When Needs Must
George Kerevan wrote and interesting piece for The Scotsman the other day in which he argued that the much abused Barnett Formula is no longer working and ought to be set aside in a wider negotiation to establish 'home rule' and much greater powers for the Scottish Parliament.
Now that makes perfect sense to me and, so, I only hope the Smith Commission is listening.
George Kerevan: We’re all poorer without Barnett
Joel Barnett disowned his own formula as a personal and national embarrassment . Picture: PA
By GEORGE KEREVAN - The Scotsman
PASSING of the Labour MP who created budgetary formula highlights crisis facing devo reform, writes George Kerevan
JOEL Barnett, the accountant turned politician who (most unwillingly) gave his name the eponymous “formula” that governs the split of public spending between the four UK nations, has passed on to the great debating chamber in the sky, at the ripe age of 91.
During the referendum campaign, Lord Barnett resurfaced briefly to denounce the funding mechanism which he fathered in 1978 as “a national embarrassment and personally embarrassing to me as well.”
Rarely in modern democratic politics has a policy lasted so long and through governments of so many different hues. Why then was its intellectual father so disdainful? And while many have denounced the Barnett formula for being unfair, no-one has come up with anything specific to replace it that commands even a smidgen of unanimity. The dirty secret that lies behind the Barnett formula and its close predecessor, the Goschen formula of 1888, is that they were political fixes designed by London administrations to pacify the Celtic fringes. Fairness and democratic accountability had nothing to do with it. Joel Barnett’s legendary animus at being associated with the funding mechanism has a lot to do with the fact that he and his Treasury officials concocted it in secret to get Jim Callaghan’s disintegrating administration out of a hole. And to ensure that any move to devolution would leave the Treasury still tightly in control of the purse strings.
Barnett works by giving “automatic” spending bungs to the three devolved parliaments in line with what England gets. This provides the British establishment (especially the Labour and Tory front-benches) with a stick to fend off the nationalists on the Celtic Fringes. Which, of course, is why no-one has tried very hard to replace Barnett in 35 years. But with Scotland about to get something approaching fiscal autonomy – fingers crossed – it looks as if they have no choice but to consign the Barnett formula to the rubbish bin.
Of course, politicians in all four home nations argue that the Barnett settlement disadvantages their electorates. The Welsh in particular are determined to use any transfer of tax-raising powers to Scotland to renegotiate Barnett. However, the truth is that under Barnett, Scotland, Wales and Northern Ireland have higher public spending per head than England. In 2010, Scottish identifiable public spending per head was 14 per cent above the UK average. In Wales it was 13 per cent and 20 per cent in Northern Ireland.
We can certainly quibble about the size of the spending advantage for the three Celtic nations. Because the Treasury makes up the Barnett rules without reference to parliament, it has substantial room to fiddle them as it goes along. It does so frequently, to reduce the cash for the devolved administrations. One scam is to (re)classify responsibilities of English spending departments as UK-wide. That removes any Barnett consequential as it did when the Department of Trade and Industry increased research funding for universities in the South-east.
The whole point of Barnett is that it was a political compromise designed to head off a nationalist threat. The British establishment has always been prepared to offer concessions to buy time and demobilise popular revolt. The original Goschen formula was just such a political feint and is worth remembering if we get a hung parliament next year.
In 1886, the ruling Liberal Party split over Irish Home Rule. The new (minority) Tory government was loosely supported by anti-Home Rule Liberals, one of whom – the maverick George Goschen – ended up as chancellor. To keep Ireland from exploding, Goschen came up with his eponymous formula. This guaranteed the Irish a fixed proportion of UK tax revenues. It was a major concession but there were 88 Irish nationalist MPs to placate. Enter five independent Liberals in Scotland who took advantage of the hung parliament to create a radical Highland Crofters’ Party. Frightened that the Home Rule agitation would spread across the Irish Sea, Goschen included Scotland in his funding mechanism. This episode shows that the Goschen and Barnett mechanisms are about power, not fairness.
Joel Barnett’s formula was a bribe designed to head off the SNP upsurge in the 1970s. Mrs Thatcher kept the Barnett formula to pacify Scottish public opinion after she ditched devolution. Labour continues to hide behind Barnett, despite mounting criticism from its Welsh supporters. It does so out of self-interest: North of the Border, Labour can pose as the defender of higher public spending.
The sad thing is that, as bribes go, it is a pathetic one. Yes, we get a notional 14 per cent higher spend per capita. But because of Scotland’s lack of fiscal powers to boost its economy, Scottish GDP has grown at a fraction of both the British and European level since Barnett was invented. Had we grown at the same rate as equivalent small European nations, our spending per head would be much higher today. It is also the case that the “excess” spending we get does not fund a higher standard of living. Much of it is accounted for by having relatively more public sector employment than England – a legacy of the massive deindustrialisation under Gordon Brown. And low paid at that.
My worry now is that Scotland will get control over income tax but have little latitude to influence business investment. Meanwhile, the next wave of austerity will cut public spending savagely in real terms. Scotland will be told to use its new income tax powers if it wants to protect public services.
