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Baroness Carnegy of Lour: My Lords, it has a great deal to do with the Barnett formula. We are talking about the whole thing. In this respect, the noble Lord should comment.

Lord McIntosh of Haringey: My Lords, we in this House are not concerned with devolved expenditure.

If anyone thinks that this is a rigid formula, the coverage of the blocks determined by the Barnett formula has increased over time since its introduction. It now covers the bulk of the departmental expenditure limits of the devolved administrations. Again, that has an effect on the degree of flexibility.

Finally, for the minority of speakers in the debate who represented England, the Barnett formula is not used to allocate spending within England. UK government departments allocate funding within England on a basis appropriate to the spending programme. That is why it is not easy to make comparisons between regional expenditure in England and country expenditure in the devolved administrations.

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I want to emphasise that there have been substantial changes. The noble Lord, Lord Thomas, referred to the "great correction" of 1992. He was referring to the population correction. Until 1992, but not after that, the original block was updated for inflation. That made a substantial difference to the changes.

I say to the noble Duke, the Duke of Montrose, that European structural funds are included in the public expenditure figures for the devolved administrations. However, it is not true to say that they do not cost the UK taxpayers money. The costs are reflected in the net contributions, which are not part of the devolved administrations' blocks, but in a charge to the UK as a whole.

What are the arguments about the Barnett formula to which we ought to pay attention? The first is one of convenience. A number of speakers referred to it. Yes, it is true that it avoids negotiation during public spending reviews. The noble Baroness, Lady O'Cathain, asked what the actual cost of negotiation was nevertheless. The noble Lord, Lord Elder, gave a satisfactory answer: whatever it is, it is certainly a great deal less than if we had fundamental reviews of the formula or of any other formula each time we had a new public spending review, even though they are not now held every year. I do not underestimate the value of the transparent, durable and simple rule for reaching spending settlements without direct negotiation. That may be a government point of view rather than a national point of view, but it is not insignificant.

The second point that must be taken seriously, as it was by a number of speakers, is that the formula was the basis for the devolution settlement. If we were to start going back on it so soon after the devolution settlement, there are those who would accuse us of bad faith.

The noble Lord, Lord Forsyth, and the noble Baroness, Lady Carnegy, do not like the devolution settlement. They think that it was not thought through. The noble Earl, Lord Mar and Kellie, and the noble Lord, Lord Morgan, on the Government Benches, thought that it worked successfully and that it was a reasonable basis on which to assure the Scottish and Welsh people of what it was they were being asked to vote for. The funding arrangements, which include the Barnett formula, have been published in the statement of funding policy which was updated in July 2000 following consultation with the devolved administrations and agreement with the Secretaries of State for Scotland, Wales and Northern Ireland.

The noble Baroness, Lady Carnegy, wants a new, stable formula. I do not think that this is the time to ask for a new, stable formula when the existing formula has been the basis of a concordat, so to speak, in the past couple of years.

A number of noble Lords referred to the English regions. I have made it clear why it is difficult—although I do not understand fully why it is impossible—to make the comparisons that we should all like to make. It is clear, because of the difference

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between devolved and reserved matters, why it is difficult to make comparisons between regions. Certainly, the figures referred to by the noble Lord, Lord Radice, in his excellent and well-informed maiden speech—namely, for the total managed expenditure per head—are correct. Indeed, I should have been astonished had the noble Lord said anything that was not correct.

It is also the case that the convergence that some people seemed to anticipate with dread, and others with hope, has not happened in quite the way that was anticipated at the beginning. That is partly because for the bulk of the life of the Barnett formula the block was updated for inflation, and the block itself is more important than it might otherwise have been. It is also because there is not a fixed and predetermined convergence path built into the Barnett formula. The noble Lord, Lord Sewel, made that valid point. The so-called convergence characteristic simply reflects the fact that population-based increases represent a smaller percentage increase where baseline levels of spending per head are higher. That of course has been the case in Scotland and was the case in Wales at the beginning. Those considerations must be taken into account.

We are obliged to look at the results of the Barnett formula over a 20-year-plus period. I do not accept the attacks on statistics or statisticians. I always resist that anti-knowledge point of view whenever I hear it in the House. Nevertheless, it is not just statistics; it is a matter, as the noble Lord, Lord Saatchi, said, of perception as well.

The Barnett formula has survived because it is generally accepted as effective in determining the allocation of public expenditure in Wales, Scotland and Northern Ireland. It has produced public expenditure settlements that have been perceived as generally fair and broadly acceptable since it was introduced. It has been used without query or major change by both Labour and Conservative Governments—governments with different representation in England and the other three countries of the United Kingdom.

