Referendum: “My Barnett Formula needs to be tackled now – but no politician will”
Lord Barnett, the man who devised the now controversial formula, tells Peter Stanford why it’s not fair on English taxpayers
By Peter Stanford
19 September 2014
Though a passionate supporter of the United Kingdom, Lord Barnett saw one big potential personal gain had the Yes vote for Scottish independence won the day. It would have killed off the now controversial 35-year-old Whitehall formula for taxpayer funding of Scotland, Wales and Northern Ireland that bears his name.
The “Barnett Formula” dates all the way back to the late 1970s when plain Joel Barnett sat in Jim Callaghan’s Labour cabinet as Chief Secretary to the Treasury. Ex-ministers are usually proud of their political “legacy”, and defend it to their last breath, but no-one would be more pleased than this 90-year-old peer – still an active member of the House of Lords – to see his population-based formula scrapped.
It’s the first thing he tells me when I arrive at his home in Bury, north of Manchester, for what he says will be his only interview on the subject (he’s about to have major surgery on his spine). Indeed, I’m scarcely over the well-polished front door step when he’s eagerly pronouncing the formula “fundamentally flawed” for the simple reason it “wildly” over-estimates Scotland’s population and therefore gives Scots a disproportionate slice of UK tax revenues.
Yet, while its inventor is damning his own creation, all three party leaders, in the wake of the No vote in this week’s referendum, are noisily lining up to extol the Barnett Formula as a central plank in their promised new “Devo-Max” settlement for Scotland. Alistair Darling, leader of the No campaign and a former Chancellor of the Exchequer, told Radio 4’s Today programme this week that the Barnett Formula has “been around for 30 years and everyone’s looked at it and decided it’s the best thing to do.”
Lord Barnett settles back into his armchair and rolls his eyes when I repeat Darling’s remark. “I was the first to give evidence to a House of Lords Select Committee in 2008 on the Barnett Formula,” he says. “It did a great deal of research and reported that Scotland gets £1600 more per head than England in public expenditure. That means they have been able to do things that we can’t like [cap] prescription charges and university fees. That’s not fair on English taxpayers.”
Such a disproportionate allocation of resources may go down well with Scots, Lord Barnett argues, many of whom have cited the formula as one of the reasons for remaining within the Union, but as evident this week, it causes huge resentment with English voters – 85 per cent of the UK population – who are being short-changed.
He must regret having given birth to this whole mess in the first place. “As Chief Secretary, you see, I was having a terrible time doing what I didn’t go into politics to do – cutting public expenditure,” he replies almost apologetically. “And I was having meetings with every departmental minister about their budget. They all wanted more money – Tony Benn and Barbara Castle more than most. I decided that I could get rid of at least three cabinet ministers – the secretaries of state for Scotland, Wales and Northern Ireland – if I could settle on a formula for their budgets. So I set up this method for allocating public expenditure that the cabinet then agreed to. I never called it a formula. That only came later when Margaret Thatcher and John Major carried on with it.” (As did Tony Blair and Gordon Brown).
What Lord Barnett had known, but didn’t in the heat of the moment have either the time or inclination to tackle (this being the era of an IMF bail out of Britain and the “Winter of Discontent”), was that what he calls the “starting point” for the formula – ie the estimate of Scotland’s population – was wrong.
“I knew it used out-of-date figures. So Scotland was being overpaid, Wales was about even and Northern Ireland was very complex because of what was going on there then. But I left it as it was. My first priority was to make a system to save me trouble. The real problem,” he admits, with a wise-old uncle chuckle, “is that now no politician wants to tackle it. And I say that as someone who’s been in politics for 50 years. The Barnett Formula saves people trouble. It saves prime ministers worrying. That’s the way with politics.”
We are sitting in a room littered with the memorabilia of his years in power, as MP for Heywood and Royton from 1964, and as a Cabinet minister from 1977 to 1979, and later as chairman of the Public Accounts Committee and vice-chairman of the BBC during its clashes with government in the Thatcher years. There’s even a photograph of Jim Callaghan’s top table team on the wall. “There’s not many of us left,” Lord Barnett reflects mournfully. “Only Denis Healey and Roy Hattersley on the Labour benches”.
He may be one of a dwindling number, but Lord Barnett remains mentally sharp. He admits there was an added incentive for the Callaghan government to overlook the formula’s flaws. In 1979 it was holding a devolution referendum in Scotland – which ultimately failed to deliver a sufficient majority. The last thing his Cabinet colleagues would have welcomed, Lord Barnett recalls, was for him to start clawing back money from Scottish voters.
“No-one wanted to debate the basis of the formula in the middle of a referendum campaign, and so the wrong decision was taken over funding in 1979. And no one has wanted to debate the Barnett Formula in the middle of this referendum campaign either. And here we are, about to make the wrong decision again.”
So does this still keen observer of politics suspect, in the absence of anyone brave enough to speak out, that his formula will inevitably gain a new lease of life? “Ah, well, that has all still got to be decided,” he cautions. “The party leaders, including sadly my own, have not got the power to decide this one. Parliament will decide, and in my opinion the leaders will have a job getting any new devolution plan through that keeps the Barnett Formula. A lot of Tories are opposed, I know, and a lot of our Labour MPs will choose to support the findings of that select committee report.”
I get the clear sense he will be egging them on. To replace the formula with what, though? He directs me once again to the select committee – which included ex-ministers from all sides, including Nigel Lawson – and its recommendation for a new means of distributing UK taxes, phased in over five years, that is based on the real needs of the populations of Scotland, Wales and Northern Ireland.
Lord Barnett’s own Labour party, arguably, has even less incentive to grasp the nettle than the other two. “We do have a major major problem with Scotland,” he concedes. “If we don’t get Scotland in the general election, we’ll have a job getting a majority in the Commons. But the best Scottish Labour politicians have always moved down to Westminster to become MPs and the Labour leaders left in Scotland have been very poor. They’ve been very complacent. They know that if they allow the replacement of the Barnett Formula, Scotland will lose a lot of money. Why would they agree to that?”
So, while the rest of the political class is outdoing itself in talking up the post-referendum negotiations as a once-in-a-lifetime moment to reconnect with voters with new openness and transparency, Lord Barnett remains politely sceptical. “Tackling the Barnett Formula would be a big issue, and right now they seem to think they’ve enough other big issues.” It won’t stop him speaking out, though. That’s the way when a formula has got your name on it.