Treasury to scrap £20bn 'subsidy' from Westminster

Published on 01/07/2007 00:51

GORDON Brown is set to tear up the funding agreement that guarantees Scotland more than £20bn in "subsidy" from Westminster every year, Treasury sources signalled last night.

The new Prime Minister has sounded the death knell for the controversial "Barnett formula" in an attempt to impose a "fairer" system of distributing billions in central government support to the nations and regions of the UK.

The move, described as a "kamikaze act" for a Labour government struggling to counter the march of a Scottish National Party administration in Scotland, is being considered as part of a drive to "iron out" huge differences in funding to different parts of the country.

The funding formula, drawn up by former Labour Chief Secretary to the Treasury Joel Barnett in 1978, was designed to settle regional funding disputes in the final years of the Callaghan government. But it has lasted for almost 30 years and still guarantees every Scot some 1,500 more in public spending than counterparts south of the Border every year.

The formula's creator, now a Labour peer, is leading the campaign for a rethink amid growing dissent against preferential conditions enjoyed by Scots in areas including university funding and prescription charges.

But the Treasury has consistently resisted demands for the explosive move. Former Prime Minister Tony Blair last month said the distorted handouts were a small price to pay "to keep the UK together", and Brown has so far maintained the united front against the "English backlash".

But now Treasury officials have admitted that a shake-up is on the cards - and Scotland is unlikely to emerge from a review with its privileged position intact. The formula could be disturbed by Treasury attempts to find an efficient solution to the problem of ensuring the neediest areas in the UK got the money they deserve.

"There is a recognition that there are some discrepancies in the way funding is allocated to the devolved administrations and the English regions," a senior Treasury source said last night. "Some of the figures might appear distorted and it is possible to have some sympathy with those who claim they should get more. The department is considering ways of ironing out the differences, and bringing everything into line is one of the options. That would inevitably impact on Barnett in some form."

Critics of the funding system claim the billions distributed from the centre should be allocated according to economic need, rather than the relative populations of the four nations of the UK. Lord Barnett is pressing for a parliamentary commission to review the entire system of distributing public funds around the UK.

"The figures are grossly unfair and clearly in need of a change, to ensure that we have a system based on genuine need," he said. "I can see why the Prime Minister might not want to abandon the formula entirely, but there is room for amendments that would make the system fairer."

However, although Barnett's formula was expected to last for only a year, successive Labour and Tory governments have maintained it - partly for fear of provoking a damaging political reaction from Scotland. The dangers of doing anything that could reduce Scotland's share of the funding cake have been emphasised in recent months, during Labour's losing battle with the SNP at the Scottish Parliamentary elections.

SNP leader Alex Salmond has warned that spending in "needy" areas elsewhere in the UK cannot be increased without cuts to Scotland's budget. He claimed proposals to change the Barnett formula were "just a euphemism for slashing Scottish spending".

Labour chiefs fear the SNP at Holyrood could respond to the cuts by invoking the Scottish Parliament's powers to raise income tax rates by up to 3%.

A key Brown ally last night said: "A Scottish MP advocating touching the Barnett formula would have to be a masochist."

Meanwhile, Scotland on Sunday can reveal details of the impenetrable defences recently introduced at Brown's family home in the quiet Fife village of North Queensferry in what police and security services have dubbed Operation Raith.

Named after Brown's favourite football team, Raith Rovers, the operation involves drafting in armed police officers from all of Scotland's eight forces on a 24-hours-a-day, seven-days-a-week rota, paid for out of central government funds.

Sources say that the old-fashioned, high-visibility policing is backed by the biggest array of highly sophisticated electronic systems ever installed at a British VIP's home.

Brown's two-storey, red brick, detached home in the village has been under close guard ever since he became Chancellor. But once it became clear he had won the top job, security arrangements were moved to an even higher level.

It is understood security officials would have preferred Brown moved to a different property altogether once he became Prime Minister, as his property, which he bought in September 1990 for 210,000, is exposed to open land at the rear.

But Brown is staying put. A police source told Scotland on Sunday: "It has been decided that all eight Scottish forces will supply firearms officers to help with this around-the-clock operation."

Backlash begins from MPs overlooked in favour of outsiders

GORDON Brown is already facing a backlash from angry Labour MPs, who claim they were misled over his move to open up the government to "talents" from outside the party.

The new Prime Minister shocked party loyalists by his decision to award ministerial and advisory positions to a number of "outsiders", including former business leader Sir Digby Jones and Navy chief Admiral Sir Alan West.

Brown drafted the external figures into his "government of all the talents" ahead of scores of loyal Labour MPs and, crucially, most of the rebels who helped to speed up his arrival in Downing Street by forcing Tony Blair to confirm his departure.

Only three out of 17 MPs who signed a letter urging Blair to stand down were offered posts in the new regime, as Brown further distanced himself from claims that he had orchestrated the rebellion.

Tom Watson, who resigned as a junior defence minister in September after he signed the round-robin letter urging Blair to stand down, was promoted to the government whips' office, as were Mark Tami and Wayne David.

But several of the rebels left out in the cold complained that the Prime Minister had failed to acknowledge the contribution their gesture had made in speeding Blair's departure.

One of the rebel leaders said last night: "A number of the signatories were fed up that [Blair] was continually overlooking their talents when it came to reshuffles. It doesn't seem a wise move for Brown to ignore their contributions right at the start of his own reign."

Another Blairite MP complained that Brown's decision to open up his big tent to people who were not Labour members was more controversial because he had explicitly pledged not to do it.

"Brown met around 200 MPs who planned to support his leadership bid," he said. "He took the opportunity to clarify the idea of a government of all talents, and said he was talking about all the Labour talents. What he has done since has made the mood of the party pretty hostile."

Brown confirmed on Friday that former Metropolitan Police chief Lord Stevens has become his international security adviser, West will join the Home Office as a security minister and ex-CBI chief Jones will be trade promotion minister. Senior Lib Dems Baroness Neuberger and Lord Lester will become advisers, while surgeon Professor Sir Ara Darzi has been appointed a minister in charge of improving patient care.