Examination of Witnesses (Questions 980
- 999)
WEDNESDAY 17 JUNE 2009
Mr Liam Byrne, Mr Mark Parkinson and Ms Helen Radcliffe
Q980 Chairman:
As far as the increments are concerned?
Mr Byrne: Yes.
Q981 Chairman:
I think that is a fairly automatic thing. There are problems with
it, but it is a fairly automatic process, that bit of it, is it
not?
Mr Byrne: Indeed.
Q982 Chairman:
But it is the baseline point. Do you think the way in which the
baseline has been calculated and the way it has been used in the
last 30-odd years has produced a fair result?
Mr Byrne: The reason why I say "fair enough"
is because, as I have dug into this question over the last week
and a half, it strikes me that there would be at least three quite
significant issues involved in getting into a process of really
unpicking those baselines and building adjustments in a more radical
way to those baselines into any new kind of formula. I think those
problems, to me, feel like they fall under three headings. The
first is obviously complexity. If you really wanted to get stuck
into a ground up needs assessment then you have automatically
got some pretty significant problems in coming up with a formula
or different formulae which can operate across a whole range of
public services, right the way across the UK. As I was thinking
about it this morning, it just struck me that there is a fundamental
tension involved here, which you have no doubt already seen, which
is that on the one hand if you try to set out needs formulae which
were capable of operating right the way across the UK that would
be a standard thing, but the whole purpose of devolution is to
give different nations more flexibility in defining what needs
are important to them. So it struck me that you would immediately
run into a fundamental tension which is involved in devolution
and that formula would be complicated indeed. I began my short
ministerial career as a social care minister and I remember how
difficult some of these formulae are. They do involve different
assessments of relative need. They involve matters of judgment
about how much to weight the different kinds of need. They all
involve floors, ceilings, dampenings, transitional arrangements;
matters of judgment.
Q983 Chairman:
In the seventies the Treasury did it?
Mr Byrne: Indeed. My point was going to be that
it is a very complicated process. You run into a fundamental problem
involved in the principle of devolution.
Q984 Chairman:
Why does it have to be so complicated? Why does it have to take
that time? Why can we not have a much simpler assessment of relative
needs? I appreciate if you want to get into every issue, dot every
`i' and cross every `t' it will take a very long time, as indeed
it did, it seems, in the seventies, but you could do it much quicker
on an easier basis if you take out perhaps half a dozen or so
comparators and use those?
Mr Byrne: Well, it is just an observation really.
When you look at the way the Police Formula is distributed in
Britain, if you look at the way health spending is distributed,
the way local government spending is distributed, all no doubt
started on the principle of administrative simplicity but all—and
this is just an observation—have ended up in quite a complicated
place. Again, all do involve matters of judgment about what factors,
such as sparsity, you give different weight. My observation is
that all involve different floors, ceilings, dampenings. There
were just complexities involved in all of them. The second point
I was going to make, my second difficulty, I suppose, is the question
of consent because given the complexity which was involved in
coming up with those formulae, I wonder whether you could come
up with formulae—and it is an open question, I know—with
a UK-wide formula which was able to command the consent of political
parties and politicians in different parts of the UK. If, of course,
we could not, that immediately takes you into my third problem,
which is about the cost of change, because if you came up with
a new formula, that would inevitably involve, or one should at
least plan for an outcome where you had different distributions
of funding. You would then always almost certainly need transitional
arrangements, which in themselves would be complicated. When you
put all of that together, it just makes me think that the system
becomes less predictable and from a good public administration
point of view I think that three year budgets and the degree of
predictability which we now have are good for good public administration
because it gives frontline public service leaders, and indeed
politicians, the ability to plan ahead a little more rigorously.
If you had a situation of complexity which was contested, with
complicated change arrangements, my suspicion would be that whatever
the outcome was it would be more contested, it would be debated,
it would be slower and harder to set up and, Heaven forbid, you
may end up in a situation where you were not giving frontline
public organisations their final settlement, definitive final
word, all the `i's dotted and `t's crossed, until some way into
their financial year. As I say, it poses risks of predictability
which I do not think would be good for public administration.
