The Barnett Formula - Select Committee on the Barnett Formula Contents

Examination of Witnesses (Questions 900 - 919)


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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