Lords Debate on the Barnett Formula

This debate finally took place last Thursday, and was a curious affair. Like so many Lords debates, it was generally of a high standard, but it also revealed how their Lordships think about devolution, and the territorial make-up of the UK. For those interested, the verbatim report from Hansard is here.

The UK Government’s response to the Committee’s report (available here) was subject to universal criticism – not really a surprise, given how lame it was. Lord Morgan called the response “contemptible”; Lord Moser, “rather complacent”; Baroness Hollis described one paragraph (2.15) as “tak[ing] the biscuit for sophistry”. Lord Sheldon (formerly chairman of the Public Accounts Committee) called it “an embarrassment”, and Lord MacGregor (a former Chief Secretary) “a total farce”. Lord Lawson reminded everyone of his affection and respect for the Treasury before also describing the response an embarrassment, and adding that he thought it “an insult to the House”. Even the Minister (Lord Davies of Oldham) admitted it was “prosaic”.

This wasn’t the only area of broad agreement among speakers. All (save the speakers from the front benches, about which there’s more below) thought the present system of allocating funds to be unjustifiable. Lord Moser said it could not be justified on statistical or methodological grounds. Baroness Hollis thought it “misallocated £4-5 billion a year” and called it “regressive and unfair”. Lord Trimble, and Lord Richard, emphasised the importance of greater transparency in decision-making and limiting the role of the Treasury to act as ‘judge and jury in its own cause’. All told, this was a pretty bad day for the Treasury’s long-established positions on Barnett. I can’t recall them coming under such a sustained or weighty attack since I’ve been involved in this sort of work.

This wide agreement largely also applied, though, to how the devolved administrations should be funded. It’s one thing to say that the grant element of funding devolved government should be related to need, and another to say that grant is the only way they should be funded. That, however, was the tenor of pretty much every contribution. Some (Baroness Hollis, Lord Lang, Lord Forsyth) pretty much said so explicitly. Lords Trimble, Lang and Forsyth were also scathing about the Calman Commission’s recommendations and the idea of even limited tax autonomy. It needed Lord Trimble to point out what the Committee’s report makes clear, that the grant should remain a block grant which each devolved administration is free to allocate as it sees fit. Only Lord Selkirk of Douglas (formerly James Douglas-Hamilton MSP, and a member of the Calman Commission) and the Earl of Mar and Kellie spoke up for the Calman recommendations. On this showing, the idea that devolution is about more than the centre grudgingly ceding a limited measure of autonomy over the local delivery of public services hasn’t taken root in the Palace of Westminster – a potent reminder of the gulf that now exists between politics in Westminster, and in Scotland or Wales.

What should be done about this was less clear. Curiously, no speaker mentioned that what the report talks about is the principle of funding according to relative need –‘need’ in the abstract being so elastic that everyone will always claim that their needs are not met. Some speakers were clearly conscious of the political consequences of a relatively quick adjustment of the block grant, and Lord Lang noted the need for a longer transition – “nearer 10 years than 5”, something echoed by Lord Selkirk. Lord Davies, for the government, attacked the report for merely illustrating a range of needs factors and suggesting how they might work, saying (rightly) that government needs an actual definition of such factors, not just illustrations. (The Report left such factors to the independent Commission to determine, which is why it avoided being prescriptive).) But if Lord Davies wanted to see what an actual list of such factors looks like, he could use the Holtham Commission’s working paper for an application of the principles recommended by the Select Committee.

What was most interesting, and most disappointing, was the response from Baroness Noakes, from the Conservative front bench (as we’re now at the point where what’s said on behalf of the likely future government is more important than what’s said for the current one). Damningly, but now commonly for Conservative spokesmen, she “agreed in principle” (but not, it seems, in practice). She was clearly well aware of the difficulties of trying to change finance at a time of financial restraint if not austerity. On one key issue, she stalled – a needs based approach would need “a thorough debate about the issues and options”. On the other, an independent commission, she ducked. There was no support for an extra quango that would duplicate work, at a time when there were too many quangos already and a Tory government would be looking to cut them. She was also concerned about the costs of transition (though if one is talking about relating funding to relative needs, that’s surely not an issue). Clearly, sorting out devolution finance is that low a priority for the Conservatives.

This approach was so bizarre that it attracted interventions from Lords Richard, Lawson and Forsyth to express their incredulity. It’s doubly bizarre when the costs of running the most comparable body (the Australian Commonwealth Grants Commission) are about £3.4 million a year, to do a much more complex set of assessments for a country with 8 federal units and 20 million people – and that is less than half the cost of running the Scotland Office, and about two-thirds that of the Wales Office. The only promising part of her speech was the commitment to return to the issue in the next Parliament, though we knew that was already Conservative policy so it’s hardly novel.

So: a good debate, in the sense that the issues were discussed in an informed and intelligent way. But this also illustrated vividly the limitations of thinking at the centre of the UK about how to finance devolution at the centre, and how finance relates to the wider constitutional structure of devolution. Anyone involved in the practice of government in Scotland or Wales would be astounded that so many distinguished peers can think that matters are still as they were in 1995. If those running the UK institutions don’t realise how much the world has changed since then, they are going to find life gets awfully difficult.