The Barnett Formula - Select Committee on the Barnett Formula Contents

Examination of Witnesses (Questions 873 - 879)


Rt Hon Jim Murphy, Rt Hon Paul Murphy and Rt Hon Shaun Woodward

  Q873  Chairman: Thank you very much for coming. You know what we are about and you know the limitations on our mandate and the extent of it. It is very important that we talk to the three Secretaries of State as to how they see it. I do not know whether each of you would like to make an opening statement or whether we can launch into the questions?

  Mr Paul Murphy: Lord Chairman, we can launch straight in. We will all say the same thing anyway, I think.

  Q874  Chairman: I have a general question to start off with and I would clearly like all three of you to answer it, if you would. What do you think are the chief merits and demerits of the existing formula as the basis for funding the Devolved Administrations? Do you think it is a sustainable basis for funding with Devolved Administrations in the long term? Do you think there have to be changes to the Formula? What effect do you think it has on equity and fairness across the UK as a whole and do you think it is a device which actually pulls the UK together or does it tend to drive it apart?

  Mr Paul Murphy: I have lived with Lord Barnett's Formula for almost 30 years myself. When I talked to government a long time ago in Wales Lord Barnett had just started to implement his Formula and entering government a dozen years ago as Finance Minister in Northern Ireland, and then later as Secretary for Wales and Northern Ireland, it has been part of my life for a long time. Its longevity says something for it because it has been there for three decades and there have been a number of attempts to have a look at it and see whether it could be improved, or indeed completely replaced. All of those attempts, it seems to me, have come to nothing and I think that although inevitably any system will have difficulties and problems, my own view is that I think this one works reasonably well. I know there will be detailed questions about how it works during the course of this session, but as you are asking us, Lord Chairman, about the overall view of it, I see great merits in it. I think that because the Devolved Administrations are able to spend the money that they get in what is effectively a block grant in a way they want is a good thing. I think it is good that they do not have to spend exactly the same way that it is spent in England. They may choose to do so but they do not have to and that is a good thing. I think its relative simplicity is good because any other system I guess would be more complex. I think it is reasonably fair with all four countries getting the same cash increase per head and I do think that to replace it would be more trouble than it is worth. Generally speaking, I cannot see any huge disadvantages but I do see pretty significant merits in it, even though it is not perfect. I suspect the reason why any system would not be perfect is that we do not have a federal system of government in our country, that our devolution system is an asymmetrical one with three different settlements being served by the same system of funding which, despite problems that may have occurred over the years, has stood the test of time.

  Q875  Chairman: Do you know what Lord Barnett himself says about it?

  Mr Paul Murphy: I do. He is my neighbour.

  Q876  Chairman: He gave evidence here to us and he was really very specific and forthright about it and said it was a political decision to start the Formula in the first place. It did not even become the Barnett Formula until it had been around for ten years. It was designed to deal with the short term set of problems that they had with potentially Devolved Administrations but he thought it was way past its sell-by date and that there should be some question of some injection of the idea of need into the way in which the Devolved Administrations receive their money from the centre. Do you disagree with that?

  Mr Paul Murphy: I disagree in the sense that I think he underestimated the success of his creation by those of us who have to administer it. Over 12 years on and off I have lived with this Formula and, although there have been ups and downs, I cannot think of a better one. I suppose we will come later on to the detailed question of needs formula, but I think it has met the needs, certainly in terms of the country I represent around the Cabinet table. Obviously my colleagues will have to comment themselves on how they feel it meets the needs of Northern Ireland and of Scotland, but I do believe it has met those needs well. It has met them in the sense that, indeed, some English Members of Parliament and Members of the House of Lords doubtless would think it has met them too well, but then that is not my job. My job is to ensure we get the best possible deal for those territories and countries that we represent around the table, and certainly from the Devolved Administrations' point of view they have done pretty well out of the system.

