James Foreman-Peck, Cardiff Business School:

Yesterday saw the creation of an Assembly Government Commission to recommend how Wales’ Government should be funded. The Commission needs to address three essential points. The first is the block grant from UK central government that currently pays for devolved services, together with the Barnett formula, which determines changes in the block grant and has been at the forefront of the Welsh debate so far about funding. Second there is the issue of tax devolution. Finally, the possibility and extent of Assembly borrowing must be considered.

The Barnett formula was a quick and temporary fix devised before devolution, at the end of the 1970s. It is designed to equalise in the long run resources allocated to the (now devolved) nations and England. This goal, for areas with very different Gross Value Added (GVA) per head must generally be wrong, even granted the shortcomings of average GVA as a welfare indicator. The Barnett formula has lasted so long because of the expansion of general state spending in England. Consequently the pressure in Wales has been small. This is now changed. A needs-based formula would have more legitimacy and would be feasible – for this is the way local authority block grants have been allocated for decades. Even a GVA-based formula would make more sense.

Comparing Wales under Barnett and the North East of England without the formula, the North East (with a comparable GVA per head to Wales) receives more government spending. A political drawback to reconsidering Barnett could be that, whereas, given GVA per head, convergence has been achieved by Wales, it has not for Scotland or Northern Ireland (when I last looked). Consequently these influential polities would probably not favour a change that would benefit Wales.

A needs-based block grant could also be more predictable than Barnett but in any case revenue is likely to vary less in a downturn than under complete tax devolution. In effect the central government absorbs the ‘business cycle’ risk with a block grant.

More radical than block grant reform is tax devolution that could render a block grant obsolete. I myself favour a lower corporation tax for Wales in an attempt to mimic Ireland’s precocious economic growth. But both European pressure for tax harmonisation and HM Treasury’s determination not to give up any control of revenue are likely to defeat such a policy.

Standard economic theory indicates that for small, open economies like Wales, taxes should be placed on the least mobile goods and factors. Otherwise the value of taxable assets, investments and incomes – the tax base – is likely to contract with migration. Indeed it is the responsiveness of the tax base to policy that is one of the stronger economic arguments for tax devolution. There is an incentive for the devolved government to pursue sound economic policies that expand rather than reduce the sources of taxation.

A sales tax would be an example of taxing immobility. I favour a special alcohol tax to correct, or partly compensate, for the impacts of alcohol consumption, on the health service for instance. However, it would not be a major revenue earner. Also, there would be a ‘booze cruise’ problem near boundaries, so any differential tax would need to remain small.

A completely devolved tax system would probably require revenue equalisation, which is, in effect, another name for a block grant. So there does not seem much advantage in this extreme solution. But small taxes, like one on plastic bags for instance, might be useful in this case for an environmentally sensitive Assembly Government, if the administrative costs could be covered.

There is evidence that the public capital stock in Wales has not benefited from needed investment over the last decade to the extent that England has. This is ironic since the Treasury made much of the reversal of disincentives for public sector investment since 1997 (e.g. in the 2002 Spending Review). At least a portion of the shortfall can be attributed to the unwillingness of Assembly Government to adopt Public Private Partnership/Private Finance Initiative schemes with the enthusiasm of the English. Greater borrowing powers could provide an offset. Alternatively or additionally they could impose a greater long term burden of debt service presumably from the block grant, and squeeze current expenditure.

Devolving borrowing powers will be resisted by the Treasury on the grounds that there is an implicit Treasury guarantee to such borrowing although they cannot control the amount. The UK central government would be obliged to pick up the tab if the Welsh Assembly Government defaulted. But are we not seeing something like this for our big commercial banks at the moment? Anyway the Treasury’s point will need addressing in any recommendation for greater powers.
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Peter Finch, Chief Executive of Academi:

Is the decision by Cardiff Council to auction off some of its ancient and valuable book stock a harbinger of larger change to come? I think so. If the book trade hasn’t yet hit the sort of hurricane season that the world of finance has then it is only a matter of time. The digitisation of everything from bestsellers to the documents which define your personal identity are not just around the corner but actually upon us.

