Holtham Commission Report Published

14 Jul 2009

An independent report has been published, which recommends changes to the way in which funding is allocated by the Treasury to the Welsh Assembly.

The Independent Commission on Funding and Finance for Wales, chaired by economist Gerald Holtham, (known as the Holtham Commission), was established as part of the coalition agreement between Labour and Plaid Cymru, One Wales. Its remit was the study of the Assembly’s funding arrangements, as well as tax-varying and borrowing powers. The report focuses on the current funding formula: a further report on tax-varying and borrowing powers is expected to follow next year.

Under the current arrangements, the UK Treasury allocates funding to the Assembly, which is in turn adjusted according to the Barnett formula. Under the Barnett formula, any increase or decrease in the expenditure per population in England, will be distributed across the other UK countries, in proportion with population. The formula is therefore based upon expenditure per head, rather than according to need, and funds allocated according to the formula do not take into account existing expenditure. The formula is controversial in relation Wales because on its continued application, expenditure per head in Wales, which is currently higher in Wales than in England, will result in a convergence of expenditure per head between England and Wales, the so-called "Barnett squeeze", regardless of any differing needs experienced in Wales.

The Barnett formula was criticised in a recent report by the House of Commons Justice Committee which called for a review on the basis that the formula was "no longer fit for purpose". The Holtham Commission report recommends that the current formula should be replaced with a formula based on relative need, however details of how this might work in practice are yet to be agreed.

A joint statement from the First Minister, the Deputy First Minister and the Minister for Finance and Public Service Delivery welcomed the report’s recommendations. It said that whilst Ministers agreed with the report’s recommendations in principle, details of their implementation would need further consideration:

"The report makes a good argument that need should be the principle for allocating resources in a devolved system. However, the report also acknowledges that introducing a needs-based formula is likely to be complex and will take time. We will need to make sure that any major changes are introduced on a basis of mutual agreement between ourselves, the other devolved administrations and the UK Government."

Click here to view the Holtham Commission’s report