The Barnett Formula - Select Committee on the Barnett Formula Contents

Examination of Witnesses (Questions 460 - 479)


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.

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