I was the first MP to ask for a debate in Parliament on the Barnett Formula for 23 years:
18/12/2001, Westminister Hall
Mr. Derek Wyatt (Sittingbourne and Sheppey): First, I want to thank Timothy Edmonds, who did a prodigious amount of work and produced an excellent Library research paper on the Barnett formula, which I am sure that many hon. Members will quote. I also thank Professor Iain McLean—a Scot—of Nuffield college, Oxford, who is currently working at Yale, and who helped me with the debate.
We have been given only 90 minutes for this discussion; the debate in the House of Lords in November was for more than three hours. That may, or may not, be a reflection of the importance of Joel Barnett.
The debate is topical; this morning a headline in the Financial Times stated:
"Scotland's fiscal deficit narrows to £4bn excluding oil revenues."
I was going to quote the hon. Member for Banff and Buchan (Mr. Salmond), who said that it was bogus, but he is present. Statistics and the economy in Scotland are topical north of the border and today, for once, they may be topical south of the border.
The origins of the Barnett formula go back to the 1880s, to a Chancellor called George Goschen. Joel came to it in 1978, using it as an expedient because the Prime Minister at the time, James Callaghan, was caught short; he could not work out how to resolve a technical issue of how to spend our money in Wales, and, more especially in Scotland. Joel told me privately that he thought that the formula would last six months at best; in his speech in the House of Lords he said perhaps a year, but it was meant to be only six months. It has lasted 21 years, which is not bad for a temporary measure. Curiously, it is not a statutory instrument; perhaps we should bless Joel in one way but not in another.
My question is fundamental to how we, as Members of Parliament, work. How do we decide the underlying philosophy of how to allocate our people's taxes, which we sometimes call Government expenditure? Do we do it by head of population, by the needs of our population or by a compromise consisting of the two? I shall return to that issue shortly.
My question is more complicated because we have enacted several relevant pieces of legislation in the past four years—the constitutional reforms that gave Scotland a Parliament, Northern Ireland and Wales Assemblies, and London an Assembly, and the UK human rights legislation, which enshrines some human rights of European law into UK law. Shortly, we shall have the White Paper on regional assemblies; I am sure that there will be elected regional assemblies by 2005, certainly in the north-east, perhaps in the north-west, and possibly in the south-west if we can agree the boundaries. This is the right time to talk about the Barnett formula because England has never had a say on it, which is curious.
As the regional assemblies develop in England, they will all want to have a say and to change the way in which the formula is decided. The local government funding review announced last week has changed the way in which local government will be funded from 2003 onwards. It will be funded according to needs, which is a minor change, but a change nevertheless. The comprehensive spending review takes us up to 2004-05. Considering that block of legislation—some past, some to come—we cannot expect changes to Barnett until 2005-06 at the earliest.
I shall place on the record one or two quotes from the excellent Library research paper. On the mechanism of the Barnett formula, it states on page 9:
"The first key to understanding Barnett is to remember that the formula determines the amount of additional changes to the expenditure of Scotland and Wales. It applies to the margin, not to the bulk of expenditure as determined by past decisions. Secondly, Barnett only applies to some types of expenditure. In particular large expenditure areas such as welfare payments are outside of the formula's jurisdiction. Barnett has played very little role in the overall relative level of public sector provision, but simply produces a value for the increase in a single year."
The next page gives the three parts to the calculation:
"1. The change in planned spending in departments in England.
2. The extent to which the relevant English departmental programme is comparable with the services carried out by each devolved administration; and
3. The population proportion in each country."
Slight changes were made to the Northern Ireland part in 1998. The population of Northern Ireland used to be compared to that of Great Britain as a whole; now, it is compared to the population of England. Northern Ireland has therefore benefited slightly more in the last three years of the Barnett formula. If the Scottish Parliament ever exercised its tax-varying powers, the resources available to it would be adjusted up or down, according to the formula.
In my short period in the House, I have noted that the civil service would rather explore change within existing law or practice—I cite the Child Support Agency reforms as an illustration—than start to make changes from scratch. Therefore, I do not expect any Government to do away with Barnett, but it will have to change beyond 2005, especially as the regional assemblies come on line.
Why will the formula change? It is manifestly unfair to the English taxpayer—of course, I would say that. Those who represent English constituencies will all be able to quote their own figures, and I took mine from the Treasury's public expenditure statistical analysis for 1999-2000. Government spending for Scotland was £5,271 per head; for London, it was £5,035 per head. For the north-east, it was £4,837 per head, and for all England, it was £4,283 per head. The figure for the south-east, which includes my constituency, was £3,734, so I have some reason to wish for an analysis of the Barnett formula and for changes to be made to it.
Joyce Quin (Gateshead, East and Washington, West): A few minutes ago, my hon. Friend quoted the excellent Library research paper, and he will know that the formula's supporters refer to it as a way of reaching convergence in spending over time. However, that paper quotes Professor Bell of Stirling university, who estimates that it will take at least 30 more years to reach any form of convergence. Does my hon. Friend have a comment on that?
Mr. Wyatt : I agree with my right hon. Friend. Joel's original idea was that the formula would provide convergence, but it never has and I doubt if it ever will, which is another issue for English taxpayers.
Adam Price (East Carmarthen and Dinefwr): I am not clear whether the figures to which the hon. Gentleman refers are for identifiable public expenditure. However, he will be aware that most of the 25 per cent. of Government expenditure that is non-identifiable is spent in the south-east of England, whether it goes on central Government administration or military research and development. If we seek a fairer allocation of Government spending among the countries and regions of the United Kingdom, should we also be looking to redistribute that non-identifiable element and decentralise much of central Government administration to the regions and nations of the UK?
