Examination of Witnesses (Questions 740
- 759)
FRIDAY 27 MARCH 2009
Mr Michael Smyth, Professor John Simpson and Professor
Colin Thain
Q740 Lord Sewel:
If you are going to say it is on population you have also got
to attack the block, have you not?
Professor Simpson: At the moment we have a population
plus formula. We have got 2.8 per cent of the population and 4
per cent of the spending. The Scots have got a slight plus in
the same direction. The population in general do not understand
that Barnett is not just on a per head basis. They do in the northeast
of England and particularly from the Newcastle area people say,
"How come public spending in Northern Ireland is X per head
and it's Y per head in Scotland and we in the northeast are neglected?"
Lord Sewel: I think the experts on the
Barnett Formula are the people who live in the northeast of England
actually.
Q741 Chairman:
On a more general point, what I do not understand is this, and
I am sure this is true: if the policies of the devolved administrations
are going to increase substantially from the policies that we
have seen by England and the Westminster Government, that divergence
is going to increase. Unless you have a formula that is based
upon need you cannot actually produce a structure within which
it can operate. You cannot have an existing formula when they
are going in opposite directions.
Professor Thain: I would argue the reverse,
and maybe that makes me stick out like a sore thumb. This is beyond
your remit, but unless we have a constitutional convention to
look at this as a whole, and I think that is what has to happen,
it is not just about Barnett, it is about revenue raising, it
is about the mechanisms, the constitutional settlement, the powers
of the various elements, the mechanism in London to adjudicate
if there are problems, which you raise as an issue, and how do
you set that up, these are big questions of the constitutional
reconfiguration of the UK. We have got to do something about the
English regions, very much so. To be fair to the Prescott drive
to try to get regional assemblies, at least that was a mechanism
where you had an identifiable element of the northeast, northwest,
southwest or the Midlands, and at least you could give resources
to that part of the country and then start talking about how you
would divest those resources. We do not have that. That has got
to be done before we have a fundamental reappraisal of Barnett
in my view.
Q742 Earl of Mar and Kellie:
Are you really saying that until there is a constitutional change,
and that is Barnett is an easy formula for the Treasury to implement
because it is the Treasury who are going to implement it, and
various forms of needs assessment or, indeed, any other ideas
there are for calculating how much should be transferred to the
three devolved areas, it is not worth thinking about other ways
of doing it until the Treasury give up the whip hand on this?
Professor Thain: I think you are opening a can
of worms because why would English regions and English departments
not start asking questions about, "We have got major need
in a large part of the East Midlands, why can't we have ... ."
Q743 Earl of Mar and Kellie:
Have not the English departments already had that discussion as
part of the triennial Spending Review?
Professor Thain: That work is done and it then
transfers across to the regions.
Q744 Earl of Mar and Kellie:
The English departments presumably have had their crack of the
whip.
Professor Thain: I am saying if you remove Barnett
and say, "Let's have needs assessment", you do not have
those debates in England shaping the budgetary fallout and once
that happens officials in departments in England can say, "Well,
we've had the big debates, what is happening in Northern Ireland
is marginally different from what we have done and what is happening
in Scotland is different again, but it's not so far away from
the fundamental unitary state having had the debates about 80
per cent-odd of public spending". My worry is the attack
on the union will come from moving away from a population-based
formula.
Q745 Earl of Mar and Kellie:
Moving from a population base or moving from Treasury control?
Professor Thain: It depends if you regard the
Treasury as the big, bad wolf always or as a department that never
really got control of public spending until fairly recently. If
you regard the Treasury as having an uphill struggle to try to
keep the lid on public spending then weaken the Treasury.
Mr Smyth: I was with Colin all the way when
he talked about looking at income and the expenditure side of
this, but the fact remains statistically if you use GDP/GVA per
head, devolution has not worked. Scotland has diverged from the
UK average since 1995 and particularly sharply since 1997, Wales
has diverged even further and we have flat lined at 80 per cent.
