Examination of Witnesses (Questions 368
- 379)
FRIDAY 27 FEBRUARY 2009
Mr Ruchir Shah
Q368 Chairman:
Mr Shah, thank you very much for coming. As I am sure you know,
this Committee was set up by the House of Lords to look specifically
at the operation of the Barnett Formula. Our terms of reference
are fairly strictly drawn which means that we cannot look at fascinating
but extraneous matters like fiscal autonomy for Scotland; we cannot
look at the political systems anywhere in the UK; all we have
got to look at is the Barnett Formula as it is, whether it has
disadvantages or whether it has advantages and, if it has disadvantages,
what we should do about it. On that basis can I ask you what you
think about the Barnett Formula?
Mr Shah: I am representing the umbrella body
for the voluntary sector in Scotland and what I can say is that
there are certain factors which from the voluntary sector perspective
would need to be in the discussions and would need to be for greater
consideration. What I can do for you is give some sense of what
those factors are. What I have tried to do is to relate it closely
to the specific questions that you have asked because I realise
it has to be within that. Having said that, by relating it to
your specific questions, it will be only three questions that
I am touching on in this, but I think they will be the ones that
will be of most interest to you. Firstly, I can say something
about the Scottish voluntary sector being quite highly geared
towards the Scottish block grant. It is quite sensitive to the
Scottish block grant and the way in which the block grant can
fluctuate does have an up-front effect on the voluntary sector
in Scotland. This is because the voluntary sector is in many cases
funded on much shorter funding timescales than other sectors.
It is probably just worth mentioning the other areas as well before
going into detail on that. The second thing which I can probably
say something on is that for the voluntary sector in Scotland
(indeed for the whole of the UK) a formula based on need rather
than population may be more appropriate. I hope that will be useful.
What I cannot do is say that we want to have a formula based on
need, but I think it is a factor that needs to be considered.
For the voluntary sector, social, environmental and cultural causes
are the areas where needs-based distributions will work best rather
than population-based, just because of the nature of the work
that we do. The third area is really around the Barnett consequentials,
which refers to your question five, and what I can say on that
is that the Scottish block is not the only expenditure of interest
to the voluntary sector which then attracts a Barnett consequential.
There are a number of programmes which are designed within the
English policy context which nevertheless have a Barnett consequential
for Scotland's voluntary sector, and I can run through some of
those as examples as well. How would you like me to proceed?
Q369 Chairman:
I think you have got a piece of paper there. Why do you not read
it to us?
Mr Shah: I only drafted it yesterday, I have
to say. I will try and draw in and out from this as required.
If you want to stop me at any point, please do. The first thing
I mentioned was around how Scotland's voluntary sector is quite
sensitive to the Scottish block grant and any fluctuations within
that. Just to give you a sense of the Scottish voluntary sector,
it is very similar to the UK voluntary sector in that 38 per cent
of its income sources annually come from public sector funding
sources, so it is not the entire sector.
Q370 Chairman:
Is this Scotland?
Mr Shah: This is Scotland although the picture
in the rest of the UK broadly matches that as well. Other sources
of the sector's income base are also indirectly influenced by
the scale of the block grant, the kind of activities it carries
out through trading, for example, the activities through voluntary
income that comes from trusts and foundations and from general
donations (ie the general public). These are not necessarily directly
from the Scottish block grant but the scale of the public sector
Scottish block grant in Scotland can indirectly influence it.
That is the sense we get. The voluntary sector is therefore sensitive
to any changes and it does mean that any changes to the Barnett
system as such would need to be, I guess from the sector's perspective,
phased in with due consideration slowly, gradually and with consideration
of the immediate impact it could have on voluntary organisations.
In Scotland the voluntary sector has quite an intricate infrastructure
with a number of umbrella bodies and network bodies that support
it. It is very intricate for a population of five million, I have
to say. The umbrella bodies and sector infrastructure of the networks
do get much of their core funding through the Scottish block grant.
Q371 Lord Rowe-Beddoe:
Can I just ask, what is the total spend of the Scottish voluntary
sector on an annual basis?
Mr Shah: We are looking at an annual income
of £3.7 billion based on the latest figures.
Q372 Lord Rowe-Beddoe:
That is income and I was asking about spend?
Mr Shah: What we have noticed is that the expenditure
of the sector is kind of in-line with the income. It is not that
far off because, as you can imagine, most of what the sector gets
in goes straight back out again. There tends to be a narrow gap.
In the latest estimates there was about £50 to £100
million less, so expenditure would be around £3.8 billion.
Q373 Lord Forsyth of Drumlean:
How is that made up?
Mr Shah: How is the expenditure made up?
Q374 Lord Forsyth of Drumlean:
£3.8 billion seems huge.
Mr Shah: Yes, 38 per cent directly through public
sector funding sources, which includes grants, contracts, and
a lot of public service delivery activity. Then you have a lot
of social enterprise and trading activity, for example thrift
shops on the streets, or engaging in providing services to other
organisations or to members of the public, so a lot of income
flows that way. Then you have some of the large housing associations
which accounts for about £1.5 billion of income.
Lord Forsyth of Drumlean: Okay.
Q375 Chairman:
Please go on.
Mr Shah: Because the infrastructure is quite
elaborate and is quite heavily reliant on the block grant, it
does suggest that the economies of scale that you might gain from
the sector infrastructure, say for example south of the border,
which is supporting a larger population because, okay, there may
be 90 per cent of the population in parts of the UK and maybe
70 per cent in England, but there can be fewer umbrella bodies
and fewer networks to manage that than you might need in Scotland
because in Scotland those same networks and those same umbrella
bodies and that same infrastructure has to deal with the Scottish
Parliament as well. There are economies of scale gained which
you will not find in Scotland because we are quite geared towards
the Scottish block grant coming through the Scottish Government.
