Examination of Witnesses (Questions 880
- 899)
WEDNESDAY 1 APRIL 2009
Rt Hon Jim Murphy, Rt Hon Paul Murphy and Rt Hon
Shaun Woodward
Q880 Lord Lang of Monkton:
Do you see convergence happening in Scotland?
Mr Jim Murphy: With the drive theory of the
Formula it is an in-built principle but the Government does not
start on the basis of seeking to create convergence as a matter
of policy but it is certainly part of the Formula, all other things
being equal. Anton Muscatelli and his colleagues have reflected
that as well.
Q881 Lord Lang of Monkton:
We know that mathematically it should be happening but it does
not seem to be happening in the way one expects. How do you explain
that?
Mr Jim Murphy: It is the way in which inflation
was treated up until 1992 in terms of the calculations. It was
also a reflection of the way in which population shifts were not
brought up to date and the fact that for a period it was eleven
eightieths as opposed to eight eightieths in terms of population
proportion, so it was the way in which some of the changes over
previous history did not keep account of the trends in Scotland
as part of the United Kingdom. It is population and taxation policy.
Q882 Lord Lang of Monkton:
Could I ask your colleagues if they see convergence happening
in their areas of responsibility and if they think it is a fair
and good thing?
Mr Paul Murphy: It was not the policy of Lord
Barnett but it will probably happen eventually as a by-product
of the changes in spending and of course there are changes in
population. Wales' population has risen since its introduction
by a considerable number. I think it may eventually get that way
but that was not the intention, nor is it now, as far as I can
see, the intention of successive governments that there should
be convergence but as a by-product of what has happened it may
well be there eventually.
Q883 Chairman:
It is convergence down, is it not, not a convergence up?
Mr Paul Murphy: Yes.
Q884 Chairman:
Certainly so far as Wales is concerned, convergence insofar as
it has taken place, Wales has lost money. That is right, is it
not?
Mr Paul Murphy: But nevertheless, of course,
on per head of population comparison with English regions. My
colleagues elsewhere would not necessarily agree with that. The
problem we have is that we will get people in Wales arguing the
case that the Formula is not good enough for them and then you
get people in England saying it is too good for them. It is quite
a difficult one. English members have been asking me questions
in the House of Commons for ten years on whether in fact they
have been hard done by because of the Barnett Formula and then
you go to Cardiff and they say we have been hard done by as well.
I suspect that something in the middle is really what it has turned
out to be.
Q885 Lord Forsyth of Drumlean:
I am having some difficulty understanding what you are saying
because, as Secretaries of State, you obviously fight for your
corner and you want to get the best for the area you represent
in Cabinet. The Secretary of State of Scotland has said that Scotland
has got a third of the landmass and it has all kinds of additional
demands upon it. The Secretary of State for Northern Ireland can
make the case. All of you have higher baselines, higher expenditure
per head than England. It is a mathematical certainty that the
Barnett Formula will result in your budgets being reduced and
eventually you will have the same expenditure per head as England.
I am a little bit puzzled as to why you are happy with the situation.
Under the previous pre-devolution arrangements which you will
recall, the Secretaries of State would indulge in what is now
called "Formula bypass", or ways of compensating for
the effect. Assuming that the Formula works and that the population
is correct, the effect of continuing with Barnett will be that
there will be a reduction in the money made available. I would
have thought that that could lead to unfairness. If Scotland had
the same expenditure per head as England that would clearly be
unfair and wrong and that is where Barnett is leading us. What
do you expect to be done to avoid this happening?
Mr Woodward: We are now 30 years on since Barnett
and we are a very long way away from convergence.
Q886 Lord Forsyth of Drumlean:
That is because, to put it very crudely, the system was adjusted
when we had one government governing the whole of the United Kingdom
and ministers of the same party who were able to do so. You do
not have that now. You have a situation where you have Devolved
Administrations run by different political parties in some cases
who are able to do their own thing and where the dialogue is limited.
