The Barnett Formula - Select Committee on the Barnett Formula Contents


Examination of Witnesses (Questions 200 - 219)

FRIDAY 27 FEBRUARY 2009

Mr John Swinney

  Q200  Lord Forsyth of Drumlean: I understand that and I take that point and I see the difficulty, but you said a few minutes ago that you would prefer a system which was based on you getting your relative share relative to population rather than one based on need. You also said earlier on when you were describing your approach to the housing benefit dispute with the Treasury, that it was your job to get the best deal for Scotland. Do you think that if you had a formula based on need that you would get less than based on population?

  Mr Swinney: It depends what subjective judgments are made on what definition of need happened to be because one person's view of need can be dramatically different to another person's view of what need happens to be.

  Q201  Lord Forsyth of Drumlean: We are not talking about one person's, we are talking about having some kind of objective measure of need. You said you would prefer the existing arrangement to one based on need. I am astonished by that because your overall position as an Executive and as a party has been that Scotland does not get its fair share of resources, and therefore if you believe that surely having some kind of objective assessment of need would be to the advantage of Scotland, and yet you have rejected that. Leaving aside how you actually determine need, as a matter of principle you appear to have said that you would prefer to have something that gave us a relative share relative to population rather than something which was an objective assessment of need. That is a pretty fundamental position to take.

  Mr Swinney: There are two points in there. One is that you are advancing an argument, Lord Forsyth, which says that there is an objective way of calculating need and I think, in all honesty, the Committee has to reflect on the fact that it is not possible to do. Need is a very, very subjective assessment. The second point—

  Q202  Chairman: It is not. I do not agree with that, I really do not agree.

  Mr Swinney: Of course it is, Chairman.

  Q203  Chairman: Different people have different views about what their needs are but they can all be pulled together; it can be done.

  Mr Swinney: I think you answered your point in your own remark there: all sorts of people have got all sorts of different views about need; of course they have.

  Q204  Chairman: But you do it with local authorities and they have all got their own views as to what they need and somebody pulls it together.

  Mr Swinney: And we go through that process and we agree that with the Convention of Scottish Local Authorities. My point about the existing financial arrangements of the United Kingdom is two-fold in this respect. Firstly, the whole exercise of need, in my view, is an assessment which is very, very subjective. Secondly, the current arrangements are such that they would not give me a great deal of confidence as to how the current arrangements would arrive at that to be in the best interests of Scotland.

  Q205  Lord Sewel: Density might be a better may of looking at things and that is moving towards need. It is possible to look at Scotland and say what is the mortality rate, what is the morbidity rate, what is the sparsity of population, what are the needs of transport, all the things that you do by agreement—I accept the point about agreement—with local authorities. And it would be possible to do that and you would have certainty about your position, you would not have any of this business of that is in, this is out, or we do not like you this year so we are not going to do that. I find it very difficult to understand why you can be against that in principle. There may be practical reasons why it is difficult to achieve but why are you rejecting it on principle?

  Mr Swinney: Because it fits into what I have argued to the Committee this morning which is that if we are moving from the Barnett Formula, which we know and we understand at the present time, although we have issues of concern about how it is currently being applied, let us move to a more robust form of financing, which is the argument about fiscal autonomy.

  Q206  Lord Sewel: Is the problem, almost rephrasing Lord Forsyth's question, that you are fundamentally against need as a basis of allocating expenditure or is it that you do not have confidence basically in the Treasury doing it for you?

  Mr Swinney: What I am saying to you is that I do not think we can view the calculation of need as purely and simply an objective technical exercise because I just do not think it is that, it is entirely a subjective process.

  Q207  Lord Sewel: Sorry, did you say entirely a subjective process?

  Mr Swinney: It is not entirely subjective.

  Q208  Lord Sewel: You can run a series of regressions to identify expenditure drivers.

  Mr Swinney: Entirely exaggerates the position; it is substantially a subjective exercise.

  Chairman: I do not think Lord Sewel would accept that.

  Q209  Lord Sewel: I do not accept that.

  Mr Swinney: Then there is a question of how that would be deployed and how it would be applied, and we have significant concerns about the arrangements of the United Kingdom being able to do that.

  Q210  Lord Sewel: You have clearly looked at the Commonwealth Grants Commission in Australia. What was your view of that?

  Mr Swinney: It certainly has undertaken what appears to be a fairly robust piece of analysis. It is one that obviously we would look at in further detail, but I come back to the whole question of the exercise having that significant and substantial element of subjectivity about it.

  Lord Sewel: At least we have gone down and now the subjectivity is down to the level of "significant" rather than "complete" or whatever it was.

