New Formula



Here's an intelligent article from The Scotsman on the much abused Barnett Formula written by Brian Monteith a former Member of the Scottish Parliament (MSP).

Now Brian is absolutely correct about the intention behind the Barnett Formula which was to base future increases in public spending on population, so that over time Scotland's share would gradually converge with the rest of the UK.

The only thing that has stopped this happening is that UK Governments, of all kinds over the years, have made political decisions which dilute the 'converging' effects of the Barnett Formula, but that does not affect its underlying logic and raison d'ĂȘtre, so to speak.

I wrote about this very issue for Business am all of 13 years ago now, so it's good to see other commentators finally catching up and isn't it good to see a former Tory politician like Brian Monteith supporting the principle that the Scottish Parliament should raise directly most, if not all, of the money it spends.

Brian Monteith: Taking Barnett’s name in vain

Joel Barnett, the Labour chief secretary to the treasury from 1974-79, came up with the formula. Picture: Contributed

by BRIAN MONTEITH - The Scotsman

New formula needed, mostly to stop nationalists being economical with the truth, writes Brian Monteith

Whither the Barnett Formula? Or should I say, wither the Barnett Formula. Apologies in advance for those who think that discussing what appears an esoteric topic unrelated to the cut and thrust of real politics and the blood, sweat and tears of everyday modern living is a distraction from the referendum.

Nevertheless, I am moved to write about the Barnett Formula for there is much being said about it in this campaign that is either ignorant nonsense or mendacious partisan spinning intent on deceiving the public to vote one way or the other. The Barnett Formula’s name is being taken in vain and it requires some healing antiseptic.

First the history: the Barnett formula is named after Joel Barnett, the Labour chief secretary to the treasury from 1974-79 – the position that Danny Alexander now holds in our coalition government. It replaced the previous formula, called Goschen, named after George Goschen who was chancellor of the exchequer in 1888. The formula is used to obtain the amounts that will accrue to the Scottish block grant deriving from any changes to UK public spending.

To identify the nonsenses being uttered over the last year or two and in particular last week (about NHS spending) it is important to be clear about what the Barnett Formula is designed to achieve (so long as politicians do not undermine it by not adhering to it).

In 1979 the public spending per head on Scots was some 22 per cent greater than for the UK average. To maintain that advantage would require that every time the UK treasury announced its public spending, the same ratio would have had to be maintained. The Barnett Formula set out that spending on Scottish Office responsibilities (broadly those covered by the Scottish Parliament today) would be set at a share proportionate to the Scottish share of the UK population. This would mean that over time the spending per head of population would converge so that both averages were about the same.

In other words the Barnett Formula must mean a gradual but noticeable public spending squeeze that most Scottish politicians would find abhorrent, such is their addiction to ever greater spending from higher taxes and higher public debt.

It is important to appreciate that the Scottish block grant and Barnett Formula are not the same thing – they are entirely separate – for public spending by the UK treasury can be added to the block grant outwith Barnett, which contrary to the mythological perceptions of Nationalists, happened a great deal during the Conservative government of Margaret Thatcher. This of course worked against Barnett’s purpose of convergence, but she was never thanked for this spending as it worked against Labour’s pseudo-nationalist narrative.

The result was that by 1997 the per capita spending in Scotland had increased to 25 per cent of the average of that in the United Kingdom. Scotland was hardly a nation under the yoke of English subjugation.

But that was then and this is now. We have devolution and the arrangement has changed. Initially there was just the straight block grant with the adjustments made through the Barnett Formula as spending in the UK increased, but soon will come the changes brought through the Calman Commission that has resulted in the Scotland Act of 2012. And now we have further constitutional and financial arrangements proposed by all three unionist parties if Scotland votes No. What then does that mean for the Barnett Formula?

We constantly hear Nationalists attack supporters of the union with the allegation that if we stay in the United Kingdom the Barnett Formula will be cut by something like £4bn a year. Either these people are ignorant of public finances or they are being intentionally mendacious. I suspect both. The Barnett Formula is and always has been designed to cut public expenditure in Scotland – that is its raison d’ĂȘtre! Given that all nationalist propaganda advocates ever-more public spending from the bottomless public purse, one might expect Nationalists to object to the Barnett Formula. But instead they confuse it with the Scottish block grant and seek to defend it as beyond criticism. And these people wish us to give them our trust in all of the nation’s finances?

Meanwhile, the Unionists wish to rearrange the financial arrangements (to varying degrees depending which party you listen to) so that more of the Scottish Parliament’s budget is raised from taxes that it commands – making it more accountable – which must mean that in turn the Barnett Formula must change. It follows logically that if Westminster is granting a smaller share towards the spending then there is less reason to direct the convergence of funding by the UK treasury.

In other words if there is greater devolution of the funding arrangements that makes the Scottish Parliament more self-financing we should celebrate the end of the Barnett Formula. We shall need a new formula, but there is little point in retaining the name.

What we require is greater honesty from our politicians, especially the Nationalists. The Barnett Formula has nothing to do with the survival of the NHS in Scotland. As a former convenor of the Scottish Parliament’s public audit committee for four years I am well aware of how the NHS is financed and budget lines are directed. It is entirely a matter for the Scottish Parliament at what level the NHS is given a financial priority – indeed I recall many a time when funding from Barnett consequentials from increased English spending on, say, education was directed entirely to health in Scotland.

So let’s not fall for the delusion that what happens in England must result in changes in Scotland. The point of devolution is that different options are available – an outcome that is of course anathema to Nationalists as it kills their Westminster bogeyman.

