Memorandum by Professor David King (Professor
of Public Economics, University of Stirling)
The Committee's Call for Evidence makes many
references to needs assessment. I hope this paper will help the
Committee's discussions of those issues. Points 1-5 below
relate to the Call for Evidence paragraph 1a, which asks whether
the current disparities in public spending between the countries
of the UK relate to need.
1. Currently, spending per head on public services
in Scotland is about 20 per cent above that in England, and
one cannot say definitively whether this difference is in excess
of its relative needs, because there is no definitive way of estimating
needs.
2. However, it is most unlikely that any plausible
needs assessment formula would treat Scotland so generously. Over
half the relevant public service spending is accounted for by
local authorities, and around 2004 I applied to Scottish
local authorities the very complicated formulae used by Westminster
to estimate the spending needs of English local authorities. Table
1 gives some results: eg spending needs per head on local
education services were £505 in Scotland, slightly below
the £509 in England.
3. Table 1 shows that Scotland had higher
needs for other service blocks: eg £84 per head as opposed
to £75 for personal social services for children; £128 compared
with £107 for personal social services for older people;
and £44 compared with £40 for highway maintenance.
4. Overall, the English formulae suggested that
Scotland's needs for local authority services were around 6 per
cent higher than England's needs.
5. As noted in point 1, different formulae might
give very different results. Holyrood also assesses the spending
needs of its local authorities, and it gets very different figures
for relative need. Assuming, purely for example, that the English
formulae were right, then Figure 1 shows that the Scottish
formulae errors in 2003-04 for education ranged from eight
per cent in East Ayrshire to +19 per cent in Eilean Siar.
Figure 2 shows that the Scottish formulae errors for personal
social services in 2004-05 ranged from 23 per cent in
Glasgow to +49 per cent in Orkney. Figure 3 shows that
the Scottish formulae errors for highway maintenance in 2004-05 ranged
from 41 per cent in Inverclyde to +239 per cent in Eilean
Siar.
Points 6-7 below relate to the Call for
Evidence paragraph 4m, which considers the appropriate factors
to allow for when estimating spending needs.
6. Needs assessment should certainly allow for
high spending needs in areas which need relatively more units
of output per head to provide a given service level: eg areas
with relatively high numbers of children need relatively more
school places.
7. Some people argue that allowance should also
be made for areas which face higher costs per unit of output:
eg London has high wage costs and so needs to spend more to provide
each school place; and Scotland's sparse population leads to many
small primary schools which cost more per pupil. But the case
for allowing for these costs can be contested. At present, London
receives generous grants to help it pay the high wages of its
public sector workers, but these high wages arise because London
is a popular place to live, and so has high property prices. Arguably,
its high grants just make it a better place to live, and so attract
migrants who drive up property prices further; the result is that
public sector wages have to rise again, so costs rise still further,
leading to yet more grants.
Points 8-9 below relate to the Call for
Evidence paragraph 4o which asks whether any needs assessment
formulae should be based on a wide or small range of factors.
8. The formulae used for local authority spending
in England, Scotland and Wales are very complex and allow for
many factors, most of them being demographic, social or economic.
Spending needs per head probably vary much less per head between
the four countries of the UK than between local authorities, so
in principle it might be possible to use simpler formula that
focused on a few key factors.
9. Nevertheless, there are many factors that
vary sharply even between the countries. Eg Table 1 shows
that only 1 per cent of Scotland's schoolchildren come from low
achieving ethnic groups, compared with 9 per cent in England;
Scotland would get £88 per child for children living
in flats, compared with £30 in England; and Scotland
would get £88 per older adult to allow for those on
low incomes, compared with £52 in England.
10. Anyone who undertook the needs assessments
would face great pressure to allow for many factors like these,
if they could be shown to be relevant. Each factor might have
only a marginal effect, but each country would have an incentive
to seek factors that would give it a marginal advantage.
11. Also, once any formula was announced, English
regions could at once see whether the public spending they enjoyed
was above or below that which the formula would allow, and in
practice it might prove difficult not to apply the formula to
them. But needs will vary greatly between regions within England,
especially between London and other regions, and it may well require
a complex formula to allow satisfactorily for this.
12. In short, the prospects of getting wide approval
for a simple formula may be slim.
Points 13-19 below relate to the Call for
Evidence paragraph 4p which asks who should carry out any needs-based
