Examination of Witnesses (Questions 460
- 479)
WEDNESDAY 11 MARCH 2009
Ms Helen Bailey, Ms Helene Radcliffe, Mr Mark Parkinson
and Mr Jim Gallagher
Q460 Chairman:
No, it is not, with respect. Look at the answer to question one.
I do not want to go on about this or to cross-examine you as though
it was the Old Bailey, but you start off by saying the Barnett
Formula has pragmatic strengths. You say you know about its weaknesses
but describe it as being "relatively simple" and "administratively
efficient", et cetera, et cetera. There is not a word
in there saying that the Treasury is neutral as to the way it
operates.
Ms Bailey: Forgive me, when I answered Lord
Moser's question he was asking me whether we thought convergence
was a good thing and whether we had a view on that. When I expressed
neutrality, it was neutrality as to whether or not that was a
good thing. We have acknowledged that it is the property of the
Formula and that it is likely to happen, all other things being
equal, and there is a number of things which determine whether
or not it will be convergent or not. What we have said here—
Q461 Lord Moser:
It is not totally the property of the Formula. I do not think
that is correct, with respect, because it has not actually happened
quite as predicted. I speak as a statistician. I do not think
it is a more dramatic characteristic of the Formula and that is
why it is quite important. Supposing this Committee was so minded
to have a new scheme. I wonder whether the Treasury would say,
"Oh, that's good. That's really converging the scheme,"
or whether they would say, "Too bad, that's not going to
be a converging scheme." I am simply trying to get you to
express a view, the Treasury view, on convergence. You say you
do not have one?
Ms Bailey: That is absolutely right, we do not
have a view on convergence. We do have a view on the Formula and
that is expressed in our answer to question one.
Q462 Lord Rowe-Beddoe:
Am I correct in understanding that since the devolution of 1999
there has been no review of the Formula or working of the Formula
in the Treasury? This is what I think you said.
Ms Bailey: There has been no major review of
the Formula, but what we have also said is that with every Spending
Review we keep under consideration the operation of that Formula
and we have had Spending Reviews in 2004 and 2007, and probably
previous to that, and at each of those we will have looked at
the operation of the Formula. But the statement of funding policy
which was published in 1999, and which has been most recently
updated in 2007, absolutely governs the way in which the Formula
operates and in which we operate it.
Q463 Baroness Hollis of Heigham:
The implication of what you are saying seems to be that providing
the Formula is simple to administer, the Treasury is neutral as
to its outcome, given convergence?
Ms Bailey: Forgive me, I do not think I said
that. The point on which I have expressed absolute neutrality,
which is a matter for ministers rather than ourselves, is on whether
or not convergence is a good thing and a desirable thing. We have
expressed in our answers—and the Chairman has drawn our
attention to this—the reasons why we think there are many
merits to the operation of the Formula and that we would have
wish to see any replacement to it operating with those merits
and potentially others as ministers saw fit.
Q464 Lord Rowe-Beddoe:
The implication, we have heard from Lord Barnett, was that this
was a political fix brought in at the time a year or two before
there were going to be major referenda in Wales and Scotland with
regard to devolution. It did not happen at that time, but the
fix was good enough to continue as it would take away potential
arguments. I can quite understand why in 1999 nobody wanted to
change it because that was a very delicate moment in political
history, but I still cannot quite grasp why, as you say, every
three years or so there is no conscious decision as to whether
we are getting value for money and whether it is meeting the needs
of the devolved administrations.
Mr Parkinson: The statement of funding policy
is updated on each Spending Review. We publish a new statement
of funding policy in each Spending Review and we update the Barnett
Formula every three years, and that provides an opportunity for
the devolved administrations, the territorial Secretaries of State
and the Treasury ministers to review whether more fundamental
changes are needed. Those opportunities arise in every Spending
Review. Now, the devolved administrations themselves are not seeking
major changes to the Barnett Formula. We know, of course, that
the SNP would ultimately want fiscal autonomy, but for the time
being it is not seeking to change the Barnett Formula itself,
and the Formula has existed under Labour and Conservative administrations
since 1980, so there is a broad consensus behind it. It is open
to criticism and we have acknowledged in the evidence to you that
no system is perfect, but the criticisms can be based on misconceptions.
The main criticism in England is of a Scottish provision, but
that is not a feature of the Barnett Formula. The Barnett Formula
provides an equal spending per head increase. It is not a criticism
of the Barnett Formula. The criticism in Scotland, Wales and Northern
Ireland—and there is criticism—is about Barnett convergence,
the Barnett squeeze, but that, as we have said, is a mathematical
property of the Formula. The fundamental point is that it produces
a sustained increase. Whether you live in Scotland, Wales, Northern
Ireland or England, you have the same increase in comparable spending
per head. There is a fundamental sense of fairness about that.
