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Barnett Formula

My Lords, given the relatively short time available, I hope that the House will indulge me if I focus my remarks primarily on the situation of Scotland in the scheme of things in this debate, not least since it was with the then Secretary of State for Scotland, Bruce Millan, that the noble Lord, Lord Barnett, signed his original deal which gained the soubriquet, the Barnett formula. I am delighted that the noble Lord, Lord Barnett, is with us today participating in our proceedings. He is clearly in very robust health. I wish that we could say the same for his formula, but sadly not. My other reason for wishing to focus on Scotland is that towards the end of my tenure there, I was approached by my special adviser with the news that I was the longest-serving, continuous-serving Minister in the entire history of the Scottish Office. Moving on to another department, I was able to preen myself that at least there was something to show for my nearly 10 years in the job, when my honourable friend Lord James Douglas-Hamilton immediately overtook me, whereupon he celebrated that achievement by moving to this House and changing his name from Douglas-Hamilton to Lord Selkirk of Douglas. It was in the nature of territorial departments of government that the Secretaries of State for such departments would—indeed, must—fight for cash to deal with the territory’s problems. His duty of loyalty was clear and absolute. It was the way to deal with issues of relative need. Indeed, it was the only way. The fruits of victory of such Ministers and their special pleadings became baked into the respective baselines. They can still be seen like sedimentary layers in the geology of their spending blocks. The Barnett formula did not change the size of those blocks in the devolved territories, which is one of the reasons why it was never a long-term solution. But it simply tweaked the annual increases. In the economic conditions of the late 1970s and the early 1980s, there was perhaps a rough justice in the funding levels that then obtained. But neither the block nor the Barnett formula specifically recognised relative need and that, as many others have pointed out in this debate, is still the case and the core of the problem. In addition, since the late 1970s, a number of things have happened. For example, the relative sizes of populations have varied without always being adjusted into the funding arrangements. For a time, Scotland’s relative economic position in the United Kingdom improved. It has not persisted in the past decade, but in the late 1980s and 1990s it rose quite sharply. But a significant change in the situation was brought about by devolution. As my noble friend Lord Forsyth has already argued, devolution changed everything. Among its follies was the loss of the role of the Secretary of State for Scotland. All the benefits that such a role had brought Scotland cumulatively over the previous 100 years were simply discarded. Scotland’s voice at the centre became more muffled. The Secretary of State no longer has a department to speak of. He has no budget of any size and, therefore, no influence. His role is largely confined now to telling Mr Salmond what he can and cannot do, and to filling a seat at the table to pad out the Cabinet. Any idea that the Scottish Secretary can still influence Cabinet colleagues—Crossrail notwithstanding—to grant more money to Mr Salmond to do with it what the Secretary of State’s own party in Scotland is probably opposing, defies credibility. As this and other shortcomings of devolution have emerged, the call for further change and more powers has grown. Some of us used to talk about a slippery slope and were castigated for doing so. But the fact is that the constant call for more powers was built into the DNA of devolution from its very beginnings. That is why there is now so much dissatisfaction with Barnett north and south of the border. As usual, the unhappiness centres around money. Of course, the system lacks accountability and the Government should explain why they ever thought that devolution without accountability of some kind was sensible. That devolution settlement is becoming increasingly unsettled, with three separate strands of possible turmoil. First, there is the question of independence. Perhaps I may digress for a moment. Of the funding of public expenditure in an independent Scotland, I would simply say that to base a country’s future public expenditure plans on revenues from oil—a wasting asset of indeterminate life expectancy, of increasing production costs, of uncertain national ownership and of wildly fluctuating price, and traded in volatile currencies—is irresponsible in the extreme. In the past seven years, the oil price has ranged between $25 and $145 a barrel. Then there is the Calman commission, which proposes that half the income tax revenue raised in Scotland should be kept and spent in Scotland, preferring to rely on a large proportion of the not-very-large, not-very-strong tax base of Scotland, rather than the much larger and, I venture to suggest, more resilient base of the United Kingdom as a whole. That might certainly bring home quite forcefully the meaning of accountability because, after a decade of relative decline in Scotland’s economy, its tax base is diminishing and a Manchester University study points out that more than 770,000 Scots—one in three Scottish workers—have jobs paid for by public expenditure. As for those who seek fiscal autonomy in Scotland, I simply wonder if they know what they asking for. Full fiscal autonomy would be independence in all but name. My reason for digressing briefly into these areas is to point out that none of these proposals can be sensibly debated and carried forward if the starting point, Barnett, remains unstable and unresolved. Devolution has changed the game with the gradual disaggregation of the United Kingdom, a slow motion landslide now under way. Every action creates a reaction and the English have woken up. They see the unfairness to them of the present arrangements, which our report confirms. They see the Scottish Parliament with its tax-raising powers. They hear its demands for more powers and they now want to have their say. That, in essence, is why the special committee on Barnett was set up. I believe that our unanimously agreed report has achieved a breakthrough. The key to that is our illustration of the way that the relative-needs assessment issue can be solved. Our proposal is illustrative, but not necessarily the ultimate solution. But it is one of the reasons why I support the report’s conclusions. We have come up with a way of changing a formula that enshrines unfairness and replacing it with one that will enshrine fairness not just for now but for the longer term. The Government’s response to this crucial feature in the report is, to say the least, disappointing. It says that the Barnett formula has, ""the merit of allowing the devolved administrations to determine their own assessment of needs and priorities"." But that is not the point. The issue was one of relative need between the different Administrations, not within them. We need an outbreak of realism in dealing with this issue. Yes, it may reduce Treasury funds coming to Scotland. If so, that should be done only gradually and I am the first to agree that now is not the ideal time to start that process—the middle of an economic crisis that the Government have not yet begun to solve. However, looked at objectively, I believe that it is impossible to argue against correcting a long-running injustice when a solution is available. But it is vital that that solution is brought in with a long transition. Personally, I would like to see that closer to 10 years, than to five years. Essentially, it is a moral question, rather than an economic one. If an independent and objective review process of the kind our report recommends finds that Scotland’s share is fair, that is well and good. If not, Scotland, which has had and has deserved favourable treatment in the past, will still be able to receive it again in the future, if and when its case is justified. Can we morally justify a situation where a Scottish Parliament, which has the right to vary income tax in Scotland, continues to receive more than is justified by an impartial, independent appraisal, knowing that other citizens of the United Kingdom are thereby being disadvantaged? I think not. It is not fair to Wales or, to a lesser extent, to England. It probably is not fair to Northern Ireland. It is not even fair to Scotland, because all the high-flown plans for new departures there are being founded on a false prospectus, if the existing arrangements are unfair and unsustainable. If we can exchange the present atmosphere of mutual suspicion and resentment for a sense of fairness, self-esteem and mutual respect, we might even engender also a shred of national unity.