Examination of Witnesses (Questions 420
- 439)
WEDNESDAY 11 MARCH 2009
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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