The Barnett Formula - Select Committee on the Barnett Formula Contents

Examination of Witnesses (Questions 1 - 19)


Lord Barnett

  Q1  Chairman: Lord Barnett, thank you very much for coming. Since you are the originator of the formula and it bears your name, it seemed appropriate to me that you should be the first witness that this Committee hears. Would you like to make an opening statement?

  Lord Barnett: Thank you very much, Lord Chairman. I would be happy to do so. Can I make clear how it all began? It began of course when I was chief secretary in 1977-78. I changed the then method of increasing or decreasing expenditure annually, largely cutting public expenditure for most of my five years. The system I decided to use at that time to change was that any increase or decrease in the overall budget for public expenditure for the whole of the UK should be divided amongst the regions on a population basis which was roughly 85 per cent England, 10 per cent Scotland and 5 per cent Wales. Northern Ireland was taken as the same at 5 per cent but of course in Northern Ireland's case they got a lot more than that for a variety of reasons which will be fairly obvious. It was not then described as the Barnett Formula. Indeed, in a book I published in 1982 called Inside the Treasury there is no reference to the name Barnett Formula because it was not at that stage ever known as that. It only became known as the Barnett Formula when it was kept going, from a system I used in 1977-78, by the Thatcher government and then the Major government for 18 years. That is when it became known as the Barnett Formula. Nobody wanted to change it for fear of upsetting the electors in those areas. It did not have any particular effect on the 1997 election when it will be well known the then Conservative Government lost every seat in Scotland and in Wales. I would take some credit for that but I am not doing so this afternoon. It had no effect, I am sure. The latest figures for expenditure per head on average in the regions, which I am sure you will have seen, show that in England the average public expenditure is some £1,600 per head less than in Scotland. That is the planned expenditure for 2007-08 which is the latest figure published by the Treasury. The outturn may well be slightly different as it has been each year in the past. The latest figures will be out in April this year. They are not published until April in any year. These are the very latest figures. The reason I was worried about all this and why I pressed the Liaison Committee to allow there to be an ad hoc select committee was that I was worried that the figures would so upset people in England that they would demand a separation which would be, in my view, hugely damaging because I have no wish to see the UK split into three separate countries. I want to see the UK sustained and I thought it did not seem fair and therefore should be reviewed with a view to seeing whether changes were needed and what those changes should be. The terms of reference which I eventually agreed with the Liaison Committee, as you will have seen, are very tight. They exclude anything other than a review of the formula with a view to seeing whether it should continue and whether there should be any changes based on the need mechanism. How that need would be devised and defined would be a matter for this Committee to recommend. That basically is what has happened so far. I would now be very pleased to answer any questions that the Committee has for me.

  Q2  Chairman: Can I perhaps go back to the origin of the mechanism that you introduced? When you introduced it, did you think that that was going to include the baseline grant to the devolved administrations or only changes in the overall amount?

  Lord Barnett: I thought it might last a year or two before a government would decide to change it. It never occurred to me for one moment that it would last this long.

  Q3  Chairman: Did you think it would deal with the block as well as changes to the block?

  Lord Barnett: Within the total public expenditure of the areas concerned is included expenditure which is outside the formula, outside the system. For instance, all benefits—employment benefits, child benefits—are excluded from the formula but not excluded from the figures which are in this document. The figures in this document will include those. It is possible—indeed very likely—that in some parts—say, Scotland, Wales or Northern Ireland—some of the benefits are higher for all kinds of different reasons. Those are allocated on a need basis, on a benefit or entitlement basis. That would continue. The remainder of public expenditure is allocated under the system I used in 1997-78 and is still being used. The present government has continued it. The previous government under Tony Blair kept it going and it has been going now for some 30 years.

  Q4  Chairman: Going back again to the position you were in when you introduced the mechanism, was it designed to produce a degree of automaticity in the way in which the Treasury expended its resources or was it designed to do something else?

  Lord Barnett: I have seen the argument that there is automaticity, in that it would eventually be fairer based on population. I cannot recall having that in mind. When I used the system I asked my former private secretary at the time who, amazingly enough, is now the head of the new Statistics Commission—when I finished he went to Number 10—and he could not recall that I had ever put the idea to Cabinet. No doubt you can check that. When I devised the system, which I did not think would last, I never thought it would automatically lead to some fairer system as has been suggested. Indeed, if you look at the figures over the years, the gap between England and Scotland on average allocation has risen from 2002-03 when it was 1,100 to the current nearly 1,600. It never occurred to me for a moment that it would come together.