Recently the National Library of Wales announced its ten-year plan to digitise a large section of its holdings and to make the results instantly and universally accessible online: books, artworks, documents, letters, maps. Its previous plan to digitise entire runs of twentieth century Welsh periodicals is almost complete. This has been managed despite storms of protest from original authors. These have yet to abate.

All this poses the big question: Do we need original manuscripts when virtual ones allow the world and its uncle slick and searchable access at will?

Old books, and in particular those from the dawn of print, cannot simply be put onto a shelf and called up from the stacks for any casual visitor to handle. They need to be preserved with care, viewed under controlled conditions, repaired, conserved, de-foxed, cleaned, pressed, boxed, have their rot excised and their bindings mended. All that takes money. Cardiff says it is already overstretched and simply cannot find the resource to care for the 18,000 antiquarian volumes, maps and original manuscripts it has decided put up for sale.

The yard sale it proposed has been replicated at libraries elsewhere and not just in the UK either. Libraries, once eternal guardians and repositories of our cultural heritage, can now be seen engaging in Fahrenheit 451 style stock clearances. Get rid of these dirty things. They are mere containers. Their content is that which matters.

It’s a point of view. Many don’t share it.

What troubles me is that conservation and research are developing arts. Who’s to say what the future may be able to extract from an original document actually handled by its original author. More than could be got from a digital replica that’s for sure.

Cardiff Council has since backtracked slightly and are in discussions with Cardiff University about the preservation of at least some of the Welsh-interest component of its soon to be flogged-off holdings. All will not be gone. Just a lot of it.

How much of the past should we preserve? Certainly not everything. How do we make choices? Not that Cardiff were intending to make choices. There were no proposals to digitise and thus release the original as surplus. This was shelf clearance. And it’s not that this kind of thing hasn’t happened before. Check the stacks at Bute’s once great library at Cardiff Castle. Empty. Did you spot the stock leaving? Me neither.
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Marcus Longley asks whether the latest NHS reorganisation embodies Ministerial interference, or proper democratic control:

”You have bitten off more than you can chew on this one and... you will come to regret it.”

Thus spoke Liberal Democrat AM Jenny Randerson to Health Minister Edwina Hart in Tuesday’s Assembly debate about the reorganisation of the NHS in Wales (30 September 2008). She was referring to what critical commentators have branded as a move to increase Ministerial ‘interference’ in the running of the NHS.

Mrs Hart had just announced that, from next year, she will Chair a new NHS Advisory Board in Wales, as well as personally holding the NHS Chief Executive to account. She will also hold annual, public accountability meetings with each of the seven new NHS ‘unified delivery bodies’ which will replace the current seven Trusts and 22 Local Health Boards.

The majority of respondents to her consultation had rejected this model, preferring instead an arm’s-length relationship between the Minister and the NHS. After all, if such an arrangement was deemed good enough by Gordon Brown for the setting interest rates – surely also a highly political act – then why not for the Welsh NHS?

Mrs Hart argues that AMs would not accept anything less than direct accountability by Ministers:

”In a devolved Wales, it is both impractical and undesirable to attempt to create such a distance between political responsibility and service delivery.”

The NHS was a political creation, so of course it must be politically accountable. One also suspects that Mrs Hart doesn’t have much faith in other governance arrangements to make sure that the NHS really responds to what patients wants.

There’s something of a straw man about this, of course. No-one suggests that the NHS should be anything other than politically accountable. But the question is: accountable for what? Is it for the achievement of the aims set for it by the Minister? Or is it accountability for the minutiae of the workings of a £5bn organisation with 90,000 employees?

The dangers of her approach are threefold. First, Ministers – if not the current incumbent, then perhaps her successors – will make decisions on health policy more for short-term political gain than long-term public health gain. Second, they will stamp out local variation and experimentation. Third, it may collapse under the pressure of NHS complexity. Certainly, it flies in the face of Bevan’s great dictum from the early days of the NHS: the danger that “every time a maid kicks over a bucket of slops in a ward, an agonised wail will go through Whitehall”.

But this argument is over, at least for now. If the past few decades are any guide, NHS reorganisations generally last about three years, before a growing chorus for further change emerges, and another reorganisation becomes irresistible after about two more years…so look out for 2013!

