Welsh council calls for reform of the Barnett formula

A Welsh council has urged the UK Government to reform the Barnett formula, citing concerns about the financial impact of rising employers' National Insurance contributions (NI).

The Chancellor increased the rate of employer NI contributions from 13.8% to 15% and lowered the threshold at which employers have to start paying the contributions from £9,100 to £5,000 from last month.

Rachel Reeves estimated the move, announced in her budget in October last year, would boost government coffers by £25bn.

Some additional funding will be made available by the UK Government to cover the cost for workers directly employed by the public sector, however the compensation calculated using the Barnett formula will leave councils across Wales facing a loss of over £60 million.

Wales also has a higher percentage of public sector workers, compared to the rest of the UK.

Gwynedd councillors estimate the local authority will lose around £1 million because of the change and last week backed a motion calling for the extra costs to be covered in full by the UK Government

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Fairer funding

Gwynfor Owen, the Councillor for Harlech and Llanbedr, said: "We need a fairer way of funding Gwynedd and Wales, especially as our residents face the cost of living crisis such as child care, higher energy and water bills and even the rising costs of food.

“Welsh public services are facing a loss of up to £65m due to the increase in national insurance announced by the Labour Government in Westminster. And of course, it is the taxpayers of Gwynedd who are suffering because the financial gap has to be addressed.

“Welsh county councils will experience a financial loss as the Government uses the Barnett Formula to decide how much money is allocated to devolved countries. The formula is based on population size rather than on a country’s needs.

“It is completely unfair that public services will not receive the full funding needed for the increase in national insurance. A number of companies and organisations have already raised this issue, and the purse strings are tightening further on many organisations and businesses.

"This is a Labour policy. It is another example of how Wales is at a total disadvantage under Labour at the Senedd and at Westminster.”

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'Damning indictment'

Plaid Cymru Gwynedd Leader, Nia Jeffreys said: “England is being fully reimbursed for the increase in National Insurance, but Wales is not.

“This is a damning indictment of this so called ‘partnership in power’ within Cardiff and Westminster. Labour in Wales clearly have zero influence on the whims of their London bosses.

“I fully support this call for a fairer way of funding Wales and our residents at the council chamber and I’m pleased that the motion was passed.”

Wale's Finance Minister Mark Drakeford has also questioned the UK Government's approach to funding the NI increase, and in January he wrote to the chief secretary to the Treasury at Westminster outlining his concerns over how much money the Welsh government would receive to cover it.

He said that using the Barnett formula – the usual way in which a funding consequential for Wales is calculated as a result of extra spending in England - would be "fundamentally unfair."

He told the Senedd Finance Committee there was a risk that public sector employers in England would be fully covered and those in Wales would not.