Examination of Witnesses (Questions 60
- 77)
WEDNESDAY 28 JANUARY 2009
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.
| 
