The Barnett Formula - Select Committee on the Barnett Formula Contents

Examination of Witnesses (Questions 180 - 199)


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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