Christmas Adjournment

The Barnett formula concerns funding for the Scottish Parliament, Wales and Northern Ireland, and it has an impact on everyone in those nations, and in the Province. I wish to raise the subject because although the Barnett formula has been raised many times in the House over the past year—it was the subject of a Westminster Hall debate—and is often mentioned by commentators, the debates and discussions rarely concentrate on the Barnett formula itself. Barnett is used as a proxy, or shorthand, for other issues. It is used as a proxy when people discuss the imbalance in English regional spending, which I shall address. It is also used as a proxy for the West Lothian question, or the English democratic deficit, which is summarised by the ongoing situation of Scottish MPs—mainly, but not only, Labour MPs—voting on English domestic matters when this House cannot have any impact on decisions taken on those same matters in Scotland and Wales. I do not want to defend the Barnett formula—far from it. It is, after all, designed as a convergence formula, and will, over time, squeeze the amount of money spent in Scotland compared with that spent in England. In the May 2000 document on Barnett produced by the Scottish Parliament, Professor Neil Kay said:"““the Barnett formula restricts the Scottish increase to the same absolute increase as for corresponding English programmes.””" In effect, a 4 per cent. increase for an English spending Department would be converted to an absolute sum of money, and when that was applied to the Scottish baseline, which was higher for historical reasons, the percentage increase would be less than the increase in England. It is therefore a convergence formula. That is important, because it is all that the Barnett formula does. It is a means of allocating spending increases to Scotland on the basis of spending increases in England, but they are not comparable in percentage terms because the baselines are different. The Scottish Parliament has the authority to spend the block allocated, but the Scottish National party and I would prefer it to have the responsibility to set tax rates and collect tax. I sympathise greatly with those, in the House and elsewhere, who are from parts of England where regional spending is perceived to be much lower than the English average, or significantly lower than the London or south-east average. However, from where I am standing—from the Scottish perspective—because Scotland has been in surplus for the best part of the last 30 years, even if its identifiable expenditure is higher than the average in some English regions, every last penny has in effect been raised from Scottish taxation. The use of the term ““identifiable expenditure””, or ““net identifiable expenditure””, brings us to one of the key flaws in the argument that people use against Barnett. They base their analysis on net identifiable expenditure alone. There is rarely ever a glance at the imbalance in non-identifiable expenditure, which is heavily weighted to London and the south-east, and there is rarely mention of the other side of the balance sheet—the revenue side. To try to put the matter in some kind of context, in 1997, the then Chief Secretary to the Treasury, William Waldegrave, made it clear that Scotland had been in surplus from 1978 to 1995. In 2002, the work of the independent constitution unit proved the same point, explaining that Scotland had had an average surplus for the 20 previous years. Other work was done until only a few months ago by Oxford Economics. It told us that in the last year of its assessment, which was a few years ago, the figures were £9,600 per head in revenue, and £9,600 per head in expenditure. That broadly mirrored our figures for the same year—just shy of £50 billion in, and just shy of £50 billion out. Even if identifiable expenditure or total expenditure was higher than any UK or English average, there would be no justification for a reduction in Scottish spending, even if the formula for funding were changed, because the spending is fully funded by Scottish tax returns. The bottom line on Scottish spending compared with English spending is that, according to the Library's figures for the last full year in which it carried out an assessment, Scotland spends 41 per cent. of gross domestic product on public spending, while the UK average is 41.3 per cent. That is marginally higher but broadly in line. The second and more basic flaw that opponents of Barnett make is to assume that different spending priorities are somehow indicative of a subsidy to Scotland. They are not. If hon. Members and commentators outside the House believe that English regions are not being properly funded—as I do—they should ask why, rather than point the finger at the Barnett formula, Scotland or the Scottish Government's priorities. Let us consider why the Government have been unable to invest properly in some of the English regions where there is such a spending imbalance. First, the UK has an enormous black hole. A cumulative deficit of £540 billion is forecast for this year, and the borrowing requirement for this year is £38 billion. That debt was almost wholly built up over the past 30 years, when Scotland has been in surplus. The UK cannot borrow any more without stretching its already taut fiscal rules to breaking point. Secondly, the Government cannot raise much more tax without people beginning to notice. The total business tax take is up, the total personal tax take is up, and council tax is up. Thirdly—this will be important in the year or two ahead—the Government cannot get away with hiding hyper-expensive private finance initiative projects off-balance sheet in order to deliver the public expenditure that many hon. Members want to see. In the past three years, according to the July spreadsheet, the taxpayer's liability in connection with PFI projects has risen to £179 billion for £53 billion of capital projects. That is a rise in the past three and a half years of some £55 billion—a rise in liability greater than the total sum of every PFI deal signed before the table was published in July. That route to more investment is finished. There is an imbalance in English regional spending, but because the Government have borrowed too much, taxed too much and paid far too much for PFI, all that many people—including commentators outside the House—have left to do is to attack Scotland and the ““subsidy”” that we receive, which is, of course, a myth. Here is the rub: to cut Scottish identifiable expenditure to the English average would increase the amount spent in England by £150 per person, but it would cut Scottish spending by £7.5 billion—a quarter of the entire Scottish Government's budget. That would be a ridiculous thing to do. Fortunately, few people argue for it, but we need to ensure that some of the siren voices that are always screaming about subsidies to Scotland do not get in the way and butcher public provision in Scotland. As for regional imbalances in spending, it is worth pointing out that the PFI figures show that of the £53 billion for capital projects, £24 billion will be spent in London. Almost 50 per cent. of all PFI deals signed were allocated to London. If hon. Members are concerned about the imbalance of spending in their areas, they might first like to investigate the way in which PFI has been used. Another factor is damaging the Government's ability to invest: the trade gap. It is very important, although it is a subject that we do not often talk about these days. It affects our ability to invest because the tax take is down. We are seeing a reduction from where our GDP increases should be, because of the trade deficit. The impact of trade on GDP fell by 0.5 per cent. in the years from 2000 to 2004, and by 0.25 per cent. from 2006 to 2007. The total impact in money terms of GDP growth lost because of the trade deficit is approaching £30 billion. In Scotland, at £2.5 billion, that equates to almost £1,000 lost GDP per household in the past few years. I wanted to get those points on the record today, as this debate provides a useful opportunity to do so. There will be many debates in the next year in which we will consider the economy as a whole, public spending in particular, the impact of Government debt levels and so on.