Barnett Formula

Lord Lang of Monkton Excerpts

Wednesday 15th June 2011 Lords Chamber

[Lord Lang of Monkton]

My Lords, it is a particular pleasure to follow the noble Lords, Lord Wigley and Lord German, because, having had the honour to serve on the special Select Committee on the Barnett formula and having seen the outcome of our deliberations that were unanimously agreed, I feel particular sympathy for Wales and the circumstances that it faces in this battle. I will speak this evening on the Scottish front, but we are happy to join the noble Lords in that battle, because we think that the formula is unjust to Scotland also—not because it gives us too little money, but because it completely distorts the picture in Scotland when we have important matters to deal with.

I start with a word of sympathy to the noble Lord, Lord Barnett. Most former Ministers would be thrilled to have a formula named after them—one that may resonate through history. However, the misery on the face of the noble Lord is tragic to see. I have some good news for him. His formula actually worked. The squeeze—which as a former Chief Secretary, although he will not admit to it, he must have really wanted—did work. When I was Secretary of State for Scotland, I commissioned an annual report on government expenditure and revenue in Scotland that persists to this day. It was a kind of balance sheet. In the years 2000 to 2002, it showed that the Barnett squeeze had taken £17 million off the Scottish block. Unfortunately for the noble Lord, Lord Barnett, the special deals that we managed to negotiate with the Treasury at that time added £340 million to the Scottish block.

Barnett has been used as shorthand for the whole complex of public expenditure. In reality, of course, one of Barnett’s problems was that it did not deal with the underlying block, the baselines in each of the countries; it dealt only with the annual increase. Many of those baselines were historically justified. They were the products of battles fought and won in difficult circumstances in parts of the United Kingdom where there were particular problems. Indeed, this happened in England also, because there were parts of this country—there may still be parts of the north-east and north-west—where, for all I know, public expenditure per capita in a defined area is higher than in Scotland, Wales or possibly Northern Ireland.

Scotland’s worst single problem was the nationalisation of all its primary industries. That was a tragic socialist disaster that led to those industries being badly managed, starved of capital investment and riven with industrial disputes. However, that was way back in the 1950s, 1960s and 1970s. Scotland was transformed in the 1980s and 1990s and, as a result, with new investment, increased productivity and unemployment falling below the English level, the baseline Scottish block began to look particularly out of place.

The real problem, as the noble Lord, Lord Barnett, identified, is that no account has been taken of need. That is unforgivable. It was all done in an arbitrary way, with special pleading. Inevitably, when you have territorial departments, you will get special pleading from their Secretaries of State and Ministers. Inevitably, they will win some of those battles. That is now less easy with devolution, but it is another reason why devolution is a less than perfect solution to the world’s problems. It was always hard to define need; and when we sat in the Lords Select Committee looking at this matter, we tried to find an easy way to find an accessible, simple and identifiable way of defining need that would be universally acceptable across the whole United Kingdom. We believe that we succeeded, and that is why it is particularly hard that the Government ignored the findings and shelved our report, almost before the ink was dry.

Add to that the constitutional change that besets us—the slow landslide of devolution, and what is now following, that some of us predicted. The demand for realism is absolutely overwhelming. Contemplating major constitutional change through the Scotland Bill and other measures that are happening, without realism and accuracy over the funding of these parts of the United Kingdom, is simply unacceptable. It would be disastrous. Billions of pounds are at risk, and it is demeaning to Scotland, if it is unfair to England, to be in this position whereby it cannot honourably and decently calculate the true justification of its case or of other cases without the facts. We must have the facts before any further damage is done.