The remit of the Commission was to look at the pros and cons of the present formula-based approach to the distribution of public expenditure resources to the Welsh Assembly Government; and identify possible alternative funding mechanisms including the scope for the Welsh Assembly Government to have tax varying powers as well as greater powers to borrow.
The Commission began its work in autumn 2008 and published its first report in July 2009. In its first report, the Commission concluded that the Barnett Formula lacked any objective justification and had survived for reasons of political and administrative convenience. The Commission argued that the formula has caused relative funding per capita for devolved activities in Wales to converge towards the average level of funding in England despite relatively higher Welsh needs. The Commission recommended that in the future funding arrangements for Wales should be based on relative needs. As an interim measure, it recommended a modification to the existing formula that would place a "floor" under the block grant, preventing any further convergence towards the average English level of funding per capita. In its final report, published in July 2010, the Commission recommended that:
the Assembly Government should pursue the introduction of a needs-based formula for determining the Welsh block grant;
the Assembly Government should acquire limited powers to vary income tax rates in Wales;
the Assembly Government should seek a discussion with the UK Government about the feasibility of devolving corporation tax;
a procedure should be created to enable Parliament to confer power on the National Assembly to introduce new taxes in Wales when requested; and,
the Assembly Government should receive limited powers to borrow to finance capital expenditure;
Reception
Public Finance magazine reported that the Holtham Commission's final report was welcomed by Labour, Conservative and Plaid Cymru politicians – although Welsh Business and Budget Minister Jane Hutt was said to have given a more "muted" response to Holtham's recommendation that the Assembly Government should gain tax-varying powers. Former First Minister Rhodri Morgan opposed this idea, arguing that there was "no mandate" for tax-varying powers in the 1997 devolution referendum. James Mitchell of Strathclyde University called the Holtham Commission's conclusions "remarkably bold... its proposals on income tax are, in important respects, bolder than those proposed by Calman". Mitchell noted that Holtham's critique of the Barnett formula, which he regards as advantageous to Scotland, "ought to be a wake-up call".
