Barnett Formula

Duke of Montrose Excerpts

Tuesday 17th December 2013 Grand Committee

[The Duke of Montrose (Con)]

My Lords, I thank my noble friend Lord Shipley for introducing this topic and for giving us such interesting views on a new form of local government that certainly contains many elements.

As he said, it is of course most understandable that devolved Administrations and local government are all looking harder at the way funding from central government is divided up. All are facing much-reduced budgets and the actual cuts relate considerably to the application of the Barnett formula. Until the last election the Scottish Government revelled in the fact that their block grant increased by two and a quarter times to nearly £29 billion. The two years of the current Administration has seen this cut so far by £589 million. My right honourable friend the Chancellor of the Exchequer on 29 June, in Hansard at col. 306, seemed to estimate that the block grant in the current year would be only £26 billion. Perhaps the Minister can tell the Committee if this is still the figure that would apply.

Similar cuts are of course being felt across all Administrations. As my noble friend Lord Shipley was saying, there have been many calls for a needs-based approach to be used in a new calculation—to the extent that many in the public now think that this occurs under the Barnett formula; but of course this is not true. There is some evidence that it was considered in the early days under what was known as the Goschen formula, which was replaced in 1979. The arguments will have been used by Scottish Secretaries of State and others to obtain funding, but the approach has not been part of the Barnett formula.

The needs-based approach was certainly central to the recommendations of the report referred to by the noble Lord, Lord Shipley, which your Lordships’ committee produced in July 2009 and which was firmly rejected by the Government. It now appears that the issue has been taken up by the more recent Holtham commission. It would be interesting to know whether its needs-based formula was the same as that put forward by your Lordships’ report, but this development has meant that people are now beginning to put figures on the disparities that it has thrown up, and local government is taking much greater interest.

Of course, there is a great deal of rethinking going on, both in administration and on the financial front. The Scottish Government are having to juggle three scenarios: the cuts to their previous budget envisaged by the Chancellor using Barnett; their own proposals for a totally independent country, where we are not in the least clear as to what funding will be available under a great many headings; and the wholly new settlement promised by the implementation of Part 3 of the Scotland Act 2012, where the Scottish Government will be raising half the taxation required for their domestic budget. Of course, this will still be governed by the overall size of the estimate of what is due under the block grant.

Given the complications that all this envisages, it is quite easily understood that there is not much sympathy from that quarter for any further adjustments. If the Minister cannot give a positive response to the noble Lord, Lord Shipley, perhaps parties should think about whether this is something that should be in their election manifestos.

--- Later in debate ---

[The Duke of Montrose]

From the study that the noble Lord has made, perhaps I may ask him whether the shortfall that the LGA was talking about is based purely on equality of distribution, or took into account the Holtham needs-based formula.

[Lord Wigley]

The table that was published, which I do not have time to go into in detail, referred to, “Identifiable public sector expenditure”, which is a different concept from that which is attributed by Barnett and needs analysis in its own right.