  Q5  Chairman: You devised a mechanism which helped the Treasury to distribute money. You did not base it on need. It was a straight population index and you did not think it would last.

  Lord Barnett: No.

  Q6  Chairman: Do you think it has been successful?

  Lord Barnett: Successive governments over 30 years have kept it going. I do not consider it is successful. I do not think it is fair. It cannot be fair with this kind of gap. It may well be that any investigation will show that there are other reasons for allocating more expenditure to particular regions, but that is a matter for this investigation and review. At the moment, all one can say is that the figures indicate a huge gap in the expenditure of the different regions. This is the argument I put on the floor of the House to the Liaison Committee to have this Committee set up. I got the support of a couple of Members of the Committee, for which I was grateful. We eventually persuaded the Liaison Committee to set up this Committee which I hope will be successful in making important recommendations which will be used by a government in due course.

  Q7  Lord Lang of Monkton: Lord Barnett emphasised what he thought was the temporary nature of this formula. I have always understood that that was the case on the grounds that this was a deal put together under pressure by a chief secretary who had to try to cut expenditure under the pressures of the time and secretaries of state for territorial departments who had to defend in their territorial areas of responsibility the fact that they had protected spending. Would that be a fair summary of it?

  Lord Barnett: Yes, I think it would. The job of chief secretary in those days was pretty difficult. I had to negotiate with all secretaries of state and they all wanted more money. It relieved me of a little pressure in the sense that, as you say, there was a round sum allocated to Scotland, Northern Ireland and Wales and they then decided on the allocation within their territories. I did not have to be involved in that.

  Q8  Lord Lang of Monkton: We now know however that a needs assessment had been being carried out at roughly the same time in preparation for a Scottish Assembly which the government sought to legislate upon at that time, but the findings of that report have never been published and were not used as part of your negotiation at all. There was no needs assessment to try to rebase the figures?

  Lord Barnett: Not to the best of my knowledge.

  Q9  Lord Lang of Monkton: Why do you think that did not happen?

  Lord Barnett: As you may know as a former secretary of state and a member of the Cabinet, making changes is something you try to avoid if you can. Nobody has wanted to change what has become a formula.

  Q10  Lord Lang of Monkton: This was at the inception of the formula when you had the chance to—

  Lord Barnett: It was not a formula at the inception. It was just a method of allocating public expenditure that I devised.

  Q11  Lord Lang of Monkton: Would it be fair to say that the way in which you changed things was that, although it was a per capita grant, instead of making it a percentage capita grant to Wales, Northern Ireland and Scotland, of the figures allocated in England, it was a cash figure per capita in that Scotland, Wales and Northern Ireland got the same cash figure as was allocated in England. Because their block base lines were higher, it was a smaller percentage increase and therefore gave the impression of creating convergence.

  Lord Barnett: The percentage increase was purely based on approximate population, which was 10 per cent for Scotland, 5 per cent for Wales and 5 per cent for Northern Ireland and the rest England.

  Q12  Lord Lang of Monkton: How were you contemplating achieving convergence?

  Lord Barnett: I personally did not contemplate convergence. I do not know who did.

  Q13  Chairman: As I understand it, you did not know that there was a needs assessment being prepared inside the Treasury at the time?

  Lord Barnett: I am not clear what you mean.

  Q14  Chairman: The Treasury was preparing a needs assessment at the time that you devised this mechanism.

  Lord Barnett: If they were, it was not done by me personally. I was not doing any needs assessment.

  Q15  Chairman: Why could not the mechanism have been based on the needs assessment?

  Lord Barnett: The mechanism as it was devised was not based on needs. It was based on pure population.

  Q16  Baroness Hollis of Heigham: There is this needs assessment study report which came out in December 1979 from the Treasury. You were aware of this?

  Lord Barnett: I would be aware of it.

  Q17  Baroness Hollis of Heigham: You chose not to use it or it was after the event or you thought it was too complex?

  Lord Barnett: In December 1979 I had already left office.

  Q18  Lord Rooker: It started in the autumn of 1976. It says, "It was agreed in the autumn of 1976 a study should be undertaken of the relative public expenditure needs in England, Scotland, Wales and Northern Ireland." That was when it was agreed, so during 1977 and 1978 and most of 1979, for three years, work was going on on this needs assessment.

  Lord Barnett: Work goes on on all kinds of issues, certainly in the Treasury and I imagine in every other department. All that work did not result in any change in the method of allocating expenditure.

  Q19  Chairman: Perhaps that is the point. What we are interested in is why not.

  Lord Barnett: I cannot tell you why not now. It is 30 years ago. All I can tell you is it did not happen.

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