That is what has changed and that is why I am concerned that you
do not seem to see that this is going to result in an unfairness
and a disadvantage in the long term to what used to be called
the territorials by the Treasury.
Mr Woodward: It could do but let me give you
a very good example about Northern Ireland. In Northern Ireland,
because of the troubles, we have a situation whereby up until
the beginning of this global recession we were in a situation
in which something in the order of 72 per cent of the economy
in Northern Ireland was in the public sector, 28 per cent in the
private sector. One of the reasons there are all kinds of problems
in Northern Ireland which therefore require all kinds of extra
help, for which indeed the baseline needs figure actually assists
with, is precisely because of that and as a legacy of the troubles.
The difficulties we are facing at the moment affect this and as
we come out of this recession the capacity for Northern Ireland
to generate a very vibrant private sector is absolutely enormous
and it will transform the needs of the economy in Northern Ireland
at I dare say a far quicker rate than what happened in Scotland
or Wales, for example, simply because they do not have only 28
per cent in the private sector. I put that on the table simply
because I think the problem with all of these formulas are the
danger is you think if we change this bit of the Formula we will
get it right. The problem is there may be another bit of the Formula
that is also going to change as well which is what really takes
me back to saying I do not have a problem, Lord Forsyth, with
you advocating whatever system you want, but as somebody who has
to actually look after the interests of people in Northern Ireland
do I believe at the moment that the system we currently have is
inherently unfair, does not work, does not deliver for people
across the public services? The answer is that I think that would
be a wrong conclusion to reach.
Q887 Lord Forsyth of Drumlean:
I was not advocating a system; I was just asking you how the changes
that have been made as a result of devolution, if you stick with
Barnett, would not result in Northern Ireland and the other territorials
being disadvantaged?
Mr Woodward: Because I think other factors would
actually change the economy in Northern Ireland more fundamentally
than the Barnett Formula.
Mr Paul Murphy: There are examples too. On a
couple of technical points, the spend per head is going up of
course but at a slightly lower rate in Wales, but everywhere has
had an increase in spend, it is just that the rate is lower; and
secondly, budget and spend have to grow a lot for convergence
to happen at all and so we are talking about very much in the
longer term for that. In terms of Formula bypass, these have occurred,
considerable ones in the Welsh context. When I was Secretary of
State for Wales before, negotiating the Objective 1 funding for
Wales, there was an enormous bypass there amounting to I think
£3 billion when it was matched by the Welsh Assembly Government
so it does happen.
Mr Jim Murphy: In respect of my Lord Forsyth's
point, it is a reasonable point to make which is this thing about
the party political dynamic. None of us operate in a situation
where our party has a monopoly of power and two out of three have
no formal elected politicians in power in terms of party politics.
That internal party dynamic, looking at it only in terms of Scotland,
and I can only speak from my own experience over the few months
I have been in this role, is that I try where possible to find
common cause with a party that again philosophically I entirely
disagree with, but there is a common effort to try and maximise
the continuing benefits of the United Kingdom in terms of the
support for Scotland. One example would be on this important project
of the Forth Road Crossing where again a cross-party divide and
with a lot of support from the Treasury there is a unique deal
being put in place to ensure retention of efficiency savings to
help fund that project. You may not call that a Formula bypass,
but certainly it is a fiscal innovation which involves the Treasury
essentially, myself and the Scottish Government under a separatist
party. I just wanted to put that in terms of the point you made,
Lord Forsyth, about the party political nature of it.
Q888 Lord Sewel:
I think we are agreed that the Formula as such, and the way it
treats the increment as a converging dynamic as a property, the
question is why has it not happened? The answer to that is you
have got a big base which is not based on population to begin
with so you are always dealing with an increment upon an increment
upon an increment, but the two factors that seem to have had the
effect of delaying convergence are bypassing, which has happened
less since devolution. I think that is the important thing. In
the past pre-devolution bypassing was used to an extent to fund
significant public sector wage settlements which were beyond the
capacity of the Formula to absorb. I do not think that has happened
since devolution and the fact that that has not happened and would
be difficult to happen will make the convergence accelerate. Secondly,
surely it is the importance of population, whether population
is increasing or declining. If we look at the three countries
there you have got two countries where the population is increasing
and one country where it is decreasing. I think the reason why
Scotland's convergence is much less than Northern Ireland and
Wales is because its population continues to decrease. If that
is a major factor I would have thought that it is worrying that
one of the only ways in which you can keep the Scottish share
up is for the Scottish population to continue to decrease.
