The Barnett Formula - Select Committee on the Barnett Formula Contents

Examination of Witnesses (Questions 820 - 839)


Mr Patrick McCartan and Mr Victor Hewitt

  Q820  Lord Sewel: Mr McCartan, would you like to comment?

  Mr McCartan: I have to disagree from the other end, as it were, as a user or sufferer under the Barnett Formula in relation to health and social care. Health and social care accounts for 40 per cent plus of all public expenditure in Northern Ireland. It accounts for 70,000 employees, one in ten is employed in health and social care here, and is very much dependent on the allocation of public funds under Barnett. I can give you one or two examples of that. My own trust is Belfast Health and Social Care Trust and there are five other delivery organisations, including an ambulance trust. The Belfast HSC Trust has 20,000 employees, £1,100 million expenditure each year, which is 12.5 per cent of all public expenditure that comes through the Barnett Formula to Northern Ireland, together, the trust boards account for over £3 billion expenditure per year, but we are very substantially behind provision in England for health and social care, and the gap is growing. The only way it can be growing is because the overall cake that our Assembly has to distribute is not sufficient to provide us with enough to meet the gap, and when you are talking there about the squeeze, that squeeze is happening today and causing problems of reorganisation in our Health Service which are effectively restricting numbers of employees and our ability to address very specific need for the elderly, for the very young, the very vulnerable people in our society, people with mental health and learning difficulties, and of course acute care. Our acute care is running at round about 10 per cent cent less funded than similar acute care in England. Our social care through our social care department is running at about 36 per cent less funded than similar social care provision in England. The reason for that is, of course, that we make bids, they go through our political system, and we now have 11 major departments all bidding and all saying they want more. We can measure the effect of that in that under the Comprehensive Spending Review period we are getting new money into health and social care, real new money, of 1.1 per cent. England is getting 4.3 per cent. We cannot address the need or close the gap with that method of funding, it is wrong and it does not work. We have four National Health Services in the UK, not one, and that is the position of the Confederation at national level. I am a trustee of the Confederation at national level, I do know the positions on the Scotland-England border and on the Wales-England border, and they are different. They are caused because of divergence in policies of the various devolved administrations. In our case, for our Minister, who happens to be a Unionist Minister, therefore one of the minority parties, to get more money he has to convince the other three major parties that his department deserves it and of course that is a horse trade from which we suffer, and are suffering increasingly. If Barnett was based on need, based on an assessment that actually reflects the differences in health and social care as well as other differences, then we would at least have a mechanism and a chance of trying to do things better than we are doing currently rather than seeing health and social care diverge. I am quite happy to talk about mortality rates and the differences between them here and in England, for example, where we are significantly worse off, and I can give you that hospital by hospital and area by area to show you. Those are real issues which we want to address and the current Barnett Formula and the "Barnett squeeze" is not allowing us to do that. Would the Government accept an argument that there should be some degree of equality of citizenship particularly in relation to something as essential as health and social care? If it does or if you think that it could then surely that should mean the Treasury should have a different approach to the way monies are disbursed than they currently are to devolved administrations. That is the sort of area where we are coming from.

  Q821  Lord Sewel: I think we have got two things here. One, it is possible that health and social care in Northern Ireland has not had as much money allocated to it as England and Wales because Northern Irish ministers give it a lower priority. That is perfectly consistent with the idea of devolution. The idea of devolution was clearly that the governments of the three territories should develop their own priorities and have their own policies, so the money comes to them in the pot and they decide in terms of their own local priorities where it should go. That is one thing. The other thing is that may be one of the reasons why your health and social care is not doing well or it could be that the pot is getting relatively smaller compared with the needs you have to address.

