Examination of Witnesses (Questions 1
- 19)
WEDNESDAY 21 JUNE 2000
DR J REID,
MR B WILSON
AND DR
L CLARK, QC
Chairman
1. Order, order. Good morning and welcome to
this meeting with the Select Committee. I think this is the first
time ever that all three House of Commons Scotland Office Ministers
have appeared before the Committee together. Could I ask you please,
for the purposes of the record, to introduce yourselves to the
Committee?
(Dr Reid) John Reid, Secretary of State.
Accompanying me today is Brian Wilson, Minister of State at the
Scotland Office and Dr Lynda Clark, the Advocate General. There
are also several officials here who may in detailed questioning
be able to provide you with more helpful detail, depending on
the level to which you want to go. There is Ian Gordon, the Head
of Department at the Scotland Office, Norrie Kernohan who is the
Principal Finance Officer and Eric Miller, who is one of my officials.
2. I propose to put a number of general questions
and also some specific separate questions for the Minister of
State and for the Advocate General and to allow all of you to
make separate brief opening statements at the appropriate point.
The Committee has decided that in addition to the overview we
should begin by asking questions about the Barnett Formula, Structural
Funds and additionality. This will obviously occupy a substantial
part of the meeting. May I ask you whether there are any brief
opening remarks which you would like to make, Secretary of State,
to the Committee on the work of the Scotland Office?
(Dr Reid) When I last appeared before the Committee,
which I think was on 29 March, I explained in some detail how
I, on the basis of experience at that date, felt that the new
form of governance of Scotland was operating. I said then that
the radical restructuring of the governance of Scotland had gone
far better and far quicker than anyone could have foreseen or
hoped. That is worth repeating right at the beginning. Challenges
have arisen but they have been faced and problems which have arisen
have been overcome in both the United Kingdom and the Scottish
Parliament. One thing is crystal clear on the basis of our collective
experience over the course of the last 12 months, and that is
that devolution works. It is in the interests of the Scottish
people and I and my colleagues will take every opportunity to
continue to say so. However, whereas it will be difficult not
to discuss a fundamental plank of my department's work, I understand
this session will tend to concentrate more on the role of myself
and my two ministerial colleagues. Brian Wilson and Lynda Clark
will of course be happy to respond to your invitation to make
a short statement and to answer your questions about their own
particular roles. However, to set the scene it might be helpful
if I explained how we divide our respective duties. As I previously
explained, my role is to facilitate the devolution settlement
and to represent Scottish interests in non-devolved areas. Contrary
to what you might occasionally read in the press and media, this
is a big job. It involves considerable interest in most areas
of life in Scotland. I could not do it, quite frankly, on my own
and Brian Wilson is there to share that burden, both in easing
the transition through and in representing the Scottish interest
in the multi-faceted areas which are dealt with here at the United
Kingdom Parliament. Brian Wilson will elaborate his priorities,
including the representation of Scottish interests domestically
and abroad. Suffice to say unlike some other politicians in other
parties, we enjoy excellent relations and talk to each other on
a daily basis. Lynda Clark has a different role. I shall not steal
her thunder but it is not always understood that she is a law
officer of the Crown in her own right and the chief legal adviser
to the United Kingdom Government on matters of Scots law. So although
part of the department, there is a distinct identity there which
she will speak to later. I should perhaps say something briefly
about the Scotland Office first Departmental Report. The document
sets out the aims and objectives of the department as well as
the devolution framework. The chapter on government expenditure
explains the process by which the Government funds the Scottish
Executive budget and the document goes on to explain the organisation
and management of the department. Before I go on, in the context
of the partnership which has been developed, I should place on
the record, and I am sure I speak for all colleagues at Westminster,
our wishes for the First Minister Donald Dewar's speedy recovery.
