Examination of Witnesses (Questions 20
WEDNESDAY 28 JANUARY 2009
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.
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.
Did you know they were looking at this?
Lord Barnett: I was not concerned with it, no.
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
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
Lord Barnett: That might well be the case. The
fact is I never intended and thoughtwho 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
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
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
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 clearI hope
it isto 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.