With the new proposals of even greater devolution by all three Unionist parties, the future of Barnett must be stated and they need to be frank – it should be abolished. It is time for a new formula, one where the Scottish Parliament raises most of what it spends and the difference is topped up. Maybe we could call it the Alexander Formula after the current chief secretary. Either way, Barnett will be no more and we should rejoice! I expect Lord Barnett will too.



Give To The Needy (7 April 2013)

The Barnett Formula has been back in the news recently - with Scottish Labour MPs (socialists one and all) threatening mutiny if Scotland's share of the UK's spending is affected - adversely of course - if income tax raising powers are transferred north of the border to the Holyrood Parliament.

Now it seems to me that these Labour MPs don't quite understand how the Barnett Formula works - even though we pay them large sums of money to go to a big palace in Westminster - to swot up on these things.

Because the Barnett Formula which some MPs say they will defend while there's still breath in their bodies - is actually achieving convergence as we speak. 

In other words, these numpties know not of what they speak - with such ferocity and certainty - and deserve to be wearing the dunce's hat or at least put on the naughty step for not paying attention - until the end of this parliamentary term.

By which time Scotland will be free - or not - as the case may be once we have the referendum on Scottish independence in 2014.

In the meantime I can't see how anyone can describe themself as a 'socialist' - if a main plank in their politic outlook is the dogged defence of historical spending patterns - because this is essentially a conservative philosophy and has nothing to do with needs based public spending.

Here's something I wrote on the subject in 2001 for the Business am newspaper and if I had things my way - I would make it essential reading for all Scottish MPs, especially those in the Labour Party.

Give to the needy!
Scotland has around 10% of the UK population though for many years the nation enjoyed more than its people based share of public spending, more than 12% according to official statistics. Scotland’s 20% higher spending was intended to create a level playing field. Additional resources were allocated for two reasons: the higher cost of providing public services in a geographically diverse area (compare Scotland with, say, London) and the greater levels of perceived need, evidenced by various health and poverty indicators.

Many UK organisations have similar arrangements for dividing up their budget cake. Targeting extra resources on key areas or problems is not unusual. But in 1978 all this changed with the introduction of the Barnett formula, devised by an English Labour MP, Joel Barnett. Westminster politicians took the view that Scotland’s higher share of public spending could not be expected to continue forever especially with its population declining compared to the rest of the UK.

So, Barnett was born with the intention of bringing Scotland’s spending back into line. Convergence would be achieved by linking future spending increases to population, and the old percentage share would wither slowly on the vine.

The underlying issues are clear, but politicians of all parties are getting their knickers in a twist over the impact of the so-called Barnett squeeze. Some say it’s a storm in a teacup and that convergence is not actually taking place. Others that Barnett will rob Scotland of £1 billion of much needed investment over the next three years. Academics are wheeled out to reinforce or rubbish the competing claims of both sides.

The Scottish Parliament is in exactly the same position as Westminster when it comes to dividing up the spending cake for public services. Local government uses a formula to distribute money between urban, rural and islands councils. A formula is the only way of deciding what share of spending Glasgow should get compared to rural Angus or the Western Isles. The key is that the distribution formula should be widely understood and reviewed regularly to take account of new developments.

Glasgow also has a declining population. City council leaders complained bitterly that the latest financial settlement from the Scottish executive did not take enough account of the Glasgow’s needs. The row rumbles on, as it should in a modern democracy, all sides pressing their case vigorously at times. Glasgow believes the current formula places too much emphasis on population and not enough on wider social needs. Glasgow’s citizens die much younger and lead more unhealthy lives than the average Scot.

Scotland’s NHS recently introduced a new scheme for distributing resources devised by Professor Sir John Arbuthnott, principal and vice chancellor of Strathclyde University. His review team was set up by Scotland’s first minister (Donald Dewar) and charged with producing a fair and equitable system for allocating funds to hospitals, community services and GP’s.

Just in time because Scotland’s health services are due to receive an extra £400 million for each of the next three years. Arbuthnott’s formula is needs based and is designed to address Scotland’s shocking inequalities in health. The scheme has been welcomed universally, no doubt because of its independence from government. Glasgow city council believes it should be adapted for use by Scottish local authorities.

Barnett on the other hand is an arbitrary formula, scribbled out on the back of an envelope for all anyone knows, completely unsuited for the task of modern government. What’s the point of Holyrood developing a sophisticated, needs-based model that targets resources effectively and is seen to be fair? Westminster is effectively standing this approach on its head by using population share as the key measure for devolved and non-devolved spending. By employing two directly contradictory methods in the Scottish and UK parliaments the government is making a rod for its back in the run up to the Holyrood elections in 2003.

Barnett matters because it is the exact opposite of modern management, an insult to the efficient use of scarce resources. As part of the UK club, the rest of Britain is entitled to ask Scotland what results it achieves with any extra money. Why are health inequalities in Scotland increasing when for decades additional funds were targeted on the problem? How does anyone tell whether more money will be better spent in future?

Barnett is an intellectually bankrupt policy that can only be defended with smoke and mirrors. Many politicians seem unaware of its real effect and speak about defending Barnett as though it’s a good thing. Changes in the NHS have shown e Scotland the way ahead; Arbuthnott, or something similar, should replace Barnett to make all areas of public spending transparent and more easily understood, including non-devolved areas of spending.

Mind you, scary how these people all have names that end in two t’s.

Mark Irvine

June 2001

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