Examination of Witnesses (Questions 180
- 199)
FRIDAY 27 FEBRUARY 2009
Mr John Swinney
Q180 Lord Forsyth of Drumlean:
Whereas before going along with a hard luck story to the Prime
Minister was the mechanism; now the only mechanism is to actually
increase income tax?
Mr Swinney: That is why we come to the view—and
I have laboured this point a number of times already, Chairman—that
the funding arrangements need to be changed to ensure that we
have the ability to exercise greater financial responsibility,
to take account of the fact that we have such limited devices
for handling these issues.
Q181 Chairman:
It does seem that your basic position now is that as far as Barnett
is concerned you do not think Scotland has done as well out of
it as it should do but it does not really matter because we want
to move to an entirely different system of fiscal autonomy?
Mr Swinney: That is my position.
Q182 Chairman:
So if I asked the question do you think the arrangement is fair
for Scotland, presumably you say some of it is and some of it
is not but that is not what we want; we want fiscal autonomy.
If I ask whether there is any different way of operating the Barnett
Formula, again we get the same answer.
Mr Swinney: The constitutional debate is moving
on, Lord Richard.
Q183 Chairman:
We are not a constitutional committee.
Mr Swinney: I appreciate that, but I am simply
giving you an insight into the debate as to where we are just
now and where the debate is moving in Scotland. There is a need
for us to move to the position of exercising greater financial
responsibility, and that is where the debate sits.
Q184 Lord Sewel:
Do you see the grant element being a constant feature of the relationship?
Mr Swinney: No, not necessarily.
Q185 Lord Sewel:
Can you name another devolved administration which is based on
that?
Mr Swinney: There will be various funding arrangements
around the world where there are, in some circumstances, administrations
raising the overwhelming majority of taxation in their own locality
and then remitting some of that expenditure to the unitary authority
to pay for certain services.
Q186 Lord Sewel:
Can you name a system which does not have either a central element
of switching revenues around on the basis of relative need between
the constituent parts or is based on grant coming from the centre?
Mr Swinney: I am not familiar with every regime
around the world but there will be some.
Q187 Lord Sewel:
But you have done the work on fiscal autonomy so surely you must
have done some international comparisons?
Mr Swinney: There will be examples where the
ability to exercise greater responsibility for finances is entrenched
within the component parts of a unitary state.
Lord Forsyth of Drumlean: Just going
back to the Chairman's question—
Chairman: Can I just say one thing: this
Committee is here to look at the Barnett Formula, not to discuss
the demand for fiscal autonomy by the Scottish National Party.
Fascinating though that would be and as much as I would wish to
examine Mr Swinney on his demand for fiscal autonomy, that is
not what we are here to discuss.
Q188 Lord Forsyth of Drumlean:
Just going back to your question, Chairman, and underscoring what
Lord Richard has said, you are the Finance Minister of the Scottish
Executive. Next year there is going to be a squeeze on public
expenditure. Whoever wins the next general election there is going
to be real tightening of public expenditure. This Committee is
going to make recommendations about the operation of the Barnett
Formula. I think it is unlikely that a new system is going to
occur this side of a general election so, wearing your responsible
hat as the Finance Minister, are you really saying that there
are no changes or improvements or anxieties that you have about
Barnett that this Committee might like to look at, because from
where I sit the combination of the constitutional change and the
operation of Barnett has left you in a very disadvantaged position,
some of which could be put right by amending the Barnett Formula.
Just to sit there and say, "Actually we would rather have
something else," is not going to get you through next year
and the year after, and it seems to me that there are very substantial
physical consequences for people who are depending on public services
in Scotland.
Mr Swinney: First of all, the analysis that
you apply, Lord Forsyth, is absolutely correct about the future
of public expenditure. It is not just a 2010-11 problem. Certainly
if one looks at the chart of real increases in public expenditure
in Scotland, in the period since the establishment of the Scottish
Parliament there has been very substantial and very positive growth
in real terms in public expenditure in every single year since
the establishment of the Parliament and, of course, significant
increases in public expenditure in the rest of the United Kingdom.
