Examination of Witnesses (Questions 135
- 139)
FRIDAY 27 FEBRUARY 2009
Mr John Swinney
Q135 Chairman:
First of all, can I thank you very much for coming. As you know,
this is an inquiry by a Committee set up by the House of Lords
to look at the way in which the Barnett Formula operates. I hope
you have seen our terms of reference?
Mr Swinney: I have, yes.
Q136 Chairman:
Because it is a fairly restrictive set of mandates which we have
actually been given by the House. There are things we can look
at and things we cannot look at. Mainly what we are concerned
with is the way in which the formula actually operates; whether
it should be replaced now by a different formula on a different
basis; and, indeed, how that might operate. What we cannot do
is look at tax-raising powers and fiscal autonomy, which seems
to figure up here at the moment, and, as I say, we are rather
barred on that, so if you could perhaps bear that slightly in
mind there are things that we cannot look at that we are not allowed
to. Perhaps I could start by really asking a fairly basic question:
in your view, what are the chief merits and demerits of the Barnett
Formula, or the Barnett system if I can call it that, as the basis
of funding UK devolved administrations, and particularly Scotland?
Mr Swinney: First of all, can I say that it
is a pleasure to meet with the Committee and I look forward on
behalf of the Government to giving a contribution towards the
thinking of the Committee. I suspect that in respecting the parameters
of the Committee's areas of responsibility certainly my views
about what is the alternative to the Barnett formula get us into
the territory of replacing it with a system that gives greater
financial responsibility to the Scottish Parliament through a
system of fiscal autonomy. I am sure the Committee will have had
sight of the documentation that the Government published during
the course of this week, which essentially sets out a range of
five options for structuring the finances of the Scottish Parliament,
which we contribute to the debate, and obviously the Government's
preference within that is that the Barnett Formula should be replaced
by full fiscal responsibility for the Scottish Parliament. We
have established and set out exactly how we think that should
come about. In relation to your question, Chairman, essentially
on the merits and demerits of the Barnett Formula, I suppose part
of what has been one of the attributes that has been highlighted
as a benefit of the Barnett Formula has been that it has brought
an order to the distribution of resources within the United Kingdom
between its constituent parts, in the sense there has been a formula
there that has operated. I think that is an understandable conclusion,
that there has been a distribution mechanism involved. As I think
we find with all distribution mechanisms over finance, these things
are never absolutely straightforward, they are never crystal clear,
they are never completely scientific. They are essentially driven
by judgments that are applied about the conditions and circumstances
in which they are applied and also they are essentially subjective
mechanisms. Some of the points of judgment that underpin the Barnett
Formula are points that obviously are subject to great and intense
debate, and have been so in the past, and I am sure will be so
in the future.
Q137 Chairman:
Can I just interrupt there. You said they are essentially subjective
mechanisms. What do you mean by that?
Mr Swinney: Obviously it is a distribution formula.
It is not scientific, it is not an absolute; it is a set judgments
that has been arrived at as to what factors will be considered
as being relevant for the distribution of resources. Judgments
have been arrived at about which particular factors will be borne
in mind and which particular proportions of comparability factors
will be applied to certain circumstances in certain budget lines.
Q138 Chairman:
Do you think the ones they are using at the moment are the correct
ones?
Mr Swinney: They are the ones that are there.
Obviously my perspective on the Barnett Formula is that it is
a mechanism which distributes resources. I do not think it is
a particularly robust mechanism for the purposes of what I want
to see the Parliament being able to do, which is to exercise greater
financial responsibility than it currently is able to exercise.
Q139 Chairman:
Sorry to come back to it again, but given our terms of reference,
the one thing that we cannot consider is how Scotland might pay
for itself in the event of independence and therefore fiscal autonomy.
What we have to look at is the way in which the Barnett Formula
operates. I am not sure I fully understand even now what you meant
by it is essentially a subjective mechanism. It seems to me the
mechanism is there, it is a formula.
Mr Swinney: Two points on that, Chairman. Firstly,
I would make the point that I think it is difficult to look at
the question of the Barnett Formula without thinking of how it
fits into the wider questions about the financing of the Scottish
Parliament and the funding of the arrangements for devolution
because, quite clearly, the debate that is underway in Scotland,
and has been for some considerable time, is as to whether the
existing financial arrangements are appropriate. I accept that
the Committee is looking at a defined area of activity about the
composition of the Barnett Formula, and the simple point that
I advance to the Committee is that I do not think that is the
ideal way for financing the Scottish Parliament and for delivering
the financial flexibility that certainly the Scottish Government
takes to be the case. When I say that there is essentially an
element of subjectivity to the Barnett Formula, if we look at
the various areas of comparability within the Barnett Formula,
there are judgments applying as to whether or not particular budget
lines will carry full comparability for consideration within the
Barnett Formula. That is ultimately a subjective judgment that
is arrived at.
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