Previous Section Back to Table of Contents Lords Hansard Home Page

Lord Barnett: First, I wish to make two apologies. I apologise for interfering in Welsh affairs. I hope that Members of the Committee will not mind if I do so and that after our discussions on the previous business it is not out of order to do so. The previous business is one of the reasons for my second apology. I had thought that we would start our debates at three o'clock and I have an appointment at a quarter-past five which I cannot cancel. I shall be brief.

I wish to refer to Amendment No. 207A in the name of the noble Lord, Lord Elis-Thomas, which refers to the Barnett formula. When I invented it, if that is the correct word, I did not expect it to become a formula. My noble friend Lord Callaghan referred to the formula at some length in his Second Reading speech. He said that he found a "slight odour of sanctity". I did not expect any odour of any kind in relation to the Barnett formula.

On Second Reading, my noble friend said that the formula is really quite simple. It is in one sense, but in another it is complex, as my noble friend made clear. He said, if I am allowed to quote--I have lost track of what one can do and what one cannot do. All I know is that I am not speaking with my hands in my pockets, or in any

9 Jun 1998 : Column 904

pocket, although I gather that now one can speak with both hands in one pocket! I am not sure how one does that. To continue, my noble friend said:

    "It was adding something which was fairly rational on to something which was completely irrational".--[Official Report, 21/4/98; col. 1055.]

He is right, because the Barnett formula, while it is simple, as the noble Lord said--although he said that any increases would be in the ratio of 85:10:5--applies also to any decreases. However, I am not expecting the present Chief Secretary to propose any decreases in public expenditure. My noble friend Lord Callaghan concluded his remarks by saying that the formula will have to be re-examined. Of course, he is quite right.

First, we need to know what the formula is. It is more than just 85:10:5. It is more than being based only on population. Again, as my noble friend rightly said, it is based on the needs of the population. And rightly so; it should be based on the needs of the population.

I am astonished that what is now called a "formula" has lasted for 20 years under the former Prime Ministers, Margaret Thatcher and John Major. In another sense, I am not astonished because my experience is that governments do not like to change anything if they can help it. They would rather do very little--

Lord Simon of Glaisdale: Quite right!

Lord Barnett: Who said that? However, the formula has lasted all this time, so if the current levels of expenditure are to provide for current needs, clearly something needs to be done. While Scotland, for example, now has a per capita income well in excess of many regions of England, Wales does not, as I have said on a number of occasions. Certainly, one does not need to change the formula simply to help Wales. Wales is helped by having the Barnett formula. However, it is not right that there should be such irrational haggling between the Chief Secretary and Cabinet colleagues in order to set their departmental budgets and then exclude the Scottish and Welsh.

My noble friend Lord Callaghan was right in saying that one of the reasons I invented the formula was to make life a little simpler. At least when Cabinet colleagues had accepted that, I could deal only with England, which was difficult enough.

The simple formula is quite complex. Perhaps I may quote the fourth Special Report from the Treasury Committee, to which I was honoured to give evidence. Paragraph 10(c) informs us that:

    "The difference in spending per head between England and the other countries of the Union on some non-Block programmes, though greater, is significantly narrower than the overall average: for example; social security spending per head in Scotland, which accounts for close to 40 per cent. of all identifiable government spending in Scotland, is only 9 per cent. above the equivalent figure in England, so that once it is excluded and its dampening effect removed, the difference in spending per head widens".

I mentioned that to show that the issue is complex. It is not as simple as working on the basis of whatever happens to be the population because other factors are involved.

9 Jun 1998 : Column 905

Paragraph 10(e) of the Treasury Select Committee Report refers to a range of external factors such as sparsity and climate,

    "which would add to the costs of providing services in Scotland and Wales even if policy and demand were broadly the same as England".

I am sure that that is right and those who have greater knowledge of Wales than I would agree. I know that it is the case in Scotland because it is one of their arguments for keeping it.

There is a need for a re-examination. It is important that that takes account of all kinds of factors referred to in another part of the Treasury's response. Appendix 1, paragraph 5, states:

    "In view of these commitments, the Government sees no case for reviewing the appropriateness of the Barnett formula now".

I emphasise the word "now", although the committee did not do so in the response. The paragraph continues:

    "As the Committee itself observed, the formula is simply used to share out changes in public spending plans in public expenditure surveys. It does so on the basis of population",

which provides a fair and objective basis. With great respect to my friends in the Treasury, it does nothing of the kind. Of course, it was not done on a fair and objective basis; it was done in order to make life a little simpler for me. Astonishingly, it has existed for 20 years. I am honoured. I have grown fond of my name and therefore of the name "the Barnett formula". The Government are and were committed in the devolution debates, in the referendum and so forth to maintaining the Barnett formula. I should be delighted but, basically, I am not because I believe it is wrong. However, rather than losing the words "Barnett formula" I suggested to the Treasury Select Committee--and I believe it has accepted the suggestion--that it should be "Barnett formula mark II"; that is, it should be reviewed to take account of current circumstances. I am sure that must be right. We know that the Government are committed not to change it. I regret that and I hope that they will reconsider the matter.

