Barnett Formula

My Lords, I am most grateful for the opportunity this evening provided by the noble Lord, Lord Barnett, to debate his eponymous formula. It is an important subject that is of great interest to all parts of the United Kingdom. I thank all noble Lords who have participated. I listened carefully to what they said. I congratulate in particular my noble friend Lord Stephen on his maiden speech, and look forward to many more of the quality that he showed us this evening. It might help if I explain briefly the background. Changes in the departmental expenditure limit block budgets of the devolved Administrations are determined by the Barnett formula. The calculation in outline is the change in provision of the respective United Kingdom departments in the spending review, multiplied by the relevant departmental comparability factor—which, for example, would be 100 per cent for health, as health is fully devolved—multiplied by the appropriate population proportion. The population figures are updated at the spending review to reflect latest ONS estimates of population, and the comparability percentage is also revisited. The previous Government decided at the time of devolution in 1999 to retain the block and Barnett formula arrangements for determining the budgets of the devolved Administrations. This was the basis on which the devolution referendums were held. It is worth noting that responsibility for allocating spending in England to the English regions and local authorities lies with UK departments. They make these decisions once departmental settlements have been announced in the spending review. There is no single formula for allocating money within England. Several reports have recently been published that examined the funding of the devolved Administrations. All were referred to by noble Lords this evening. The Calman commission on developing the Scottish devolution settlement, which was commissioned by the previous United Kingdom Government and the Scottish unionist parties, reported in June 2009 and covered funding to Scotland. The Holtham commission on Welsh funding, commissioned by the Welsh Assembly Government, published in the summer of last year its final report on the Barnett formula and on devolving taxation and borrowing in Wales. The House of Lords Select Committee on the Barnett Formula reported in July 2009. On the subject of the Calman commission, the Scotland Office published a Command Paper in November 2010. It accepted the recommendations that there should be improved financial accountability, including more tax devolution—the noble Lord, Lord Foulkes, referred to this—and that as a consequence the Barnett-determined block should be reduced by the forecast amount of the 10p devolved income tax receipts. It also accepted taking forward the devolution of other taxes, including stamp duty and landfill tax, and introducing new borrowing powers for the Scottish Executive. Implementing the Command Paper will require legislation: a Scotland Bill has been published and is currently going through Parliament. I listened to the comments of my noble friend Lord Forsyth and of other noble Lords, and certainly I will pass them back to Her Majesty's Treasury. The noble Lord will have ample opportunity to make his points on the Bill as it passes through your Lordships' House.