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Lord Goldsmith: My Lords, I most certainly have. The Sandcastle material to which the noble Lord refers does not relate solely to the issue that I was asked to consider, which was that of hostage taking. It covers many other areas as well. I can confirm that that material was looked at in detail.

I give the assurance that I have taken the matter very seriously. I have given it my full and personal attention. In addition, members of my staff have spent days reviewing all the material, including the Sandcastle material. Treasury counsel experienced in such matters has also considered it. I assure the noble Lord that it has all been taken into account.

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Barnett Formula

2.48 p.m.

Lord Barnett asked Her Majesty's Government:

    Whether they have any plans to scrap the Barnett formula with respect to the allocation of public expenditure.

Lord McIntosh of Haringey: My Lords, the Government have no plans to change the Barnett formula. The Government's funding policies for the devolved administrations were set out in the updated statement of funding policy published by the Treasury on 15th July 2002.

Lord Barnett: My Lords, I think that I am obliged to my noble friend for that Answer. However, if he has no plans to scrap the formula, the simple question must be, "Why not?". After all, I am sure he is aware that it is grossly unfair. It was never a formula when I invented it; it became one only after 18 years of the previous administration and under this one. It is grossly unfair and should not have been continued. Will the noble Lord therefore reconsider his Answer and ask the Treasury to look again and consider why it does not propose to scrap it? It can keep the name; I would be very happy about that.

Lord McIntosh of Haringey: My Lords, my noble friend Lord Barnett is fully entitled to disown his offspring; there is no law against that. However, I do not accept that it is wholly unfair. The matter was given great consideration by the Constitution Committee, chaired by the noble Lord, Lord Norton. Although it has many criticisms to make of the Barnett formula, paragraph 105 of its report states:

    "We do not have a neat ready-made alternative to Barnett to propose".

It proposes instead a needs review, the use of a periodic basis rather than an annual one, and a phased transition to any new system. That does not sound very attractive to me.

Lord Campbell of Croy: My Lords, while the Barnett formula has become a legend and has proved acceptable to public opinion in Scotland, thereby consigning the noble Lord's name to posterity—deservedly—is there not wide misapprehension about its precise effects?

Lord McIntosh of Haringey: My Lords, we had a very detailed debate on this matter in the House some 14 months ago. A majority of speakers were broadly in favour of the formula, largely because they came from Scotland and Wales and had a significant interest in that respect. It is important to make clear what the Barnett formula is. It is not the basis on which higher payments are made to Scotland or Northern Ireland in particular, but it may reflect a higher baseline, which was produced on the basis of a needs assessment involving the Scotland Act 1978. It applies only to block payments, not to annual managed expenditure

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and only to changes in block payments and excludes such matters as the common agricultural policy, National Health Service expenditure, housing expenditure and so on, when those matters are devolved. It does not even involve all devolved expenditure because devolved expenditure funded by Barnett money has to be added to borrowing, local taxation and European Union receipts. It is really not such a big deal as all that.

Lord Hughes of Woodside: My Lords—

Lord Shutt of Greetland: My Lords—

The Lord Privy Seal (Lord Williams of Mostyn): My Lords, we have plenty of time if we start with the noble Lord, Lord Shutt, followed by the noble Lord, Lord Hughes.

Lord Shutt of Greetland: My Lords, does the Minister agree that if there is devolution in England, the Barnett formula will not last the course? If there is devolution in England and people are asked to vote for it, should they not know the financial settlement for which they will have to vote?

Lord McIntosh of Haringey: My Lords, that, to use the phrase of my noble and learned friend Lord Goldsmith, is a hypothetical question. We do not have devolution in England and, even if we had, it is by no means certain that all regions of England would wish to take advantage of it. Under those circumstances, we should face the issue when we come to it.