Amendment No. 207A states:

    "All Ministers of the Crown and all government departments making payments to the Assembly shall have regard",

and I emphasise the words "shall have regard",

    "to the arrangements known as 'the Barnett Formula' and any future arrangements which may be substituted for it".

That is a lot better than the amendment which I gather was moved in another place. That sought to place the Barnett formula into the legislation. That clearly would be crazy and far too rigid and inflexible. I totally disagree with any such amendment.

However, I see no harm in this amendment. Any Treasury Minister--and I include my right honourable friend the present Chief Secretary to the Treasury--would be bound to have regard to the arrangements known as the Barnett formula because that still exists. But regard must be had also to,

    "any future arrangements which may be substituted for it".

Therefore, I believe that the amendment does no harm and I could support it in that way. I do not believe that it is necessary but if the Committee agreed to it, I should

9 Jun 1998 : Column 906

not object. For the moment, we have the Barnett formula. I am not unhappy to have my name associated with something which for a long time has been relatively rational and intelligent. But today, it is long overdue for reform. Does the noble Lord wish me to give way?

Lord Dixon-Smith: I was merely trying to ascertain whether the noble Lord, Lord Elis-Thomas, wishes to speak to his amendment next.

Lord Barnett: Happily, that is not a matter for me. I hope that the Government will, in the very near future, review the Barnett formula in order to change it to take account of current circumstances. If they happen to call it "Barnett formula mark II", I shall not object.

Lord Elis-Thomas: To give living proof of the intervention, I shall now speak. However, I thought it was preferable to hear from the prophet himself, although I shall not refer to him by his first name because that would be out of order. He is a good prophet Joel on this and other matters.

I refer now to Amendments Nos. 207A and 208A and 208B, which stand in my name. Amendment No. 207A proposes that the Barnett formula or any formula or its equivalent should be included in the legislation. I am grateful for the indications of support for it. The argument is that there should be some objective basis for the allocation of resources to the assembly and, indeed, to the Scottish parliament and, I would argue, to the regional spend in England which is perhaps even less apparent in that the whole of England is still lumped together for most expenditure purposes in the allocation between the different functional departments.

The Treasury Select Committee in another place, to which reference has been made, discussed that issue in some detail. It emphasised the nature of the formula and I shall not go through that debate. I wish to stress that there are two components in this regard--the inherited expenditure and the incremental expenditure, the increase.

My first concern is the future basis on which the inherited expenditure is to be assessed. Is there to be some form of political, if not objective, public expenditure round which takes place involving the Treasury, or are we to move towards the very interesting suggestion made publicly, and also in evidence to the Treasury Select Committee, by Professor Heald, on page 9 of its report, that there should be some kind of territorial exchequer board which would be involved in UK-wide needs assessments. It seems to me that there is much merit in that proposal. We should be looking for a body which is removed from both the immediate political process of the government of the day and that of the funding and spending activities of the assembly and Parliament in order that there should be an assessment of the need and the spending plans.

Indeed, in the memorandum to the Select Committee from the Welsh Office, there is a series of statements on comparisons between the need to spend in Wales and England. I shall not go through that at this stage but it refers to education and training, health indicators,

9 Jun 1998 : Column 907

employment indicators, housing, transport, environment and demographic indicators. They indicate the difference in levels of need in those countries. Therefore, there is a need for that to be included in an assessment of spending if we are to avoid continuing political argument between the assembly and the Treasury. As Professor Heald said of the Barnett formula in his evidence, it was a rough rule of political judgment. What is important about rough rules of political judgment is that they should have some socio-economic basis to them in terms of indicators. That will then provide a serious basis for political debate rather than having what we have suffered from over the years in Wales; that is, a tendency to blame what some nationalists call the "London government" for all the ills of the nation. We must move on from that kind of discourse in the national assembly.

I have tabled Amendment No. 208A which relates to Europe. That seeks to make transparent the transfers from the European Union to the UK Treasury for purposes relevant to the assembly. This relates not to transfers of expenditure from the UK Treasury but from the European Union. In the past, there has been criticism about Treasury claw-back. The amendment seeks to make transparent any such funding which appears in the Treasury and then appears as part of the funds of the assembly. The statement referring to that makes it even more transparent.

Next Section Back to Table of Contents Lords Hansard Home Page