I have a very simple view, which I hope is shared by the Committee,
and that is whether at Westminster or at Holyrood, we are all
of us in politics to serve the Scottish people. The very reason
for our existence is partnership, partnership and partnership
again. If devolution continues to flourish, it is because we have
all proved we can work together, whether it be here in Westminster
or in Edinburgh or temporarily in Glasgow. However, it is not
just Ministers and senior politicians who need to work together
and part of our aim is to foster an extension of that in every
MP and MSP who represents Scottish constituencies. In order to
foster this esprit de corps I propose later in the year
to mark it by holding a reception for all Scottish members, all
of whom are attempting to serve the interests of the Scottish
people in whatever capacity. I should like to have done this in
our new offices in Melville Crescent, which you will see referred
to in the report. Alas, they are too modest for such a large gathering
and I have therefore asked officials to plan for such an event
in the autumn at Edinburgh Castle. I hope that this will have
the desired effect of bringing the two parliaments and all of
us closer together. I and my colleagues are delighted to be here
today. We shall be happy to elaborate on any aspects of the departmental
report, but I suspect that the Committee members will want to
question us on matters which go beyond its pages. On those and
all other matters within our remit, we shall be happy to enter
into that dialogue.
3. Thank you for that. I did say at the outset
that we would begin with questions on the Barnett Formula and
Structural Funds and additionality. The Barnett Formula in relation
to Scotland was introduced in 1978 and has been used continuously,
with some modification, ever since. The formula is a way of sharing
out changes in public expenditure plans between the countries
in the UK. It does not determine the overall size of the Scottish
budget, but provides that, where comparable, changes to programmes
in England result in equivalent changes in the Scottish budget,
calculated on the basis of population share. The formula does
not directly reflect public expenditure need. In the Departmental
Report you state that part of your role is to be responsible for
the financial settlement for Scotland. Exactly what does being
"responsible for the financial settlement for Scotland"
actually involve? Does it mean that negotiations with the Treasury
over Barnett and non-Barnett expenditure items are bilateral or
even trilateral (including the Scottish Executive Finance Department)?
(Dr Reid) The answer to your last question there is
yes. I believe the Barnett Formula is of immense benefit to the
United Kingdom Government as well as being of benefit to Scotland.
You will be aware that it has been applied over a number of years
now. It does not dictate the income of the Scottish Parliament
or any other department. The Barnett Formula sets the limits on
public expenditure as far as Scotland is concerned. The income
of course is a separate thing which comes from various other sources.
I believe the great benefit of it is that in its simplicity and
its relationship to both Scottish needs and Scottish population.
It avoids the need for an annual wrangling session, or if it is
in the comprehensive spending review a three-year wrangling session.
You will be aware, of course, that the Scottish Executive Finance
Minister, Jack McConnell, in an article which has been published
recently has outlined the fact that we do benefit from extra public
expenditure per head in Scotland. That is to represent the needs
which were incorporated right at the beginning of the Barnett
Formula and which are still there including of course the sparsity
of population. I myself greatly favour the retention of the Barnett
Formula from both the point of view of the United Kingdom and
Scotland. So far as the second part of your question is concerned,
the role of the Secretary of State in this takes various aspects.
Of course in the first instance I am involved in discussions with
other government departments on a range of issues which affect
Scotland and one of those departments would be the Treasury. Secondly,
it may well be that there are bilateral and will be bilateral
discussions on this matter, but there may also be, on the details
of this, trilateral discussions. What that means in practice is
that I can envisage circumstances where, on the details of overseeing
the application of the Barnett Formula and ensuring that all of
us feel confident and assured that it has been applied correctly,
my colleagues on the Scottish Executive, perhaps the Scottish
Finance Minister, perhaps Donald Dewar or the Deputy First Minister,
would be involved in trilateral discussions with the Treasury.
The composition of spending increases agreed in the Spending Review
2000 will have implications for Barnett Formula consequences.
4. What involvement do you and your officials
have in the Spending Review 2000? You referred to the Treasury.
Do you and the Scottish Executive have sufficient access to Treasury
and other papers to be able to understand the potential ramifications
for Scotland of policy and expenditure changes in England? Does
the Scotland Office retain appropriate expertise to enable it
properly to assess the available information?
