Examination of Witnesses (Questions 900
- 919)
WEDNESDAY 1 APRIL 2009
Rt Hon Jim Murphy, Rt Hon Paul Murphy and Rt Hon
Shaun Woodward
Q900 Lord Forsyth of Drumlean:
In the old days before we had devolution—I may be wrong
about Northern Ireland—in Scotland and Wales the Secretary
of State would allocate the money. It is now done through the
parliaments or assemblies. The basis upon which that money is
allocated is according to a formula which is actually about need
and which is not based on a crude measure of population but based
on a baseline that goes back to the Seventies. Is there not a
contradiction there?
Mr Paul Murphy: Except, of course, that if we
were to talk to local government in Wales, for example, their
view, which I am not commenting one way or the other is right
or wrong, would be that the formula that they use is itself something
they could argue about. It is a difference of view about how in
fact the formula is based; in other words, there is just as much
an argument about the formula by which local authorities are funded
in respective countries as there is about the Barnett Formula
itself.
Q901 Chairman:
It is not 30 years old, is it?
Mr Paul Murphy: No, but there was a formula,
as you would know, Lord Chairman, which the territorials, when
they had executive responsibility, did use and which was then
inherited, so to speak, by the relevant governments in Wales,
Northern Ireland and Scotland.
Mr Jim Murphy: I cannot really comment upon
Lord Rooker's initial question as I do not know enough about the
Lottery to know whether the Government spending should mirror
the Lottery spending. Instinctively I do not think it sounds right.
One of the first bills I served on in arriving here was about
the allocation of Lottery funding. Lord Rooker asked about the
current weaknesses in the system. I think the overarching weakness
in Scotland—I make no comment about Northern Ireland or
Wales—is the lack of accountability in relation to the politicians
who spend the money and the lack of relationship between spending
the money and raising the money. The Scottish Parliament has the
variable rate of income tax but it has never been used, but this
is something that the Prime Minister has commented on and Ken
Calman and his commission are looking at.
Q902 Lord Lawson of Blaby:
That is a very important point but unfortunately I think it is
outside of our terms of reference.
Mr Jim Murphy: I was asked for an assessment
of the weakness at the moment in terms of the architecture of
spending powers in Scotland and I think for me that is the overarching
weakness.
Q903 Chairman:
From listening to the three of you, if you will forgive me for
saying so, the picture is of contentment with the Barnett Formula
despite the fact it is 30 years old, despite the fact that you
have got flexibility by which you mean that you can go outside
of the Formula if and when there is a major thing that you think
needs funding and you cannot fit it into the existing baseline.
With respect, it is a mess, is it not, however you look at it?
There is very little logic attached to it. It is 30 years out
of date.
Mr Paul Murphy: If it was that much of a mess
there have been seven elections since 1979 and successive Conservative
and Labour governments could have changed it if they came to the
conclusion that there may have been problems with it, but it is
a question of what you put in its place all the time.
Mr Jim Murphy: I am not the only Secretary of
State for Scotland in the room, current or former.
Mr Woodward: I am sure they made strong arguments
to reform the system at Cabinet.
Q904 Chairman:
The great thing about the Barnett system is that it is politically
easy. You do not have to go and haggle with the Devolved Administrations.
There is a formula and you say we impose the formula and that
is it. From your point of view I can see the advantages of it;
from the point of view of the Devolved Administrations I am not
so sure.
Mr Paul Murphy: I do not think it would be fair
to say that there are not substantial negotiations on finance
between the Treasury and the various Devolved Administrations
because there are. There are, for example, very regular bilateral
meetings between the Finance Ministers and the Treasury—the
Chief Secretary mainly—but there are also quadrilateral
meetings which are held two or three times a year of all Finance
Ministers and the Treasury. I have been to a couple of them and
I can assure the Committee that they are not walkovers; far from
it. They are proper discussions and negotiations about aspects
of the way in which the administrations are funded and the flexibility,
the points we touched on before, which are actually dealt with.
I guess, Lord Chairman, you would be aware of the various disagreements
that from time to time come up between the Devolved Administrations
and the Government as to whether the Formula has been applied
properly, which is a different thing again, and the disagreements
on that. There are genuine negotiations and genuine results.
