• But Wales, because our NDRs have been paid into the Treasury pot, has to suffer a 27% cut over the entire redistributed total … not only the top up, but the NDRs that have been collected from businesses as well.
Put another way, it means that the Treasury is going to hold on to a considerable proportion of the money we collect from businesses in Wales. As Gerry Holtham says:
This … is more than enough to explain the whole difference between the Welsh total fall of 7.5 per cent in public spending, Scotland’s 6.8 and Ireland’s 6.9 per cent reduction.
I hope that those, like me, who didn’t really understand the original article will now understand it. And I particularly hope this includes those in the House of Commons, because the only possible response to this is to be angry … very angry indeed.
This can’t be swept under the carpet with the excuse that the Barnett Formula will one day be replaced. This is a problem that affects us now. It is a loophole that can be fixed very easily by simply “ring-fencing” the NDRs we pay into the Treasury, so that the 27% cut only applies to the top up sum, not to the whole redistributed sum. It is an issue that should unite MPs from every party in Wales … including the Tories and LibDems.
Come on. Let’s see you stand up and fight.