The Barnett Formula - Select Committee on the Barnett Formula Contents

Examination of Witnesses (Questions 135 - 139)


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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