Q905 Lord Moser:
I am genuinely trying to understand why what we are hearing from
you is so totally different from almost everything else that we
have heard in this Committee or read. Apart from the Treasury,
which was also rather satisfied with the status quo for understandable
reasons, everybody has criticised the Barnett Formula, including
myself for all the reasons that we have already touched on. My
puzzlement is more fundamental really. All our other witnesses
have stressed the need for finding some way of relating spending
to needs and that is something we are going to be struggling with.
The Barnett Formula is extremely crude and simple. It is just
a population formula; anybody can do that. We have been urged
by everybody else who has spoken to us to be more subtle and to
relate things more to what the different areas actually need.
Why is it then that you do not take that line? I do not understand
that.
Mr Paul Murphy: I think it depends on who you
talk to. I cannot say that my postbag has been full for the last
decade on whether the Barnett Formula works or does not work in
Wales; in fact, for most people I talk to in Wales it would not
be an issue for them. Obviously you have been very properly asking
people who are experts in their field about specific views on
these issues, probably some who think there should be a replacement
of the Formula. I must say that in all the years that I have spent
as a minister in Wales, and for that matter in Northern Ireland,
this has not been a constant matter of complaint. There are areas
undoubtedly where, as the years go by, you can see the process
improving but the basis of it has not formed a great debate. The
other thing is that the needs question is very important but that
a great deal of the public spending per head upon the people of
Wales, and for that matter Scotland and Northern Ireland as well,
comes from the United Kingdom Government departments which look
after benefits and pensions and so on and which take that need
into account. There are deprivation needs, of course, with health
and social services and other devolved areas, but there are other
devolved areas in the arts and other functions of the Devolved
Administrations which do not necessarily need to have a needs-based
formula in the same way—of course it does not—then
it is up to the individual Devolved Administration itself if it
wants to spend more money on a sports stadium in Cardiff and at
the same time they want to build two more hospitals, that is for
them to decide.
Q906 Lord Moser:
The Barnett Formula is not all that important to you from the
point of view of covering your national needs.
Mr Paul Murphy: As it happens it does cover
it very well and that is the whole point. Why is it that week
in, week out, I get complaints from English Members of Parliament
that we are getting too much money in Wales? There must be something
wrong somewhere.
Q907 Baroness Hollis of Heigham:
We have the three Secretaries of State from the non-English territories.
Were we to have a fourth Secretary of State here, a Secretary
of State for England, do you think there would be quite such a
common front? The point somebody made about the range of disparities
within the English regions of course is because it is a zero sum
gain. There is a hundred and if London has more for obvious reasons
and the South West or East Anglia, which in some ways are poor
like Scotland, get less because it is a zero sum gain around the
English hundred, but I think most people are looking at the distribution
between England and particularly Scotland—I think it is
more marginal for Wales and for Northern Ireland on the one hand
and on the other—which say that it is now the case that
Scotland disproportionately benefits from an anachronistic formula
which, as a result, produces head space for policies and nobody
at all is challenging the block grant that I have heard in the
weeks we have sat on this Committee that allows for development
of policies with no fiscal capping because it is not fiscally
accountable to the local electorate which result in real—I
was going to say distress—concern in England which believes
that this is the result of an unfair financial formula which is
disproportionately benefiting Scotland. I think the other two
jurisdictions are more balanced in that respect and that, as a
result, this needs to be addressed. If any of you, I suggest,
were in a spending department and allocating moneys of this size,
you would not dream of doing so based on a population formula
of 30 years ago and then compounding the interest on it. What
you would actually do is expect to have a needs base, which we
would hope would be broad, simple, transparent, accountable, but
fair. The words you have used are you "cannot think of anything
better", you think it works, it is easy to do and people
know where they stand, but not one of you has actually prayed
in aid the concept of fairness today, I think I am right in saying,
that it is fairer. You have said it is better but "better"
can be used as an administrative term, but none of you have said
that it is actually "fair". Surely as a result of that
you would agree that while it may suit you individually as Secretaries
of State—we all respect the fact that you have to fight
your corners—that does not necessarily mean that it is the
right, best and wise settlement for the UK.
Mr Jim Murphy: Lord Chairman, from your own
very first question when I was asked earlier did I think it was
fair and I gave quite a short answer and my answer was yes. I
was asked is it fair and my answer was pretty direct and the record
will show that.
