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Barnett Formula

I am saying that this is a very difficult background against which to move towards the proposals made in the report from the noble Lord’s committee. I am not saying that the money could not be found. I am simply saying that it is more difficult to find it against the background of a need to cut the costs of Whitehall while protecting front-line services and trying to deal with the huge number of quangos that already exist. One of the greatest problems will be making any change to a funding formula—the cost of transition. We all assume that a needs-based assessment will produce a significantly different result from the application of the Barnett formula: a figure of £4.5 billion was referred to today. We cannot be sure of that until we have been through of a lot of prior work, but any transition would be hard and the report acknowledges that. The report suggests a transition period of between three and five years and no longer than seven years. It is very difficult to say how long a transition period would be without actually seeing what an agreed needs-based assessment produced. The judgment then has to be pragmatic. My noble friend Lord Lang has already indicated that 10 years may be nearer the mark. That may well be true. But I do not think that we can be clear about what sort of transitional period would be involved until we see the overall fiscal context in which any moves take place. I have referred to my own party’s concern to cut the cost of Whitehall and quangos, but that is only the tip of the iceberg. We have a deficit of 12.5 per cent forecast for this year and next, and debt is forecast to rise to nearly 80 per cent of GDP. This is the worst public expenditure background for any major changes to resource allocation that could possibly be imagined. We do not believe that the Government have yet set out a credible path to reduce the deficit. We share that view with the Governor of the Bank of England. It remains to be seen whether the Budget in two weeks’ time will be any more forthcoming on whether that credible path will be demonstrated. At the time of the PBR last December, the analysis of the Institute for Fiscal Studies showed that the hidden story of the Pre-Budget Report was that expenditure in departments that were not protected by some kind of spending promise would have to fall by up to 19 per cent. That was after allowing for some pretty heroic assumptions on efficiency and growth. A document published last month under the Freedom of Information Act shows that Treasury officials acknowledged the need for very significant cuts, but the Government have not yet even commissioned a comprehensive spending review and are hiding behind some excuse of uncertainty. Perhaps they will announce one in the Budget, but they have lost valuable planning time. There is one certainty—that there will be significant public expenditure cuts over the medium term, whichever party is in power. We do not need to get into the issue of when those cuts start for the purposes of this debate; it is a fact that those cuts will have to be made, and that will inevitably have an impact on the resources available for Scotland, Wales and Northern Ireland. My noble friend Lord Selkirk recognised the difficulties here.