  Q877  Chairman: I do not think that is the view of the administration in Cardiff, if I may say so. We went to Cardiff and took some evidence down there. It was very difficult to find anybody saying an enthusiastic word for the existing Barnett Formula and the general feeling there seemed to be that a fairer system was capable of being developed and it would be more equitable were it to be introduced.

  Mr Paul Murphy: As you know, the Welsh Assembly Government is having its own inquiry into how the Barnett Formula works. I have obviously met with the chairman of that inquiry and I meet on a regular basis with the First Minister and the Minister of Finance and of course there are issues which again we will come to later which are raised on a day by day basis. I am not yet convinced that there is a better one. I am not saying it is perfect but I do not think there is a better one and we must wait and see the evidence of that commission and see what they have to say. I am sure your Committee would find it of great use and interest. I think it has served us well.

  Mr Jim Murphy: My namesake, the Secretary of State—and the irony is that the only one who is not a Murphy here is the one representing Northern Ireland, but that is maybe neither here nor there—has said that he has lived most of his political life under the Barnett Formula. I have lived most of my entire life under the Barnett Formula. The advantages are many of the ones Paul has already referred to but the relative transparency, the predictability, the stability that it offers alongside the three year spending review process—I think this terrible jargon that is in Anton Muscatelli's thoughtful report which talks about horizontal fiscal equalization; in other words, a degree of redistribution—I think that is a strength of the current arrangements and that is something that is referred to in Muscatelli's report. As we have already heard, it is not without its imperfections, but one of the strengths that the Muscatelli document refers to is, having looked at all of the other current articulated alternatives, it is certainly stronger than those. Of course, it is something that the Calman Commission continues to look at and their work continues. It certainly offers those principles of transparency, stability, efficiency and on that basis it has considerable merit.

  Q878  Chairman: Do you think it is fair?

  Mr Jim Murphy: I believe so, yes.

  Mr Woodward: I would endorse the comments made by my colleagues and really add that there is an expression of humility on the part of Lord Barnett in saying to some extent he is surprised that it lasted. The answer to that is it seems to me self-evident because actually nobody has produced anything better. The fact of the matter is that any system is going to produce unfairness. The question is whether or not you can actually produce a system which fundamentally and in a wholesale way removes the inconsistencies and the unfairness in the process. I do not think it has been a want of trying or a want of talking about it and a want of politicking about it; it has been the fact that nobody has produced anything. It may be that this awesome system responsibility that this Committee has taken on will actually produce that. I can certainly see that it is possible for the administration in Wales to make the argument that they do and I can see that the administration in some other part of the United Kingdom could make a similar argument, but in the end would we produce something which has as great an equitable value as this system has? That really leads me to say on the question of is it fair I can answer by saying yes I think it is reasonably fair. Does it, after all, through the Barnett squeeze actually work towards some kind of sense that one day we might have greater equality? Yes, it does, and it does it in an incredibly slow, tortuous and incremental way, which is perhaps quite a good thing in an English system, but fundamentally the question I would put on the table is "does it work?" At the moment it works. The only thing I would say is that before the wheel is reinvented, which I am sure it will be by this Committee, I only hope that what is put in its place, if that is the design of this Committee, will actually give whatever the inadequacies of Barnett, as great a fairness and as great a workability as this has, albeit, I am sure, it is perfectly possible for people in different parts of the Devolved Administrations to actually say it could be better.

  Q879  Lord Lang of Monkton: The baseline for the Formula was not based on any assessment of need; it was based on an accident of history. Do you regard that as a fair long-term basis?

  Mr Jim Murphy: It has borne the rigorous test of different political philosophies, change of governments and decades. It is a reflection of spend at that moment in time. On the basis that it is using that baseline rather than a zero-based approach, then of course it is tied to that original baseline and events, priorities and profile at that time. I would argue that it starts from a reasonable basis. I can only speak in respect of Scotland of course. On the basis that it is a country with 10 per cent of the population, a third of the landmass, 800 islands, 8 per cent of Europe's coastline and public services are more expensive to deliver in Scotland and I think that is reflective of both what was happening in the 1970s, throughout the Eighties and today.

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