It is interesting to see how the Minister is tackling some of the other perennial problems of health policy:

Cinderella services
Having now created seven all-encompassing NHS bodies, the Minister faces the danger that the so-called Cinderella services – mental health, primary and community care, health promotion – will lose out in the battle for resources with their more glamorous secondary (hospital) cousins. She has rejected the suggestion, made by a review that she herself commissioned, that mental health services should be placed in an organisation of their own. Instead, the Cinderella services are to have a Vice Chair in each NHS organisation who will be their champion of such services. This is new, and it will be interesting to see how it develops in practice.

Public health and local government
The link between the NHS and local government is another perennial issue. Better health depends upon local government and the NHS working together. It appears that this will now be the job of the public health service. However, it will be interesting to see how they find enough highly-trained staff to go round the seven huge health bodies, 22 local authorities, and all the national functions which they will also have to support.

The voice of the people
A third issue is public and patient engagement. This is vital in a system that does not believe in patient choice as a driver of improved services. At the national level, the Minister will represent the people of Wales in the big decisions. Who will do the same at the local level? The English approach – to give local government a formal scrutiny role – seems to have been ruled out, as have direct elections to the health bodies (the Scottish solution). So what’s the Welsh approach to be? We don’t really know yet, other than hints that Community Health Councils (CHCs) will play a big role. This will require a step change for these 34-year old bodies, which have few resources, and low public recognition. There are some exciting possibilities being discussed – including the creation of community-based forums and a variety of special interest groups, linked under a CHC umbrella by network governance. Let’s hope there is sufficient appetite for change of this magnitude. Timid local scrutiny, bought on the cheap, will not provide sufficient checks and balances for the seven new monoliths.

So what have we got?

Putting the pieces together, what will the new NHS in Wales look like? We can be sure of the following:

• The split between commissioners and providers (the ‘internal market’ that never was) will go.
• There will be some structural safeguards for services which might otherwise lose out;
• Managers and others in the NHS will come under a strong, national performance system;
• Local variation will be replaced by greater standardisation;
• There is a prospect of a revitalised opportunity for local people to scrutinise what their local health services are up to.
  

Is it worth all the disruption? Maybe. But the devil (as always) will lie in the detail, which has yet to be finalised. Watch this space…

Marcus Longley is Professor of Applied Health Policy and Acting Director of the Welsh Institute for Health and Social Care at the University of Glamorgan.
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Geraint Talfan Davies, IWA Chair:

The more you look at Ofcom’s proposals for reducing ITV’s programming for the nations and the regions of the UK, the more you sense that the endgame for ITV is approaching. And it’s happening just when the clouds are gathering over our newspapers, too. These are unprecedented crisis years for the media in Wales.

Braced for some months past for a reduction in general programming from four hours a week to three hours in January 2009, shocked ITV Wales staff at Ofcom’s press conference in Cardiff last week were desperate to know when the decision was taken to reduce the requirement still further to one and a half hours. According to the Ofcom team it was ‘within the last six weeks’.

This underlines how quickly events are moving and raises the most pressing question of all: how long can even this new deal last? ITV is on course to realise savings of £40m in this financial year, but has already said it wants another £35m cut out in 2009-10. One thing is absolutely certain – especially given the prospect of a few glum years for the economy – the deal will not last until 2014, when the current licence period ends. Indeed, I would be surprised if Michael Grade isn’t knocking on Ofcom’s door within six to nine months asking for a further renegotiation. Tragedy being replayed as farce.

Of course, it might not be Michael Grade at all, but a new owner attracted by one or two ITV assets, such as Coronation Street, and taking advantage of ITV plc’s desperately low share price. You can bet your life that such an owner is going to want to be rid of public service obligations altogether, and even more urgently than Grade.

In newspapers, Trinity Mirror, the biggest newspaper owner in Wales and the largest regional publisher in the UK, is closing three local papers in North Wales, and its printing base in Liverpool. The Daily Post will now be printed in Oldham instead. The circulation of the Western Mail from Monday to Friday is now less than 35,000 – only the higher sales on Saturdays brings the weekly figure up to just over 37,000.