Lord Hughes of Woodside: My Lords, although it is certainly true that the Barnett formula has very little effect on the total grant in Scotland, does my noble friend accept that the noble Lord, Lord Barnett, is a cult figure in Scotland and that his formula is regarded as immutable? Perhaps we had better accept that he is immune from prosecution.

Lord McIntosh of Haringey: My Lords, the noble Lord, Lord Barnett, has already said in this House that he does not want the arrangement to be called the Barnett formula. I believe that he wants it to be called "the Barnett granddaughter's formula" because that is the nearest relation that he is prepared to have accepted. I certainly accept that he is a cult figure in Scotland, but not just for that reason.

Lord Elis-Thomas: My Lords, the noble Lord, Lord Barnett, is a cult figure in Wales in his own right, and not on account of his formula. Does the Minister agree that a formula that was devised for the transfer of funding between territorial departments is not acceptable at a time when financial transfers are bound to be the subject of political scrutiny by elected bodies?

Lord McIntosh of Haringey: Not necessarily, my Lords, no. I can see circumstances in which that might be correct but the basic experience of the Barnett formula is that it has avoided the heroic jousts that

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took place in the Star Chamber between the end of the Goschen formula in 1959 and the start of the Barnett formula in 1978 or 1979. It works and it provides a degree of security and certainty. It is based on known facts about populations and the known baseline. I do not believe that those advantages should be taken too lightly.

Lord Roberts of Conwy: My Lords, if it is not the Government's intention to apply the Barnett formula to regional assemblies in England if they are established, will that not be very unfair because, as we have heard, Scotland and Wales, where the Barnett formula operates, have done rather well by its use?

Lord McIntosh of Haringey: My Lords, I did not say that it was the Government's intention not to apply the Barnett formula to regions in England and Wales; I said that we have yet to see finalised legislation involving the regions of England and Wales. In any case, the Barnett formula in the devolved administrations has never been based on statute. There is no legislative backing for it; the current Government's use of it started with the White Paper on Scotland in 1997, not with the Scotland Act.

Baroness Carnegy of Lour: My Lords, would the noble Lord agree—

Lord Maclennan of Rogart: My Lords—

Lord Stoddart of Swindon: My Lords—

Lord Williams of Mostyn: My Lords, it is now the turn of the Liberal Democrats, followed by the noble Lord, Lord Stoddart.

Lord Maclennan of Rogart: My Lords, while acknowledging, as the Minister said, that the Barnett formula may provide a degree of certainty, having been operative since 1978, does he also recognise that there is growing uncertainty about its equity? Although the Government may be losing the head of steam for constitutional reform, they are in the process of legislating to allow views to be expressed about regional government in England. It can only make sense to give this arrangement some serious discussion, perhaps by establishing a commission with broad terms of reference that can take account of the criticisms being made by the noble Lord, Lord Barnett, and others, and come up with a more dispassionate view of its equity.

Lord McIntosh of Haringey: My Lords, there has been doubt about the Barnett formula on the grounds of equity since it first came into operation. I do not accept what the noble Lord, Lord Maclennan, says about there being growing concern about it. After all, it was thought at the time that, because it was applied only to increases, there would gradually be convergence between the government funding per head of population in the nations of the United

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Kingdom. That has not happened, partly because the formula has been bypassed on a number of occasions, particularly during the 1980s. However, on the whole I do not believe that there is increasing concern, except perhaps in your Lordships' House, spurred on by the noble Lord, Lord Barnett, himself.

Lord Stoddart of Swindon: My Lords, when the noble Lord, Lord Barnett, says that he is irrelevant, perhaps we should listen to him. Is the Minister aware that people in the south of England, who are being told that their rates might increase by 20 per cent, and people in the north of England, who see Scotland being treated in a preferential way, feel great resentment, especially when they see that in Scotland students are treated better than they are in England, Wales and Northern Ireland? Moreover, old people get better treatment in Scotland than they do in the rest of the United Kingdom. Does he understand that that resentment will boil over one day and cause the Government much trouble?

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