  Mr McCartan: I have to say efficiency would be another issue. These issues were gone into in great detail in 2005 by Professor John Appleby and the Appleby report that was made to the DFP here, Department of Finance and Personnel, did address some of the efficiency issues and also the question of the gap in provision, the under-funding. It did make an argument for something like 7 per cent additional spend per head in relation to health and social care over a period of years to address the imbalance. You are right to say that is a matter for our devolved administration. They have not taken that matter up and some of what I am saying needs addressed could and should be addressed there, but it does not explain overall the whole question of both capital and recurrent expenditure and the effects of it on a regional basis in comparison with England or even Scotland or Wales. There is an under-capitalisation problem and an under-recurrent funding problem here. If you put yourself in the position of some of our health and social care organisations, what would you say about the Barnett Formula. Of course you would say it needs to be based on needs assessment. Those are not just health and social care needs, but needs assessment as a formula and a formula that can be devised on a UK-wide basis with appropriate indicators. My Lord Chairman raised the question of Australia and when I was there certainly I was aware of what was happening between the federal and the state and there are plenty of arguments, particularly in health, hospital and social care and how they are funded or not, but we do not enjoy those debates. We would love to be able to do that. Bear in mind that is where we come from. As representing the biggest part of government expenditure in Northern Ireland we want to be able to do more and better and that might mean the cake needs to grow.

  Q822  Earl of Mar and Kellie: I was certainly interested by what you were saying about the four National Health Services that we have in the UK because we obviously do have four. I get the impression that in Northern Ireland you have done a needs assessment, you know what you want to measure, but what I would like to ask is have the other three National Health Services done that? Have they come up with the same criteria or something different because ultimately this is to be presented to the Treasury and you have all got to be singing from the same hymn sheet?

  Mr McCartan: I think the answer to that is no. I am aware of similar approaches and the fact that ministers now are starting to talk to each other between Cardiff, Belfast and Edinburgh, but not to the extent that they are making joint plans or provision. I think what each of those ministers would probably argue is there is a case for some divergence that you reflect local needs and local pressures, and that would be our experience. When it comes to what ought to be provided in overall terms, in macro terms as it were, for health and social care in each of the jurisdictions we would no doubt favour—I am not able to tell you there has been a decision on that—a common method of approach that allows us to plan on a proper basis to meet the need and to see some evening up, not totally but some, of provision in health and social care between the various jurisdictions. Why I say "not totally" is some services are reliant on a national approach. You need very specialist services in some areas of cancer care, transplant or others, and it is right that we should have one centre, for example, specialising in research-led approaches in those areas. It is the same in regions where you need a dynamic. The strategic health authorities in England have about ten million people to look after and as a result they can run proper paediatric services and a series of other major services, cancer services and so on. We have 1.7 million people. There is a diseconomy of scale that operates here right away. We have to provide regional services. The bulk of that falls on the trusts, by the way. That does work in a way which is counter to us being able to make the best provision. If we have to have our own cancer centre, for example, it is spread across 1.7 as distinct from the ten million that a similar centre would serve in the northwest. Those things work against us in a way. We are more than capable of managing to do all of that and work in a co-operative way with the rest of the United Kingdom, which we do, but not with the current method of funding. Coming from the Barnett Formula, which is being squeezed, into Northern Ireland, which then squeezes it again because it thinks, "Here's 40 per cent, we are not going to give 40 per cent to one minister", particularly if it is a minority minister, the effect of that, taken with the Appleby report which looked in detail at the differences in the cost and efficiencies, brings us to the view that we need to fundamentally adjust the method of funding devolved administrations. That has to be much more reflective of need. That is our position.

  Q823  Earl of Mar and Kellie: Your colleagues from the other Health Services, who have presumably read the Appleby report, have they accepted it or rejected it, or said, "We will make one or two changes at the margin"?

  Mr McCartan: The Appleby report is accepted on a national basis. John Appleby of the King's Fund does similar reports for the rest of the United Kingdom from time to time and his report is robust in that regard. It is not opposed, as it were, by other parts of the Health Service. It was accepted by the DFP here. It is the basis upon which a lot of our planning and commissioning has gone on. The problem is fundamentally under-provision.

