Examination of Witnesses (Questions 760
- 779)
FRIDAY 27 MARCH 2009
Mr Michael Smyth, Professor John Simpson and Professor
Colin Thain
Q760 Earl of Mar and Kellie:
It does seem to me that we could not have an Australian style
of Territorial Grants Board here until there had been some form
of devolution to England.
Professor Simpson: An English authority, yes.
Q761 Earl of Mar and Kellie:
Which could come one of two ways, either England or a collection
of nine regions, in which case the Australian model would not
work for as long as England is directly administered by the United
Kingdom Government.
Professor Thain: It is back to the constitutional
settlement. It is back to creating a proper federal structure.
Do we want to go there? Can we go there? Is there sufficient political
will to actually uncover all that? Not just that, the problem
is Richard Rose once said the problem with territorial allocation
is it is functional, it is not territorial. It is the historic
background of having functional administration of policy grafted
on to territorial political structures, and until we move the
boundaries of that we are not going to have a proper Australian-type
system. You have then got to start asking questions about revenue
raising and the independence of those regions to get on with their
own thing rather than a kind of English steer with a marginal
adjustment at the sides. Those are big questions which we need
to address in the UK.
Q762 Chairman:
I am happy to say they are way outside the remit of this Committee.
Mr Smyth, you obviously had a good look at the Australian system.
Mr Smyth: Yes. It worked very well in Victoria,
for example, in the aftermath of the fires. I looked at a couple
of their annual reports in-depth and the sorts of arguments that
are put are quite strong, well-supported, the evidence is there.
The Australian public finances are completely transparent, at
least as far as I could see. Under the Barnett Formula England
is a pig and under an Australian-type system England would still
be a pig. As I understand it, the Regional Development Agencies
were a fallback position when Prescott did not get what he wanted.
That is a framework. The research that I have seen on the performance
of the Regional Development Agencies is that they are under-funded,
but for what they get they do a very good job. That is a framework
that you could develop to beyond simply industrial development.
I do not think we have to have federalism in that sense. The more
I read about this and the more we discuss this, the Barnett Formula
is the least worst choice at the moment.
Professor Thain: Which is why it has stuck historically
as well.
Professor Simpson: We are not having a discussion
which would dictate the mood which says we are going to have a
radical constitutional review of the whole of the United Kingdom,
your remit will not take you that far. There are couple of illustrations.
There is the illustration of can a workable form of fiscal discrimination
be introduced. The other one that is there, and the Scots are
making the point in their own way, is the Barnett Formula locks
current and capital spending together, but capital spending has
a different rationale. Now there is a need in Northern Ireland
for a big catch-up in capital spending, much higher proportionately
than the level of capital spending that would be in England. This
is not in any sense acknowledged in the framework other than whether
the Barnett Formula is going to be generous enough to allow you
to do a bit of that. The Scots recently made the point that there
was an attempt to introduce permission for the Northern Ireland
administration to be able to borrow capital. That has now been
narrowed down by the Treasury, so it is only permission to borrow
£100 million a year and that figure is capped. The Scots
are making the point that as a legislature should they not have
the right to borrow for their capital spending and take responsibility
for it, but within the Barnett mechanism this opens up things
that up until now have been closed.
Earl of Mar and Kellie: And no borrowing
is specifically mentioned in the Scotland Act.
Q763 Lord Sewel:
It is only borrowing to smooth.
Professor Thain: One of your Members would be
able to tell you the story of the debate over the St Andrews'
Agreement package that the Treasury were going to give to help
Northern Ireland. One of the issues raised in 2002 and 2003 when
Gordon Brown was Chancellor was you could use the regional rate
to help pay back the Treasury for a long-term loan.
Professor Simpson: That was in the original
deal, yes.
Professor Thain: And what is wrong with that?
Q764 Chairman:
What is wrong with it is it is yet another example of pragmatism
being pushed to the edge of distortion because a situation arises
and you have a solution, another situation arises and you have
another solution and they are all very rational in themselves
but there is no structure, frankly, within which they are operating
and I do not think that is good government. I think you have got
to have a fairly clear line as to how you do these things.
Professor Thain: That comes back to the powers
given to the three bits and the lack of the regional dimension
in England having a proper rationale.
