Memorandum by Professor John Simpson
Please find below my written response to your
questions in advance to your visit to Belfast on 27 March
2009.
DEVELOPMENT OF
THE FORMULA
1. What do you understand was the purpose
of the Barnett Formula was when it was first introduced, and has
its purpose changed over time? Was it designed to reduce tensions
arising from disparities in public spending per head of population?
Has it succeeded in resolving such tensions?
The Barnett Formula was a useful expedient to
reduce the need for detailed negotiations between the Treasury
and each of the devolved administrations. Only as a secondary
consequence was the convergence feature of significance. The expectation
that it would significantly reduce disparities has now become
a source of tension since the principle that equal spending per
head would be a desirable outcome is likely to be challenged.
Northern Ireland is sometimes argued to have a very
generous allocation of public spending as a result of the Barnett
Formula. The apparently high per capita spending figures are distorted
by the exceptional comparisons for spending on law and order,
justice and policing. These services are still reserved to Westminster
and even when devolved will merit a separate needs assessment
outwith the annual Barnett adjustments.
APPLICATION OF
THE FORMULA
IN PRACTICE
2. Do you consider that convergence in per
capita levels of public spending on the English level was an intentional
feature of the formula, or merely an incidental one? Do you think
it is overall a beneficial or harmful feature of the working of
the Formula?
The ambiguity on the convergence objective lies
between the direction of change (narrowing the gaps) and the final
result (equal spending per head). The lack of clarity remains.
Ideally an infrequent needs assessment (say every five years)
should be followed by an allocation to each devolved administration
based on need (possibly a figure such as 3.5 per cent for
Northern Ireland) rather than a population ratio.
NEED FOR
REFORM/ALTERNATIVES
TO THE
EXISTING FORMULA
3. What criteria do you consider to be important
in assessing the success or otherwise of the present formula,
and of any possible replacement to it? Would a fair or equitable
allocation system necessarily be a needs-based system?
A critical assumption is that the intention
is to give the devolved administrations a significant degree of
choice in the deployment of resources. A needs based system should,
therefore, avoid creating an expectation of direct parity in every
service. That would transform devolution into only a form of administration.
A composite needs indicator should suffice. This would mean that
devolution allowed for (but did not necessarily mean) differences
in outcomes.
4. To what extent are there tensions between
allocating expenditure according to such criteria as need, efficiency
and effectiveness? How would you suggest those tensions might
be resolved?
The Barnett formula has the merit of having
a justification based on historic trends and approximates to a
needs based allocation. It leaves efficiency and effectiveness
as issues for the devolved authorities. On a routine basis, this
is an appropriate form of delegation.
5. How effective would it be to use population
or other proxy indicators of need, such as inverse GDP or perhaps
social security spending per head, as alternatives to carrying
out a detailed needs assessment? What would be the overall effect,
in terms of the distribution of spending, of adopting those?
Something akin to an inverse GVA per head indicator
should be tested. A new formula would not necessarily change the
distribution of spending.
6. Assuming there is to be a mechanism for
distributing financial resources from the UK Government to the
Devolved Administrations, as the main source of revenue for the
Devolved Administrations, do you think that a needs-based formula
is the only real alternative to the current Formula? What other
alternatives might there be?
A population ratio weighted for some indicator
of needs, or an assessed needs factor is possibly the best method
of combining simplicity and devolution. However, this does not
consider the merits or otherwise of a greater degree of devolution
of fiscal charges. These options have been developed and challenged
in the report by Sir David Varney.
DATA QUALITY
AND AVAILABILITY
7. Are there still problems relating to the
collection, quality or availability of data on the distribution
of public spending and its effects? What issues are there on data
about indicators of need and tax revenues?
Yes. The present reporting and accounting systems
do not demonstrate to people outside the official departments
how the Barnett allocation is calculated. The outcome is accepted
without detailed challenge. The accounting format for the complete
devolved budget should also be made clearer in regular or annual
publications.
DECISION MAKING
AND DISPUTE
RESOLUTION
8. Most writers consider that procedural fairness
and transparency are important aspects of any system of financing
the devolved administration, and that this an area in which the
present arrangements are defective. Do you agree? What information
should be published or other processes adopted to improve procedural
transparency?
See comments to question 7.
9. How workable would be a UK Territorial
Grants Board given that its Australian prototype, the Commonwealth
Grants Commission, operates in a symmetrical, federal system of
government, with substantive fiscal autonomy for the States? Can
a Territorial Grants Board improve procedural fairness or provide
a system which is deemed legitimate?
A formal post-budget review (after the UK budget)
with the devolved administrations to consider the implications
for them would be useful to demonstrate the consequential linkages.
If devolution becomes more complex, with fiscal
variables and/or different forms of access to capital funds, then
the relationships would need to be formalised with guidelines
on permitted discretionary variations.
March 2009
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