The Barnett Formula - Select Committee on the Barnett Formula Contents

Examination of Witnesses (Questions 60 - 77)


Lord Barnett

  Q60  Lord Smith of Clifton: Looking at the way the system has evolved, what advantages do you think the existing system has? It must have some advantages because it has lasted for so long. What risks are associated with changing it?

  Lord Barnett: The reason it has lasted so long is, as I have always said, because governments do not like making changes. For example, the present Prime Minister has said he does not want to change or review the formula. David Cameron, on his first visit to Scotland as leader, for some strange reason unknown to me and a bit of a mystery, assured the Scottish people that he was keeping the formula, since when he has, in an interview with The Daily Mail, made some rather different comments that he might just be interested, but not yet. The two major parties are opposed to review. That is why it has lasted so long. They are opposed to change. The question you asked me was what is the risk. The reason why I pressed that there should be a committee set up to review it is I believe a select committee of the House of Lords, an all party committee is better suited to this than the House of Commons because they would be much more partisan and party political, inevitably. The risk has always been that, if we do not make changes, the people of England will say, looking at these figures and with an astute leader in Scotland making the kind of changes, using the money in ways that are of interest to people in England but which they cannot have, as with a poll that was done in Berwick, do they want to be in Scotland or England? Obviously, if they are going to get an extra £1,600 a head, they would prefer to be in Scotland. If you ask the people of Manchester if they want to be called Scottish in order to get another 1,600, they would say yes as well. Obviously this is a real danger. That is the risk. If something is not done and an astute leader in Scotland uses the extra expenditure in ways that we cannot do in England, as with prescription charges and university fees, then the people of England will get more and more upset and demand the very thing that they cannot get in Scotland, as I understand it.

  Chairman: I like the idea of MacMancunians, I must say.

  Q61  Lord Rowe-Beddoe: This afternoon has been most enlightening for me, to hear from your first hand experience and to put it all into historical context. I speak for myself and I might speak for a lot more people outside of this room. The misperception and misunderstanding of this formula are enormous. If you were to ask people in Wales, or certainly in Scotland, they would not have any understanding of what you have been saying today. It has been very refreshing from that viewpoint. We have talked about the formula and the fact that it was there on a "temporary" basis, as far as you were concerned. We are obviously discussing now perhaps a better way would be to address needs. If you were sat there with a white piece of paper in front of you today, how would you begin to define the needs requirements?

  Lord Barnett: The straight answer to that is I would not because, to put it on a simple piece of paper, you would need to have discussions with all kinds of people. You certainly would need a senior and sensible economist—which is not necessarily the same thing—to examine the whole of the situation and see what he comes up with. I am assuming that this Committee would get such a person to help you come to a conclusion. That is what I would have done. I certainly would not have been able to sit down with a piece of paper and devise a system that would be acceptable to Cabinet or anybody else for that matter.

  Q62  Lord Rowe-Beddoe: I was really asking you about how you would begin to identify the needs.

  Lord Barnett: One would employ a senior economist to look at it in detail and come back to me with a report.

  Q63  Lord Rowe-Beddoe: Do you think there are natural tensions between the efficiency and effectiveness of the spend? How do you think we can begin as a Committee to look at that?

  Lord Barnett: There are always tensions amongst ministers in Cabinet. Tensions exist, I am afraid, and differences exist constantly, especially when it comes to expenditure. That is one of the problems I had for five years.

  Q64  Lord Lang of Monkton: As chief secretary, looking at some of the policy decisions taken for example in the Scottish Parliament on student grants and care for the elderly, no doubt the devolved executive there would describe those as needs and they would want that to be fed into their needs assessment as something that should be acknowledged, even though it does not exist on the same basis in England. Would you as Chief Secretary be sympathetic to that or would you say no?

  Lord Barnett: These are political decisions that are being made.

  Q65  Lord Lang of Monkton: I am asking you as a former Chief Secretary to say how you would react if you were in position now.

  Lord Barnett: I would want to get the matter settled as quickly as possible. These were decisions ultimately that were outside my remit. Cabinet would have decided what should be the levels of public expenditure. I would not give them any more, so if they wanted to take money from one area and use it for another area, that would be a matter for them.

  Q66  Lord Lang of Monkton: I am talking about the needs assessment though and how one acknowledges whether or not some items of expenditure do form a justifiable need in one part of the country but not another, even though the decision was taken on a political basis.

  Lord Barnett: What is justifiable, as you know, is in the eyes of the beholder. Some people may say one area of expenditure is justifiable and some other minister would say another area is justifiable. Those are political decisions outside the whole area of devising how much expenditure should go to different parts of the country.