Q908 Baroness Hollis of Heigham:
Why is it fair?
Mr Jim Murphy: As I alluded to in my answer
right at the beginning, it reflects in Scotland the specific challenges,
the specific geography of Scotland in relation to, as I mentioned
earlier, the size, a tenth of the population, about a third of
the landmass, the additional cost of providing public services
in that environment and that is the type of thing that the legacy
of the 1970s in terms allowed.
Q909 Baroness Hollis of Heigham:
The Formula was not based on that and the same factors apply in
the South West and East Anglia. I do not see why you should regard
that as a definition of fairness in terms of this Formula?
Mr Jim Murphy: It was based on a reflection
of spend at a moment in time which reflected the cost of public
services, a delivery in Scotland which would have reflected the
geography and population.
Lord Sewel: The Formula deliberately
does not do that. The Formula is population driven.
Q910 Lord Rooker:
The baseline was a snapshot in time at that time reflecting the
haggling that went on to pay for the inlets, the waterways, the
roads, the bridges.
Mr Jim Murphy: The baseline was based on those
circumstances at that moment in time. What has happened since
of course has fluctuated around populations.
Q911 Lord Rowe-Beddoe:
Moving on to another side of this, if—and we all agree it
is clearly a very big "if"—having stated your
position so clearly for the last 40 minutes you were to consider
that the Formula should be replaced—if you could think that
for a moment—do you think that it should be by a system
that perhaps is more reflective of relative needs, the cost of
services, or a combination of both?
Mr Paul Murphy: Speaking for Wales, and not
for Scotland or Northern Ireland, the system that we have does
reflect, generally speaking, the needs of the Welsh people and
that the addition of the Objective 1 funding, the combination
of those things has addressed a huge difficulty in bringing Wales
into the 21st century in terms of training, in terms of entrepreneurship,
everything you know about in terms of what has happened in Wales
more than perhaps anybody. I think the combination of the Barnett
Formula and the Objective 1, the huge funding that we had, has
actually met that need. It is something which has served us well
to meet it and also that the policies of government in London
also meet the other need with regard to the old age pensions and
the other benefits that people get and which of course reflect
more accurately people's needs.
Q912 Earl of Mar and Kellie:
I would like to ask a question about the actual working of the
Formula, and particularly that part of the Formula which is where
it is decided whether spending is English or United Kingdom. I
ask that question in the context that, after ten years of administrative,
executive and legislative devolution we have clearly got in all
three devolved areas an increasing policy divergence. We have
taken evidence on the fact that it seems that the Treasury makes
these decisions about whether it is English spending or not and
hence whether there are Barnett consequentials, or whether it
is a United Kingdom spend. Do you think that continues to be a
reasonable way of doing it when the actual governmental programmes
are getting substantially diverged?
Mr Woodward: It does not seem to me that it
is a weakness that, after ten years, we have policy divergence.
It seems to me to be a fundamental recognition of the strength
of devolution which is that different devolved administrations
could develop different policies at different speeds, but they
decide what they allocate. An example that springs to mind that
I remember when I was a junior minister five years ago first in
Northern Ireland was when Martin McGuinness contacted me on behalf
of a constituent who wanted to be prescribed Herceptin, which
is the drug, as you may know, used to deal with breast cancer
and it was not available. I think it mattered that I had the flexibility,
although it was then a direct rule matter, to be able to do that.
That did not apply in England. Whether it should or should not
have applied in England is another issue, but I think it was a
strength certainly in Northern Ireland that I was able to do that,
so I do not see that it is a weakness that we have policy divergence.
I also do not think that one, to be frank, wants the whole Barnett
too accountable for policy divergence. It is an inherent principle
in devolution itself. In relation to Barnett, it would be unfortunate
if people were too quick to caricature what we are saying about
it. We are not saying that it is the best; we are just saying
that we have not seen anything that would work any better. If
you can produce something that works better and is fairer, then
who on earth in their right mind would possibly disagree with
you? By the same token, I think it is unfortunate if our position
is simply caricatured as there is one group of people who have
been to see you who think it is the worst possible thing on the
planet and we have sat here and apparently said it is the best
possible thing on the planet. What we are saying is we believe
in our experience it works and the fact that there are other secretaries
of state sitting in this room who have been in the positions that
we have been in and did not seek to fundamentally change it and
make a great deal of noise about it perhaps suggests that again
in the priority of things it also was not something that desperately
needed to be changed. I say that because what I am mindful of
here is it seems to me that what Barnett essentially does strictly
is to ensure that the increase in public spending per head is
the same across the UK. That is what Barnett does. Lord Trimble
shakes his head but there is quite reliable material I have got
in support of that analysis.
