Saturday, March 29, 2008

The skids are under Barnett

Column published in the Newcastle Journal on 29 March, 2008

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Last November, I argued on these pages that New Labour had missed its best opportunity to reform the unfair funding rules that have penalised this and other English regions for the past 30 years.

The Barnett Formula, which awards Scotland an extra £1,500 a year in public spending per person, has long been a source of irritation south of the border, not least in the North-East.

The last time I looked at the issue, I said Gordon Brown’s best chance to address it had come in 1999 when the Labour-controlled Treasury Committee of MPs produced a report calling for the formula to be reassessed.

But it seems I was wrong. Quite unexpectedly, another window of opportunity has opened up over the last few months, and for the first time, the prospect of real change is finally in the air.

Of course, it is all officially denied. The Government has long held to the line “We have no current plans to reform the Barnett Formula” whenever asked about the issue, and that has not changed.

But of the fact that something is up, there can be no longer be any reasonable doubt.

Earlier this week, the three unionist parties in the Scottish Parliament – Labour, the Tories and the Lib Dems – agreed to set up a Commission to look at the Parliament’s powers and funding.

In a Commons statement the following day, Justice Secretary Jack Straw said the Commission would consider whether the Scottish executive should take more responsibility for the money it spends by devolving more taxes from the UK Treasury.

Although the government is keen not to pre-empt the Commission’s findings, no serious investigation into the Scottish funding system could fail to open up the whole issue of how the formula operates and whether it should continue.

In addition, the Treasury itself is due to publish what it calls a “factual paper” on the workings of the formula later this year which it says will be used to “inform public debate.”

The straws in the wind were sufficient to persuade BBC Political Editor Nick Robinson to comment on his blog that “the skids appear finally to be under the Barnett Formula.”

“Labour's Scottish leader has argued that the Scotland government needs to take more responsibility for what it spends - in other words, having to raise taxes when it wants to raise spending. This will inevitably raise questions about our old friend Barnett.”

There is also the evidence of a leaked Downing Street memo of a ministerial meeting on 28 January this year, which first saw the light of day in a Sunday newspaper a few weeks’ back.

It revealed that Mr Straw – who has replaced John Prescott as the formula’s leading Cabinet opponent - had urged the Prime Minister to look at it afresh in order to address growing concern within England.

He won the surprise backing of the Defence and Scottish Secretary, Des Browne, who said the Government had to be “proactive” on any review of the Scottish Parliament’s financial powers.

According to the memo, the Prime Minister then agreed that the funding issue “could not be ignored” but noted there had to be a “considerable period” of public debate on the matter.

So what brought about the apparent shift? Well, more than anything else, it is down to developments in Scottish politics.

Although the SNP-led Scottish Government in Edinburgh publicly protests about the potential loss of the Barnett billions, it is quite relaxed about the overall direction of policy on devolution.

First Minister Alex Salmond wants more tax-raising powers for the Scottish Parliament and the demise of Barnett could be seen as a small price to pay in pursuit of the greater goal of Scottish self-determination.

To put it another way, continued financial dependence on England is clearly incompatible with the greater financial devolution which the SNP, and increasingly Labour and the Lib Dems too, are seeking.

In terms of wider UK politics, ministers also appear to be increasingly concerned about the so-called “English Backlash,” even though the existence of this is nothing new.

Tory leader David Cameron has not thus far committed his party to abolishing the Barnett Formula any more than he actually committed to dualling the A1 in his Journal interview the week before last.

Nevertheless, ministers fear that the formula could be the subject of a vote-catching pre-election announcement by Shadow Chancellor George Osborne similar to his coup-de-theatre on Inheritance Tax last October.

Hence by laying the ground for the early phasing out of the formula, they are, to use the well-worn phrase, shooting the Tories’ fox.

The Journal has undoubtedly played its part in increasing awareness south of the border of the formula’s inherent absurdities.

Over the past ten years, it has been the only regional newspaper that has consistently taken the trouble to explain how this complex formula actually affects people’s services.

Earlier this year, it revealed that £1.6bn in transport funding would automatically be going to Scotland as a result of the £16bn Crossrail scheme – whether or not they actually have anything to spend it on.

For less than a fifth of that £1.6bn sum, the North-East could dual the entire length of the A1 between Newcastle and the border and reopen the Leamside line between Newcastle and Teesside.

Of course, whether the North-East will actually gain from the demise of the formula is still very much an open question.

If it is replaced by a “Barnett Mark 2” which recognises the needs of other regions besides Scotland and Wales, it will almost certainly do so, but if the system is scrapped altogether, it is unlikely the region will see much change.

In this context, it is worth remembering that the North East lost out twice over from Crossrail – once to the tune of £1.6bn to the Scots, but also to the tune of £16bn to London.

Barnett or no Barnett, the long battle for a fair funding deal for the North-East still has a way to go yet.

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