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Mr. Philip Hammond (Runnymede and Weybridge) (Con): I congratulate the hon. Member for Manchester, Blackley (Graham Stringer) and all Members who have spoken in this debate. In raising this issue, I recognise that he is representing genuine concerns held by his constituents. I would like to say also that it is a pleasure to have witnessed for the second time in a week a display of fraternal relations on the Labour Benches.
The Conservative party recognises the damage that the perception of unfairness is doing to the cause of the Union. However, let us be clear on what we are talking about. As hon. Members have spelt out already, the Barnett formula was introduced in the 1970s and is still based on a measure of relative need that was last assessed in the 1970s, but since then there have been very significant changes in the structure of the UKs economy and society.
Originally, the formula was an interim measure; there was no legislative scrutiny, and it has no statutory force or democratic mandate behind it. Given that it applies only to increases in public expenditure, its effects are magnified by any acceleration in such expenditure and will also, of course, be emphasised by a deceleration in the growth of public expenditure, as we are now seeing in the comprehensive spending review. Nevertheless, the formula has worked reasonably well for many years.
In my judgment, two things have contributed to the renewed political salience of this issue. The first is that,
in the post-devolution world, the money in the block grants that goes particularly to Scotland is able to support visible policy differences, rather than just a different level of funding to United Kingdom-wide policies. The different levels of funding were largely invisible for many years, but a series of announcements on clear differences in entitlement and treatment have tended to inflame that sense of injustice.
There is more than a suspicion that the Scottish National party is now exploiting that sense of injustice to try to ferment separatist sentiment in England. We have seen policies on tuition fees, nurses pay rises, more generous residential care provision for the elderly, free dental and eye checks, and access to drugs and treatment that are not available on the NHS in England. All of those are in-your-face reminders to English electors of the effect of the Barnett formula. The fact that specific commitments in EnglandCrossrail has been citedautomatically give rise to additional contributions to the Scottish, Welsh and Northern Irish blocks does not help the situation. Secondly, undoubtedly, the broader political questions around the sustainability of the devolution settlement and the imbalance between England and Scotland in the political settlement exacerbate the sense of injustice.
Stewart Hosie: The hon. Gentleman said that the effects of the Barnett formula are exaggerated when increases in spending accelerate. However, because the base line in Scotland for comparable Departments is higher to begin with, and because there is a fixed amount of money, based on the percentage of English increases, going to Scotland, the percentage increase in Scotland is actually reduced because it is an absolute amount. Does he not recognise that, over the long term, that is a convergence formula?
Clearly, there is a legitimate question here that cannot simply be ignored, and it is more complex than some people, such as Ken Livingstone, sometimes like to present it. Let us get the matter into perspective. The figure often quoted in the media is for a £1,500 gap between England and Scotland, but almost certainly that exaggerates the effect, because if we exclude spending on social services, which is not subject to the Barnett formula and is intrinsically need-reflective, the difference is less than £1,000. Furthermore, any alternative system almost certainly would have to be based either on fiscal autonomyScottish taxes for Scottish spendingor on an updated needs-based formula applied to all four countries.
It is not at all clear that a needs-based distribution formula would eliminate the differential between England and Scotland, as some appear to suggest, and spending in the English regions, as has been mentioned by a number of hon. Members, varies enormously already, with public sector activity accounting for nearly 60 per cent. of the economy in the north-east, but little more than 30 per cent. in the south-east. So for those of us who wish to strengthen the Union and who are wary, therefore, of the fiscal autonomy solution, it is not clear that a revision of the formula on
a needs basis would produce the results that the hon. Member for Manchester, Blackley and others seem to assume.
Let me be clear where the Conservative party stands. We are not considering changes to the Barnett formula, but we recognise a growing body of opinion that questions the settlement. It is legitimate to ask whether the formula, which has served the UK well, is best suited to dealing with the distribution of public spending in the future. That is a long-term question that might well need to be addressed. However, it must be placed in context, which I shall come to in just a moment.
Mr. Hammond: I have just told the Minister that we are not reviewing the Barnett formula, but that we recognise that a legitimate question is beginning to arise about whether it will remain the best formula for the distribution of resources within the UK.
I am trying to understand where the Labour party stands. In Scotland, apparently Wendy Alexander recognises the need to reconsider the Barnett formula. In Wales, the hon. Member for Carmarthen, East and Dinefwr (Adam Price) has told us that the Labour-Plaid Cymru coalition in the Welsh Assembly is conducting an official review of the Barnett formula. In England, the Prime Minister acknowledges that the formula allows Scotland
to spend more on schools and hospitals,
The Minister will probably tell me that that is the inevitable consequence of devolution, but to some people it will look suspiciously like one party with three different policies, depending on which electorate it is addressingsomething that we are more familiar with from the Liberal Democrats. Will she clarify the position of the Labour party in England, Scotland and Wales, and will she answer categorically the question from the hon. Member for Brecon and Radnorshire (Mr. Williams) about what the Governments response will be to any recommendation from the Welsh Assembly Government on the Barnett formula?