(Dr Reid) On the first one, yes. They are content
that we have sufficient overview of what is going on in various
government departments and that is precisely why the Scotland
Office needs a critical mass of expertise in those areas. As you
probably know, the numbers of Scotland Office officials have greatly
diminished. Prior to devolution it was in the area of 4,200. It
is now, as of the end of March, around 86, 19 of whom actually
work on the legal side with the Advocate General. We intend to
increase that in the range I explained to the Committee the last
time, to between 100 and 130, or if you exclude the Advocate General,
between 80 and 110. The reason we want those is in order to be
able to assure Ministers, myself and Brian Wilson, that we have
sufficient overview and expertise to deal with the broad issues
we need to deal with. However, what we have not done is attempt
to have a number of officials sufficient to allow us the detailed
exposition and oversight of all government departments, and remember
we deal with all of them. Unlike most government departments we
have an overview which is huge. We have not attempted to get the
number of officials we require to do that because that would have
required 4,200 which the previous Scottish Office had. Therefore
I work in partnership, as do my officials, and we are greatly
assisted by those officials who now work for the Scottish Executive.
As a matter of practice as well as principle, that partnership
is essential in seeing through not only the comprehensive spending
review but any other issues.
5. Is there a commitment by the UK Government
regularly to update the document A Statement of Funding Policy
published by the Treasury in March 1999?
(Dr Reid) As far as the publications are concerned,
they have given that commitment. As far as sharing of information
is concerned, not only is there a willingness to share information
with the Scottish Executive, if that was implicit in your question,
but of course that is set out in some detail in one of the concordats
which we agreed. I cannot remember the exact date but you will
recall they were delayed until after September of 1999; I think
these concordats were published around September 1999. One of
the four important concordats dealt with the sharing of information.
There are several reasons for this. We like to avoid surprises.
Difficulties can sometimes occur if one or other of the institutions,
that is the Holyrood Parliament or the Westminster Parliament,
find out at the last moment that something is proposed. In the
very nature of the plethora of things we have to deal with, occasionally
that will occur. It is intrinsic to good government that we try
to avoid that happening.
Mr Swayne
6. Mr McConnell, the Executive's Finance Minister,
has said that Scotland has a larger allocation of Structural Funds
than it can spend and it will retain the surplus for the Parliament
to spend on its own domestic priorities. He specifically said
to the European Committee on 30 May that as things stand, because
Scotland is in a post-devolution situation with an agreed assigned
budget, it gets to keep the money that it can no longer spend
on Structural Funds. It is not that it is making a surplus on
the funds, it is that it cannot spend up to that level, therefore
it gets to keep what is left and allocate it to other projects.
With your United Kingdom perspective, is that fair to the rest
of the kingdom? Is it fair specifically to England?
(Dr Reid) My responsibility is to make sure that Scotland
gets its fair share of the Structural Funds. The allocation of
those Structural Funds within Scotland is of course a responsibility
for the Scottish Executive. I am content that they do. You have
to distinguish between two things and this is not commonly understood,
at least not in a lot of the press comment and indeed parliamentary
comment I have seen. The Barnett Formula sets the limit which
can be spent by the Scottish Parliament as it does with all other
departments. It is a method of quantifying the external limits
of expenditure. That is quite different from the income which
may make up that expenditure. The sources of income to the Scottish
Parliament, the Scottish Executive, which make up that expenditure
would include of course the block grant we give and it would include
within it, monies raised by local government and various other
sources of income and European Structural Funds. It is impossible
to do it on an individual case by case basis in terms of additionality
because what is passed to them is the aggregate sum. I am content
that the Scottish Parliament is fairly served by the monies given
to it as one of the sources of income which they then spend within
the external limit set by the Barnett Formula. I have not seen
the comments to which you referred. I do not know the context
from which they are taken; I do not know what Mr McConnell was
being asked on that. If you wish, I shall write further on those
specific comments[1].
As far as I am concerned, I am convinced that the Barnett Formula
gives a fair, not a favourite—no question of favouritism—assessment
of the limit which is appropriate to Scotland given its geographical
factors, its sparsity of population and indeed its need.
7. It would be helpful to have that written
record. Forgive me, but I do find this allocation of Structural
Funds a fiendishly complicated subject. My understanding is that
if the Structural Funds are not actually spent on such structural
projects and re-allocated within the other priorities and the
domestic budget of the Parliament and the Executive, then the
Treasury cannot draw down those funds from Europe, which means
that the provision of those funds is a charge on the United Kingdom
taxpayer, of which obviously the Scottish taxpayer is a constituent
part. Therefore there is the suggestion that in that approach
there is an element of unfairness to the other parts of the United
Kingdom. Do you have any comment on that?