Mr. Wyatt : I think that that will happen once we have regional assemblies in England. As I said, wherever we happen to look, statistics are an issue. Of course, everyone argues their point from their background—that is what we are here for—but I shall resolve the statistics issue in a moment and return to the hon. Gentleman's question.
I hope that I have read all the papers on the Barnett formula. There seem to be more from the north of the country and certainly north of the border. I have noticed that there have been many more front-page stories on the issue this year in Scotland than anywhere else in the United Kingdom. Whatever figures are produced, it is apparent that the Barnett formula favours Scotland. Martin Wolf of the Financial Times suggested that Scotland enjoys Scandinavian services in exchange for British taxes.
Hon. Members from Scottish constituencies will want the Barnett formula to remain: that is understandable. We need to find a consensus on the issue after 2005, but I would like to suggest a way forward between now and then—not the Barnett formula 1.1 or 2.1 but the Wyatt suggestions. Whoever delivers statistics is not trusted among the regions of Scotland, Wales and Northern Ireland. How can we trust the figures, and which Members of Parliament would we choose to ensure that the statistics were fair? Would we trust a Bank of England committee to study the Barnett formula? Would we trust a royal commission, or a special commission such as Lord Wakeham's on House of Lords reform? I suggest that Parliament should do it. My first suggestion is that a joint House of Lords and House of Commons Select Committee be established next year to consider the future of the Barnett formula.
Mr. Alex Salmond (Banff and Buchan): The hon. Gentleman suggested a House of Lords and House of Commons Committee. Does he want such a joint Committee to encompass the Scottish Parliament and the Welsh Assembly as well, or is he trying to rig the game before it starts?
Mr. Wyatt : The hon. Gentleman should have let me finish. Evidence would be taken throughout the United Kingdom. The Select Committee would visit the Scottish Parliament, the Welsh Assembly, and the Northern Ireland Assembly and take evidence in London. The Committee could be formed next year and report in 2003.
We have to resolve how we divvy up the money. I side with Professor Iain McLean's research. He suggests creating a commonwealth grants board, which
"should agree the apportionment of regional public spending by a qualified majority vote (that is, with the support of more than half the regions represented).
Two extremely important questions remain. How large a qualified majority? And what if they fail to agree? The two are linked . . . Unanimity gives each and every region a veto over any scheme. So the region with most to lose from any change would veto it, and the result would be failure to agree to any settlement at all. Then what matters is the 'default'. What if the inter-regional body fails to agree by the deadline for an agreement? If the default is the status quo, then all who can see that they are better off under the status quo than under any change will tend to block that change."
McLean suggests two rules for a commonwealth grants board: first,
"any formula it recommends must be supported by at least two-thirds of the regions"
"that the default, if the Board fails to agree, is that each region gets the reciprocal of its relative GDP per head."
Mr. Bill Tynan (Hamilton, South): Would the decision of that proposed Select Committee be binding on Parliament, or would it be debated in the House?
Mr. Wyatt : It would have to be debated in the House. If we were to effect change, some sort of statutory instrument would probably be necessary.
I have started the debate, and I am sure that that will not be the end of it, but it is the first time that we have debated the matter in 23 years in the House. I look forward with interest to the rest of the debate.
Letter published in The Guardian 1st November 2007:
West Lothian Question
If we are to resolve this issue once and for all, could I suggest that we create four lower Parliaments - for England, Scotland, Wales and Northern Ireland - with equal powers and an upper House of Representatives which would bind in the four lower houses into a UK (written) constitution.
Since, this is unlikely in my life-time, maybe a solution to the Barnett Formula, as I suggested, in a debate in the House of Commons in December 2001, would be for there to be a joint select committee of the House of Commons and House of Lords to consider its future.
Derek Wyatt MP
Lab. Sittingbourne & Sheppey
Barnett Formula Debate 21.11.2007
Westminster Hall, House of Commons
Derek Wyatt (Sittingbourne and Sheppey) (Lab): I think that I secured the last debate on the Barnett formula, in 2001. I called for a cross-party group from the House of Lords and the House of Commons to review the formula and said that whatever its conclusions, it should start from the premise that it would take 10 years to implement the changes. I stand by that.
Three issues concern me. One is that only three regions in the United Kingdom actually have a positive GDP—the east of England, London and the south-east. Why is that? Why are the others negative after so much investment since the second world war? Is it something fundamentally wrong with the structure in our regions that makes them negative? Secondly, the formula is clearly a concern. I detect distinct nervousness in this Room in Welsh, Scottish and Northern Irish Members, and I can understand that. Thirdly, to say that there is no constitutional implication is foolish. There will be constitutional implications.
I suggest to the House—I hope that the Minister will take this seriously—that we are in government together. Our constituents are concerned about the Barnett formula. I should like to see a Joint Committee of the House of Lords and the House of Commons, and I should like it to have three purposes. One is to understand better why only three regions of the United Kingdom make any money for us.
I propose that the reason is the university structure and the number of patents that are exploited. Without considering that, we will not get underneath the issue. The second purpose is to consider the funding formula, and the third the constitutional implications. A Joint Committee of both Houses, challenged to consider those three things, would come back with the most profound findings about what we must do to be a modern 21st-century country.