The Barnett Formula - Select Committee on the Barnett Formula Contents

Examination of Witnesses (Questions 740 - 759)


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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