There is no doubt in my mind that the wider need to forge a sustainable constitutional settlement between the four countries of the Union, and the asymmetry of the current arrangements, have exacerbated the perception of this problem. English voters feel not only fiscally, but now also politically, disadvantaged. There is a clear need, therefore, for a constructive Unionist solution to the West Lothian question. My right hon. Friend the Member for Witney (Mr. Cameron) has made it clear that the Conservative party is committed to delivering such a solution; and a working party under my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) will bring forward policy recommendations in due course.
A proper, sustainable constitutional settlement would go a considerable way towards reducing the sense of injustice felt by English voters, and would
provide a long-term context for a rational discussion about the future allocation of resources. Do the Government recognise the contribution of the West Lothian question to the sense of injustice felt towards the Barnett formula, and does the Minister recognise that the constitutional settlement within the Union represents unfinished business that needs addressing?
Clearly we will have a debate on that. The hon. Member for Manchester, Blackley, and others, will ensure that we do. We ought to ensure at least, therefore, that it is a well informed debate. To that end, will the Minister explain why no new four-nation needs assessment has been made since 1977? Does she recognise the need for such an assessment in order to inform a sensible debate, and will she give us any hope that something will be done on that front? Will she make a commitment on behalf of the Government to publish data on the comparable block grant spending in England so that we can have an official figure that would be the basis of proper comparable figures between the four countries?
We Conservatives recognise the concerns raised by the hon. Member for Manchester, Blackley; those concerns are legitimate and they are not going to go away. However, ours is a Unionist party and we believe that we should seek solutions to the political and economic question within the family of the Union, solving problems and not using them as a lever to split the Union apart. We reject the approach of those who seek to exploit this debate to promote the cause of separatism. I urge the Government to recognise and embrace the case for a lasting resolution of the West Lothian question as a critical first step to achieving a sustainable, enduring constitutional settlement within which the issues that we have been discussing can be considered calmly without being overshadowed by the spectre of separatism at the table.
The Exchequer Secretary to the Treasury (Angela Eagle): It is a great pleasure to be here today to discuss this extremely important issue. The Government are committed to improving economic prosperity in all our regions and within them, too, and in the devolved countries. The Government have a public service agreement target to increase growth in the poorer regions and to try to get more growth in areas that have lagged behind in the past. To some extent, I have a great deal of sympathy with some of the points that my hon. Friend the Member for Manchester, Blackley (Graham Stringer) made about productivity and differences between regions.
The longevity of the Barnett formula is a tribute to its effectiveness in determining the allocation of funding expenditure in Scotland, Wales and Northern Ireland and it continues to have some substantial advantages. We have debated some of the disadvantages, some of which are perceived and some real. However, no formula is perfect or above criticism. The Barnett formula has produced distributions of public funds over the period since it was introduced that have been perceived as generally fair and broadly acceptable. The formula has been used by both Labour and Conservative Administrations and it also underpinned the devolution settlements, which were supported by referendums in Scotland, Wales and Northern Ireland.
The Barnett formula has existed for many years, as hon. Members have said, but it is regularly updated. The most recent update was in the comprehensive spending review in October. That version of the formula uses the latest Office for National Statistics population figures produced in the summer, so changes in spending in the CSR reflect the latest changes in population relativities between countries.
The point of the Barnett formula in the first place was to avoid the need for detailed, line-by-line negotiations between Treasury Ministers and their counterparts in Scotland, Wales and Northern Ireland during public spending reviews, which happened before it was introduced. It has provided a transparent, endurable and fairly simple rule for reaching spending settlements without direct negotiation. As hon. Members have pointed out, the formula is written, in all its glory, in Funding the Scottish Parliament, National Assembly for Wales and Northern Ireland Assembly: a statement of funding policy, which is available as published by Her Majestys Treasury.
There is a widely held impression that the formula is responsible for determining the level of spending per head on services in Scotland, Wales and Northern Ireland. Some colleagues have used those levels as an argument to say that there is unfairness, but that is not so. The formula is a device to allocate to the devolved Administrations a relative population share of changes in planned spending on comparable UK Government Department programmes. It is not used to determine the initial baselines because, as hon. Members have pointed out, they are inherited from the past. It is only used to determine the overall increase in the budgets of the devolved Administrations, and it is for those Administrations to decide how to allocate their budgets to individual programmes.
The Barnett formula does not determine annually managed expenditure, such as devolved spending funded by council tax and business rates, and, for example, social security, which is why sometimes the figures on public spending per head give a false impression of the actual spending. My hon. Friend the Member for Manchester, Blackley argued for a shift away from a population base for public expenditure under the Barnett formula to one based on needs, but failed to recognise or acknowledge that the annually managed expenditure parts of public spending are already needs based, be they allocated through local government grants, national health service expenditure or, crucially, in poorer areas, through social security spending. So a considerable part of the expenditure of public money regionally, which appears in the figures that are often quoted, is already needs based.