In the first half of this year, across all Trinity Mirror’s regional titles, advertising was down 6 per cent, but the figure masked the accelerating trend – 3.1 per cent down from January to April, 11.3 per cent in May-June, and 17 per cent in July. Operating profits were down 21.7 per cent, and operating margins were down by 4.6 per cent although this still left a profit margin of 21 per cent that many businesses would regard as quite healthy.

Despite its substantial investment in a multi-media newsroom in Cardiff, ghoulish rumours started to circulate last week that Media Wales – publisher of the Western Mail and other titles – had been given two years to turn itself round. Although the use of Trinity’s new regional and local websites is rising sharply, digital revenues account for less than 10 per cent of revenue, and 13 per cent of profit.

The newspaper industry is starting to argue for relaxation of competition rules to allow further consolidation of ownership in regional newspapers, although consolidation of itself does nothing for quality of output. Arguably, consolidation killed off ITV’s regional mission.

Without the passing of a new Communications Act before the next General Election, in Wales we face the baleful prospect that there could be no-one left in ITV Wales HQ at Culverhouse Cross to cover the General Election itself in 2010, the Assembly elections in 2011 or a possible referendum on law-making powers for the Assembly. Viewing voters in Wales would be entirely reliant on BBC Wales – a prospect that would be deeply embarrassing for Ofcom, a regulator that has made so much of the need for plurality in broadcasting.

Ofcom itself brought forward its review of public service broadcasting by two years because it saw how quickly the existing business models were breaking down. The Assembly Government should now be insisting that the Westminster Government delivers on the promise made by the Secretary of State for Culture, Media and Sport, Andy Burnham MP, in a speech to the Royal Television Society last week, to bring forward its own legislative timetable.

The devolved Assemblies could make common cause on the issue, starting by insisting on representation on the DCMS Convergence think tank, that has been operating in parallel with the Ofcom PSB review. Wales should take the lead because its media crisis is, for a variety of reasons, substantially deeper than that facing Scotland or Ulster.

Media in Wales: Serving Public Values by Geraint Talfan Davies and Nick Morris, published in May 2008, is available from www.iwa.org.uk in electronic form (PDF, 1.1MB) or hard copy (£10 - with a discount to IWA members). Email wales@iwa.org.uk or telephone 029 2066 6606.
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Tom Williams, Cardiff, one of the Assembly Government's Climate Change Champions for 2008:

I am writing as the leader of a campaign to get more trains on a Sunday on the Arriva Trains Valleys Lines Service. This is a campaign well underway – and this blog is to recruit more people to the cause and update the public on the campaign’s progress.

This campaign is needed because the service is just so poor on a Sunday. Demand for Sunday trains is greater than ever, and as a Climate Champion I realised the environmental impact of the reduced service. This campaign has a lot of support, because the poor service is something that affects almost everyone these days, even if it’s just going to town! It is socially inconvenient, but through this campaign I hope to be able to send out an environmental message, because the cars we have to use instead release unnecessary carbon dioxide into the atmosphere. With the trains and the track already there and with increases in public transport needed, this is such an easy option.

The facts: there is no Coryton train at all on a Sunday, and the Bargoed Service, running through Heath High Level in Cardiff, is once every 2 hours. This is the only train to run through Heath High Level on a Sunday, and the once every 2 hours compares with once every 15 minutes from Heath High Level Monday to Saturday. In addition, the Pontypridd service runs at erratic times on a Sunday, averaging once every 45 minutes.

I have been in contact with the Rail & New Roads Division Business Unit, and they say fewer trains on Sundays compared to Monday-Saturday are for “historical reasons”. But history’s history, and I am campaigning because things are different today. Shops have been open on a Sunday in the city centre for well over ten years now, with extended opening hours and sales even on Sundays. Even if you believe Sunday should be a religious day then note that there are 16 churches in town alone!

I also wrote to The Echo and they ran the story last week. As they mention, I wrote to Sewta, a transport consortium for 10 local authorities in South East Wales, and they say my call for more Sunday trains “will be considered when they compile their new Regional Transport Plan”. A spokesman said: “We are delighted to hear from Tom and his ideas on the future of transport in South East Wales. We will consider his input as part of the consultation process for the Regional Transport Plan.”