assessment. I would tentatively suggest the following:
13. The formula should be devised by an autonomous
body such as Australia's Commonwealth Grants Commission. If the
central government devised it, there would be sure to be accusations
of bias.
14. The body should update its assessments annually:
large periodic assessments would lead to the same adjustment problems
that arise with periodic property tax revaluations.
15. The body would need people with links to
each UK country. Ideally, many would have links to more than one
country, to lessen the tendency for those from single countries
simply to argue their corner. There should also be some overseas
representatives.
16. The body should include people with direct
technical experience of needs assessment. It would be useful for
technicians from each UK country to pool their experiences.
17. The body should be willing to consider some
specific grants as well as general grants.
18. The body should try to make provisional announcements
well ahead.
19. Ideally, some members of the body would serve
for fairly long periods of time. Currently, it is often hard to
find anyone who knows why a particular indicator is used in the
local government formulae, because it was already allowed for
before the current team members became involved.
Finally, if the Barnett formula is replaced
by a needs assessment exercise, the transition from one to the
other must be handled with great care. A major reason for the
unpopularity of the poll tax stemmed from the very carelessly
designed transitional safety net arrangements.
Table 1
RELATIVE SCOTTISH AND ENGLISH SPENDING NEEDS
FOR SOME LOCAL AUTHORITY SERVICES, AS ASSESSED BY THE FORMULAE
USED IN ENGLAND
|
| | SCOTLAND
| ENGLAND |
|
LOCAL AUTHORITY EDUCATION SERVICES, 2003-04
|
| % of children from low achieving ethnic groups
| 1% | 9%
|
| % of children who depend on an IS/IBJSA claimant
| 21% | 20%
|
| % of children who depend on a WFTC/DPTC claimant
| 20% | 19%
|
| % of children in sparse wards
| 18% | 14%
|
| % of children in supersparse wards
| 13% | 3%
|
| % of 3-15 year olds in high cost groups
| 4% | 4%
|
| Local authority education services, needs per pupil
| £3,419 | £3,319
|
| % of population who are pupils aged 3-15
| 16.0% | 16.7%
|
| Local authority education services, needs per head
| £505 | £509
|
PERSONAL SOCIAL SERVICES FOR CHILDREN 2004-05
|
| Basic sum per child |
-£18 | -£18
|
| Sum per child for children living in flats
| £88 | £30
|
| Sum per child for long-term ill children
| £63 | £60
|
| Sum per child for children who depend on an IS/IBJSA claimant
| £93 | £92
|
| Sum per child for children living in 1-adult homes
| £140 | £122
|
| Sum per child for dense population
| £7 | £16
|
| Sum per child based on factors affecting need for foster care
| £13 | £15
|
| Sum per child for area cost adjustment
| £4 | £19
|
| Personal social services for children, needs per child
| £337 | £391
|
| Children as % of total population
| 21.5% | 22.4%
|
| Personal social services for children, needs per head
| £84 | £75
|
PERSONAL SOCIAL SERVICES FOR OLDER PEOPLE 2004-05
|
| Basic sum per older adult
| -£288 | -£288
|
| Sum per older adult for adults aged 75-84
| £116 | £121
|
| Sum per older adult for adults aged 85+
| £120 | £126
|
| Sum per older adult for renting pensioners
| £137 | £92
|
| Sum per older adult for those who are long-term ill
| £156 | £152
|
| Sum per older adult for those who are on IS/IBJSA
| £109 | £92
|
| Sum per older adult for pensioners living alone
| £111 | £102
|
| Sum per older adult for those 65+ on AA/DLA
| £197 | £167
|
| Sum per older adult for those not in couples
| £49 | £47
|
| Sum per older adult to allow for those on low incomes
| £88 | £52
|
| Sum per older adult to allow for sparsity
| £3 | £1
|
| Sum per older adult for area cost adjustment
| £9 | £29
|
| Personal social services for older people, needs per older adult
| £807 | £692
|
| Older adults as % of total population
| 15.8% | 15.5%
|
| Personal social services for older people, needs per head
| £128 | £107
|
LOCAL AUTHORITYHIGHWAY MAINTENANCE 2004-05
|
| Sum per head for weighted road length
| £6 | £4
|
| Sum per head for traffic flow
| £20 | £20
|
| Sum per head for daytime population
| £10 | £12
|
| Sum per head for winter maintenance
| £7 | £3
|
| Sum per head for area cost adjustment
| £1 | £1
|
| Local authority highway maintenance, needs per head
| £44 | £40
|
|
Figure 1
PERCENTAGE ERRORS IN LOCAL AUTHORITY EDUCATION NEEDS IN
2003-04, AS ASSESSED BY THE SCOTTISH NEEDS ASSESSMENT FORMULA,
IF RELATIVE NEEDS ARE ACCURATELY MEASURED BY THE ENGLISH FORMULA

Source: D King, M Pashley and R Ball, 2004, "An
English assessment of Scotland's education spending needs",
Fiscal Studies 25:4.
Figure 2
PERCENTAGE ERRORS IN LOCAL AUTHORITY PERSONAL SOCIAL SERVICES
NEEDS IN 2004-05, AS ASSESSED BY THE SCOTTISH NEEDS ASSESSMENT
FORMULA, IF RELATIVE NEEDS ARE ACCURATELY MEASURED BY THE ENGLISH
FORMULA.

Source: D King, M Pashley and R Ball, 2007, "Scotland's
social services spending needs: an English view," Government
and Policy, 25:6.
Figure 3
PERCENTAGE ERRORS IN LOCAL AUTHORITY HIGHWAY MAINTENANCE
NEEDS IN 2004-05, AS ASSESSED BY THE SCOTTISH NEEDS ASSESSMENT
FORMULA, IF RELATIVE NEEDS ARE ACCURATELY MEASURED BY THE ENGLISH
FORMULA.

Source: D King, M Pashley and R Ball, 2007, "The
environmental spending needs of Scotland's local authorities,"
Local Government Studies, 33:2.
|