My preference would be that in the UK we need to have a proper
regional policy again and how that plays out I do not think necessitates
further devolution but we need to have a regional policy. One
of the things that has concerned me throughout all of this, and
I know we are not supposed to talk about it here, is the unwritten
assumption is if there is no fiscal autonomy in the devolved regions
or no debate about reinstating regional policy, the Treasury is
going to go on subventing places like Northern Ireland in perpetuity.
I have to say, and John will agree with me, over the last 15 years,
the so-called "nice years" of continuous growth and
so on, the subvention has increased, it has not decreased, so
it is mainly structural. It is the same in every other region.
I have the statistics here and I will leave them with you. It
is unambiguous. If we are serious about tackling fairness, and
that is an issue that you have been dealing with in all the evidence
I have seen, fairness means you look at all of the income and
expenditure side, but sadly the Treasury is prepared to go on
subsidising economic failure in perpetuity. That is my take on
all of this.
Q746 Earl of Mar and Kellie:
We have the threat of convergence over public spending per head,
but should we not be aiming at a different convergence, for example
convergence on economics, that the Treasury enable each area to
perform better so that you try to get the GDP per head equal?
Professor Simpson: That is very vulnerable to
abuse. As I have listened to this discussion and the way it is
evolving, one of the thoughts going through my head is how would
you alter the structure of these allocations so as to put greater
pressure on somewhere like Northern Ireland or Scotland to use
its public resources more efficiently. By every comparison we
end up showing by whatever margin in providing particular services
we are less efficient than we should be. The system does not do
anything to put pressure on that. If you fund us so that we have
enough to close the economic gap from central funding, thank you
very much, that makes life easier.
Q747 Chairman:
Who would determine whether you are spending your money wisely
or not? Do you really want somebody from outside to come and tell
you?
Mr Smyth: We had it recently with the Appleby
Review. The Appleby Review of Health compared a number of acute
hospitals here with a number of acute hospitals in England as
far as they could like-with-like and the productivity differences
were shocking.
Professor Thain: I think the world is going
to change come the next Comprehensive Spending Review if we have
one, which we are not going to have in 2009, because public spending
is going to be squeezed because the Chancellor has got a problem
and it is getting bigger every time the Prime Minister globe trots
because there is a pressure to put a bigger fiscal stimulus in
that is going to create problems for public budgeting. The party
is over, there will be a squeeze on public spending and it will
come through in the Barnett Formula and then Northern Ireland
is going to have to start asking real questions about how efficiently
are we doing this, do we have too many officials doing this, do
we have enough people upfront doing the service. As one of your
colleagues once said to me, outdoor relief is a part of Northern
Ireland's public sector.
Q748 Chairman:
If the momentum comes from Northern Ireland that is fair enough.
If Northern Ireland wants to decide what is efficient and what
is not efficient, that seems to me to be entirely a matter for
Northern Ireland. To have any outside body coming in trying to
determine the competence or efficiency in any of the regions is
very difficult indeed.
Professor Thain: I could not agree more. The
pressure has to come in terms of local debates generated by concerns
about improving the quality of service and maybe the comparative
material that comes out is very useful sometimes. It is not always
useful. The big debate in Northern Ireland is always to chastise
the English education system and say, "We don't want to be
like the English, do we?" and the comparison could be used
rather crudely as a model for an English education system which
I think does not exist any more because it is such a complex divergent
monster now rather than a single "comprehensive" education
system, but at least it is part of the debate to have that material
and then for local politicians and pressure groups to start saying,
"Why can't we do a bit better? Why can't we do it more like
another part of the world?", and not necessarily the UK either
but parts of the European Union.
Professor Simpson: My Lord Chairman, you are
perfectly right, if the three of us were left you could rightly
say, "You should be talking about the priorities and how
you influence the local political system, but do not expect some
group from London one way or another to solve that problem".
That is accepted. We now have a system whereby Northern Ireland,
in my book—the civil servants are not going to say this—is
reasonably generously funded under the present arrangements.
Q749 Chairman:
They did say that. I do not think they used the word "generous"
but they said it. They were reasonably warm towards the application
of the Formula.