Over the forthcoming eight-year period I think we will probably
see something which is, I do not know the extent to which it will
be a direct reflection of that pattern of very substantial increase
in expenditure, but it will certainly be very, very flat in terms
of real terms increases in public expenditure, and I suspect there
is every likelihood that there will be real terms reductions in
public expenditure in the period that lies ahead. I think that
looks pretty likely from the any scenario planning that I assess
about the period that lies ahead, so, yes, we are moving into
a fundamentally different financial climate, and the Scottish
Government has to operate within that climate. As to how we do
that, what would certainly make our life a great deal easier is
if we had in place the procedures and the processes that would
allow us to have a more meaningful discussion and debate about
some of the financial challenges that we face with the Treasury,
some of which are illustrated by the fact that on the Statement
of Funding Policy we are not the signatories, and I think it would
be a healthy development if we were to be signatories to the Statement
of Funding Policy and that we were able to see with greater transparency
the way in which elements of the Barnett Formula were applied.
I have given a number of examples where we are not satisfied in
our now 20 months' experience in office that the Barnett Formula
has actually been applied in relation to decisions on public expenditure.
Q189 Chairman:
Can I interrupt again to clarify for myself that you do not mind
whether the Barnett Formula stays based at present or whether
it is changed to something which is based upon assessment of needs,
it is not something that particularly concerns you one way or
the other because of your demand for fiscal autonomy? Is that
fair?
Mr Swinney: I think that we should move from
where we are today to a position of having fiscal autonomy; that
is my position. If you are saying to me would I prefer to go from
where we are just now to a needs-based formula, I think we are
better to stay with where we are. What I would prefer to have
in place is a regime that gave us a greater ability to influence
the way in which the Barnett Formula was deployed. I have cited
to Committee this morning a number of examples where the current
arrangements have failed to deliver the type of—
Q190 Chairman:
So you would rather have a Treasury determination of priorities
than one based upon an assessment of the needs?
Mr Swinney: What I would want, as I have said
a number of times already, is an arrangement whereby we can properly
influence the application of the Barnett Formula rather than a
view that is deployed to us by the Treasury without any real ability
to say whether that is something we think is being deployed properly
or improperly.
Q191 Chairman:
Do you not think that an objective assessment of needs—and
I know it is difficult to do but the Australians seem to do it—is
a rather better way of distributing money?
Mr Swinney: The idea that somehow there is a
simple approach to a needs-based formula—
Q192 Chairman:
I did not say that—
Mr Swinney: With respect, my Lord, it was almost
characterised as a simple and clear way of going about this. A
needs-based exercise is an extremely difficult exercise to carry
out and one that is subjected to, I suspect, even more subjectivity
than I am concerned about the current Barnett Formula.
Q193 Chairman:
Local authorities do it.
Mr Swinney: Yes they do and I suspect certain
local authorities—
Q194 Lord Sewel:
You use it for local authorities.
Mr Swinney: I know and some local authorities
are as dissatisfied about the formula today as they probably were
when Lord Forsyth was exercising that responsibility in the 1990s.
Q195 Chairman:
How do you assess the needs of local authorities? Obviously it
is subjectively in a sense.
Mr Swinney: It is done essentially by an assessment
of around about 100 different indicators which are various illustrations
as to need. Population drives the overwhelming majority of the
local government distribution formula in Scotland but there will
be other examples, from road length, to number of primary school
pupils, to number of older people.
Q196 Chairman:
But all based on need and how much the local authority needs to
satisfy those demands?
Mr Swinney: After that, once you identify all
of these different characteristics, you then have to apply a judgment
about how much weighting you apply to every one of those factors,
and that is where there is a massive amount of subjectivity in
the way in which that is carried out. The other point is then
what is the mechanism for arriving at that needs-based formula.
I pose that as a very significant question, and based on my experience
of the application of the current funding arrangements of United
Kingdom anything that was a needs-base formula driven by the Treasury
is one about which I would have profound reservations.
Q197 Chairman:
But the needs-based formula for local authorities in Scotland
is driven by the Scottish Executive.
Mr Swinney: No it is not, it is driven by an
agreement between the Scottish Government and the Convention of
Scottish Local Authorities.
Q198 Lord Forsyth of Drumlean:
It is the same thing.
Mr Swinney: No sorry, Lord Forsyth, it is most
definitely not the same thing.
Q199 Lord Forsyth of Drumlean:
The Executive decides.
Mr Swinney: Ultimately, but we have got to have
agreement, this is the crucial point, we must have agreement and
consent with the Convention of Scottish Local Authorities. Please
let me make one more comment. Going back to the point I was making
about the Statement of Funding Policy, on the Statement of Funding
Policy, on the application of all these issues in Scotland, my
agreement is not required.
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