The Barnett Formula - Select Committee on the Barnett Formula Contents

Examination of Witnesses (Questions 420 - 439)


Ms Helen Bailey, Ms Helene Radcliffe, Mr Mark Parkinson and Mr Jim Gallagher

  Q420  Chairman: I mean that on the whole people get the same amount of money for the same amount of services to deal with the same amount of problems. You have done it. You know what "fairness" is because you did an assessment of needs in the seventies and you did another one in the eighties, so there is nothing mysterious about bringing fairness into the equation, surely?

  Ms Bailey: I think the bases on which we allocated money in the seventies and eighties and now are very different. The operations of the devolved administrations have been in place since 1999 and they themselves have considerable latitude to decide how to spend the money they get through the Formula on the services for people within their areas.

  Q421  Chairman: So what is the difference? Why has it changed? If it is a different system of allocation now to what it was in the seventies and eighties, why? What is different?

  Ms Bailey: Forgive me, I do not think I said that the system of allocation was different, but the circumstances in which we are operating that system are.

  Q422  Chairman: All right. So what is the difference then?

  Ms Bailey: The difference at the moment, the most obvious difference, is that we have the devolved administrations who have, as I say, considerable latitude themselves to decide how to apportion the funding they get in order to deal with their own perception of what is fair and reasonable within their own territories.

  Q423  Chairman: Can I just ask you one final question, and then no doubt other people will want to join in. Do you think it will be possible to produce a system of allocation of resources between the four parts of the United Kingdom which is fairer than the one used at present?

  Ms Bailey: I think in answering that question we would need to get some agreement about what constitutes "fairness", what constitutes "need", how those were measured and how that agreement was to be achieved. I am sure that were there such agreement it would be possible to come to an alternative system which dealt with it. At the moment the Treasury is not being asked to do that work and therefore we, as officials, have not addressed ourselves to that question.

  Chairman: You have not done it unofficially? You may not have an agreement, as you did in the seventies, but surely—I mean, you do it for local authorities all the time.

  Q424  Baroness Hollis of Heigham: Can I just come in on that? As far as I can see, your definition of "fairness" in response to the Chairman's question is that given the historic baseline, the Formula is fair because since then there have been proportionate increases in expenditure, which of course bedevils the question as to where you start from and where it has appropriately adjusted. I gather that you come from Islington. You would not accept that as a fair way of allocating local government expenditure, to take a snapshot back in 1979 and just do a percentage increase by virtue of population change with no other consideration subsequently, would you?

  Ms Bailey: I am here to speak for Her Majesty's Treasury and not for any previous role, I hope, but I think it is fair to say that the way in which local government funding is distributed in England—it is different in the devolved administrations and this is the point you are hinting at, I think—is highly contested and I am sure that there would be many different views of what was fair in absolute terms as there are local authorities, and I suspect that also applies to devolved administrations. From the Treasury point of view, straightforwardly, we are not currently engaged in doing any work to say, "Is this fair?" in any absolute terms and we would require some ministerial or other steer as to what constituted "fair" in those terms.

  Q425  Lord Forsyth of Drumlean: Just following up on the local government point, the formula which is used for allocating money to local government is highly complicated because it takes account, or tries to take account of some basis of need and that formula is always defended on the basis that it is fairer and that simply to allocate money on the basis of population but did not take account of sparsity of population, rurality, all these issues, would not be fair. How does the Treasury square having one view of allocating money for local government—and by the way, the devolved administrations all see similar formulae to allocate the money—with taking the view that a simple population-based thing, which may be convenient? How do they square that difference in policy?

  Ms Bailey: What we would say is that, as you say, the local government funding system is actually not a matter for the Treasury, so it is a matter for the Department of Communities and Local Government. At the level where it impacts on public spending, I am not denying that we have an interest in it, but it is not something that we ourselves administer. What we would say is that the devolved administrations have considerable latitude themselves to decide how to distribute the income they get from Government to local authorities. There is a range of functions with local authorities are responsible for—

  Q426  Lord Forsyth of Drumlean: That is a red herring. I am asking you about the methodology and when you say the Treasury has no responsibility, the Treasury has an absolute responsibility for value for money, for making sure that resources are spent properly, and in the case of local government the money is distributed on the basis of some degree of need and the Treasury do intervene, and I have seen them do it, as to how the Formula is calculated because it has expenditure implications. So why is there this difference of view? That is the question, which you are not really addressing.

