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

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’être! 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.