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Barnett Formula

My Lords, as I approached giving evidence to the Select Committee and as I approached this debate, I was tempted to say, "Here we are yet again", for many of us have been critics of the Barnett formula over many years, not least in this House. More recently, we have had the Calman commission, to which my noble friend Lord Forsyth referred, with its recognition of the importance of a needs assessment. Now we have this excellent report. The Government’s response has never been argued; it has always been, "Please just shut up and go away". I congratulate the committee on an admirable report and, in particular, I congratulate its chairman, the noble Lord, Lord Richard, on his masterly introduction to this debate. I well remember 1978 and the period when the noble Lord, Lord Barnett, was formulating what at that time was not recognised as the Barnett formula. He was under enormous pressure on the public expenditure front. We were giving him a terrible time in the Finance Bill Standing Committee in the House of Commons. It was only when I subsequently became Chief Secretary that I realised why he found the Barnett formula to be an easy way out of one particular problem in the public expenditure round. It meant that for three departments he did not have, yet again, to make tortuous arguments through the night in negotiations to reach a public expenditure settlement. Certainly, when I became Chief Secretary I was anxious to do something about the Barnett formula. In fact, we set up a small committee of officials to look at some quite limited aspects of change that we might have got through by the time of the 1987 election. I would have liked to set up a needs assessment but the problem was that time was running out in that Parliament. I shall come back to that point towards the end of my speech. We have subsequently seen changes. In the 1990s, we saw some modest adjustments to the population formula but nothing fundamental because, of course, it is the baseline that should be challenged. The flaws are recognised but, as others have said, putting them right has been too difficult politically at various times, as it is now administratively. I was interested to see that the then Chief Secretary, Liam Byrne, who gave evidence to the committee, placed some emphasis on all the administrative difficulties, but he himself recognised that there were major disadvantages to the Barnett formula. In fact, at one point he said that there were three, and he listed them. They are the sort of arguments that we have been deploying today. He was then asked by the chairman, the noble Lord, Lord Richard: ""But they could all be corrected, those three disadvantages?"," and he replied: ""I hope you are going to tell me that"." That is precisely what the committee has done. It has told him exactly how the flaws that he himself recognised—I am not sure that he was adhering to a Treasury briefing—could be put right. I do not want to go over all the arguments that have already been rehearsed but I want to stress that, for me, it is all about fairness and the obvious inequity in having the key baselines—I keep coming back to them—established on assessments that were made well over 30 years ago and were not based on need. Indeed, my noble friend Lord Lang, in his excellent and charming autobiography, recognised this point about fairness. He said: ""When under attack once again from the Treasury in 1994"—" so the issue was clearly arising slightly again— ""if they had asked me to agree to an impartial reassessment of Scotland’s relative needs, I would have felt obliged to agree to it and to abide by its outcome"." I do not know why the Treasury did not press him along those lines at that time. My noble friend recognised that the formula, ""makes no attempt to define need"." The point concerning fairness was also acknowledged by Liam Byrne as Chief Secretary. It is important to stress that it is a question of fairness not just between the territories but also between the regions. The Treasury calculation of identifiable public expenditure per head in 2006-07 showed, with the UK being 100, Scotland at 117—or 122 if expenditure on social security payments was taken out—England at 97 and East Anglia, where I come from, at 83. Therefore, there are inequities within the regions as well. We were told that it was all too difficult. The noble Baroness, Lady Hollis of Heigham, got that absolutely right in the evidence session with the committee when she pointed out that the rate support grant was calculated on the assessment of need. If that can be done, it can certainly be done elsewhere. There is a new factor, which is well recognised in the Select Committee’s report. In the summary, the report refers to, ""increasing scepticism about the fairness of the Barnett Formula which may be exacerbated by any deterioration in the public finances"." That is the point that I, too, want to stress. As my noble friend Lord Lawson said, we are now in that situation and will be for a long time to come. I do not know whether other members of the committee received in their post this morning a briefing for this debate from London Councils. Incidentally, on that assessment of identifiable public expenditure per head based on a figure of 100, London does rather well. In answer to the question, ""Can Barnett survive the challenging financial environment?"," London Councils says: ""The extremely challenging financial environment for public services further highlights the inequities and unfairness inherent in the Barnett Formula, making its continued application unsustainable ""and a potential source of tension. This is inevitable in such a tight financial environment with diminished real-term resources for both central and local government"." It is very interesting that London Councils, of all people, latched on to this and recognised that we were debating the formula today. If London Councils is doing it, you can just imagine the turmoil there will be as we move into the much tougher public expenditure environment if the formula is not tackled now. The recommendations of the Select Committee will be increasingly relevant as we move into this period of stringent scrutiny of all public expenditure and the fair distribution of it. As I said earlier, I recognise that the fag end of this Parliament is not the time to set up the commission that the Select Committee recommends—that was the problem I faced in 1987. The start of the new Parliament would be the ideal time to set up the commission and let it do its work. However, as speakers before me have pointed out, there is no recognition of this, not even a nod in the right direction, in the Government’s response. The Government start off by saying: ""We welcome the Committee’s report"." They do not mean it, and the whole response was a total farce. I hope we get better answers from the Minister today. It is no disrespect to him, and I very much concur with what the noble Lord, Lord Richard, said about him. I admire the way he moves so skilfully and seamlessly from one subject to another, but I have no doubt that in his brief there will be effectively a straight, "Clear off, go away, tell them to shut up". I hope we in this House will not. We now have an authoritative, all-party report, and I am most grateful to the committee for the comprehensive work it has done and the recommendations it has made. The work clearly and conclusively demonstrates that the Barnett formula is no longer relevant, and the committee has given us the way out.