Holtham tells them what they want to hear...*

A commission considering the way the assembly government is funded says Wales is losing out by £300m a year.

The commission chair, economist Gerald Holtham, warned the underfunding could reach £8.5bn over the next decade, or £2,900 for everyone living in Wales.

The report, for Welsh ministers, concludes that a new funding formula is needed to reflect the actual cost of providing services for Wales.

A further report on taxation and borrowing powers will follow next year.

The commission was established as part of the coalition deal between Labour and Plaid Cymru after the assembly election two years ago.

Mr Holtham said the Barnett formula, drawn up by the Labour government in the late 1970s, was "arbitrary" and in "urgent need of reform".

When the UK government increases funding for departments such as health and education in England, the formula is used to decide how much money the devolved governments in Cardiff, Edinburgh and Belfast receive.

The needs-based system the commission favours would take into account factors such as the age of the population and levels of poverty.

Mr Holtham admitted the commission did not suggest any "magic bullet" to replace the Barnett system.

He indicated the commission's second report, due around the middle of 2010, would include research on what should be included in a new needs based formula.

*... and what the rest of us already expected.

The Commission will be:

Looking at the pros and cons of the present formula-based approach to the distribution of public expenditure resources to the Welsh Assembly Government; and identifying possible alternative funding mechanisms including the scope for the Welsh Assembly Government to have tax varying powers as well as greater powers to borrow.

Timetable

The Commission began work in autumn 2008 and reported to the Welsh Assembly Government Ministers on the first part of its remit in July 2009.

The Commission is due to report to the Assembly Government on the second part of its work in summer 2010.