It is right for the noble Lords, Lord Newby and Lord Saatchi, to demand transparency, but surely the Barnett formula is relatively transparent, relatively straightforward, relatively durable and a simple rule for reaching spending settlements without direct negotiation. Compare it with local government spending assessments, which are renegotiated every year on a multi-variant analysis and are utterly incomprehensible to 99.99 per cent of the population.

I have to play the game of saying what I intended to say, rather than what the noble Lord, Lord Saatchi, expects me to say. He wants me to say that there will be a review. We responded to the Treasury Select Committee in 1998 and published a statement of funding policy in July 2000. We set out the details of the funding arrangements fully and transparently, most of which, after two nights of falling asleep on, I

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think I finally understood. The position remains the same. We have no commitment to review the Barnett formula. On the other hand, it is not fixed in stone.

I say that not because we are putting two points of view at the same time, as the noble Lord, Lord Saatchi, would wish, but because we have been changing the Barnett formula at the margins. We have updated the population figures and the comparability factors used in the formula. The noble Lords, Lord Thomas and Lord Livsey—who made an excellent maiden speech—both said rather grudgingly that for Wales we had excluded the objective 1 payments from the Barnett formula. I do not know what is wrong with that. When it is necessary and appropriate, we take the opportunity to make decisions that supersede a part of the Barnett formula.

Lord Forsyth of Drumlean: My Lords, I am grateful to the Minister. Will he tell the House whether it remains the Government's objective to reduce the over-expenditure in Scotland, relative to England, which was the original purpose of the Barnett formula?

Lord McIntosh of Haringey: My Lords, my noble friend Lord Barnett will have to answer the point about whether that was the original purpose, although I never understood it to be so. I think that that was a bit of oppositionitis on the part of the noble Lord, Lord Forsyth.

Lord Roberts of Conwy: My Lords, can the Minister clarify whether there is a commitment to an annual revision of the formula and how it would work?

Lord McIntosh of Haringey: My Lords, there is no commitment to an annual revision, although changes have been made to the formula as and when necessary. A commitment to an annual revision would be a commitment to some other basis of making an allocation to the different countries.

The thrust of the debate has been that even those who want to abolish the Barnett formula, or replace it with some son or granddaughter of Barnett, are by no means agreed on what that replacement should be. I think that my noble friend Lord Barnett would accept that, having heard the debate.

Is it the case, as has been suggested, that Barnett has somehow run its course? Is Barnett worse now than in 1978? We do not accept that. It is still as relevant as in 1978. It is updated in each spending review to reflect current circumstances in each country, without a commitment to revise or review it. Of course it does not cause differences in GDP, which is one of the few misunderstandings that appeared in the debate. I think that the noble Lord, Lord Thomas, fell into that trap. As the large bulk of income-related spending is reserved, we cannot blame changes in GDP on the Barnett formula. The noble Lord, Lord Hughes, made that point successfully. Indeed, the noble Lord, Lord Roberts, referred to the degree of updating on population that took place. If we were to undertake a review with a particular view in mind—no particular

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view has emerged from this debate—we would be responding to partial criticisms of a system that has stood the test of time.

I know that we do not have constituencies in this House, but I looked at the origins of the speakers in the debate. Of the 19 Back-Bench speakers, nine came from Scotland and five from Wales. With the exception of the noble Baroness, Lady Carnegy, from Scotland, who honourably wanted to scrap the Barnett formula, I could have predicted not the arguments but the conclusions that everybody in the House reached. They were none the worse for that.

We have heard a wide range of somewhat conflicting views. We think that the formula served us well, but we shall continue to listen to the views expressed.

6.40 p.m.

Lord Barnett: My Lords, I, too, could have predicted my noble friend's reply to the debate. I am not too surprised about that. I would have been astonished had it been otherwise.

In the brief time that I have available, I should like to thank everyone who participated in the debate, including those with whom I disagreed as well as agreed. I have learnt a lot. I have heard about the Barnett squeeze, the Barnett by-pass and the Barnett hug and that I am either a good fairy or a witch.

I also wish to thank the two maiden speakers. I am glad to have provided the opportunity for us to hear such excellent maiden speeches. I have learnt how people have misunderstood the Barnett formula over all these years, even the noble Lord, Lord Forsyth. Incredibly, after all that I said—he surely listened—he had in mind that the formula would eventually converge. Nothing of the kind was intended; it was intended to make life easy by having a simple formula. That is what I said it was about. My noble friend accused me of referring to rationality but I quoted him. He may have forgotten that I quoted his words when he said it was not rational.

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