  Q211  Lord Rowe-Beddoe: Mr Swinney we are where we are at the moment, and I have listened and understand your dissatisfaction but, having said that, it is also clear that for the next however many years the Barnett Formula will be the way in which the Scottish Executive is funded to undertake its duties. If you could just stay with that for a moment and perhaps you could help us by giving us an opinion as to whether you consider one of the avowed intentions, in fact the avowed intention of the arithmetic of the Barnett Formula was to deliver convergence on English public spending over time. It does not appear to have occurred and you have an explanation as to why this may not be so.

  Mr Swinney: The issue of convergence has been examined very extensively and I think one of the significant pieces of work on this was undertaken by Professor David Bell from Stirling University. I am sure the Committee is familiar with his work. Essentially the Barnett Formula would suggest that with increases in public expenditure there is the likelihood of convergence, and that was essentially designed to be the case, and at different stages the population factors have been updated to ensure that they remain current with experience. Over time the objective of the formula has been to deliver that convergence. One of the difficulties in assessing whether that is the case is to ensure that we have all of the full and appropriate data to be able to make a judgment about whether that has actually happened.

  Q212  Lord Rowe-Beddoe: That leads on to the question about data. Do you think that in fact the data that is available on a territorial basis is both adequate and transparent?

  Mr Swinney: I think there are some significant issues about that. In the course of 2006 two economists in Scotland, Dr Jim Cuthbert and Dr Margaret Cuthbert (Jim Cuthbert was the Chief Statistician at the Scottish Office for many years) undertook some work which examined the information that was contained in the PESA publication which gathers a large proportion of the data for disaggregating PESA Country and Regional Analysis data, which goes down to a lot of that information at a very detailed level. I do not have the details to hand about that, they highlighted a number of judgments that were applied in the presentation of the statistical information essentially where errors were being made about the allocations of expenditure as to where it was actually carried out, and that led to a large amount of discussion between officials in both the Treasury and the Scottish Government about how that information and data could be improved to relate to that point.

  Q213  Lord Rowe-Beddoe: Has anything occurred since the last 20 months that you have been elected here in the Scottish Executive that gives you any alarm or concern that the data is not adequate in your understanding of what is happening across the United Kingdom as a whole?

  Mr Swinney: I think a lot of these issues relate to the vexed subject of defining what is identifiable and non-identifiable public expenditure. Identifiable public expenditure, by its nature, is identifiable public expenditure. What we have to be clear about is that that information is robust and that it is fulfilling its purpose. What the Cuthberts' analysis found was that some of the drivers of what we would consider to be identifiable public expenditure territorially was actually not correct, so those issues have been raised around about the PESA Country and Regional Analysis because that is obviously a big driver of identifiable public expenditure. Non-identifiable public expenditure is a very subjective process as to where that is actually spent and how it is spent, and that obviously is a major factor in the calculation in that respect.

  Q214  Chairman: Can I come back to need for a second. We know that the Treasury produced in 1979 an assessment of the relative needs of the component parts of the United Kingdom. Have you seen that document?

  Mr Swinney: I have not personally seen that.

  Q215  Chairman: It is now available and I was wondering whether you had any comment to make on whether it is a good assessment of need?

  Mr Swinney: I have not seen it.

  Q216  Chairman: You have not seen the 1986 relative assessment of need?

  Mr Swinney: I have not either.

  Q217  Chairman: You have not had a more recent one than 1986, just to make sure you have not seen anything we have not seen, that is all.

  Mr Swinney: I cannot say I have, unfortunately.

  Chairman: Because there were three assessments of need by the Treasury after a great deal of work, and they are not perfect, but it seems to us, at any rate, they are a reasonable shy of producing the views on the relative needs of the component parts of the UK and that it can be done, and can even be done by the Treasury, but I am not advocating that.

  Q218  Lord Forsyth of Drumlean: May I just ask what advice have you been given by your officials on the impact of a needs-based assessment of funding on Scotland?

  Mr Swinney: I would characterise the advice as informing the contributions that I have made to the Committee today about the challenges that are associated with needs-based assessment.

  Q219  Lord Forsyth of Drumlean: Can I tell you what advice I was given when I was Secretary of State. The advice I was given when I was Secretary of State is do everything you can to avoid a needs-based assessment being implemented by the Treasury because the Treasury believe that it will enable them to reduce Scotland's budget by between £2.5 and £4 billion. The officials did not think the Treasury's assessment was correct but I just wonder whether you had been given the same advice.

  Mr Swinney: What I have said to you, Lord Forsyth, is that the advice I have had from my officials informs the contributions that I have made to the Committee.


 
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