Mr Jim Murphy: I do not think it is healthy
for the UK as a whole, or Scotland specifically, to have those
types of population shifts, a decline in population with the demographic
trend within that decline. Since 1979 the Scottish population
has reduced by 1 per cent where the English population has increased
by 8 per cent. There are a clear set of trends there. The Scottish
Executive (as was) and Scottish Government (as is now) have tried
various measures alongside the Home Office to try and address
that: the fresh talent initiative and others. Inside the Formula
one of the difficulties was that up until—this is not a
party political point but a statement of how the statistics and
the Formula was updated—1997, the changes in population
were not updated as regularly, but that is now happening more
regularly.
Q889 Lord Sewel:
That does not affect the base, does it? The population recalibration
affects the increment but it does not affect the base.
Mr Jim Murphy: That is right.
Mr Paul Murphy: We have just mentioned again
the Formula bypass issue which is important because the one that
I touched upon with Lord Forsyth, which is the Objective 1 European
funding for Wales in the 2000 spending review, was huge in its
implications. When we found out that the Formula did not meet
the situation that we qualified for 60 per cent of all the European
Union Objective 1 funding for the entire United Kingdom. The Formula
meant that we could only get 6 per cent of it. There were considerable
long negotiations on it but eventually it was agreed, rightly,
that Wales should benefit by a bypass to the Formula and it worked
to the tune of a huge amount of money.
Q890 Chairman:
I do not want to flog this but it really does seem to me that
to argue that the Barnett Formula gets credibility because of
the extent to which you avoid it by bypass does not seem to be
a great commendation for the Formula itself.
Mr Paul Murphy: That was not the purpose of
it. The purpose of my comment was nothing to do with that. My
comment was about the issue of Formula bypass and that it is possible
when you have an exceptional circumstance, which that was in fact,
there were no considerable circumstances which were comparable
to that in terms of the amount of money that actually came to
Wales as a consequence of Objective 1 European funding. It has
made an enormous difference to Wales but it would not have done
if we had stuck to the Formula. The point was that the Formula
is sufficiently flexible to take into account dramatic situations
and anyone in Wales will tell you that, Lord Chairman.
Q891 Lord Lawson of Blaby:
I ought to welcome the innate conservatism of our three witnesses.
As Lord Sewel was saying earlier, the disparate trend, particularly
in the Scottish population and the English population, has made
the Scottish baseline somewhat anomalously high. I think that
is acknowledged by the fact that more of you agree that there
is some logic in convergence. I would like to ask two questions
about convergence. First of all, there seems to be the view that
convergence is all right provided it continues at the positively
glacial pace which has occurred so far. My first question is do
you think that there is perhaps the case for the process of convergence
being slightly less glacial? Secondly, how far do you think convergence
should ideally go? I am not saying how long it should take. At
the end of the day where should we be?
Mr Jim Murphy: The point that the noble Lord
makes on the baseline is that the population shift has not in
and of itself affected Scotland's historic baseline. The baseline
reflects what was happening at a particular point in relative
recent history. What has happened is the increments or otherwise
over time—
Q892 Lord Lawson of Blaby:
If I may interrupt, that is not what happened, as has been pointed
out. You get the same cash increase per head, that is catered
for with the population changes. The point is that, as the Treasury
has pointed out to us, but I think we always knew this and you
certainly knew this, that there are very marked disparities between
the various countries of the United Kingdom in planned total identifiable
expenditure per head of population. That difference has been exacerbated
by the difference in the population trends. That is the point.
