Barnett Formula

Lord Newby Excerpts

Tuesday 10th February 2015 Lords Chamber

[Lord Foulkes of Cumnock]

To ask Her Majesty’s Government how much has been allocated to the Scottish Government in Barnett consequentials in the last year.

[Lord Newby (LD)]

My Lords, the Barnett formula was applied in the usual way to changes in departmental spending at both Budget 2014 and Autumn Statement 2014. The Scottish Government received £301 million in extra allocations as a consequence of spending decisions taken by the UK Government.

[Lord Foulkes of Cumnock (Lab)]

My Lords, does the Minister agree that Barnett provides secure funding for the Scottish Government and if they had relied on oil revenues they would not have produced the £7 billion that was in the SNP White Paper, but just over £1 billion, and that an independent Scotland would now be bankrupt? Is it not a good job that we voted no in the referendum?

[Lord Newby]

My Lords, it is always a pleasure to agree with the noble Lord. It is, however, worth underlining the point that he has just made. There would be a £6 billion deficit compared to the figures in the Scottish Government’s November 2013 White Paper in respect of oil revenues, which would mean that for that reason alone the Scottish deficit in 2016-17 would be more than 6% of GDP, one of the biggest in the developed world.

[Lord Hamilton of Epsom (Con)]

My Lords, as the progress of Scotland towards independence seems to be almost inexorable, should we not be getting them used to the idea of doing without English money and phasing out the Barnett formula over a period of years?

[Lord Newby]

Well, my Lords, that is exactly what we are doing. The transfer of tax revenue to the Scottish Government means that the block grant, the element to which the Barnett formula applies, is falling by two-thirds from approximately £30 billion to £10 billion.

[Lord Wigley (PC)]

My Lords, does the Minister accept that the comments he has just made about phasing out the Barnett formula will be noted with considerable interest in Wales? Does he understand that on the formula that Scotland is receiving at the moment, adjusted for population, Wales is getting £1.2 billion less than we would if it was calculated on the Scottish basis? When are the Government going to phase in a new arrangement for Wales so that we get a fair deal out of the Treasury?

--- Later in debate ---

[Lord Newby]

My Lords, the noble Lord knows that this year Welsh spending will be at a level which Gerry Holtham has said is the appropriate level for Wales.

[Lord Stephen (LD)]

My Lords, can my noble friend first confirm that the preservation of the Barnett formula was one of the key elements of the vow given by all the main party leaders from this Parliament in the run-up to the referendum? Secondly, can he confirm that there would be no Barnett formula whatever if there had been an independent Scotland, and thirdly, that as a consequence the finances of Scotland would be in tatters and the country facing financial ruin if there had been a positive referendum vote in favour of independence?

[Lord Newby]

My Lords, I agree with all the points my noble friend has made.

[Lord Howarth of Newport (Lab)]

Does the Minister recognise that whatever new constitutional arrangements may be made, there will be no stable union of the nations of the United Kingdom as long as the distribution of public funding between them is fundamentally inequitable?

[Lord Newby]

My Lords, there are many different views about where equity lies in this respect. The effect of the transfer of fiscal responsibility means that, going forward, the extent to which Scotland has money to spend will depend increasingly on the success of the Scottish economy and therefore very much upon the effectiveness of the Scottish Administration.

[Lord Forsyth of Drumlean (Con)]

My Lords, will my noble friend reflect on the fact that if it is the Government’s policy that the Scottish Parliament should be more responsible for the money it spends and should raise that money, the corollary is that the grant should be done on a needs basis and not on the basis of a formula that dates back to the 1970s, which clearly disadvantages the north of England, Wales and the rest of the United Kingdom? Why have the Government set their face against the report of the Select Committee of this House on the Barnett formula which spelled this out very clearly?

[Lord Newby]

My Lords, apart from the fact that the parties have supported the Barnett formula, the effect of the changes being made is that the relevance of the Barnett formula going forward is being cut by two-thirds and therefore any disparity that it might bring about will be reduced by an equivalent proportion.

[Lord Soley (Lab)]

My Lords, does the Minister agree that this exchange reinforces the view that we must have a constitutional convention and that a core part of that must be to address the relationship between the four parts of the United Kingdom? If we do not do that, we will lose the union, and I for one would deeply regret that.

[Lord Newby]

My Lords, it is absolutely clear that a consequence of the Scottish referendum is that a raft of issues around the way the union operates, not least the way in which power works in the Commons and in England, needs to be revisited. All the parties are setting out proposals at the moment about how they propose to do that.

[Lord Elystan-Morgan (CB)]

Does the Minister accept that the solemn undertaking given by the Prime Minister on Welsh devolution—that Wales should be at the very heart of devolution—means that as regards the Barnett formula, Wales should be on a par with Scotland in relation to that subvention?

[Lord Newby]

My Lords, as the noble Lord knows, all-party talks are going on at the moment about future constitutional and other developments in Wales, and funding is one of the items.

[Lord Thomas of Gresford (LD)]

The Minister referred to the Holtham commission. Is he aware that last October all four parties in the Welsh Assembly agreed that in conjunction with the UK Government Holtham should be looked at again? What is the current situation?

[Lord Newby]

My Lords, in terms of what is happening on the ground in Wales, the level of expenditure which Holtham suggested would be appropriate if there was to be a fair allocation is actually being spent.

[Lord Richard (Lab)]

The Minister said that the Barnett formula is becoming less relevant to Scotland. That may be so, but does he recognise that it is deeply relevant to Wales? The committee of this House in relation to the Barnett formula, which I had the honour of chairing, was crystal clear: it is unfair. It should be changed, but the Government have set their face against that. I do not for the life of me understand why. It ought to be based on needs and not upon some mathematical formula being applied to a block grant system which has been out of date for 40 years.

[Lord Newby]

My Lords, I am well aware of the noble Lord’s views. The Secretary of State for Wales is considering the devolution settlement at the moment and is aiming to reach a cross-party agreement by 1 March.

[Lord Tebbit (Con)]

My Lords, will my noble friend tell the House whether he thinks that, as a consequence of the policies which are being pursued by the coalition Government in Scotland, there will be a great wave of support for Liberal Democrat candidates in Scotland?

[Lord Newby]

My Lords, I am extremely confident about the electoral prospects of my colleagues in Scotland.