Q765 Chairman:
I have always been opposed to the Welsh Assembly having tax raising
powers for the very simple reason that the Scots got tax raising
powers and have never used them but I think my countrymen would
use them, and it is not a very good idea as far as Wales is concerned
because I am not sure I have got sufficient confidence in the
way in which they would spend the increased resources. In any
case, frankly, the amount of money raised does not amount to a
vast sum. I do not see how you can just do it on an ad hoc basis.
If you have got a problem and somebody else has got a problem
on something different, you fiddle a bit here and fiddle a bit
there and in the Barnett bypass system quite a lot of money you
get is down from the centre to the devolved authorities but in
a really rather imprecise and ad hoc way and obviously it gives
far too much power to the Treasury.
Professor Thain: We are learning to move from
a unitary state to a quasi-federal.
Q766 Chairman:
I do not want to move from a unitary state. What I want to do
is to see that the devolved administrations within that unitary
state are properly financed. I do not want to repeat myself but
I do try to work out in my own mind why a needs assessment base
for that distribution is so outrageous.
Professor Simpson: We are not arguing with you.
Q767 Lord Sewel:
You said the Barnett Formula was the least worst choice.
Mr Smyth: Yes, for allocation changes. I do
not disagree with the Chairman at all. In fact, I have dug out
my old copy of the 1979 Needs Assessment Study and I remembered
that after all the sophisticated analysis that went into that,
at the very end they did a quick and dirty simplified assessment
identifying more or less the same answer. Why there have been
so few repeats of that exercise, I do not know.
Q768 Chairman:
There was one in the 1980s. We saw one in the 1980s, I suspect
there was something in the 1990s and certainly you tried to do
something in 2001-02.
Professor Simpson: Yes.
Chairman: I do not know to what extent
the Treasury were involved in any of that negotiation, but no
doubt we will find out in due course.
Q769 Lord Sewel:
Have you seen the Northern Irish 2001-02 attempt?
Mr Smyth: No. You have not either, John?
Professor Simpson: No.
Mr Smyth: It was closer to the cut down version,
the Occam's Razor version than the full-blown one. Again, I would
have thought with technology and better data you could do it a
lot more cost-effectively now.
Q770 Chairman:
The needs assessment?
Mr Smyth: Yes.
Q771 Chairman:
Yes, I am sure you could. They do it for local authorities anyway.
Mr Smyth: The Barnett Formula is just to allocate
the changes.
Q772 Chairman:
If you are going to defend a system in which needs are excluded
from—
Professor Thain: I do not argue with that. I
think needs are going to be dealt with through other mechanisms.
I go back to what Mike said earlier on about having a proper regional
policy. There has got to be a regional policy for the whole of
the United Kingdom, not just a regional policy for Northern Ireland,
although there are specific bits of Northern Ireland that would
have a variation.
Q773 Chairman:
How do you reconcile that with the idea of having a block grant
which gives Northern Ireland a great deal of discretion in how
it spends it?
Professor Thain: Because it is part of that
compromise that gets the system to keep moving on.
Q774 Chairman:
Who is going to decide what regional policy should be pursued
in Northern Ireland?
Professor Thain: If we have a debate in England
about regional policy, then Northern Ireland, Scotland and Wales
get a consequential of the regional policy.
Q775 Chairman:
So it is just the consequential?
Professor Thain: And also if Northern Ireland,
Wales and Scotland participate in a proper debate about how we
move regional policy on then that is a way of dealing with one
of those elements of need which is about differential economic
performance in inequalities of wealth. There are national mechanisms
in the UK system—child tax credit, working tax credits,
minimum wage—that then feed through to the regions of the
United Kingdom.
Q776 Chairman:
You cannot have variable minimum wages, can you?
Professor Thain: No, but we have a system and
it does not have to be on the basis of Barnett to do all the work
to deal with needs. That would be my argument. Policy debates
then have to be in the specific areas.
Q777 Lord Sewel:
Would you not accept that, say, social work expenditure is related
to levels of deprivation? You need social work expenditure and
the variations in social work expenditure must be related to something
close to some measure of social breakdown of need or poverty.
Mr Smyth: It must be.
Q778 Lord Sewel:
To do that you do a needs assessment.
Professor Simpson: It is not disciplined, it
is guaranteed as a cash flow.
Q779 Lord Sewel:
I missed the first bit.
Professor Simpson: Social security.
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