So, I have to wait for a response after the Regional Transport Plan, but while I do that, I am trying to get people on side, and spread the word on this issue. There is also a Facebook group setup in support of this campaign. Currently there are 98 members. Please get everyone you know to join this. I am also on the Youth Editorial Team for the new "what's-on" site for young people in Cardiff – www.thesprout.co.uk – and I ran a small poll. 28 voted yes, there should be more trains running on a Sunday, and only 1 voted no. The results speak for themselves!
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James Foreman-Peck, Cardiff Business School, Director of the Welsh Institute for Research in Economics and Development

Amid the choking of the financial system on the ‘toxic’ assets it has created, no-one has pointed out the silver lining of this poisonous cloud. This is the income gap between Wales and England – particularly the south east, which will almost certainly narrow over the next few years. Welsh incomes per head will be less far behind. Much of the past economic divergence has stemmed from the precocious growth of financial services and incomes in the City. These will now enter a more sober phase of expansion, even after recovery from the latest crash. By contrast, with any luck the rest of the UK economy, including Wales, will plough on much as before.

Why then has there not been widespread rejoicing in Wales? Maybe we needed this natural experiment to show us that, actually we do not care very much about divergences in Gross Value Added per head – even though the Welsh Assembly Government once attached importance to these numbers. What matters more to people perhaps is their absolute and year-on-year living standards, which until the latest price squeeze, had on average been good.

Where the present financial crisis will be unwelcome in Wales is in falling house prices and the seizing up the housing market. House prices have risen in almost every year since the end of the Second World War. For sustained periods of decline we must look back to the 1930s. The forecast by the Nationwide Building Society’s Chief Executive that house prices are likely to fall by one quarter over the next two years therefore takes some digesting. Is he right?

Tighter housing finance must mean lower prices for a while – defaults on mortgage payments will increase, first time buyers will be scarce, ability to take on larger mortgages will be constrained – and, no less importantly, downwards revisions of house price expectations pull in the same direction. Surely some demand for housing has been fuelled by the belief that house prices will rise strongly. How much will the price adjustment hurt? Negative equity – a greater debt than resale value of the house – only matters if you are obliged to sell up. Those that must move or can no longer afford their payments will suffer. But in due course the upward climb of house prices will resume and equity will become positive again.

Another source of disquiet is that since the run on Northern Rock, and perhaps exacerbated by the collapse of Lehman Brothers, the shotgun marriage of Lloyds TSB and HBOS, and the sudden absorption of the Derbyshire and Cheshire Building Societies by the much larger Nationwide, quite a few people have been jumpy about the safety of their savings. However it is clear that neither the UK nor the US governments are going to allow a financial failure that disrupts ordinary customers.

Of course the Scots will bemoan the loss of their national bank to London, but probably without much sympathy from Wales. For the (admittedly much smaller) Bank of Wales was acquired by the Bank of Scotland and in due course disappeared some years ago. Although about the same size as the Derbyshire and Cheshire Building Societies, Wales’ Principality Building Society is weathering the storm well. The reason seems to be sound management, as reflected in the high and rising proportion of their loan business financed by members’ savings – in accordance with the original model of the Building Society Movement. In their latest report the Principality indicated that their ratio was 88 percent, while the Cheshire had thought they were doing well with little more than 60 percent. Reliance on financial markets in times of panic is to be avoided as much as possible. But accessing these markets was how, for instance, Northern Rock grew so rapidly. The 3-6-3 model of banking was apparently then popular (‘borrow at 3 percent, lend at 6 percent, on the golf course by 3pm’). Bankers should know about the creditworthiness of those to whom they grant loans and the reliability of their own sources of funds. Wales, or at least the Principality, has opted for slower but more secure growth.

One other possible cause for concern about the current financial crisis has not been much discussed. With one third of the work force in the public sector, we might expect the economy of Wales to be reasonably insulated against much of the demand shock. But the City reputedly provided one quarter of corporation tax and more generally the downturn is likely to hit government finances hard. This could put pressure on the public sector and thus on Welsh central government funding.

