The Barnett Formula - Select Committee on the Barnett Formula Contents


Examination of Witnesses (Questions 480 - 499)

WEDNESDAY 11 MARCH 2009

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

  Q480  Chairman: I am reminded that when Glasgow bid for the Commonwealth Games in, I think, 2014 that was considered a wholly Scottish matter, whereas the Olympics has been considered a UK matter. Is there a sensible distinction between the two?

  Ms Bailey: I think there was a decision of the UK Government to bid for the Olympic Games on the basis that it would have benefits across the United Kingdom and establish the facilities that would be of benefit to the whole of the United Kingdom. The Scottish Executive, as far as I understand it, made the decision about bidding for the games in Glasgow and therefore that sat within their remit and was a matter for them to decide.

  Q481  Chairman: But there will be a UK team, presumably, at Glasgow, will there?

  Mr Gallagher: No, there will be a Scottish team!

  Q482  Chairman: There will be a Scottish team?

  Mr Gallagher: Yes, absolutely. It is not a UK team, it is the Commonwealth Games!

  Chairman: True! We can move on to question five, Lord Forsyth.

  Q483  Lord Forsyth of Drumlean: I wonder if I could just ask you about what is characterised as "Formula bypass"? I know you have tried to deal with that in your answers to the questions which we put to you, but I am puzzled. We had an exchange earlier and we were talking about whether convergence is happening, depending on whether you look at the budgeted figures or the other figures and there is a debate, but one of the reasons why convergence has not happened, certainly under the pre-devolution regime, was that the Formula will determine what the resources made available for health, and so on and so forth, were and then the Scottish Office could decide to go from one programme to another and spend as they choose. For example, if there was a huge pay settlement in the Health Service, given that the Scottish baseline was 25 per cent higher in terms of expenditure per head and the Formula consequences might be around 10 per cent, there would be an enormous gap given that something like—I do not know what the figure is now, but 70, 75 per cent of the health budget was unpaid. Under the previous regime we were able to talk to colleagues in the Treasury and sort that and there would be an allocation made to take account of unusual circumstances of that kind. As I see the system operating now, there is no dialogue between the Scottish Executive and ministers and no opportunity for Formula bypass, so the effect of, for example, a large pay increase or a pay increase in the Health Service will be to squeeze other services. Is that fair, given that pay is negotiated nationally?

  Ms Bailey: Given that health is a devolved matter, my understanding is not that the Scottish Executive has to accept the same pay increases for its staff as are negotiated by Westminster Government, but that the Health Service—

  Mr Gallagher: It might be helpful to explain the constitutional background, Chairman. The Health Service is devolved, though Scottish ministers as a matter of policy have chosen to continue to opt into national negotiations for most, if not all, of the employees in the Health Service and that was the position pre-devolution as well, but Helen is right to say that as a matter of principle Scottish ministers could conclude now that they wish to withdraw from those national negotiations. They have not, as a matter of fact, done so.

  Q484  Lord Forsyth of Drumlean: That may or may not be true and it would be controversial for them to do so, but it does not actually deal with my point. My point is that under the old pre-devolution system there was an opportunity, because there was a dialogue between ministers, that if there was an event—which might arise, actually, from the difference in the size of the baseline—to make an adjustment, and we did this. We did it on health. I can remember one particular pay settlement where we got extra money. We did it on housing and in other areas where there were differences in the baseline. As far as I can see, there is now no dialogue whatsoever going on of that kind and the Formula is being applied absolutely mathematically. That did not happen in the past. Is that a system which is actually workable and sustainable?

  Ms Bailey: My colleagues will come in, but I think there are opportunities for that dialogue to take place, particularly around the spending reviews and around particular matters. We have already had the point about the Forth bridge for this, so there are individual dialogues for that specific matter. The Formula does not itself preclude that. The position is that in the absence of such a dialogue that applied to the Formula, it is possible for a dialogue to take place but it is normally the case that we would rely on the Formula itself.

  Ms Radcliffe: Just to reinforce that, there are still opportunities for devolved administrations to raise specific issues with the Treasury and also it is possible, if everybody agrees it is necessary, for additions to be granted as well. An example of that is the increase in funding that was given for stage one devolution in Northern Ireland.

