The Barnett Formula - Select Committee on the Barnett Formula Contents


Examination of Witnesses (Questions 280 - 299)

FRIDAY 27 FEBRUARY 2009

Professor David Bell, Professor David King and Professor Kim Swales

  Q280  Chairman: States make submissions to them, do they?

  Professor King: The states make submissions, yes, and of course it is an on-going process. It is revised every year or two about how these allocations are going to take place, so it is on-going submissions to this Commission.

  Lord Sewel: It is going to cost more money than you are distributing.

  Q281  Chairman: Would there be a transition?

  Professor King: You would certainly have to have some transition.

  Q282  Lord Sewel: The danger is that it is going to cost more money than you are distributing.

  Professor King: No, I do not think so.

  Q283  Lord Rowe-Beddoe: What is the size of the Commission and its staff? Do you have any idea?

  Professor Bell: I think it is quite modest.

  Professor King: The number of commissioners is 15 or 20 type thing and the staff is quite modest as well.

  Q284  Lord Forsyth of Drumlean: Just for the sake of completeness, we talk about Barnett which is a population-driven one and we are now talking about a needs-based approach. Is there any other fair, equitable system around that is neither population nor needs, just for the sake of completeness?

  Professor Bell: All of the others tend to involve a mix of taxation, it seems to me, all of the other systems that I know of.

  Professor King: Who was it who suggested you should give it on an inverse of income?

  Professor Bell: Ian McLean.

  Professor King: He suggested that you should say that X is the poorest region so we will give it the most per head and do it on the basis of that. I think this is going to come unstuck because the area which gets the most is London which is simultaneously the richest. If you are asking for other alternatives, that is an alternative which has been suggested. I do not think even he accepts it any more.

  Q285  Lord Rowe-Beddoe: What about social security spending per head, is that something that could be used?

  Professor King: The trouble with that is that you could have an area with a hugely old population needing a lot of pensions but does not really need a lot of money for education, but your formula would be allocating a lot of money for education.

  Q286  Lord Forsyth of Drumlean: All money goes to Largs! Just on this, I have a view which may be completely wrong but certainly when I was in the Scottish Office, as I have mentioned, needs assessment was considered a real threat. As convergence operates, and quite viciously given the absence of dialogue, there will come a point at which the Scottish Executive officials will start saying to their ministers, "We need a needs assessment."

  Professor King: Exactly.

  Q287  Lord Forsyth of Drumlean: I suspect that is what is behind the resistance. I do not think anybody really knows. Perhaps you have a view, but I do not think anybody really knows what the impact of a needs assessment will be now in Scotland and how that would affect the budget. If you want me to I can argue both sides of the argument. I have not got a clue what the outcome would be. Presumably to set up a body to do this work, which is unbelievably complex and difficult, and then to get some kind of agreement about the methodology, and then to find a means by which you resolve disputes between the Treasury, that seems to me to be quite a long job, years not months, and I think within a few short years we may come to the point where the penny drops in the Scottish Executive that they are disadvantaged. If there is a difference between what they would get on a needs basis and what they get now, it would be very difficult to say that is going to happen so you need to have some transitional arrangements to make it happen over time. This is quite a long job; would you agree with that?

  Professor King: Absolutely, as I have said earlier, the transitional arrangements are going to be crucial. It might be relatively simple in this case because we are talking about giving a large amount of money to each of the countries and at the moment the money is such-and-such and in the future it will be that, and one could have a taper.

  Professor Bell: You could have a taper what matters is just how long you make it. A very quick taper gets you to the new system quite quickly but there are also a lot of political hurdles to jump.

  Professor King: And if your share is going down you will have to sack a lot of people, which is difficult.

  Lord Forsyth of Drumlean: If one was going to go down that route how would you set about making it happen?

  Q288  Chairman: Where would you start. The decision has been taken politically that we move to a more objective needs assessment mechanism, where would you start? Would you start by assessing the needs or defining the needs?

  Professor King: Can I suggest a possibility which you can knock down, you might say at the moment this area has 15 per cent of total expenditure, and under an objective needs assessment it will need only 12 per cent so we will give it 10 years to go from 15 to 12 per cent to reach its annual allocation.

  Q289  Chairman: It is the objective needs assessment that I am interested in. How would you actually do that?

  Professor King: I am assuming we set up this mysterious independent body and they do it.

  Q290  Chairman: What is the progression? What is the principle? The Treasury did a big needs assessment in 1976?

  Professor King: "Big" is possibly not quite right.

  Q291  Chairman: It took three years.

  Professor King: Yes, well!

  Q292  Chairman: I accept that is not very big but assuming that a lot of work was done on it, it produced that needs assessment. There was another one in the mid-1980s, and I imagine there have been one or two since that we have not yet managed to get our hands on. Is that the type of needs assessment you start off with and you would work out on that basis what the needs of the four different components were?