That is a little bit more that should be said about the sensitivity
of the voluntary sector to its funding. A lot of the funding sources
do tend to be less than one year rather than multiple year as
opposed to what you might find in other sectors. That is the nature
of the way the sector is currently funded. The sector is trying
to push for longer contracts, for example, but currently a lot
of contracts tend to be one year or less, which means that any
change to the Barnett Formula, or indeed to the Barnett system
and the Scottish block will have quite immediate impacts on the
sector. The second area which I was talking about is need versus
population. What I was saying there was that a formula based on
need might be more appropriate for the kind of work that the voluntary
sector is involved in. Just to give you some context on this,
the voluntary sector throughout the UK, and in Scotland, works
in a diverse range of fields and the sector's client groups are
often the "hardest to reach". The sector has very much
set itself up to meet overwhelming need. There are a number of
conceptual underpinnings for the differences in the budgetary
spend in Scotland. Two of the most important are geography and
deprivation. For us, geography is an obvious concern because providing
services to small numbers of people living in large areas is much
more expensive than providing similar services in smaller areas.
I would like to draw your attention to Scotland's particularly
large rural hinterland. Both our experience and evidence does
suggest that the voluntary sector, in many ways, props up the
rural infrastructure, so, for example, you will find voluntary
organisations involved in things like community transport and
other activities such as community energy and managing village
halls. This is where a measure which is based on population really
starts to get at odds with the kind of need that you have because
of this large rural hinterland. Deprivation is also important
for Scottish public spending as the proportion of households living
in poverty as a percentage of the population in Scotland (and,
as you know, Glasgow is often cited as the major case in point
here) tends to be much higher as a proportion of the overall population
in Scotland than you might find in England. You do have pockets
of extreme deprivation across England but as a proportion of overall
population it is higher in Scotland and this is something the
voluntary sector has to deal with here. The ease with which resources
can be diverted is restricted by the relatively large number of
deprived households against a comparatively smaller general population.
Again, from a voluntary sector perspective, any formula based
on need would be more beneficial to the client groups it works
with as well as the kinds of activities and the kinds of geographies
that it is dealing with. That is the second area which I was talking
about. The third area which I mentioned was on the Barnett consequentials.
This is where I mentioned that it is not just the Scottish block
grant which is of interest to the voluntary sector; there are
a number of other programmes which are usually designed within
the English policy context because they are reserved programmes,
which nevertheless attract a Barnett consequential for Scotland.
One recent example that particularly affects us is the English
Third Sector Action Plan which is a £42 million plan which
was announced a few weeks ago. As part of this, £10 million
has been allocated to the Department for Work and Pensions for
specific volunteering programmes. This has a consequential for
Scotland through Barnett, but the policy fit for that particular
programme has been worked out for England and not for the policy
fit in Scotland, so clearly there are issues where we would suggest
there needs to be better alignment. Currently the programme is
worked out with a particular context in mind and it then has to
fit somehow in Scotland. This can have implications for how the
voluntary sector can deal with the programmes in question. A second
area you will be familiar with is the National Lottery. In Scotland,
a lot of voluntary organisations have been concerned by the diversion
of substantial funds of the National Lottery to the Olympics.
The Lottery funding itself is based on a Barnett Plus Formula,
which is based on Barnett but it has various adjustments made,
to some extent on need. Scotland has experienced a cut of 70 per
cent of its allocation by the Big Lottery Fund Scotland Committee.
Q376 Lord Forsyth of Drumlean:
Sorry to interrupt you, perhaps I am out-of-date but I thought
that Lottery funding was allocated by various arm's length committees.
Are you saying there is a kind of rule that there should be a
population share that goes to Scotland and they fit within that?
Mr Shah: Not at all. All I am saying is that
I guess any kind of consideration of the Barnett Formula needs
to be aware of how it is being used in programmes beyond the Scottish
block grant. In this particular case the National Lottery and
the way in which funding is provided to various organisations
is indeed devolved to various committees. For example there is
a Scotland Committee that makes those decisions. However, the
amount of money that they can then allocate is affected by decisions
taken centrally.
Q377 Lord Forsyth of Drumlean:
Are you saying that the amount of money that is allocated to them
is done on a population basis?
Mr Shah: That is our understanding. We have
been told it is a Barnett Plus formula. It is not fully based
on population. It starts off with the Barnett Formula and then
there have been some adjustments made to it. I may not be an expert
on this but the title I understand has been given to this is the
Barnett Plus Formula.
Q378 Lord Forsyth of Drumlean:
So if they spend £1 billion on the Dome Scotland gets £100
million?
Mr Shah: That is the kind of idea. With the
Olympics it is the opposite way round. With the Olympics, if there
is a cut, the cut also attracts Barnett consequentials.
Q379 Lord Forsyth of Drumlean:
I am not getting this. Are you saying—and I do not know
how it works—that if X is the amount which is available
from all the various committees and ways of distributing the Lottery,
that there is a Barnett consequential of X over 10, or whatever
the share of population is, which goes to the Scottish Committee
for allocation? I thought that is what you were saying. If that
is the case, then presumably the money that is being spent on
the Olympics is part of the overall pool? If you get the Barnett
consequences of that, you have got it on the fact that they have
spent it on the Olympics. Are you saying there is a third way
of dealing with it, there is expenditure which is considered to
be UK, which is top-sliced? Is that what happens?
Mr Shah: It is actually both, but the more important
issue is the one you raised initially which is this 70 per cent
cut which we have identified right across the board and affects
parts of England just as it does parts of Scotland just as it
does parts of Northern Ireland.
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