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18 July 2015

The Barnett Formula

Tag(s): Politics & Economics, People
440 years ago on 7th July, 1575 the last ever conflict between the kingdom of Scotland and kingdom of England took place. The battle became known as the Raid of Redeswire and the Scottish side was led by Sir John Carmichael. One of his descendants, the Lib Dem MP Alistair Carmichael, is again trying to cause a fight between England and Scotland. Earlier this month he brought a motion in the House of Commons to debate the government’s plans for introducing English Votes for English Laws and attracted enough support from the Scottish Separatists to force the debate. This is the same Alistair Carmichael who denied all knowledge of leaking a memo from the Scotland Office about comments allegedly made by the French Ambassador Sylvie Bermann about Nicola Sturgeon, claiming that Sturgeon had privately stated she would “rather see David Cameron remain as PM”, in contrast to her publicly stated opposition to a Conservative government.

After the election Carmichael accepted the contents of the memo were incorrect, and admitted that he had personally sanctioned the leak despite previously denying any knowledge of it.  Some of the electors from his Northern Isles constituency have raised sufficient funds to lodge an election petition to try to unseat him and force a by-election, no doubt leading to yet another Scottish Separatist coming to Westminster. Meanwhile the Parliamentary Standards Commissioner has launched an investigation into his conduct. This week Carmichael’s new chums in the Scottish Separatists demonstrated that they would follow in the footsteps of Charles Parnell and broke their own rule in threatening to vote on an issue, that of fox hunting in England and Wales, that had nothing to do with them. Nicola Sturgeon claimed this was in response to requests from people in England and did not rule out doing something similar in the future.

So we can look forward to continuing misbehaviour by the Scottish Separatists designed to make the rest of us get fed up with them and be happy to see the back of them as a separate, poor little country. I say poor because it would be. For centuries it has been propped up with English money. In recent decades this became standardised in what is known as the Barnett Formula after Joel Barnett who, as Chief Secretary to the Treasury in 1978, determined how much proportionally the four nations of the United Kingdom receive from the Treasury. It gives Scotland, in particular, more to spend per capita and over time has been heavily criticised, not least by Barnett himself for whom it had been a temporary fix.

I had the pleasure of meeting Lord Barnett when he was vice-chairman of the BBC governors. The BBC was one of Sony’s most important customers for our broadcast equipment and the governors and the directors used to meet for an annual lunch.  Lord Barnett died last year just a few weeks after the referendum on Scottish separation. He gave an interview at the time of the referendum in which he said: “As chief secretary, I was having a terrible time doing what I didn’t go into politics to do- cutting public expenditure. 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 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.”

The Formula allocates a lump sum for Scotland, Wales and Northern Ireland then, for every additional pound spent in England, approximately 10p is allocated to Scotland, 5p to Wales and 3p to Northern Ireland, based, theoretically, on their populations. However, the original calculation significantly overestimated Scotland’s population and therefore gave Scots a disproportionate slice of UK tax revenues. Public spending per capita is now 19% higher in Scotland than it is in England.

Barnett had always assumed the use of his “fundamentally flawed" Formula would be temporary and became increasingly concerned at the perceived unfairness to English taxpayers. Although he was a staunch supporter of the United Kingdom, he felt that had the Scots voted for independence, one potential gain would be the end of the Formula. As it is, however, to head off a “Yes” vote all three main party leaders confirmed that the Barnett Formula would be a central plank in their promised new “Devo-Max” settlement for Scotland.

“The real problem,” Barnett admitted, “is that now no politician wants to tackle it. The Barnett Formula saves people trouble. It saves prime ministers worrying. That’s the way with politics…Here we are, about to make the wrong decision again.”

Joel Barnett was one of the more able Labour politicians, a distinctly vanishing breed. In Inside the Treasury (1982) Barnett concluded that the task of the 1974-79 Labour government had been “rendered impossible by pledges foolishly made without any thought as to where the money would come from.” He once told Reg Prentice, the education secretary: “Your arguments are overwhelming. You’re obviously right – and the answer is No.”

Born in 1923 Joel Barnett won a scholarship to Manchester Central High School but his father’s business fell on hard times and his family desperately needed the wages he could earn. He got a job in a warehouse at 10 shillings a week. He did wartime service in the Royal Army Service Corps, and then the British military government in Germany. After leaving the Army he studied accountancy and rose to be senior partner of his firm. He joined the Fabian Society, was elected the first Labour member of Prestwich Council and then in the 1964 General Election narrowly won Heywood and Royton from the Conservatives.

At Westminster he didn’t find favour with Harold Wilson when he declared that the pound was overvalued, at a time when the prime minister was firmly against devaluation, but his strong defence of James Callaghan’s 1965 budget got him a place on the Public Accounts Committee.

In opposition from 1970 he proved an adroit questioner of Tory ministers and joined Denis Healey’s team of Treasury spokesmen. He studied the details of the legislation to introduce VAT – it was on his initiative that children’s clothes were exempted – and he became Healey’s clear deputy.

On regaining power in 1974 Wilson made him chief secretary warning him that it was the most unpopular job in government. While Healey tried to rein in soaring inflation Barnett concentrated on the detail of tax policy including the new Capital Transfer Tax and the abortive Wealth Tax to which the Left had committed Labour.

When Wilson resigned in 1976, Barnett ran Healey’s leadership campaign. So when Callaghan won only to face a sterling crisis he side-lined both Healey and Barnett by sending Harold Lever, Chancellor of the Duchy of Lancaster, to Washington to seek support for sterling. The mission failed, and Healey had to go to the IMF for a £2.3 billion loan in return for further cuts, policed by Barnett.  As the unions sought to resist pay restraint he took a steadily higher profile. He spent much of his time in the Commons defending sanctions against employers who broke ranks on pay. During the “Winter of Discontent” he was mired in fruitless talks with the public sector unions. As a mark of his energy when the Conservatives came to power in 1979 Barnett’s workload was divided between two ministers, John Biffen and Nigel Lawson.

At the 1983 election his constituency was split three ways. He lost the nomination in two, accepted the nomination for less promising Littleborough and Saddleworth, before deciding a younger man would do better; he then tried for Sedgefield, which instead chose the young Tony Blair. Made a life peer he became Labour’s Treasury spokesman in the Lords where he savaged Conservative financial policies.

One MP has told me that the 56 Scottish Separatist MPs go everywhere together, more often than not to the heavily subsidised bars of the House. On one occasion one, somewhat worse for wear, found himself in the wrong lobby for a division. His comrades frantically waved at him, there is a glass partition between the two lobbies, but it was too late. The bell had sounded. He locked himself in the toilet to avoid being reported as voting on the wrong side. If only there was someone of the calibre of a Joel Barnett to save themselves, or indeed the Labour party, from themselves, and indeed save us from them.

Source: Lord Barnett obituary. Daily Telegraph 3rd November, 2014

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