  Professor King: I think you raise an interesting point. I am saying an area is going to go from 15 per cent to 12 per cent but it would be several years before you knew whether it was going to go down to 12 or up to 17 per cent, and that would be quite a long process. One of the problems is that once you say this body has three years to decide whether it is going to be 12 per cent or 17 per cent, and then we are going to have a 10-year transition but during that transition the demographic will change, it is going to be a complicated business.

  Professor Bell: I think you have also got to think how it fits within the current public spending system in the UK where you have got these Spending Reviews every couple of years that are looking three years ahead and how those would probably have to change, because essentially they are dialogues between Westminster and the spending departments in Westminster now. If need had changed drastically in one of the countries of the UK, that is not currently taken care of under the Barnett Formula, but presumably some kind of mechanism, some kind of interaction between the objective body that is handling the needs assessment and the Treasury would have to take place. There would have to be some kind of interaction to take account of that.

  Q293  Lord Forsyth of Drumlean: I am not going to go down into the area of the merits of fiscal autonomy, but in practice will the sophistication of a needs assessment be dependent upon whether the territory had some additional form of fiscal autonomy? It could be broad brush if it had some other means, but if it was their only system of support, I would have suspected that it would have to be very, very finely sophisticated.

  Professor Bell: I would tend to go along with that.

  Professor King: It depends how significant this other support is. You could argue with local authorities in Britain that they have got the council tax, so if a needs assessment is not right they can raise the money they need on the council tax to make up any deficiencies in the assessment of their need. The council tax in some areas raises such a small proportion of revenue they might have to double it in order to make up the difference. If they had a local income tax and raised 70 per cent of their money, you could take your view rather more robustly than you would if it was only a small amount of revenue. I think it would depend how independent the fiscal means were.

  Q294  Chairman: Professor Swales, you have been sitting there Buddha-like.

  Professor Swales: I am agreeing with colleagues.

  Professor Bell: You also have user charges, which for some services are quite important, so that is another lever you have got as well as the council tax, but together they still do not constitute a great deal of flexibility, so I tend to agree broadly that under the current system you would have to do a more detailed rather than a broad brush approach to it.

  Chairman: Can I see where we have got to. I think we are all agreed that there are flaws in the Barnett system as it is. Secondly, I think we are all agreed that it would be possible and desirable to move to a different system which was based upon some kind of objective needs assessment. Thirdly, I think we all agree that in order to achieve that you have got to have some independent authority to work out the needs assessment and to actually allocate the cash. Fourthly, once you have allocated it, then the individual component countries of the UK should have a degree of flexibility in the way in which they operate it? Is that a fair resumé?

  Lord Rowe-Beddoe: One thing, Chairman, is the timescale.

  Lord Sewel: Transition and then constant review.

  Chairman: Transitions are difficult.

  Q295  Lord Rowe-Beddoe: Very difficult.

  Professor Swales: One issue that might be raised here is if you went down this route, and if what was happening in England was different from the formula, then you would have regions in England which would be comparing themselves to Scotland with different allocations, with different spending. This happens at the moment but people are unclear about how the procedure occurs, but what you would have there, would it be the case that you would have English policy being driven by this body that is determining this because the English regions would be comparing themselves to what the devolved regions were getting? I think this is one of the issues of this asymmetric devolution. In actual fact, the regions which are devolved are different from English regions and, in a sense, having a formula which covers this is making them the same. I am not saying that is necessarily a problem but I think it is going to be a problem. You cannot have political decisions being taken by this apolitical body. This is one issue. Would it not mean that within England that would actually start to happen?

  Q296  Chairman: It would help the regions of England which border Scotland but it would not help the regions of England that border Wales because it is exactly the opposite.

  Professor Swales: Not even that. Let us say the South East had a certain set of characteristics, it would know from the needs assessment how much it would have got, but you could work out how much—

  Q297  Lord Sewel: That would be an English argument, it would not be a comparator with Scotland, it would be an internal English argument.

  Professor Swales: That is right but it would be the case that the UK has decided a set of criteria on which we should divide these needs but England has decided on some other criteria.

  Q298  Lord Sewel: That is because public expenditure is not allocated to English regions, it takes place in English regions but it is not allocated.

  Professor Swales: Yes, but it would be a political decision within England.

  Professor King: Can I just develop this. Supposing there were this formula and Scotland got a certain amount of money, would not the different regions of Scotland start saying how much of that money would we get if it was allocated within Scotland to different parts of Scotland?

  Q299  Chairman: How does it work now?

  Professor King: There is not the formula. This is the advantage, the Scottish Government gets a certain amount of money but because it is based on the Barnett Formula, I do not think any of the regions of Scotland have said what they would have got.

  Lord Forsyth of Drumlean: That is not right. Money has been poured into.


 
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