  Q485  Lord Forsyth of Drumlean: In your answers to the question which you gave us on this matter you say that the Barnett Formula currently applies to all changes in comparable DEL spending of UK government departments in spending reviews and therefore the scope for bypassing the Formula is in that sense negligible.

  Ms Bailey: Indeed, although we do go on to say that it is possible for the Treasury to agree to additions if appropriate, which I think is the point which is made.

  Q486  Lord Forsyth of Drumlean: Yes, but what I am saying is that the pre-devolution—and by the way, on your answer to question one where you present Barnett as being a happy, simple system, I can remember weeks of negotiations when we had the annual pay round arguing with Treasury ministers and officials and the rest. It was by no means simple and that process enabled the differences in the devolved areas, in this case what were then called the territorial areas, to be taken account of. It does not seem to me that that opportunity is there. You just simply have a mathematical formula and that must ultimately result in some inequities, particularly if you have administrations of different political colour?

  Mr Gallagher: I wonder if I might be of some help on that? Long Lang asked earlier on, was the absence of the scope for negotiation a virtue or a vice in the application of the Barnett Formula, and of course what we have described as negotiation pre-devolution inside one government, ministers of the same party subject to the same collective responsibility. Post-devolution one of the advantages of a formulaic approach, whether it is this formula or another, is that it does not put ministers of one political colour, perhaps, in the devolved administration in the position of having to negotiate line by line their budget with a government which may well be of a different political colour. That is not, as Helen says, to say that it is completely impossible for some accommodation to be reached, even in relation to Scotland. I can think of one example where post-devolution some accommodation was reached in relation to funding and that was in relation to the Scottish Court in the Netherlands, which tried Mr Megrahi, which you will remember.

  Q487  Lord Forsyth of Drumlean: What you describe as an advantage, I can see how it might be an administrative advantage, but from the point of view of people who are depending on the Health Service in Wales, Scotland or elsewhere, I do not see it as being an advantage, I see it as their resources actually being determined by a mathematical formula with no opportunity to say, "Don't you understand, we have this particular issue here and we have this particular need?" and the result will be that services will be squeezed. One response to that would be that if you had a system which was based on needs as opposed to mathematical formula, you would compensate for that?

  Mr Gallagher: Another answer to that, I am afraid, is that of course it is not necessarily the case that a dialogue would produce more money. A dialogue might produce less money, so if you were thinking of the needs of particular users of the Health Service in Scotland the production of the budget by negotiation around the Formula might produce either more or less.

  Q488  Lord Forsyth of Drumlean: But it would be transparent and it would be based on some objective criteria, not just some numbers?

  Mr Gallagher: One advantage of the Barnett Formula, with respect, is that by comparison, for example, with the local government finance formula that we talked about earlier on it is a model of transparency!

  Q489  Lord Rooker: On the issue of the devolved finance ministers, we understand, although I do not quite understand the background, that they meet regularly with the Chief Secretary a couple of times a year or so. When did that start and what is the purpose of the meetings?

  Ms Bailey: The purpose of the meetings is to discuss financial matters of common interest and UK wide concerns, so the economic and fiscal situation of the whole of the UK can be discussed and we are due to have a meeting tomorrow at which I am sure ministers will wish to exchange views about the current economic situation.

  Q490  Lord Rooker: When did the regularity of the meetings start?

  Ms Bailey: I think it started immediately post-devolution.

  Mr Parkinson: It was not quite immediately post-devolution, but it was about 2001. Fairly early on it was thought a good idea for finance ministers to meet collectively to discuss this, as Helen says.

  Q491  Lord Rooker: Did it always cover the UK from the start in 2000-01?

  Mr Parkinson: Yes, it used to happen every six months from about that time onwards.

  Q492  Lord Rooker: With all four?

  Mr Parkinson: With all four.

  Q493  Lord Rooker: I am going to have to check my diaries, but I have to say that with the many jobs I have done between June 2005 and May 2006 I was the Northern Ireland Finance Minister and I do not recall attending or being invited to attend any meetings with the Treasury. Now, I was directly the minister, that is why I asked you when it started did it apply to all of the UK?