It just struck me that those are the two sorts of things in the
balance, which is why I came to the conclusion that it is probably
fair enough.
Q985 Chairman:
Do you think it has got any disadvantages?
Mr Byrne: Certainly, I think it has got some
disadvantages.
Q986 Chairman:
What do you see as the disadvantages?
Mr Byrne: I see three principal disadvantages.
The first disadvantage is what I think is colloquially known as
the "Barnett squeeze", which is that because of the
higher baselines inherited, certainly in Scotland and elsewhere,
when you have got these standard increments of new public money
coming in, then proportionately those growth rates can appear
lower in different nations. In theory, arithmetically that can
produce a degree of convergence. When you look back over the last
20 years it does not appear to have produced much, but nonetheless
it is a criticism which I know is well-rehearsed. Second—and
this, I guess, is a criticism coming from a slightly different
direction—if you did step back and look at what baldly are
the different levels of public spending per region, why is it
that that nation has got more than another nation, principally
England? That, I think, is another criticism which is well-made.
The third criticism, which I think for me is the most important,
is how precisely are we matching the delivery of resource with
need? I think the current arrangements, as I say, do a reasonably
good job of that but they do not allow us, when we discuss this
level, at the level of the nation, to really answer the question
with massive precision. For me those are two of the features which
are well known. One is more, sort of, personal.
Q987 Chairman:
But they could all be corrected, those three disadvantages?
Mr Byrne: I hope you are going to tell me that.
Q988 Chairman:
It is a valid criticism, but it is a criticism which could actually
be dealt with?
Mr Byrne: I hope so. That is genuinely why I
look to the Committee's advice on this because, as I say, from
my look at this over the great span of nine days I can see an
argument which says, "This is fair enough. It does a pretty
good job. There is a minefield of issues involved in moving away
from it which produce new risks to good public administration,"
but if there is an alternative which is better, which is capable
of commanding political consent, which can be delivered with satisfactory
transitional arrangements which do not disturb too much the predictability
which good public servants need in their finances, then I am all
ears!
Chairman: You may be all eyes when we
produce the report!
Q989 Baroness Hollis of Heigham:
May I leapfrog, because this is actually a question I was going
to raise? This is actually a point which you were making about
the disadvantages associated with the risks of change, which in
a way overlaps with a later question. I just want to press you
on the outcomes. Your analogy of the local authorities and health
authorities was absolutely right, but of course they are very
small units and the smaller the geographical and population unit,
the more precise you have to be in tailoring because they are
very sensitive to the 500,000 here, the 500,000 there, and the
bigger the unit, the less sensitive you need to be, the simpler
the formula can be and the more there are conflicting pressures
which even out the outcome. For example, Scotland will have higher
morbidity rates amongst older people, Northern Ireland will have
a higher number of younger children. They have different needs,
but if you put them together against an English base they, so
to speak, cancel each other out. Would you not, therefore, agree
that a lot of your concerns and your analogies with local authorities,
health authorities, police authorities, and so on, would not necessarily
come into play provided (a) you could keep it simple, (b) the
change was incremental, (c) the transitional arrangements were
sufficiently adequate, and (d) it showed a relatively clear correlation
between, say, the rate of populations and some degree of other
needs against outcomes?
Mr Byrne: That already sounds a complicated
story to me. I am from Birmingham and we have a local authority
in Birmingham which has got a population of a million -
Q990 Baroness Hollis of Heigham:
It is the biggest in the country.
Mr Byrne: —total public spending is about
£7 billion in Birmingham if you pull all the different agencies
together, so I am not quite sure that I completely subscribe to
the argument that all things even out if you deal with population
units, like nations which are bigger. I think the list you have
already given is long and I guess I would still just come back
to one difficulty, which is that one of the principles of devolution
was to give greater flexibility to different nations to prioritise
need in different ways. For example—and this is a hypothetical
example—it could be that in one nation people want to give
much greater weight to the needs involved in sparsity, and that
will be a political judgment. How could you, as the UK, if you
like, say, "Well, that's all very interesting, but actually
we're just going to have a standard set of needs and a standard
weighting of needs and we are actually now going to override your
political autonomy to adjust the prioritisation of those different
needs in different ways"?