  Ms Bailey: Forgive me, I did not say that the Treasury had no interest, I said that the Treasury did not administer the Formula. We do have an interest, and I entirely take your point that we have a responsibility for value for money and a responsibility for overall public spending. I take that point entirely. I think we have taken the view that the operation of the Barnett Formula in terms of the devolved administrations provides the framework within which they can make their own allocations to local government, but the functions of local government and the functions of the devolved administrations are not the same and that is the situation we are now in.

  Q427  Lord Forsyth of Drumlean: Under the previous regime Lord Lang and I were Secretaries of State and we still had that freedom. This is not new. This is not an aspect of having a Scottish Parliament and, as I recall, the Treasury in my day was absolutely desperate to have a needs-based system, and in the Scottish Office we were doing everything we could to resist it because we thought we would lose out. So what has changed?

  Ms Bailey: I am afraid I cannot comment because your knowledge is greater than mine.

  Q428  Chairman: But you can comment, surely, on the general point which is being raised? How can the Government at one and the same time use a criterion of fairness in relation to one unit of government, local authority, and deny totally that fairness should come into the allocation of resources between the four parts of the UK? It is just inconsistent.

  Mr Parkinson: The Barnett Formula is used to allocate a block of funding which comprises a number of different spending heads—health, education, local government, transport, and so on—and in England each of those has a different allocation formula, and some are not allocated by formula at all. As you say, each of the countries has got its own formula for allocating those as well. There is no single formula overarching all of those block headings, so it is a different problem from the problem of allocating one block of spending like health or local government. It is a multi-programme task.

  Q429  Lord Forsyth of Drumlean: We are not talking about the additional amounts, which are population-based, we are talking about the baseline.

  Mr Parkinson: Yes, but the problem, going back to 1979, is that at the end of the day there was no agreed methodology for allocating a multi-programme block of that kind where in each constituent country a different formula was used in each constituent part, so it is naturally complex. Local government is complex, but this is at a level of greater complexity because it is a multi-programme block.

  Q430  Lord Rooker: Leaving aside the issue of fairness, what are the disadvantages of using the Barnett Formula as it currently exists?

  Ms Bailey: I am conscious that you are one of three committees currently looking at the Barnett Formula and clearly there is some dissatisfaction, or there must be, in the way it operates. While many people have suggested that it could be better, we have yet to see a formula which commands the support of all the devolved administrations and the UK Government.

  Q431  Chairman: Have you tried to get one?

  Ms Bailey: I think at the moment the Treasury is in a position where we are listening to the outcome of this Committee, the outcome of the reviews that are taking place concurrently, and ministers will take a view on that basis.

  Q432  Lord Rooker: Are there any disadvantages in operating the formula at the present time?

  Mr Gallagher: Many people do see some disadvantages. The huge advantages that Helen has referred to and the essential advantage is that it gives administive simplicity and stability. The disadvantage is that some people suggest, and the Chairman suggested, it is not easy to justify the outcomes, whether they are fair or not. Other people say that a disadvantage is that it does not provide fiscal accountability. Those are the disadvantages that various people mention.

  Q433  Lord Rooker: Yes, I know. I am just asking, with respect, the Treasury. The fact is you were asked specifically in one of the written questions what were the merits and disadvantages. The second part of the question was completely ignored in your written answer. You did not list anything. Therefore, the assumption has to be you gave us all what you saw were positive issues, the merits, and there are not any disadvantages. That is how I read that. You point out the first one as being simple. I have to say, at the risk of bringing up the past, anything that is simple is unfair. The classic example, of course, is the Community Charge. Simplicity is unfair. I will ask you again, are there any disadvantages to the current operation of the Barnett Formula from the Treasury's point of view?