  Q824  Chairman: The message we have been getting from those people we have talked to here in Northern Ireland is on the whole they are reasonably satisfied with the way in which the present system operates, there is a feeling that the new government here deserves a period of calm and reflection to bed in before you have another great eruption in terms of how the monies are allocated to them and, therefore, for the time being many of the people we have talked to have said assessment based on need makes sense and is fairer, so at this stage they do not think this is the appropriate time to do it. Is that a fair summary of the position?

  Mr Hewitt: The view will differ depending on the country. I should imagine that the Scots would run a mile.

  Q825  Chairman: I was not talking about the Scots; I was talking about you.

  Mr Hewitt: If you are going to have a funding system for the devolved administrations of the UK it would have to be a unanimously agreed funding system. If you are going to change it you do need the agreement of Scotland and Wales.

  Q826  Chairman: Sorry, I was not making myself clear. What I was trying to do was sum up what the position here in Northern Ireland is.

  Mr Hewitt: A lot of people do not really know very much about what we are talking about today, it is a relatively small circle of people who have operated in this area so they know the term "Barnett Formula" but not much beyond that. It is not really the Formula, it is the way the Formula interacts with all the other funding rules which apply to Northern Ireland. I give an example in my paper where the across the board cut approach can be mixed with the Barnett Formula to either advantage or disadvantage you. It is not just the formula itself, it is the wider funding rules. I listened with interest to the discussion on needs assessment. The Treasury will not accept any argument on needs assessment which is based upon a difference in policy. For example, they will not give Wales a penny because of the Welsh language. If you have a difference in policy that is down to you, that is a subjective factor, and they will only give it on objective factors.

  Q827  Chairman: The Welsh are bound to have a different policy on the Welsh language, I would have thought.

  Mr Hewitt: The Treasury says the English taxpayer is not going to subsidise it.

  Mr McCartan: Can we talk about tax for a moment because there are different methods of funding. There are local taxes and, of course, national taxation. When it comes to social care, this is a local authority matter in the UK as distinct from here where it is a central government matter. Of course, some scope for raising taxes through council taxes exists in Britain but not here, and that is a difference which does limit us. When it comes to needs assessment I think people in Northern Ireland would generally accept that we should be taxed on the same basis roughly across the board, no difference, provided it is distributed on a fair basis based on need. I am quite happy to see our council taxes go up and our water tax go up, provided it is part of doing something about the distribution of monies to try and get to this idea of equity of citizenship.

  Q828  Lord Sewel: Could I just ask, is denominational schooling an expenditure need or a policy decision?

  Mr Hewitt: That is a policy decision. If you want to maintain five school systems it is a matter for you. What they take into account is how many children of school age you have. They break it down into expenditure blocks, so there is expenditure on schools, primary schools, pre-primary schools, secondary schools, tertiary schools and so on, and the objective factor which goes into those is what size of population you are going to be serving in Northern Ireland as opposed to England. Running multiple school systems, deciding to keep the water system as a publicly funded operation, all of these are policy decisions taken by the devolved administration and the Treasury will say, quite rightly in many respects, "That is a matter for you. If you choose to do that, to provide free care for the elderly" as the Scots have done, "you are going to use your money for that, but you cannot come back to us and ask for additional money for other things if you have decided to do that".

  Q829  Lord Sewel: So if in England, say, we moved to an insurance-based health system, what then?

  Mr Hewitt: That would be a very fundamental change because the whole thing is based upon broadly similar policies being operated throughout the UK. Devolution does bring the spotlight on that as well as the extent to which a devolved administration can depart from what is happening in England without disturbing its funding.

  Q830  Lord Sewel: That is one of the problems, is it not?

  Mr Hewitt: Yes.

  Q831  Lord Sewel: The theory of devolution must be that of the opportunity to develop local priorities, local policies, local solutions in terms of local need, yet when you trace the funding that enables that to happen you come back to English programmes. It is likely, and certainly happening in Scotland, you will get a greater degree of programme divergence, if you like, in Scotland from England, yet the funding is still tied back to an English programme. That is a strain in itself, is it not?

