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Mark Drakeford warned Wales could miss out on up to £65m to cover the increased costs of employer national insurance contributions in the public sector.

The finance secretary confirmed that Rachel Reeves, the UK chancellor, has decided to distribute national insurance funding via the Barnett formula.

“I think that she is wrong to do that,” he said. “And I have said so in direct terms to the chief secretary of the treasury … as did the finance ministers for Scotland and Northern Ireland.”

He stressed: “We should have been compensated for the actual costs, not a Barnett share.”

Prof Drakeford told the Senedd: “The result is that we are now, it could be as much as £65m short of what we estimate public services in Wales – within the chancellor’s own definition – will have to pay.”

‘Not fit for purpose’

Labour’s Alun Davies described the population-based Barnett formula, which was devised in the late 1970s as a temporary measure, as not fit for purpose.

During finance questions on April 2, he told the Senedd: “It also ensures that Wales does not get a fair crack of the whip when it comes to the distribution of funding across the UK.”

The Blaenau Gwent Senedd member voiced concerns about the UK treasury using the formula to compensate public sector employers for national insurance costs from April.

Mr Davies said this would break an agreement that where one government takes a decision that has a negative impact on another, it should provide the costs in full.

Prof Drakeford agreed with his Labour colleague and Joel Barnett, who “many times” has described the formula he devised as no longer fit for purpose.

‘Actual costs’

Holding a copy of the statement of funding policy referred to by Mr Davies, he said talks with the UK treasury on the matter continue and the figures will not be confirmed until late spring.

He said: “Paragraph 10 on page 13 says … ‘when decisions are taken by any of the administrations which leads to additional costs of another of the other administrations, the body whose decision leads to the additional cost will meet that cost’.

“Well, that suggests to me that when the UK Government made its decision that it should reimburse Welsh public services for the actual costs of the increase in NI contributions – not a Barnett share of the costs in England.”

The Conservatives’ Janet Finch-Saunders supported reforming funding to be based on need rather than population, calling for help for care homes with the costs of NI increases.

‘Judge, jury and executioner’

Prof Drakeford reiterated his position that the Welsh budget should not be used to plug gaps created by UK Government policies.

He emphasised the real issue is that the formula can only be reformed if every part of the UK agrees, “and some parts do rather well out of the Barnett formula”.

“The pressure on them to seek reform is not the same,” he said.

Describing national insurance as a “shocking” example, Adam Price said: “The Barnett formula is not just clearly unfair, it’s also inconsistently applied and lacks transparency.”

The Plaid Cymru politician warned: “It’s not working at any level.”

Prof Drakeford called for an independent oversight body: “We cannot go on, I believe, indefinitely having the [UK] treasury, the judge, jury and, occasionally, the executioner when it comes to the Barnett formula.”

‘Worst-funded’

Questioning the first minister a day earlier, Mr Davies argued reform of the Barnett formula is one of the most important questions facing Wales.

He said: “The real question facing this government and this parliament is protecting and investing in the future of our people and our communities. We can’t do that if Wales is the worst-funded country in the United Kingdom.”

Eluned Morgan responded: “I couldn’t agree more and that’s why I have made it a point of bringing up these issues at every opportunity I have had with the prime minister.”

Andrew Jeffreys, director of the Welsh treasury, last week reiterated the Welsh Government position that spending should be distributed based on need rather than the Barnett formula.

But he told a Senedd committee on Friday: “The UK Government doesn’t seem interested in any substantial reform to the way that system works.”