Scotland: Devolution

Debate between Lord Forsyth of Drumlean and Lord Turnbull

Wednesday 29th October 2014 Lords Chamber

[Lord Turnbull (CB)]

My Lords, in my 35 years in Whitehall, I spent more time on public spending than on anything else, so the Barnett formula was never far from my thoughts. It was therefore with some alarm that I heard that “The Vow” by the three party leaders referred to continuing the Barnett formula. If that means continuing it as it operates now, that is an outcome that I would strongly oppose.

However, the actual text of the vow may offer some reassurance and a hint of a way forward. The front page of the Daily Record of 16 September says:

“And because of the continuation of the Barnett allocation for resources, and the powers of the Scottish Parliament to raise revenue, we can state categorically that the final say on how much is spent on the NHS will be a matter for the Scottish Parliament”.

Thus, if Scotland has a significant control over its revenue, it will ultimately control what the level of spending is on any devolved service. That condition can be satisfied by a wide range of Barnett formulae. It does not commit us to precise figures or method of calculation.

Note also a reference earlier in the vow to,

“sharing our resources equitably across all four nations”.

There is no way that the Barnett formula, as currently operated, can be regarded as “sharing our resources equitably”. Its main flaws are, first, that it adjusts the population proportion with a long lag. If, as is the case in Scotland, the growth of population is slower than in the rest of the United Kingdom, Scotland is always over-rewarded. Secondly, this flaw is compounded by the fact that, when eventually there is an adjustment to the population ratio, it applies only to the increment of spending in England at the next spending review; no attempt is made to correct past overpayment.

The best analogy I can produce is from income tax. Someone sends in a tax return and the inspector finds that the coding has been too generous. But instead of recouping the error in the next year, the inspector applies a new, less favourable coding, but only to the change in income from this year to the next. In this way, all the previous errors, which in the case of Scotland are all in the same favourable direction, are allowed to accumulate. They have now reached grotesque proportions.

Scottish public spending is now £1,600 per head greater than in England and £500 per head greater than in Wales. These are huge sums in relation to income per head, of the order of £20,000 a year. This disparity funds policies in Scotland, such as care for the elderly, university fees and prescription charges, which are simply unaffordable elsewhere in the UK. To put it another way, a Scottish family of four receives the same social security benefits as an English family, but on top receives an extra £6,000 per year in what we used to call the social wage.

What is the explanation for this? The answer, in a word, is appeasement. Over 30 years, neither Conservative nor Labour Governments wanted to confront voters in Scotland. When the House last considered this in the committee chaired by the noble Lord, Lord Richard, in 2009, it was suggested that the way forward was to relate the transfers to needs. But, as Mr Salmond—not Lord Salmond—frequently boasted, Scotland is a prosperous nation. Scottish Government figures claim that Scotland has a GDP per head 11% higher than that of the United Kingdom as a whole. Wales, on the other hand, has a GDP per head of about 25% lower than the UK average.

Had I served on that committee in 2009, I might well have signed up to the recommendation to move to a needs basis. In my time at the Treasury in 1993, we investigated that, although it came to nothing. However, I draw noble Lords’ attention to the analogy of the rate support grant, which is a needs-based thing, which turned out to be a statistical nightmare. I no longer think that this needs basis is necessarily the right answer when the freedom for Scotland to raise taxes is being expanded. Instead, we could move to a much simpler system under which all nations get a block grant of the same per capita amount and the devolved Assemblies are given the freedom to top that up, or not, as they please. In the process, as the noble Lord, Lord Empey, mentioned, they would assume a proper accountability.

The other change is that the population ratios—

[Lord Forsyth of Drumlean]

I am grateful to the noble Lord, and I agree with everything that he has said. Is not the problem with his recommendation that there would be a huge gap in the Scottish budget, which would mean that Scotland would end up as the highest taxed part of the United Kingdom and worse off in terms of public services?

[Lord Turnbull]

Not necessarily. Scotland would have to bring its spending into line with England and it would be getting the same grant from the centre as England. My recommendation corrects a favourable anomaly; it is not impoverishing Scotland compared with England.