  Mr Hewitt: Yes.

  Mr McCartan: I do not disagree with you that there is this dilemma in devolution. There is still a legacy here that we like to have someone else to blame, which for 30 or 35 years was the mantra of every politician in Northern Ireland and now they have to come to terms with some decision-making. We are never very far away from that sort of system. Of course, we have the system of a land border with another EU country where there is an insurance-based two-tier system effectively of health and social care, which is not a good example. People in Northern Ireland would not want to go in that direction, that is very clear.

  Mr Hewitt: There is an interesting situation which has developed out of our particular form of devolution. As you know, ministers hold their positions by virtue of a process called D'Hondt whereby the size of the party dictates whether they will hold a ministry.

  Q832  Lord Sewel: We share very fond memories of D'Hondt.

  Mr Hewitt: That, plus the consequence that there is no principal of collective responsibility within the Executive, means that you cannot really have a budget process except during Spending Review years when there is more money to be allocated. There is no mechanism for actually taking money out of departments in the intervening years. This is something which is slowly coming to light. The Minister of Finance is not a Chancellor of the Exchequer, the Chief Minister is not a Prime Minister and the Executive is not a Cabinet, so the Minister of Finance cannot come along and say, "Right, well I have decided our priorities require us to take X million pounds from the roads budget and put it into the health budget this year" unless the ministers involved actually agree to do that. They cannot be forced to do it. You can only really have proper budget allocations when additional money becomes available and this year, for example, we did not have a budget, we had a strategic stock take, nothing like a budget at all. That is an interesting by-product of devolution itself.

  Q833  Chairman: I have to say I have never heard that. How can you possibly run a government on that basis?

  Mr Hewitt: That is a very interesting question.

  Q834  Chairman: It is a question. Are you saying that you cannot have a coherent budget unless all the ministers agree to the proposals?

  Mr Hewitt: Yes. There is a programme for government and a budget associated with it. It runs for three years and there is no mechanism for adjusting that except by agreement within those three years. They adjust within the year because a monitoring exercise goes on and some people who cannot spend the money during the year will surrender it in the hope that if in the future they need more money they will be able to bid it back. There is no actual budget process going on at the moment.

  Q835  Chairman: I did not know that. You said a little earlier that the Treasury would not finance programmes which were not basic UK programmes. Is that an official statement from the Treasury or just your experience?

  Mr Hewitt: Essentially it is the practice of the way the Formula works. The classic example of this for ourselves is water. Water and sewerage was privatised in England and Wales some considerable time ago, but it was retained within the government system in Northern Ireland. What that meant was there was no comparable public expenditure on water and sewerage in England, hence no consequential as they call it, no share of that was coming across to Northern Ireland to help fund a publicly owned system in Northern Ireland. We had the issue then that water could only be funded by taking money from other things effectively, including health, and there has been a very considerable debate about whether water charges should be introduced and they have decided not to for the moment. It is an interesting example where the Formula essentially carries across English policy, or the consequences of English policy.

  Q836  Chairman: Consequences, yes, I understand that. You would not get the consequentials if it increased?

  Mr Hewitt: That is right.

  Q837  Chairman: How did you manage to finance water in the days before it was privatised in England?

  Mr Hewitt: There were various mechanisms used for this, including an arrangement whereby we were able to offset some of the money that we brought in through the rates against the expenditure on water. There was a process called an appropriation and aid process whereby rates money was treated as a receipt which could be offset against public expenditure, hence your gross expenditure could be bigger than your net expenditure.

  Mr McCartan: The popular perception was that we paid for water through our rates and that perception is still retained by some.

  Q838  Lord Sewel: But if something like that happens, yes you would lose the Barnett consequentials from the moment that the service was privatised, but in the base there would still be an historic accumulation of public expenditure.

  Mr McCartan: True.

  Q839  Lord Sewel: So if you had then privatised water there would have been a lot of money in the base that you could have used for something else.

  Mr Hewitt: True.

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