Q913 Chairman:
What material would that be?
Mr Woodward: House of Commons Library analysis,
for example, of Barnett Formula issues.
Q914 Chairman:
It is not internal documentation.
Mr Woodward: I do not have your internal documentation.
Q915 Chairman:
No, yours.
Mr Woodward: No, this is publicly available
House of Commons page 23.
Q916 Lord Lang of Monkton:
You refer to the fact that there are other Secretaries of State
in the room. Yes, there are, but we were Secretaries of State
before devolution and we had other powers and abilities to involve
ourselves in expenditure for Scotland by what is now called "bypass"
and other such phrases. It was not just one big Objective 1 for
Wales; it was a whole range over the things and amounted to many
millions of pounds.
Mr Woodward: We, Lord Lang, in Northern Ireland,
as you will also appreciate, had the experience of the yo-yo of
being devolved, direct rule, devolved. There is some overall experience
here. What I am saying is that it has managed to survive that
too. I just keep coming back to the fact that I do think it is
easy to tear this to pieces, bizarrely for a House of Lords to
tear it to pieces because it has been there for 30 years.
Q917 Lord Lang of Monkton:
We are not trying to do that. We are trying to establish some
facts, information and attitudes. Presumably you are not reflecting
the devolved assemblies' views on some of these matters. They
must be rather unhappy about some elements of the Barnett Formula
and the way it operates. Supposing they developed policies which
diverge markedly from those of the United Kingdom Parliament,
will the Formula work then to sustain those devolved policies?
Mr Paul Murphy: That is exactly why this Formula
from that point of view is infinitely better than any that has
already been suggested because what it does do is give the flexibility
to the Devolved Administration to be able to spend their money
in the way they want to spend it. If you ring-fence by implication,
not by design, a needs formula which says you have to spend that
much on health, that much on education, and this, that and the
other, but if the Formula was publicly seen to be based upon a
needs element which took into account how much you should spend
on education and health, for example, then the chances are that
all the pressure groups and the unions and people involved in
health and education will say you should be spending exactly the
same as they are spending in England on these things; in fact,
it has happened. The way this now works is that the Devolved Administrations
can decide for themselves if they have a policy divergence. Take
free prescriptions, for example, in the health service in Wales.
They are free for everybody. It is their choice at the end of
the day.
Q918 Lord Lang of Monkton:
Supposing the United Kingdom Government abandons a whole tranche
of public expenditure and changes policy radically in an area
where you do not want to change it in Wales, how are you going
to fund it?
Mr Paul Murphy: I do not think we would find
there would be such a huge change in policy. I cannot envisage
a situation, for example, where the health service in England
would be so dramatically changed that it would have a huge effect
upon the Welsh health service; in other words, for the sake of
argument you slash the health service budget by a third or a half
in England and the consequential Barnett Formula for Wales goes
by a half. I do not think that would happen, but you have to accept
at the end of the day I suppose that the whole amount of the money
that is allocated to the three countries comes from a British
Government which has been elected on a mandate by the whole of
Britain and our taxation is obviously the basis of a mandate in
an election for everybody. In that case there has to obviously
be an element of how that overall money is spent because of the
general election result. It is a British Government that does
it. I do not think they would be that dramatic. So far experience
tells us that certainly in Welsh terms that they are very happy
to be able to spend the money in the way they want to but without,
for example, destroying the health service. There is no suggestion
that that would happen. They still believe in it but would spend
it in another way.
Q919 Chairman:
Nobody is suggesting taking away the right of the Devolved Assemblies
to spread the money.
Mr Paul Murphy: What I am suggesting is that
this Formula is a better way of giving them that opportunity.
Chairman: What we are trying to put to
you is that the way in which it gets the block to the Devolved
Administrations that there is something wrong with that because
it is 30 years old and it is only based on population. I am sorry
to keep interrupting; I have been trying to restrain myself.
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