  Ms Bailey: I think you will find in the situation where we have to face you as the officials who operate the Formula, not the people who gave rise to it, it is the formula that we have got and we have not been asked, other than by yourselves—I appreciate what you say about our answer to your question and I am sorry you feel as you do about it—to give an opinion collectively or personally on the merits and demerits of it but merely to operate it.

  Baroness Hollis of Heigham: But it does not happen like that!

  Q434  Lord Lang of Monkton: I do not know when the questions were sent to you from the Committee but we got your answers, in my case, yesterday and those answers are very sparse, very thin, and they refer to other documents which I have not had the opportunity to check, although from those who have checked up I understand the documents referred to do not in every case answer the questions asked. Just to follow up on Lord Rooker's point, the first question you were asked was, what are the chief merits and disadvantages, and you have given us no disadvantages. I think the point has been well made already that that is an inadequate situation. We expect you to come to the Committee ready to answer the questions we put to you. So far as the merits you refer to, they are all (as you call them) "pragmatic strengths", in other words they are administratively convenient to the Treasury, but what about the interests of the people of Scotland, Northern Ireland, Wales, and indeed England? What about the interests of the country? What about the considerations of need? You refer to it being relatively simple, administratively efficient and involving little negotiation. Is that a plus? Is that a good point in Spending Reviews? "Transparent"—well, that is highly controversial, which is one of the reasons our Committee is meeting—and "stable" and "predictable". Why no mention of economic efficiency? You know from reading our minutes, as I assume you have done, of previous meetings of this Committee that that is an issue we are touching on. Why no reference to economic efficiency?

  Ms Bailey: I think we have done our best to confine our answers to you—and I apologise if you find them inadequate—to the comments we can make to the officials responsible for managing the system at the moment. We are in the disadvantageous position that we are not asked as officials to think about what sort of system would be ideal but to think about the practicalities, or otherwise, of operating the system at the moment. You have asked about whether or not simplicity—Lord Rooker asked that question—meant that it was fair. If we go back to a system prior to the Formula being in operation then, as my colleague has already said, there is a number of funding streams which are comprised within the devolved pot, all of which would be the subject of separate negotiation, the complexity of which could well have left the various departments in those days, the devolved administrations now, in a situation of considerable uncertainty as to their funding and as to their allocation. The advantage this has is that there is a degree of certainty and security about that and that is certainly in the interests of the wider efficiency and of the UK Government.

  Q435  Lord Lang of Monkton: But you are the Treasury. You are not just responsible for the figures that are dished out, you are responsible for getting value for money for the taxpayer and that does not seem to concern you at all in what are substantial sums being dispersed?

  Ms Bailey: Forgive me, it does concern us. We are also operating a system in this complex devolved world in which we now live where not only are we responsible for value for money for the UK taxpayer but we are responsible for devolving money to administrations which have their own accountability and have their own interests in getting value for money as well. So it is a complex and delicate situation in which we seek to operate that.

  Q436  Lord Lang of Monkton: It is getting more complex and more delicate! Can I ask you about need? You do not mention need in your answer.

  Ms Bailey: We are back, I think, to the conversation we were having just now. There was some element of need factored into the original baseline for the Formula. What the Formula does is to up-rate with each change in spending the amount of money which passes through the devolved administrations. It does not seek to do a new needs analysis every time we pass the money across to the administrations.

  Q437  Lord Lang of Monkton: I will not pursue that now because it has been touched upon under "fairness" to a large extent. I really wanted to ask you about convergence. Why is there no mention of convergence in your answer? Is that a merit or a disadvantage, or is it something that you are bound to?

  Ms Radcliffe: In terms of convergence, the actual mechanics of how the Formula works, is that over time, other things being equal, we might expect to see some degree of convergence because of the way the Formula actually works.

  Q438  Lord Lang of Monkton: Was it part of the purpose of the Formula to create convergence?

  Ms Radcliffe: As I say, certainly if you look at the way the Formula actually operates—

  Q439  Lord Lang of Monkton: Yes, I know that, you have just said that, but I am not asking you that. I am asking you, was it the purpose?

  Ms Radcliffe: Was it an intention? I think the Formula was introduced quite a long time ago now. We are talking about roughly 30 years

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