The Barnett Formula - Select Committee on the Barnett Formula Contents

Examination of Witnesses (Questions 20 - 39)


Lord Barnett

  Q20  Lord Forsyth of Drumlean: Might I suggest a possible explanation? Given what you have said about your criticism of the Barnett Formula which most people take to be the base line plus the formula that gives the percentage share relative to population of the constituent countries that make up the United Kingdom, your criticism in your opening statement was about the level of the base line. You said that the amount being spent in Scotland was proportionately higher per head of population. That is a reflection on the base line. What is puzzling us is why, if you are concerned about that now, you were not concerned about it then and why the Barnett Formula did not just allocate the additional revenue relative to population; and why, given that in the Treasury at that time there was work being carried out on a needs based approach, which you also said in your opening remarks you wished to do, you have not gone for that. The explanation I have in my political head is that this was a time of great political difficulty with the nationalists on the rise and to introduce a formula which was based on needs that would have resulted in Scotland getting less would perhaps not be very appealing.

  Lord Barnett: Basically, you are saying that politically major changes of such a description could have had great political consequences. Governments do not like making those kinds of changes. You are quite right.

  Q21  Chairman: What I still do not quite understand is you did not know that the needs assessment was being carried out.

  Lord Barnett: I would have some vague idea that some of my officials were looking at all kinds of things.

  Q22  Chairman: Did you know they were looking at this?

  Lord Barnett: I was not concerned with it, no.

  Q23  Chairman: If you did not know about it, the political calculations which have just been put to you do not apply in the same way.

  Lord Barnett: Certainly.

  Q24  Baroness Hollis of Heigham: Another version of events might have been that the formula you devised was seen by you, as you suggested, in a relatively temporary way. This needs assessment might go on to displace it as and when consent had been gathered as a more permanent settlement.

  Lord Barnett: They were very difficult times. I wanted to get out of the way the public expenditure allocation once a year. Any other matters I did not want to get involved in. I did not want to change anything else.

  Q25  Lord Lawson of Blaby: May I try and inject a certain amount of clarification into this slightly confused picture? If I get it wrong, I very much hope that you will tell me. I am sure you will. First of all, as I understand it, you did not consider the long term consequences of the system because you did not consider it a system and you were not thinking about the long term. You were just dealing with the particular situation at the time. Is that right?

  Lord Barnett: That is right. I just wanted to get through every day without too much trouble. That was what I was concerned with.

  Q26  Lord Lawson of Blaby: No one would criticise you for that. The fact that some academics said that the Barnett Formula had mathematical properties which would ensure convergence was part of the thinking at the time. Not only is that completely wrong and not in your mind at all; also, is it not the case that the mathematical properties would suggest a minimal amount of convergence. The reason that there has been considerable divergence, which you pointed out in your original statement, is because population trends have diverged and this has not been taken into account.

  Lord Barnett: In any population changes that have taken place over the years there have been slight adjustments. I recall when Alistair Darling was the Secretary of State for Scotland. There had been some small changes and he was asked: would he change the formula to the extent of those small changes? He made some moderate adjustments.

  Q27  Lord Lawson of Blaby: You presented to us a stark picture of how a situation had arisen by the perpetuation of this system, which rightly or wrongly bears your name, that there had been now a great divergence which is unfair and, you suggested, dangerous because of ill feeling in England.

  Lord Barnett: Yes.

  Q28  Lord Lawson of Blaby: You have obviously looked into why this has happened. It seems to me to be the major reason but I may be wrong. Do you conclude that the main reason why it has happened is that the population of England has been increasing quite considerably; whereas the population of Scotland has been falling? There has not been anything remotely like an adequate adjustment for these different population trends and therefore the consequence is the consequence you spelled out for us in your opening statement.

  Lord Barnett: Yes, I am sure that is the case. All one can say is those are the figures now.

  Q29  Lord Lawson of Blaby: I am not blaming you for it.

  Lord Barnett: You cannot blame me for the population change. I can be blamed for all kinds of things but not that. At the time, the mathematical calculations some had made, that it might eventually result in this, that or the other, frankly did not disturb me at all.

  Q30  Lord Lawson of Blaby: You probably were not aware of them.