Mr Jim Murphy: The public expenditure statistical
analysis that the noble Lord is referring to is a mixture of reserved
and devolved spend. It is a measurement of actual spend, not allocated
spend, and it is more difficult to disaggregate the reserved fiscal
footprint in respect of what the noble Lord mentions. You have
the issues about social security dependency, the numbers of people
on incapacity benefit and all of those other related issues. Scotland
has, although there have been welcome reductions in the last couple
of years, a dramatic and unacceptably high level of incapacity
benefit dependency. On the point of the speed of glacial melt,
the Government has not set out a timeline or a policy of when
it would hope or expect to see convergence. As I said in answer
to an earlier question, it is a theoretical part of the Formula
that we have not set out a timeline as to when we would currently
expect it to happen, or indeed when we would like to see it happen.
It is not something that we have commented on publicly in terms
of a timeline.
Mr Paul Murphy: There was never any policy intention
for convergence to be a policy, full stop, and nor is there, as
far as I am aware, any intention to recalibrate it so that it
changes the rate at which it gets to that point. In terms of our
responsibilities—Lord Forsyth quite rightly pointed them
out—ours is to ensure that the Formula is the best for those
countries we represent around the Cabinet table.
Q893 Lord Lawson of Blaby:
I understand that but I would like you to look at it also as members
of the Cabinet of the United Kingdom, not just fighting your own
corners for your own people, which is thoroughly proper, but you
are also members of the United Kingdom Cabinet and you look at
things from a UK basis as well. From that basis do you think as
fair-minded ministers—I would like to think that such a
thing exists—that there is a case to be made for a degree
of convergence and, if so, do you think the present glacial pace
is good enough? How far do you think it should go? What should
be the terminus ad quem?
Mr Woodward: The question posed is in danger
of saying the convergence is an end in itself. Convergence is
an end which we desire because what it may reflect about the conditions
in which people live and the public services they enjoy, the wealth
that they are able to create in the communities that they are
in and this is a formula and a set of baselines on which the Formula
is applied which tries, and has tried—whether it has succeeded
or not is in other people's views, I happen to think it does work—but
whether it has worked is a very important question. What is the
point we are trying to achieve with convergence? The point you
make is that it is glacial. Another word for `glacial' might be
`evolutionary'. The real distinction here is to whether or not
we actually have a pathway to convergence regardless, or whether
it is a mathematical formula which reflects an aspiration to eliminate
disparities in the system. Again, I come back to saying that I
still have not seen anything on the table which at the moment
could deliver something which would be significantly better than
this. Perhaps this slightly pre-empts the question that Lord Lang
posed right at the beginning. It is important to remember, which
I am sure you have all done, what was there before 1979. Certainly
what was there before 1979 was tortuous, unfair, involved line
by line negotiation, was pretty opaque and did not much work.
It seems to me that, despite the three years' work that was done
on the baseline assessments between 1976 and 1979, the fact of
the matter is a system was produced and, yes, it has been glacial,
but I am not sure that it is any the worse because it has been
glacial. I am not sure that it has been any the worse because
it has been a mathematical formula rather than a pathway to convergence.
At the end of the day I come back to saying I find it quite difficult
to see that there is a better system that would replace this,
albeit that this perhaps is somewhat imperfect.
Q894 Lord Rooker:
We had a difficulty with the Treasury that they could not give
us a single disadvantage and you have not offered any except obviously
in the round. The reason we are sitting, I suppose, is because
of the pressures coming domestically from England and within the
regions, which of course is not our remit, but the differences
within those regions are part of the festering sore which then
the Barnett Formula is tagged on. However, if it is so good and
so satisfactory, and I am no expert on what I am about to say,
how come the millions, indeed billions, of pounds of Lottery money
are divided up between England, Scotland, Wales and Northern Ireland
on a completely different formula that takes account of social
deprivation, deals with environment, health, all the issues that
devolved governments deal with? How come a different formula is
used for that whereas you are saying there is nothing that anyone
else can invent and leave the Barnett Formula alone because long-term
the festering sore of discontent based on sometimes myths, I accept
that, is still going to be there?