There is disagreement. We are not saying that there is no disagreement
and people have put forward alternatives based on needs, and so
on, although there is no consensus as to how a needs-based formula
would work, but there is that sort of broad consensus behind the
Barnett Formula. But, as I say, every three years the devolved
administrations can ask us for a fundamental review if they want.
The Secretary of State can do so and the Treasury ministers can
authorise that.
Q465 Lord Forsyth of Drumlean:
Could I just ask Mr Parkinson, and perhaps Mr Gallagher may remember
this from his previous existence, certainly when I was a Secretary
of State in 1996 the Treasury did have a view on the Barnett Formula—and,
by the way, when we talk about the Barnett Formula we are not
just talking about the Formula allocation, we are talking about
the whole method of distribution of funds to the devolved administrations.
The Treasury did have a view and the Scottish Office (as it then
was) had a view, and the Treasury's view was that it would like
to move to a needs-based system for allocating resources to the
devolved administrations. I do not know if you can recall that.
Could the Treasury officials tell me—and if not this afternoon
perhaps they could write to us—when did the Treasury cease
to have that view?
Mr Parkinson: We are aware—and you are
correct, we do not—that in the period between 1980 and 1997
the Treasury did from time to time use the needs assessment methodology
to consider whether Scotland was over-provided and used the arguments
in that needs assessment to consider the spending surveys in that
time making the case as to whether adjustment should be made in
the Scottish provision and we have released papers recently which
confirm that was the case, but certainly since 1997 one of the
big changes for devolution is that the funding principles are
now completely transparent. They are published and there has been
no consideration in Spending Reviews of the kinds of adjustments
to the Scottish block which I think you are alluding to and we
have published the Spending Reviews and we play it straight—
Q466 Lord Forsyth of Drumlean:
My question is absolutely specific. Lord Moser put his finger
on it. The Treasury does have views.
Mr Parkinson: The Treasury's view is set out
in the statement of funding policy. We do not believe that Scotland
is over-provided in that sense.
Lord Forsyth of Drumlean: I am not asking
whether Scotland is over-provided. The question I was asking was
when did the Treasury decide? The Treasury does have views, any
minister knows that.
The Committee suspended from 5.01 pm to 5.13
pm for a division in the House.
Chairman: We will move on now to the
Earl of Mar and Kellie.
Q467 Earl of Mar and Kellie:
One of the features of devolution and the Barnett Formula is the
issue of whether a form of spending is for England only or for
the United Kingdom. It appears that the Treasury is the sole decision-maker
on this?
Ms Bailey: The Treasury has responsibility for
public spending across the UK and we published in the statement
of funding formula the basis on which it is decided whether or
not a matter is devolved or reserved, and depending on whether
or not it is devolved or reserved then it is either subject to
the Formula or not. So our view is that that is reasonably transparent.
Q468 Earl of Mar and Kellie:
There are two things which interest people in Scotland: whether
the Olympics is UK or England only and whether Crossrail is. As
I understand it, the Olympics is still regarded as a UK matter,
but I think very recently it was decided that Crossrail had become
an English matter in order to facilitate payment for a new bridge
over the Forth at Queensferry. How did that latter come about?
How was it suddenly possible under the Barnett Formula to find
money for a new Forth bridge?
Ms Bailey: Let me first come to the Olympics.
Our ministers believe the operation of the Olympics in 2012 will
have benefits for regeneration across the United Kingdom and therefore
the consequences apply accordingly. On the Forth Bridge, I wonder
if one of my colleagues could assist?
Ms Radcliffe: As you say, there was a meeting
recently where that was discussed and the various options as to
how it might be funded were discussed, but those options very
much sat within the statement of funding policy as was set out,
so it was consistent with the existing system, the discussion.
Q469 Earl of Mar and Kellie:
One of the things was that pretending that Crossrail was a UK
matter meant that convergence could occur, but of course relenting
on it and relenting on Crossrail being a UK matter and declaring
it to be an England only matter has meant that any attempt at
convergence has in fact been spoilt.
Mr Parkinson: No, Crossrail is a London project
and is therefore an England only project, and that was the case
in the Spending Review. What was announced recently was the quantum,
the £500 million, which relates mainly to the next Spending
Review period, but the decision to deem Crossrail as devolved,
because it is a London project, was made in the last Spending
Review.
