Wednesday, September 10, 2008

Doh! Dimwittery: Game Over For Barnett Formula?

Our friend Iain Dale has today published a stream of steaming prejudice on the subject of the The Barnett Formula. If this reflects a hotline from Conservative Central HQ rather than the mutterings of the Demon Blogger of Doughty Street we need to be scared, very scared. Even though there is no dispute over the need for a discussion and a new settlement.

Around thirty years ago Joel Barnett, now Baron Barnett, was tasked with finding a sword sharp enough to untie the tangled Gordian Knot of the regional dispersal of expenditure which had already been vexing governments for decades. He came up with a convention - no more than convention - known as the Barnett Formula.

This Formula has been maintained by Thatcher, Major, Blair and now Brown governments and considering what a blunt instrument it appears to be - at least to the gutter press and Iain Dale - it does produce liveable results.

While this automatic mechanism for distribution to the "provinces" of Scotland, Wales and Northern Ireland saved interminable rows in cabinet and in the corridors of power it was neither intended as a permanent fix nor as a legally binding arrangement even in the short term.

The monetary figures for 2006/7 in public expenditure per head were:

* England £7,121
* Scotland £8,623
* Wales £8,139
* Northern Ireland £9,385

This being after certain non-identifiable costs e.g. debt interest and defence are excluded. This little table doesn't indicate it the small figure for England is actually just 3% lower than a cross-UK average. And it doesn't tell us that the figures are converging - under Labour at least they're converging - and are expected to even out by around 2038.

The England average also hides a great deal of variation between regions and the following regional breakdown hides differences within those regions:

* North East £8,177 - 111% of UK average
* North West £7,798 - 106%
* Yorkshire and Humberside £7,188 - 98%
* East Midlands £6,491 - 88%
* West Midlands £7,065 - 96%
* Eastern £6,144 - 83%
* London £8,404 - 114%
* South East £6,304 - 86%
* South West £6,677 - 91%

Ranking these nine and the three "provinces" - though these are not strictly like with like - we get this table:

* Northern Ireland £9,385
* Scotland £8,623
* London £8,404
* North East £8,177
* Wales £8,139
* North West £7,798
* Notional Level Pegging £7,362
* Yorkshire and Humberside £7,188
* England £7,121
* West Midlands £7,065
* South West £6,677
* East Midlands £6,491
* South East £6,304
* Eastern £6,144

The Barnett Formula takes no account of the amounts raised by taxation in each of the home nations, nor the relevant 'fiscal need' (based on factors such as sparsity of population, cost of travel, unemployment rates, and health factors) in each "province".

But of course the variations within England DO take account of variations, albeit imperfectly, and the question we should probably be asking rather than: "How far from £7,362 are we? would be "How does the above list vary from the amount that might be generated by the huge multinomial equation accounting for these and other pertinent factors?

The way in which the English Regions differ from the "Provinces" is that they are receiving money based on need, and based on competitive bidding processes. Should the regions enjoy an internal Formula that sees automatic capital receipts for each region every time London scores some dosh? And how can national infrastructure and regional infrastructure be distinguished?

Questions for Dave Cameron's Tories:

1. If redistribution towards poorer sections of society would be on the way out under a Tory government does that not mean that market force based redistribution the other way would be the result, at very least in the short term?

2. If proceeds of growth are to be shared - even more so than they already are - does that not mean less money than otherwise would be the case on public services? Just as the likes of Karol Sikora predict a vast increase in need?

3. If the Barnett Formula is anathema can we expect a replacement arrangement from the Tories which impoverishes Northern and Celtic fringes and reinforces the obvious wealth of the Tory homelands?

UPDATE Thurs 09:54: London ranking in third table corrected.


Anonymous said...

For what it's worth I agree with most of your analysis. England doesn't subsidise Scotland any more than Surrey subsidises Newham. Independence for Tower Hamlets anyone?

Unfortunately you didn't stop at the analysis and instead decided to embark on some cheap point-scoring at the end. Iain Dale is a noted supporter of English Devolution and is no more of a spokesman on Conservative policy than Graham Stringer is of Government policy, and your "questions" are of little relevence to the (reasonably sound) analysis above them.

Chris Paul said...

Well, thanks Iain. Let's wait and see whether the Tory leadership pander to the Dales of this world in coming weeks.

The first two of the three "scoring" points re Tory policy stand. Osborne has slammed redistribution and Cameron has promised this sharing the proceeds / cttin public services line.

If the Tory high ups decide to somehow pander to Dale and the like then there will be a third question to be answered.

The Barnett Formula settlement clearly needs a good look but in all honesty it does not create a hugely unfair or untenable result whatever Dale and Stringer may say.

Knowing the formula I'd say any govt would play with the numbers at least a bit ... in the interests of the people, making the whole thing fairer.

Letters From A Tory said...

Oh, well that's alright then. If everything works itself out by 2038 then there's obviously no need to be concerned.

Chris Paul said...

There is of course every reason to look at the Barnett Formula. But Thatcher, Major, Blair and Brown have all continued with it. And what Iain has written is arrant twaddle. Presumably LFAT you don't agree and think that Iain is right?

Ignoring London being third in the ranking, just behind Scotland and ahead of Wales?

Anonymous said...

For what it's worth, I've no idea what Graham Stringer's view on devolution is, I was just pointing out that Iain Dale's Diary should not be mistaken for Conservative Party policy.

Chris Paul said...

Graham Stringer's views on devolution are unknown to me also - probably against independence for constituent nations I'd say, can't rmember on regional govt - but he has used the Barnett Formula convention to call for funding for the NW based on an automatic percentage of London spend.

Seems to me that this is a bit disingenuous as England spend is based on bid and response, fiscal need, and that actually seems fair at least in principle.

Anonymous said...

Well the YAKIDA Party has been screaming for a revision of the Barnett Formular for many years.

They claim that the English Taxpayer is not giving a "Proud and Independant Nation! enough money.

Be careful Buttys, you may get what you asked for, but I dont think you will like what you get.