Mr Woodward: Can I just respond to the thought
of it being so good and so satisfactory. To be fair, Lord Rooker,
I do not think that is what we are saying. What we are saying
is that it works. We are not saying it is the most sensational
system that could possibly be devised and please keep your hands
off it. That would be a caricature of what we are saying. What
we are referring to is the fact that it works. I do think one
of its strengths, for example, is that it is up to the Devolved
Administration in Northern Ireland to decide how it wants to spend
that money and, if it wants to, it can choose to allocate more
money to one area rather than another and that not be decided
here in Whitehall. I think that is a real merit of the system.
Whatever is proposed to take its place, if your Lordships are
so minded, I think it is very important that that is retained.
That dimension of it is so good and so satisfactory. However,
I do think if you want me to point to disparities here, part of
the problem comes when you actually look at disparities within
the Devolved Administrations themselves, and where you can begin
to see quite big problems is potentially in how the Formula effectively
applies itself in England. If you look at problems and indices
to reflect poverty and deprivation in Wales or parts of Northern
Ireland and you can readily find those in England, there are some
very interesting questions to be asked around that. If you want
to point to some of the problems I think you can begin to see
difficulties that need to be addressed in that much more readily
than we can between ourselves. I am sure we could make claims
for what extra we would like if we wanted to between ourselves,
but I do think in the area to which I have just pointed, particularly
within England where you have these extraordinary disparities,
I think there is some very interesting work to be done in that
area.
Mr Paul Murphy: As far as the Welsh situation
is concerned, where some of our English colleagues would consider
that Wales is treated unfairly as a consequence of the Barnett
Formula, the very fact that the Objective 1 funding was awarded
to Wales was on the basis of an indication of need in most of
Wales as well. The other point is, post devolution, the ability
of the devolved assemblies and governments to be able to decide
how to spend the money is also a complicating factor in the way
that, say, the Lottery would decide to draw up how you give money
to each of the countries. This block grant allows each of the
individual Devolved Administrations to spend the money as they
wish. At the end of the day they themselves work out how that
money is distributed in order for deprivation to be met.
Q895 Lord Trimble:
A point that has arisen from what Paul Murphy has said and what
Shaun Woodward said, there are two different concepts here that
we need to keep separate: one is a concept of a block grant. Nobody
is talking about going back to the pre-1970s position where there
was not a block grant. There is then the concept of the formula
that is used to determine the block grant and that is the Barnett
Formula. You could have a variety of different formulae that could
be used to produce the block grant. I do not think anybody is
calling the block grant concept into question but what they are
saying is could there be better formula for working out the block
grant? It is not necessary to go into an argument about the flexibility
that there is in the block grant—nobody is challenging that—but
it is a question of how you arrive at it.
Mr Woodward: Forgive me, but I think some people
are challenging that. I am not suggesting that you are. I think
the reason that some people are challenging it is precisely because
of the baseline need that became the block grant that was the
figure in 1979 to which a formula is applied, but for some people
some of these disparities exist. For some people the argument
is revisit the overall number to reflect baseline need and then
whatever formula you come up with it would be different.
Q896 Lord Trimble:
The question of the baseline is also a separate issue and we are
best to keep these issues separate.
Mr Woodward: You would of course make the biggest
difference, if you were so minded, to be addressing the baseline
figure rather than the actual formula.
Chairman: We are.
Q897 Lord Forsyth of Drumlean:
You keep talking about how there is no alternative.
Mr Woodward: I did not say there is no alternative.
Q898 Lord Forsyth of Drumlean:
You said there is no obvious alternative. In each of your departments
you allocate most of the block grant that you receive to local
government and to health on the basis of a formula based on need,
not on population. Is that not a contradiction?
Mr Woodward: I do not allocate them.
Q899 Lord Forsyth of Drumlean:
The Devolved Administrations who get the money under the Barnett
Formula then allocate that money to local government and to health
and they use formulas which are based on assessments of need.
Mr Woodward: With respect, there is a big disparity
in Northern Ireland.
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