The latest slanging match between the UK and Welsh Governments about funding underlines the urgent need to replace the Barnett formula with a simpler and fairer funding settlement.

As our democracy develops and the cost-of-living and climate crises crystallise, replacing the Barnett formula with a needs-based settlement would improve governance and help our levelling up agenda.

On Wednesday, Wales’ Labour First Minister took the extraordinary step of accusing the UK Government and the Chancellor of short-changing Wales over funding for the cost-of-living crisis. While it seems that this was as a consequence of lower English expenditure on tackling the Omicron variant, the fact that both sides were - in their own way - correct illustrates both the growing tensions between Westminster and Wales. It reveals also the murky waters that cover our public finances.

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This largely stems from the shortfalls of the Barnett formula – a supposedly temporary funding formula between the UK and the devolved nations developed over forty years ago. Already inadequate in 1978, it has not kept pace with socio-economic change, let alone the unprecedented burden placed on public finances by the Covid-19 pandemic or the ambitions of levelling up.

Under the current system, the majority of Welsh taxes are collected by Westminster and then money sent back to Wales on the basis of population share. It is the arbitrary number of people living in Wales, rather than need, that drives the amount of funding our public services receive.

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This system is extremely vulnerable to Whitehall penny-pinching or project cherry-picking as the Treasury’s treatment of HS2 shows. Despite not a metre of track lying in Wales, this England-only railway has been classified as benefitting both England and Wales. As such the Barnett consequential from transport has fallen from 80.9% in 2015 to just 36.6% in 2020, and according to the Wales Governance Centre, our railways will lose out on over £500 million of funding over the next five years as a consequence.

This fragile state of affairs has been worsened by the cascade of financial statements throughout the Covid-19 pandemic, and now, at the beginning of the cost-of-living crisis, outside of the official budget in the Autumn and Spring. This has often led to the bizarre situation where the Welsh Government has had to wait until an announcement had been made in England to know how much finance would be available so that we could act.

In sum, the Barnett formula speaks to the archaic and wasteful approach to public finances by successive UK Governments of all persuasions. With Westminster the judge, jury and increasingly executioner of funding through its anti-devolutionary approach to levelling up, for too long Wales has had to be dependent on the whims and priorities of Westminster – a shocking statistic is that December last year was the first time since 2017 that the Welsh Government was able to set a multi-year budget thanks to Westminster uncertainty.

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Instead of this wasteful shambles, we in Plaid Cymru have long advocated for a needs-based funding formula delivered through an independent Office for Fair Funding. This Office would have a legal obligation to deliver a fairer economic balance between the nations and regions of the UK.

As such, it would be legally bound to ensure public money propels the 'levelling up' agenda, end the impenetrability of our public finances and decentralise power away from London. By placing need first and foremost, we would be able to direct our public finances to address the often interlinked socio-economic and environmental challenges of our times.

Need arising from demographic ageing would translate into increased funding for health and social care; low employment would incentivise increased spending on education and training, and climate change adaption and mitigation would necessitate funding for improved energy efficiency measures and renewable energy deployment.

Need should be accompanied by flexibility. To improve prudence in our finances, we need to enhance the borrowing powers of the Welsh Government and its ability to use the Wales Reserve when it needs it, rather than Westminster allows us to draw down from our public reserves. This would allow long-term investments to be made in infrastructure as well as improve our focus on balanced budgeting.

Underlying this change are two key attributes – fairness and respect. The UK’s highly unequal economy, turbo-charged by public investment in London and the South-East of England, and the Treasury’s patronising approach to Welsh public finances speaks to systemic and structural disrespect of Wales’ desire to deal with chronic problems from fuel poverty to low productivity.

Changing the funding formula, rather than a Wikipedia copy-and-paste document - as we saw in the UK Government’s levelling up paper - would demonstrate that Westminster is serious about addressing the deep inequalities across the UK.

A dogmatic attachment to a broken funding model will show that Westminster cares little about empowering our communities to lift themselves out of poverty.

Ben Lake MP is Plaid Cymru's Treasury spokesperson and Llŷr Gruffydd MS is finance spokesperson.

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