  Ms Bailey: We can, if you like, check our records and check which meetings we have had within that time. If you were not invited, let me extend an apology on behalf of the Treasury retrospectively.

  Q494  Lord Lang of Monkton: It would be interesting to know whether any decisions of any substance were taken at any of those meetings or whether it was just an exchange of views.

  Mr Parkinson: It depends on the circumstances. As it happens, we have not had a meeting for some time. It will be the first one for some time. If we are doing spending reviews they can be of operational significance in the sense that there are issues to determine. At other times during the public expenditure cycle it is more a question of discussing issues of common interest, and obviously the economy is the top priority at the moment and so ministers will be talking about the economy tomorrow. So it is a mixture of operational issues and an exchange of views.

  Q495  Lord Lang of Monkton: Have any issues been decided or policy change that relate to the Barnett Formula and the operation of it?

  Mr Parkinson: In the run up to the Spending Review the Olympics was discussed, for example. You will not be surprised to hear that, but that is the sort of thing which is discussed.

  Q496  Lord Rooker: Who represents England at this meeting?

  Ms Bailey: The Chief Secretary of the Treasury on behalf of the UK Government.

  Mr Parkinson: It is a meeting with the devolved administrations, it is not—

  Q497  Lord Rooker: So nobody represents England because she is there as the UK minister?

  Mr Parkinson: It is a devolved finance ministers' meeting.

  Lord Rooker: The answer is nobody represents England. She is there as the UK Finance Minister, which is a similar arrangement we have with Brussels, we devolve matters, and Defra is the England farming minister but I represented the UK. In other words, nobody is there actually representing England? There is Scotland, Wales, Northern Ireland and the Chief Secretaries of the Treasury. That is the position, is it not, nobody is representing England?

  Chairman: I am sure it was Northern Ireland.

  Q498  Lord Rowe-Beddoe: Something you have demonstrated that you do not particularly want to talk about is the question of a needs assessment-based distribution of funds to the devolved administrations, but if you were to talk about it do you think it would take a great deal of time to come to some sort of conclusion? Let us assume that you are brave enough to say that you would like to look at something which might be substituted for what we have.

  Ms Bailey: We have already said—and I appreciate you do not find this hugely helpful—that you would need some determination of how we assess needs and what needs were prioritised. There are many different ways of doing this. Broadly you could start from the top-down UK Government looking down at GDP, and so on, or you could start from the bottom up and assess community by community what the differential needs were. Depending which method you chose, it would be more or less time consuming. You could do, in theory, a quick and dirty top-down exercise and say, "Right, this is the GDP per head of population or GVA of the population in a particular part of the United Kingdom and therefore the needs are greater." I do not know whether or not that would fit the bill, meet people's requirements or not. If you were to do a much more detailed bottom-up exercise, it would arguably take longer. So I think the things that are in place in order to judge the answer to your question are, do we have an agreed assessment of what the needs are, do we have an agreed view of how we are going to determine that, do we have an agreed view about whether or not we are going to buy the devolved administrations into that process or whether or not the UK Government is going to do it to them, and that will take some ministerial negotiation. Then the question I think you have notified us of is whether or not this should be done by the Treasury or whether we should get somebody else in to do it. I think that is entirely a matter for ministers, taking into account the questions I have posed to you and doubtless many others that I have not yet thought of.

  Q499  Lord Rowe-Beddoe: I think we would perhaps all agree that it cannot be something which is a quick and dirty exercise because it has to satisfy the constituent parts of the United Kingdom and, to come back to the Chairman's opening statement, it has to be seen to be fair. So it is going to be, I would suggest, be quite a detailed exercise for it to fly. Could you give us some idea of how long a detailed exercise might be?

  Ms Bailey: It is hugely difficult to do that without knowing what the component elements of such an exercise would be. I am not seeking to be unhelpful in any way at all, but depending on whether you wished to look at it by individual community, by geographical area or whether you wished to start from an income per head, whether you wished to look at, as I say, GBA per head of population—


 
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