Barnett Formula

Lord Barnett Excerpts

Wednesday 15th June 2011 Lords Chamber

Asked by

[Lord Barnett]

To ask Her Majesty’s Government what plans they have to change the Barnett formula to a basis of need.

[Lord Barnett]

My Lords, I thank the Minister very much indeed for what he has just said. Perhaps I should wait a few minutes.

[Baroness Anelay of St Johns]

My Lords, I know that we have just had an interesting afternoon but we still have great interest in the Question for Short Debate asked by the noble Lord, Lord Barnett. There are 15 speakers—a long list. I invite him to start his speech now.

[Lord Barnett]

My Lords, I am grateful to the noble Baroness. I have spoken on this subject fairly often and I have been pressing this matter for a long time. In many ways, I can do no better than to quote the Select Committee of your Lordships’ House in support of everything that I might say this evening. I am delighted to welcome to the debate four distinguished members of that committee: my noble friend Lady Hollis, the noble Lord, Lord Forsyth of Drumlean, and others who I see around. We also have a maiden speaker, who I am delighted to welcome in advance. He comes fresh from the Scottish election and he might be able to tell us rather more about opinion in Scotland, although I have a fair idea myself what the Scottish people are now thinking on this subject.

I have been pressing for a very long time for the formula in my name to be changed to one of need. I told the previous Government that if they had become so fond of my name, I did not mind if they kept it provided that it was based on need rather than on population, as it is now—unfairly, as it has turned out. The first question, of course, is: what is it? Most Members who will be speaking in this debate will know very well what it is. However, the question then is: what needs to be done?

I said that we have some very distinguished members of that Select Committee with us this evening. More than that, it was a very distinguished committee. I had difficulty initially in getting the House to agree to an ad hoc Select Committee but we got one and we got my noble friend Lord Richard, the former Leader of the House, to chair it. As I said, it had a distinguished membership including the former Chancellor of the Exchequer, the noble Lord, Lord Lawson. He was a distinguished member of that committee, as were my noble friend and the noble Lord, Lord Forsyth. Many others, including the noble Earl who is a Lib Dem and those from all parties and all regions of the country, were members of that committee and I am happy to say that they came up with a unanimous report. This report needs careful reading because it tells anybody who is the slightest bit interested, first, what the problems are and, secondly, what needs to be done.

The terms of reference were clear. I am not going to bother with quoting too often from the Select Committee's report, because it would take too long and I want to leave as much time as possible to the noble Lords and the noble Baroness who are going to speak in this debate. Even though it has been extended and is now going to be an hour and a half, I am a bit disappointed—I thought it might go on until 10 o'clock. However, I am sure that it will give time to noble Lords to make their feelings felt on the issue, which is: what should be done now? There was a Calman commission, as many will know, on Scottish matters but that had different terms of reference. It was looking primarily at devolution and even though it obviously had to refer to the Barnett formula, it did so almost en passant and did not really dwell on the main issue, as our House of Lords Select Committee did.

I come to the main question: what is the Barnett formula? In case people do not know, I shall quote, which I do not do very often, from paragraph 11 on page 13 of the report. The formula is,

“the mechanism used by the United Kingdom Government to allocate just over half of total public expenditure”,

to the regions. Certain parts of public expenditure are excluded, such as defence, foreign affairs and social security, which are already allocated according to need to a large extent, and do not need to come under the Barnett formula. When the Select Committee looked at the formula in 2007-08, total managed UK government spending was more than £582 million—rather a lot of money to be left entirely to changes in population, which is what happens now. It effectively results in approximately 80 per cent of expenditure in the UK going to England, 10 per cent to Scotland, 5 per cent to Wales and 5 per cent to Northern Ireland. This has varied slightly over the years because of changes in population and Governments amending the formula slightly.

The plain fact is that the formula was still based on population rather than need. That resulted in gross unfairness, as the Select Committee indicated. It noted clearly that the public expenditure allocated to Scotland has resulted in its obtaining substantially more than it would have on the basis of need. The current leader, Alex Salmond—a very shrewd political operator if I may say so—has used those extra funds to huge political advantage by helping the people of Scotland with, for example, university fees and prescription charges. I am sure that this is very welcome but the people of England do not get that. The people of Scotland have benefited substantially. I am told by many people who tell me what regularly appears in the Scottish papers that my name is reasonably well known there. Indeed, Tam Dalyell, the former Member for West Lothian, drops me notes from time to time to tell me exactly what is being said and how often.

What changes should we make? The noble Lords on the committee came up with a very clear answer: there should be an independent commission. Its name is not terribly important, but the committee thought of the UK funding commission. It would look at how the basis of need should be dealt with, and make clear and firm recommendations thereafter. Because there would be substantial changes to Scottish public expenditure, there should be a transitional period so that any changes would be spread over a number of years.

I know that there are political concerns. Any Government making these changes may lose out in elections. I can say only this about the formula that bears my name: when I published a book called Inside the Treasury, which covered my five years as Chief Secretary to the Treasury, the phrase “Barnett formula” never appeared. It appeared only later because the Thatcher and Major Governments not only created the formula but kept it going for 18 years. That is when it became well known. Those Governments did not want to upset the electors of Scotland or Wales. So what happened? In the 1997 election they lost every seat in Scotland and Wales. Please do not worry about upsetting people in doing the right thing and making the right kind of changes that need to be made.

When the Select Committee report was being worked on, the Chief Secretary to the then Government was Liam Byrne. I regret to say that, as his excuse for inaction on the Barnett formula and the need for change, he said that it was too complex. However, the Select Committee has shown that that complexity is just not a fact. It could have this commission that would look into the question of need, and that would be that. Therefore, I have a simple solution for what needs to be done now. My dear friend, the noble Lord, Lord Sassoon, the current Commercial Secretary in your Lordships’ House, who deals with Treasury matters, answered a Written Question of mine about what the Government plan to do. He said that,

“the Government recognise the concerns expressed on the system of devolved funding. However at this present time the priority must be to reduce the budget deficit and therefore any decisions to change”,—[Official Report, 2/11/10; col. WA 380.]

must wait.

I am sorry for going over my allotted time, but I shall just finish; what I intend to say is very simple. I was delighted to quote the noble Lord, Lord Sassoon, who has pleasure in quoting me from time to time, in support of what I now propose. He said that it should not be done because the priority is now the deficit. However, I suggest that it should be done in 2015. The Treasury cannot believe that all its policies will not have come true by that year. I shall formally move in due course on the Scotland Bill. I hope to hear that the Government’s current approach is one that will accept my proposal and hugely endorse everything that the Select Committee said.