The Barnett formula seeks to allocate increases in what are known as departmental expenditure limits based initially on English departmental allocations and it seeks to ensure that the increases in DEL, rather than annually managed expenditure, are conveyed fairly on a per-population basis to the devolved authorities, which are allocated their spending through a block grant. In England, each part of public expenditure that is departmentally limited is allocated departmentally
rather than on a block basis. [Interruption.] I have explained that annually managed expenditure, such as social security, that is allocated on a demand basis is not part of the Barnett formula. The formula allocates Department expenditure-limited moneys that are in some ways devolved or not devolved, as the case may be, to Scotland, Wales or Northern Ireland. It is a needs-based formula for financial allocation.
The Barnett formula does not determine annually managed expenditure; its needs-based allocations are included in the limits, which hon. Members used to say that there was unfairness, whereas it distributes only part of total managed expenditure, which is known as DEL, rather than annually managed expenditure.
Graham Stringer: I accept my hon. Friend the Ministers analysis, but does she think it fair that a huge capital project in London transfers money on no basis of need whatsoever to Scotland, Wales and Northern Ireland and not to the English regions?
Angela Eagle: In respect of the Barnett formula, the issue is whether such moneys are devolved or not and, if they are, by what percentage they are devolved. That is the technical mathematics involved in all this. If money is distributed, it is because the policy is nationally determined and therefore the devolved Administrations are allocated their percentage of it on a population basis. It is purely about whether it is a devolved matter or not. Crossrail is not a devolved matter, which is why the distribution was made.
Mr. Mark Field: In relation to Crossrail, it is also important to stress that a significant proportion of the money will come from the private sector and another part of it will come from the London council tax payer. However, I recognise what the hon. Member for Manchester, Blackley said, which is that there seems, at least on the surface, to be some perversity: moneys find their way to the devolved nations, but not to other parts of the UK. It is important that that £16 billion is a headline figure but a significant proportion of it will be coming from London taxpayers and businesses.
The point of this debate is to try to improve the economic performance of all areas of the country, rather than to argue that there is unfair distribution between different regions and countries in the Union. When there is differential need within as well as between regions, the Government are far more interested in improving the economic performance for everybody to ensure that we can maximise economic opportunity. That is why it is important that at the same time as we publish the pre-Budget report, we publish a review of sub-national economic development and regeneration in England, which devolves significant economic power in order to improve economic performance regionally. That has been improving faster in the poorer regions than in the others so I hope
Ms Sally Keeble (Northampton, North) (Lab): I am pleased to have the opportunity to debate housing in Northampton, which is the largest town in the UK and one of its most successful. It is in the Government growth area and has a successful economy, an incredibly high level of employment and a high level of home ownership. Most people in Northampton aspire to home ownership, and until recently house prices were low enough to make it a realistic option for almost all working families. Government plans for the growth area include the provision of 37,000 more homes, one third of which are to be affordable and a quarter to be social housing. All that is successful and should continue to be so, with people buying decent quality homes and building solid communities in which to bring up their families. That is what makes my constituency so special and puts the values of people there at the core of our countrys success.
What I wish to deal with in the debate is different, however: the provision of social housing by Northampton borough councilsome 13,500 housing units in total, including a big block of new town housing from the previous big planned growth in Northampton in the 1970s. As every hon. Member knows, good-quality social housing is central to the well-being of some of the more disadvantaged people in our constituencies. All of us deal with housing issues at our advice surgeries and visit the estates in our areas. We all know the hardship caused to people if they are homeless, if their homes are in disrepair, if they do not get the aids and adaptations that they need or if their estates become plagued by antisocial behaviour.
In my constituency, over 12 years of campaigning first as a candidate and then as an MP, I can honestly say that I have seen a real deterioration in the quality of life of many of my constituents in council housing. That has been despite the Governments commitment to the decent homes standards and to driving up council performance, and it has happened under all types of political control. When I first became an MP, we were in control at the Guildhall and there were some difficulties. Then in 2003, the Conservative party got minority control of the council and, to my surprise, things went downhill seriously. In the most recent elections, the Liberal Democrats got majority control, and things have got considerably worse to the extent that housing now far outstrips everything else in my constituency case load.
I wish to emphasise that the problems are not because of the shortcomings of individual staff, who mostly do a good, straightforward job, but because of the councils strategic management and leadership. I am sure that my hon. Friend the Minister will point to the most recent comprehensive performance assessment report, which shows some improvements. However, the main improvement is what the report calls stronger political leadership, which, to be honest, is to a great extent an obvious result of having a majority party administration as the result of one party getting an outright majority at the council elections.
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