  Q67  Lord Forsyth of Drumlean: Are you saying that, provided you have a system that is seen to be fair, whatever that is—you think it is probably on some kind of needs basis, either the simpler or more complex version—there is not a problem with the Scottish Parliament doing different things. The problem arises if the system of funding is not seen to be fair.

  Lord Barnett: That is right. There is not a problem until they come to you and say they want some more money because they are doing this, that or the other. Once the allocation of expenditure is made and agreed, that is it. If I were chief secretary and they wanted to come to me before because they had made a political decision to do this, that or the other, I would say, "I am sorry."

  Q68  Lord Lang of Monkton: You do not think that a needs assessment, once established, would need to be updated regularly to take account of ----?

  Lord Barnett: I do not think you can avoid, in any political system, having problems every year with areas of expenditure because political views change from time to time in the decisions on how public expenditure should be allocated. That will always happen. I am not pretending that any new system would stop argument within Cabinet on the allocation of expenditure. That would be one hell of a claim to make.

  Q69  Chairman: Whether you use the word "formula", "mechanism" or whatever to describe the way in which you allocate the expenditure between the devolved administrations for the future, do you think that should be put on some statutory footing?

  Lord Barnett: I do not think so. That would be too inflexible.

  Q70  Chairman: You would have regular needs assessments?

  Lord Barnett: In my view, it would be impossible to have such an inflexible statutory system. I do not see how you can do it.

  Q71  Baroness Hollis of Heigham: On the question of whether the Barnett Formula allows the devolved administrations sufficient scope to shape their own policy agendas, what I gather you have been saying is that provided the allocation of funds en bloc is fair the internal discussion remains as that of a political policy judgment.

  Lord Barnett: Of course.

  Q72  Baroness Hollis of Heigham: Do you think that is where we are now?

  Lord Barnett: We are there now except that the blocks of expenditure allocated do not seem fair.

  Q73  Lord Lawson of Blaby: Is it not the case that the reason they do not seem fair is because the most important, single element of need is how many people there are who have to be provided for?

  Lord Barnett: Yes.

  Q74  Lord Lawson of Blaby: When you calculated this, you calculated it on the basis of the Scottish population, compared with the English population, compared with the Welsh population and compared with the Northern Irish population. What has happened since then—it is not your fault because you had no intention in this regard—is that the population trends have diverged and that has not, except to an absolutely minimal extent, been taken into account by your successors in the operation of the true system.

  Lord Barnett: Yes.

  Lord Lawson of Blaby: This element of population, although it is not the only issue in assessing what Scotland needs to have, is far and away the most important and this has been totally neglected in practice.

  Lord Lang of Monkton: In practice it has not, actually. There is a census and the figures are taken into account, but censuses are always slightly out of date.

  Q75  Baroness Hollis of Heigham: Would Lord Barnett therefore be saying that it is precisely because the formula has produced unfair results that this has given an unfair headspace to the devolved administrations to make policy decisions which appear possibly very attractive, but which are not based on any realistic assessment of opportunity of choosing between alternatives as ways of trying to find out if they are add-ons, rather than policy alternatives within an agenda? We are not having to trade one against the other because the Barnett Formula has delivered additional headspace which allows for that honey pot funding?

  Lord Barnett: At the moment from the bare figures it does look as if it has allocated additional money to Scotland for example, unless an investigation shows that those higher figures are perfectly reasonable, given the circumstances. In population terms, there may be a huge increase in the number of children. Maybe more and more families in Scotland will start having eight kids like we have been reading in the papers about some families. Maybe the population of children and therefore child benefit has grown enormously. I do not know. These are things that would have to be looked into.

  Q76  Earl of Mar and Kellie: It is often said that the greater spend in Scotland is in fact the union dividend. Do you think that is right?

  Lord Barnett: You can call it what you like. I am not giving it a title. It just happens that the figures show there is more money per head of population in Scotland at the moment than there is in England.

  Q77  Chairman: Lord Barnett, on behalf of the Committee, can I thank you very much indeed. As the father of the formula, it is very good that we heard you first and, as I understand it, what you have been telling us can probably be summed up in two sentences. You devised a mechanism which you hoped would last for a few years. You did not expect it to last for as long as it has lasted. You are not sure now whether it is based on the right criteria and you lean towards having, among other things, a needs based assessment. Is that fair?

  Lord Barnett: That is fair.

  Chairman: Thank you very much indeed.

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