Professor Simpson: As I said here I would criticise
it internally to illustrate that we could have the debate, that
we are not using our resources to bring our infrastructure up
to modern standards as quickly as we could. We are using our flexibility
to maintain an educational form of expenditure and we are using
it also to maintain some other economic services. For example,
we still have partial industrial derating here. If the European
Commission eventually decide that this is not so small as to be
ignored, they will say, "You are running an operating subsidy
and should be rid of it". We should think that as well but
there is the pressure from other disciplines. You could say, "Sort
it out yourselves" and a bit more leverage from elsewhere
would help.
Q750 Chairman:
It seems to me that the present system is too crude, it is not
sensitive enough and does not produce a sufficiently fair result
from certainly my point of view looking at it, and for the life
of me I do not see why you cannot have a system in which the allocation
to the block is based upon a series of comparators and variables
which take need much more into account than at the moment. I do
not see why that should not be done and, therefore, when Barnett
comes to be applied it would be applied with a different mathematical
formula than it is at the moment. What is wrong with that?
Professor Thain: Getting agreement on it is
the problem. I still go back to my central worry that it depends
on how far you think the union is important and how flexible you
think the union is and if you think the union has got a degree
of elasticity in it and can survive fiscal and economic change,
and I am not so sure.
Q751 Chairman:
It survives strongly if people perceive it as fair.
Professor Thain: Maybe so. I just worry that
unless there is a proper constitutional settlement, fiddling around
with Barnett is not necessarily going to have the—
Q752 Chairman:
It is a bit more than fiddling around with Barnett.
Mr Smyth: I have looked at the Australian Commonwealth
system and I know you have touched on the edges of it, but it
is independent. It puts the onus on the devolved regions or countries
to make the case. It also gets around the problem of lack of transparency
of the data because the Treasury does obfuscate and does not release
the data. This is the only part of the UK in which you have 100
per cent identifiable expenditure. It is a good thing in some
ways but I think it is unfair as well. The only way to get round
that is to have a transparent, independent, statutory commission.
Q753 Chairman:
Do you think that could work in a system where you have got asymmetrical
devolution? Do you think that makes any difference?
Mr Smyth: England is the problem.
Q754 Chairman:
I would not disagree with that as a Welshman! I am thinking the
way in which the powers have been devolved to the three devolved
administrations is different and do you think that would make
any difference to whether or not you could have an objective,
impartial, transparent assessment?
Mr Smyth: Who speaks for England? In every other
way that model would work.
Professor Thain: My argument in my paper, which
maybe I did not develop enough, was to have a Barnett plus which
is to have a kind of bidding process for additional spending on
top of the allocation on the basis of need made by not just the
devolved administrations but the Regional Development Agencies
in England and whatever, the GLA, and in a sense the patchwork
that England is in terms of identifiable political entities, ministers
of the regions that have been drafted on recently.
Q755 Chairman:
There is not much difference between that and what I said, is
there?
Professor Thain: The difference would be that
you would stick to what would be easy to sell in terms of a population-based
allocation, but then you would have an amount of proportionate
DEL that you could bid for.
Q756 Chairman:
That brings the bypasses under control.
Professor Thain: Yes, it increases the bypass,
makes the bypass more transparent, and the bidding then puts the
onus on the devolved administrations, the regions and the Treasury
to be more open and persuasive in the case they make for the addition.
Q757 Chairman:
You would leave the block as it is now?
Professor Thain: Yes.
Q758 Lord Sewel:
I did not like that when I read it, quite honestly, just because
of the political costs if you are going to get the territories
and the regions bidding and I think you have said with a number
of departmental ministers arbitrating.
Professor Thain: I did not develop it.
Q759 Lord Sewel:
You would get accusations of favouritism, cronyism and deals,
political sweeteners.
Professor Thain: That is the nature of budgetary
politics. That is a reality. In the Australian and Canadian cases
they still have political sweeteners, you still have the case
of arguing with the federal Prime Minister in Canada to try and
give them a bit more.
Chairman: But only for a couple of days.
We did have evidence which in effect said they make their determination
once a year, for about two or three days thereafter there is a
row when everybody says it is unfair, then it calms down, continues,
and the next year they make another decision and have two or three
days of argument. That does not seem to me to be grossly unhelpful
if that is the way you wish it to be done.
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