No doubt a sense of responsibility not to trigger panic – coupled with historical ignorance – has limited discussion of analogies with the world financial crises of 1929-1931. Were such an informed conversation to take place, it ought to be reassuring. Before 1929 the Welsh economy, and to a lesser extent the British economy, were over-dependent on export industries that were demonstrably uncompetitive, which is not now the case. Then financial crises struck both the US and European economies. Instead of bolstering confidence in their financial system, the monetary authorities in the US undermined it, continuing to publish a monthly index of numbers of bank failures that they permitted. In both the US and Europe cooperation was inadequate to prevent the breakdown of the international monetary system, the US quickly went its own way, followed by the larger European economies. Inevitably, export economies like Wales and the UK suffered badly with the disruption and collapse of world trade. In contrast we now see massive concerted efforts of major governments and central banks to return the world economy to normal, with so far apparently reasonable success.
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John Osmond, IWA Director

This week’s survey from the Institute of Welsh Politics at Aberystwyth University, showing that most people now favour moving ahead to establish a legislative Parliament for Wales, confirms a trend that has been under way for the best part of ten years.
Until the 1997 referendum, and during most of the previous decade, around 40 per cent had been opposed to an Assembly, and only around 20 per cent had been in favour of a Parliament. By now, however, these positions have been reversed. Since the early 2000s around 40 per cent have favoured a law-making Parliament and by today those opposed to change have fallen to just 15 per cent - see Table 1.


What has accounted for this shift? A major reason must be the creation of the Assembly itself, albeit by the slimmest of majorities in the 1997 referendum. Once it was under way the Assembly became the new status quo and most people, conservative as ever, have come to see it as part of the landscape, with a plurality supporting it having more powers in order to operate more effectively.

The argument now moves on to when it will be the most opportune time to hold the referendum on moving to Part IV of the 2006 Act to give the present Assembly legislative powers without going cap in hand to Westminster to ask for them via Legislative Competence Orders. Judging the timing is one job of the Convention under the chairmanship of Sir Emyr Jones Parry that has been established as a result of the One Wales coalition agreement between Labour and Plaid Cymru.

The One Wales agreement specifies that the referendum should be held “as soon as practicable, at or before the end of the Assembly term”, in May 2011. Since the Convention will not complete its work before the end of 2009 this leaves very little room for manoeuvre, especially given the complication of the timing of the Westminster General Election, which is most likely to take place in the Spring or early Summer of 2010.

This will leave the Autumn 2010 or Spring 2011, at the same time as the next Assembly election, as the only feasible options for holding the referendum if the terms of the One Wales agreement are to be met.

It seems, however, that the Electoral Commission has ruled out the prospect of holding the referendum at the time of the next Assembly election. This is how Glyn Mathias, the former Electoral Commissioner for Wales put it, writing in the Summer 2008 issue of the IWA’s journal Agenda:

“There might be a temptation to combine the referendum with the elections to the Assembly in May 2011, but the Electoral Commission has made it clear that they would oppose such a combination. The issues at stake in an election for seats in the Assembly would be far more wide-ranging than the issue at stake in a referendum. To combine elections with a referendum could leave the electorate very confused.”

However, it may be worth considering some counter arguments. Is the electorate are so ill-equipped to differentiate between two very distinct matters when voting? Combining two plebiscites in this way are common in other democratic jurisdictions, not least in American Presidential elections when voters also choose senators and congressmen, and often local office holders as well. It is noteworthy that Schedule 6 to the 2006 Wales Act expressly allows for the referendum to be held on the same day as the 2011 Assembly election, in the following terms

“An Order in Council under section 103(1) may make provision for and in connection with the combination of the poll at the referendum which it causes to be held with that at an election or at another referendum (or both).”

Other reasons that might be advanced for holding the two votes on the same day would be:

1. It could maximise democratic engagement with the issue of more powers for the Assembly.

2. The case for more powers would become an integral part of the Assembly election campaign - with candidates obliged to lay out their positions and argue their case. This would lead to greater public awareness of the issues.

3. It would maximise turnout for the referendum - thereby underpinning the democratic legitimacy of the result.

4. It would also maximise turnout for the Assembly election - with the Yes and No campaigns amplifying the messages sent out by the parties.

5. Having the two votes on the same day would save money.

It will be interesting to see whether the Convention will take issue with the Electoral Commission on this question of the timing of the referendum

John Osmond is Director of the IWA.
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