I don’t want Scotland getting more than its fair share of UK public spending. After all, I and 45 per cent of Scots voted in September to rely on our own resources. I’ve also spent a political lifetime arguing that Scotland should get the fiscal powers it needs – inside or outside the Union – to grow the economy. The success or failure of the Smith Commission rests on its ability to deliver just those powers. Otherwise the abolition of Barnett will unleash the political whirlwind.
Give To The Needy (7 August 2013)
The Barnett Formula has been back in the news recently - with Scottish Labour MPs (socialists one and all) threatening mutiny if Scotland's share of the UK's spending is affected - adversely of course - if income tax raising powers are transferred north of the border to the Holyrood Parliament.
Now it seems to me that these Labour MPs don't quite understand how the Barnett Formula works - even though we pay them large sums of money to go to a big palace in Westminster - to swot up on these things.
Because the Barnett Formula which some MPs say they will defend while there's still breath in their bodies - is actually achieving convergence as we speak.
In other words, these numpties know not of what they speak - with such ferocity and certainty - and deserve to be wearing the dunce's hat or at least put on the naughty step for not paying attention - until the end of this parliamentary term.
By which time Scotland will be free - or not - as the case may be once we have the referendum on Scottish independence in 2014.
In the meantime I can't see how anyone can describe themself as a 'socialist' - if a main plank in their politic outlook is the dogged defence of historical spending patterns - because this is essentially a conservative philosophy and has nothing to do with needs based public spending.
Here's something I wrote on the subject in 2001 for the Business am newspaper and if I had things my way - I would make it essential reading for all Scottish MPs, especially those in the Labour Party.
Give to the needy!
Scotland has around 10% of the UK population though for many years the nation enjoyed more than its people based share of public spending, more than 12% according to official statistics. Scotland’s 20% higher spending was intended to create a level playing field. Additional resources were allocated for two reasons: the higher cost of providing public services in a geographically diverse area (compare Scotland with, say, London) and the greater levels of perceived need, evidenced by various health and poverty indicators.
Many UK organisations have similar arrangements for dividing up their budget cake. Targeting extra resources on key areas or problems is not unusual. But in 1978 all this changed with the introduction of the Barnett formula, devised by an English Labour MP, Joel Barnett. Westminster politicians took the view that Scotland’s higher share of public spending could not be expected to continue forever especially with its population declining compared to the rest of the UK.
So, Barnett was born with the intention of bringing Scotland’s spending back into line. Convergence would be achieved by linking future spending increases to population, and the old percentage share would wither slowly on the vine.
The underlying issues are clear, but politicians of all parties are getting their knickers in a twist over the impact of the so-called Barnett squeeze. Some say it’s a storm in a teacup and that convergence is not actually taking place. Others that Barnett will rob Scotland of £1 billion of much needed investment over the next three years. Academics are wheeled out to reinforce or rubbish the competing claims of both sides.
The Scottish Parliament is in exactly the same position as Westminster when it comes to dividing up the spending cake for public services. Local government uses a formula to distribute money between urban, rural and islands councils. A formula is the only way of deciding what share of spending Glasgow should get compared to rural Angus or the Western Isles. The key is that the distribution formula should be widely understood and reviewed regularly to take account of new developments.
Glasgow also has a declining population. City council leaders complained bitterly that the latest financial settlement from the Scottish executive did not take enough account of the Glasgow’s needs. The row rumbles on, as it should in a modern democracy, all sides pressing their case vigorously at times. Glasgow believes the current formula places too much emphasis on population and not enough on wider social needs. Glasgow’s citizens die much younger and lead more unhealthy lives than the average Scot.
Scotland’s NHS recently introduced a new scheme for distributing resources devised by Professor Sir John Arbuthnott, principal and vice chancellor of Strathclyde University. His review team was set up by Scotland’s first minister (Donald Dewar) and charged with producing a fair and equitable system for allocating funds to hospitals, community services and GP’s.
Just in time because Scotland’s health services are due to receive an extra £400 million for each of the next three years. Arbuthnott’s formula is needs based and is designed to address Scotland’s shocking inequalities in health. The scheme has been welcomed universally, no doubt because of its independence from government. Glasgow city council believes it should be adapted for use by Scottish local authorities.
Barnett on the other hand is an arbitrary formula, scribbled out on the back of an envelope for all anyone knows, completely unsuited for the task of modern government. What’s the point of Holyrood developing a sophisticated, needs-based model that targets resources effectively and is seen to be fair? Westminster is effectively standing this approach on its head by using population share as the key measure for devolved and non-devolved spending. By employing two directly contradictory methods in the Scottish and UK parliaments the government is making a rod for its back in the run up to the Holyrood elections in 2003.
Barnett matters because it is the exact opposite of modern management, an insult to the efficient use of scarce resources. As part of the UK club, the rest of Britain is entitled to ask Scotland what results it achieves with any extra money. Why are health inequalities in Scotland increasing when for decades additional funds were targeted on the problem? How does anyone tell whether more money will be better spent in future?
Barnett is an intellectually bankrupt policy that can only be defended with smoke and mirrors. Many politicians seem unaware of its real effect and speak about defending Barnett as though it’s a good thing. Changes in the NHS have shown e Scotland the way ahead; Arbuthnott, or something similar, should replace Barnett to make all areas of public spending transparent and more easily understood, including non-devolved areas of spending.
Mind you, scary how these people all have names that end in two t’s.
Mark Irvine
June 2001