(Dr Reid) I have three comments. First of all, yes,
the whole system is fiendishly complex. It would be even more
fiendishly complex if we did not have the Barnett Formula which
is why it was introduced in the first place. It is to my astonishment
that some people who purport to be serving Scotland's interest
apparently want to open the whole thing up. That would be deleterious
to Scotland's interest. It would undermine it, as well as the
United Kingdom's good government. The second point I would make
is that Barnett deals with aggregate expenditure. It does not
deal with specific issues of expenditure. It is right that those
specific issues of expenditure and allocation are decided by the
Scottish Executive themselves. Thirdly, there is a distinction
between the Barnett Formula limits which deals with the total
expenditure which is allowed by the Scottish Parliament and the
sources of income which go to make it up. They are even more fiendishly
complicated when you distinguish between the aggregate and the
individual items. However, if you are asking me whether the outcome
was favourable as a result of Barnett to Scotland and the United
Kingdom, my answer to that is yes. It is the case that Scotland
receives something of the order of 19 per cent more per head than
the UK as a whole. That is accepted and that is appropriate because
of the sparsity of population and need and so on. Every year the
Barnett Formula allows for the major items of expenditure, not
every individual one-off that a UK department is allocated, but
the major items in the spending round. It allows a simple and
fair formula which avoids continual wrangling every year on every
decision, which allocates an equivalent additional expenditure.
The Barnett Formula does not apply to the inherited expenditure.
It only applies to the extra money that is going every year or
every three years. The formula, to put it at its simplest, is
that it is the additional expenditure for the UK department multiplied
by a factor which is an agreed factor as to the proportion of
that departmental work and expenditure which covers the whole
UK, multiplied by the population of Scotland, which is 10.34 at
present in percentage terms to England. That formula allows us
both to avoid the annual political wrangling and represent the
particular features of Scotland. It does means that as long as
public expenditure keeps increasing, then there will be a convergence
upwards—not downwards—in the two figures for England
and for Scotland. The only way actually to keep the present convergence
in percentage terms would be to slash public expenditure and no-one
actually wants that.
8. My understanding of the evidence that Mr
McConnell gave to the European Committee is that all European
Structural Funds for the next seven years are now guaranteed as
far as the Scottish block grant is concerned; irrespective of
whether there are projects actually to consume those, that money
is now guaranteed. The key question in my mind, if you take your
time horizon forward to a time when those Structural Funds are
no longer available because of the change in the nature of the
EU with enlargement, is: does the block grant fall, other things
being equal?
(Dr Reid) As a matter of fact, if there were any unfairness
in the system of allocation of Structural Funds, the people who
would immediately bring that to everyone's attention would be
the European Commission. Agreed? Of course they would. The European
Commission have not only accepted our way of allocating funds
in Scotland within the United Kingdom, they have recommended it
to others as a model of how to do it. I can assure you that the
European Commission are content that the purposes of those funds
are such that it not only meets their requirement but is in many
ways a model of it. If you are asking whether it is possible,
with every allocated expenditure over every indefinite period
ahead to guarantee that if there are some changes at the margin
in this you will not rip up the whole formula, then the answer
is of course it is not the way to conduct government to do that.
There has to be some planning ahead on it, but I can assure you
that the monitoring process is not only one which would be carried
out by this United Kingdom Parliament but one which would be carried
out by the European Commission who oversee the Structural Funds.
9. I think the Secretary of State misunderstands
my question. This question is not about the fairness of the allocation.
This question is about additionality. The key question is: once
the Structural Funds have disappeared that are available to Scotland
which are currently guaranteed but once they have gone, does the
block grant fall, other things remaining equal? That is a yes
or no answer.
(Dr Reid) No, it is not a yes or no answer. First
of all, you brought in the question of additionality. Additionality
does not apply to aggregates. Additionality only applies to specific
projects and the Barnett Formula and block grant deal with aggregates.