Q991 Baroness Hollis of Heigham:
No, because we do that in local authorities now. We make an allocation
of funds based on, say, the rate of population, but if Worthing
decides to spend their monies for the over 75s on residential
care and Bournemouth chooses to spend it on an ordinary alarm
system, that is their determination of the best way to meet local
need and how to assess it. So that happens now. You have a common
basis of assessing need, but local authorities then have the power
and the autonomy to determine how that resource, allocated by
a standardised formula of need, is actually spent in their patch
to meet local needs. I do not see any problem with that and I
do not see why that would not apply under any system that we are
proposing, perhaps, here.
Mr Byrne: If I may, let me just pursue this
example of population density, because it is perfectly possible
in this hypothetical world we are talking about for the Scottish
Government to say, "Okay, you've got a formula for need there.
We agree with a great deal of it, but actually we don't think
you have given it anything like the right weight for population
density," because, as you know, Scotland is the least densely
populated part of the UK. How would you resolve this debate and
this discussion about what weight to give to that particular need?
I do not want to flog this horse to death, but my point is that
there will be different dimensions to any need assessment. You
have got to make political judgments about what weight to give
each one and the principle of devolution allows different politicians
in different areas to assess needs differently and to weight needs
differently. To then create a UK-wide needs assessment just appears
to me to slightly reverse that and it is a conundrum which I do
not offer an answer to. It is just an observation which struck
me this morning.
Q992 Lord Sewel:
Can I put to you that a fundamental weakness of the Barnett approach
is to do with the baseline and the fact that population changes
within the four territories have moved differentially over time,
because most of the money that is in the baseline at the time
that it went into the baseline went in through the population
increment. The weakness is that over time, as the population shares
have changed, the baseline has not changed to reflect the change
in populations of the four countries, the four areas. So you get
a situation where you are in one country, because of that, funding
a population which is no longer there and in another country under-funding
a population which has increased, and that seems to me to be fundamental
weakness.
Mr Byrne: I think that is a fair point. Some
figures I looked at for Scotland this morning make that point
exactly, which is that if you look at the declining population
of Scotland then that does mean that public spending per capita
has gone up in part because of the declining population and that
increase, because of the gearing, will not have been offset by
slower rates of public spending growth as shared out by the Barnett
Formula. So I agree that is a weakness and I guess I come back
to this question about whether the weakness is so great that one
should embark upon a new approach with all the risks associated
with it, my sort of three `C's, if you like, about complexity,
consent and change. So when I look at it and I look at the outcomes
which we have today, especially the outcomes which have already
been published in PESA, and we will update the House again with
new numbers tomorrow, you obviously do get some differences, so
I agree that is one of the weaknesses. Again, I think you have
got to make a careful judgment about how seriousness the weakness
is, because if you look at some differences in some pretty basic
dimensions, between, for example, Scotland and England, you can
see that in terms of GDP per capita there has not actually been
a huge convergence in GDP per capita rates between England and
Scotland over the last twenty years. If you look at morbidity
rates, life expectancy is still, unfortunately, quite substantially
lower in Scotland than it is in England. Household income rates
are not converging rapidly either, so there do remain some differences
in public spending per capita between Scotland and England, but
there also appear to be some quite stark socioeconomic differences
as well. So the conclusion I draw from that comes back to the
first point I made really, which is that I think the formula as
it exists at the moment is fair enough at this stage.
Q993 Chairman:
"Fair enough" does not actually mean anything. In what
respect is it fair and in what respect is it not fair? You have
just answered a question about the different levels between England
and Scotland, and look at the different levels, for example, between
Northern Ireland, Wales and Scotland. Is that fair?
Mr Byrne: As I say, I think the Barnett Formula
in and of itself does a pretty good, a pretty fair and equitable
job of slicing up and distributing public sector spending growth.
Q994 Chairman:
How is it a pretty good job? I understand that it is functional,
of course it is. It is a quasi mathematical formula which is applied.