  Lord Barnett: Yes.

  Q31  Lord Forsyth of Drumlean: I wonder how you thought it would work. If the base line in Scotland, say, for health was 25 per cent higher per head than in England, under the formula, they would get the population increase of any increase in England, so they would get 10 per cent of whatever increase was agreed in England. If you take the health service for example, more than 70 per cent of the costs in the health service are pay. Pay is negotiated nationally. If the Scottish health service just got their population related increase, there would be a huge hole. Therefore, what needed to happen when there were various nationally agreed pay rises was that money had to be added over and above the formula. That is how the divergence came about.

  Lord Barnett: That might well be the case. The fact is I never intended and thought—who knows what would have happened after an election?—or anticipated that it would last that long as a method of allocating expenditure. It was a purely simplistic method of allocating public expenditure.

  Q32  Lord Forsyth of Drumlean: I think we have established that it was done as a deal to get you through and I understand that. I have been there myself. The government, of which you were a member at that time, had a policy which of course failed, but the intention was to set up a Scottish Assembly. It is widely believed that the Barnett Formula as it is described was the system that was going to be used to fund that Parliament. I wonder whether the work that was going on in the Treasury on a needs based assessment was the latest of plans to have a devolved assembly. Did you see it as a short term measure and, if you did, how were you proposing to fund the devolved assembly?

  Lord Barnett: I did see it as a short term measure. I assumed that later there would be some kind of discussion on needs, of course, because needs were not discussed. You have to understand the circumstances of the time. To start discussing major changes did not seem something that would be politically acceptable.

  Q33  Lord Forsyth of Drumlean: I very much understand that.

  Lord Barnett: There might have been wide belief of something going to happen. You may have been part of that wide belief. I was not.

  Q34  Lord Forsyth of Drumlean: Not putting words into your mouth, if we were to conclude that the Barnett Formula system was a kind of interim measure to get you through some political difficulties and some public expenditure difficulties that occurred at that time but, for the devolved assembly which you were planning, you would probably have looked at something rather more permanent and more carefully thought through, based on needs, that is probably why the work was going on?

  Lord Barnett: I am sure, but that was well before, as you know, the setting up of a devolved assembly for Scotland. The allocation of money to the Scottish Assembly and they way they would allocate it was not something at that time that was giving me a great deal of thought. There would be somebody thinking about it but I was not.

  Lord Sewel: It is fairly clear from the publication of the needs assessment study that its whole history and genesis is leading up to devolution. It is related to devolution and what happens after the Scottish Assembly is set up. You can see how that silo thinking could absolutely persist while you are nicely handling your little formula to get you out of some scrapes and all this is going on in a room next door but the two never meet.

  Lord Lawson of Blaby: The point which has emerged is that the needs assessment and the Barnett Formula or the Barnett arrangement are two separate things. The Barnett arrangement had nothing to do with devolution; whereas the needs assessment did look to that.

  Q35  Baroness Hollis of Heigham: The question is why the needs displacement did not go on to displace the Barnett Formula in due course.

  Lord Barnett: That came over the next 18 years which Lord Forsyth and Lord Lang were very directly involved in. They kept the formula going and turned it into a formula. I did not. In the book I published that was never referred to because I never devised it as a formula.

  Q36  Lord Sewel: When you were applying the formula, was it your intention that that would determine the allocation of public expenditure to the Scottish Office or would it inform the allocation of public expenditure so that there would still be negotiations around the amount that the formula produced; or was the formula going to be the be all and end all?

  Lord Barnett: It should be clear—I hope it is—to the Committee that at that time the devolved assembly was certainly not in my mind.

  Q37  Lord Sewel: I said "the Scottish Office".

  Lord Barnett: Whatever the Scottish Office were discussing, they never told me and I was not terribly interested in what they were discussing.

  Q38  Lord Sewel: I am not making myself clear. In allocating expenditure to the Scottish Office, the formula would come up with an amount.

  Lord Barnett: Yes.

  Q39  Lord Sewel: Did you see that amount as being the end of the matter or would you have discussions around the amount? Did the formula determine the allocation or did it help inform the allocation?

  Lord Barnett: It determined it. They got 10% of whatever was the overall increase or decrease in expenditure.

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