Q470 Lord Forsyth of Drumlean:
Perhaps another example which Mr Swinney gave us when he gave
evidence was the Prison Service in England. As I understand it,
the Prison Service is a devolved issue in Scotland, but on the
extra money which was found for prisons which came from the contingency
fund the Treasury decided there would be no Barnett consequences,
according to Mr Swinney. So what you have just said, which is
that where it is a devolved policy there will be the Formula consequences,
did not apply in this case because it was argued it was coming
from the contingency fund.
Mr Parkinson: The rules on spending from the
reserve are slightly different. In the Spending Review the Barnett
Formula is applied in a sort of reasonably automatic way as set
out in the statement of funding policy. The statement of funding
policy explains how there can be reserve claims and explains that
there is no automatic access to the reserve. Reserve claims have
to meet certain criteria which are essentially that the same circumstances
exist in this case in Scotland as in England and that without
the additional funding there would be unaffordable consequences
for the devolved budget. The Treasury argued those conditions
which are set out in the statement of funding policy were not
met in this case. As I say, there are different rules for applying
for reserve claims and the devolved administrations are consulted
on those and the territorial ministers agree those rules and the
Treasury applied them in this case. As you say, sometimes the
interpretation of those rules is different north and south of
the border, as it is in this case, but that was the rationale
for the decision.
Q471 Chairman:
Can I follow this up and just ask a more general question? What
criteria does the Treasury operate when you have to decide whether
something is UK or devolved?
Mr Parkinson: Broadly it derives from the devolution
settlement. Either something is reserved or it is devolved, and
that is set out in legislation. So that is not a Treasury decision,
it is built into the law. There are occasional cases like the
Olympics, where the Olympics is a UK-wide games and it clearly
benefits the whole of the UK. It is the UK which bid for them
and that was the argument for saying that the budget for the Olympics
is UK-wide, which benefits the whole of the UK. The Scottish Executive
took a different view and occasionally, as I say, there are issues
of that kind but in 99 per cent of the cases it is a straight
reflection of the devolution legislation.
Q472 Chairman:
It is a decision taken by the Treasury, is it not?
Mr Parkinson: Devolution legislation is not
taken by the Treasury.
Q473 Chairman:
Of course it is not, but the way in which this operates, whether
it is a UK matter or a devolved matter, that is a matter for you
to decide?
Mr Parkinson: The public spending system is
reserved, so ultimately it is the Government that decides the
public spending framework, but the devolved administrations are
consulted. This all derives from the comparability factors, which
are published in the statement of funding policy and the devolved
administrations are consulted in advance and the territorial Secretaries
of State agree those comparability factors.
Ms Bailey: What we are saying on the basis on
which we operate matters set out in the statement of funding is
there are occasions—I think we admitted that—where
something arises which is outside the scope of the funding formula
as we have published it and then ministers need to take a decision
based on certain rules and in relation to the reserved, as Mr
Parkinson has just outlined, there are other rules and circumstances.
Q474 Lord Lang of Monkton:
How is the decision to treat the Olympics spending as a UK matter
justified in terms of the construction that takes place? Nearly
all of it is in the south of England. How much is there in Wales,
Northern Ireland and Scotland, and in the after use of those facilities?
Mr Parkinson: Our argument is that the entire
budget is necessary for the delivery of the Games. It was a UK
bid, with the support of the devolved administrations, for the
Games which is regeneration-based and it is not possible to split
the budget up into regeneration activity, which is unrelated to
the Games, so it is a single budget and therefore it has to be
treated as a single budget. There is other spending which is related
to the Games like Crossrail, which some in England would say it
is wrong for Scotland to benefit from Crossrail, but we took the
view that that was devolved spending for the benefit of London,
and therefore Scotland should receive consequentials. But the
argument fundamentally is that it is a single UK budget for the
Olympics and it is not possible to split up one which is to deal
with regeneration and the other to deal with the Games.
Q475 Chairman:
But your decision on that is not challenged, though, is it?
Mr Parkinson: Yes, it is.
Ms Bailey: Yes.
Q476 Chairman:
Who challenges it, how, and where?
Mr Parkinson: The devolved administrations can
challenge it and there is a dispute resolution process set out
in the statement of funding—
Q477 Chairman:
This is a joint ministerial committee?
Mr Parkinson: Yes.
Ms Bailey: That is right, yes.
Q478 Chairman:
That really has not got very far, has it?
Mr Parkinson: Well, it has never been used,
but they have the choice to use it if they wish.
Q479 Lord Moser:
Chairman, can I ask, at what level in the Treasury are these decisions
made?
Ms Bailey: These decisions ultimately are made
by ministers.
| 