It does not require anybody to do a great deal. You have got the
figures and then you apply them, but how is that fair?
Mr Byrne: Because it is largely geared to the
population and it does ensure that there are uplifts in per capita
public spending growth across the UK.
Q995 Chairman:
But you have just agreed with Lord Sewel that it did not.
Mr Byrne: No, my point actually was about baselines,
which is that the thrust of this argument is that what the Barnett
Formula does not do, the failure which you allege, is that it
does not disturb the baselines inherited radically enough and
we are all worried—you are worried and I am a bit concerned—about
whether resources are matched tightly enough to need. The only
kind of observation I was offering really was that if you go back
to the inequalities which helped inform those baselines back in
1979-80—
Q996 Lord Sewel:
It is only a small proportion of the baseline that is accounted
for.
Mr Byrne: Yes, but the inequalities between
the countries are still pretty stark, so GDP per capita is 7 per
cent lower in Scotland than in England. If you look at mortality
rates, they are 18 per cent higher in Scotland than in England.
If you look at sparsity rates, Scotland has got the lowest population
densities. So there remain some pretty profound and stark differences
in inequalities. As I say, if you look at growth and wealth per
head, those GDP per capita rates have not converged over the last
20 years. I am sorry to labour this, but that is a long way of
saying that many of the inequalities between Scotland, England
and other parts of the UK which informed the baseline in 1979-80
are still with us and probably warrant different per capita rates
of public spending.
Q997 Lord Sewel:
In 1979-80 where were these inequalities in the baseline? Nobody
did an exercise pre the application of the population increment
to work out the funding between the different countries on the
basis of some inequality of need.
Mr Byrne: Let me put to you this: if you look
at the index of relative spending over time, if you look at 1977-78,
if you take England at 100 per cent, Scotland would be at 128
per cent, Northern Ireland 141 per cent and Wales at 100 per cent.
So in 1977-78 England would be 100, Northern Ireland 141, Wales
100 and Scotland 128. If you then looked at that same index of
relative spending in 2007-08, England again is 100, Northern Ireland
would be 130, Wales would be 113 and Scotland would be 122. Between
Scotland and England there has been a degree of convergence, between
Wales and England there has been a degree of divergence and between
Northern Ireland and England there has been a degree of convergence,
so I guess my argument is that there has not been a massive convergence
between Scotland and England over that period, but nor has there
been a wholesale closing of some of these gaps in equalities.
Those gaps remain, I am afraid, a bit stark.
Q998 Lord Forsyth of Drumlean:
I know you have just taken over your post, but I do not know if
you have had a chance yet to read the Calman Report, which
the Prime Minister welcomed with enthusiasm yesterday and which
I understand the Government is committed to the proposals?
Mr Byrne: I have read a summary.
Q999 Lord Forsyth of Drumlean:
I do not want to stray into the areas of tax raising powers, and
so on, because they are not for this committee, but the Calman
Report says, on p.111, where it is talking about the proportion
of the block grant that is not raised by income tax, it says:
"The block grant, as the means of financing most associated
with equity, should continue to make up the remainder of the Scottish
Parliament's budget, but it should be justified by need."
It is on p.111, recommendation 3.4. Now, I do not want to get
into the merits of the Calman Report but the question you
were asked was whether it was fair or not, and Calman is
resting on the point that it needs to be fair, and in order for
it to be seen to be fair it has to be justified by need. You are
justifying it by history and you are saying it is "fair enough",
and "fair enough" seems to me to sound like, "It
is administratively difficult for us to do this, therefore we
just don't bother." My question is, what did the Prime Minister
mean, and the Secretary of State for Scotland, when he welcomed
these proposals if the Government's position is not that the funding
should be continued on a block basis but on the basis of some
kind of justification by need?
Mr Byrne: If you look at the second sentence
in 3.4 it says, "until such time as a proper assessment of
relative spending across the UK is carried out the Barnett Formula
should continue to be used as the basis for calculating the proportion
of each block grant." What I do not want to rule out is the
possibility of a more perfect formula. My only observation is
that today, now, until your Committee reports, perhaps, there
is big complexity -
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