The actual allocation of those, subject to the Commission oversight
of all of the things throughout Europe, is actually done by the
Scottish Parliament itself. No-one envisages the Scottish block
grant falling but hypothetically it is possible to conceive the
whole of British public expenditure being halved next week, if
you want to ask me hypothetical questions. However, it is not
my job to deal with what are highly hypothetical questions. It
is my job to deal with what can be foreseeably expected in the
foreseeable future. What would be foreseeably expected in the
future is that the Barnett Formula, which gives a fair allocation
of resources to Scotland, or the limit for those fair resources
and to the United Kingdom and is a simple and more agreeable way
of doing these things than constant wrangling, will continue to
apply over the next few years.
10. The disappearance of Structural Funds is
not an hypothesis, but clearly I am not going to get a yes/no
answer.
(Dr Reid) The question is not the disappearance of
Structural Funds. You also mentioned additionality. Your question
in the beginning was specifically about additionality. If we give
money to the Scottish Parliament—forget about the question
of Structural Funds—and we give them a large amount of money
to cover the equivalent of education and health, it is within
the right of the Scottish Parliament to decide to allocate all
of that money to health rather than to education and health. That
is a decision of the Scottish Parliament. Within that block grant,
they have the freedom, as the devolution settlement is intended
to give them, to allocate that money. If what you are suggesting
is that if they started using monies for purposes for which they
were not intended, and in breach of European regulations and conventions,
what I have already pointed out is that the European Commission,
among others, would be the first to point that out to us.
Mr Welsh
11. Could I ask the Secretary of State how it
will affect the Scottish budget if Scotland does not get ESF after
2006?
(Dr Reid) Why should it affect the Scottish budget?
Are you arguing for a decrease?
12. No, I am asking the Secretary of State how
that would affect the budget.
(Dr Reid) I can hear you. You can be assured that
certainly Brian Wilson and I shall be arguing that Scotland's
budget at the moment represents their needs. If you wish, implicitly
or otherwise, to be arguing that changes in Europe should result
in a reduction in the Scottish budget, all I can say is that you—
13. You are not answering the question.
(Dr Reid) I am answering the question. I told you
absolutely I would be arguing for retention of the Scottish budget.
You seem to be getting yourself in a position where you are arguing
for a reduction of it.
14. No, you are putting words in my mouth. I
am asking, if Scotland does not get ESF after 2006, how that will
affect the Scottish budget.
(Dr Reid) There are two separate questions. Whether
Scotland gets specifically ESF depends on what happens in Europe.
Whether Scotland gets a fair budget depends on what happens in
negotiations between the Treasury and the Scotland Office as long
as it exists and the Scottish Parliament. What I am saying is
that I would certainly be arguing for that as far as the aggregate
amount is concerned. If you are going to be arguing, as you seem
to be, that the mechanisms are such at present that you would
feel compelled to say that the Scottish budget should be reduced,
I shall let others decide on that, but I shall be on the other
side of that argument.
15. You are slipping away. Are you saying there
will be no effect?
(Dr Reid) I am not slipping away, I am coming right
at you.
16. For the wrong reasons. Will there be no
effect? Is that what you are saying? Or will the Treasury make
up the shortfall?
(Dr Reid) What do you mean, "make up the shortfall"?
17. Will there be no effect on the Scottish
budget with the removal of ESF for Scotland by 2006?
(Dr Reid) ESF is an entirely different thing from
the block grant and the aggregate budget which is given to Scotland
which is a different thing again from the external limits which
are put on. What I am saying is that I shall be arguing for a
fair share of any budget at the United Kingdom level to go to
Scotland. I certainly shall not be slipping into the argument
you seem to be slipping into.
18. I am not slipping into an argument but you
are avoiding the question.
(Dr Reid) The idea is that you ask the questions,
as I understand it, and I answer them. I shall certainly not be
slipping into what I perceive you to be slipping into, which is
arguing for changes.
19. I would ask you not to put words into my
mouth. You have not answered my question.
(Dr Reid) Would you please allow me to speak for myself
as I allow you to speak for yourself. I shall certainly not be
slipping into any argument which I perceive you to be slipping
into which is that changes in Europe should automatically result
in a reduction in the Scottish grant.
1 See Evidence, pp 23-27. Back
|
