Tuesday, 16 September 2014

Update to our brief guide for public managers to the implications of the Scottish referendum: what the unionist party leaders' vow means and doesn't mean - Prof Perri 6 - Chair in Public Management, Queen Mary

Within three hours of publishing our brief guide for public managers to the implications of the Scottish referendum, the leaders of the Conservative, Labour and Liberal Democrat parties published a “vow” in Scotland's “Daily Record”. Much has been in the press of the commitment made in that vow about public spending. Here is the sentence to which Mr Cameron, Mr Miliband and Mr Clegg put their names.

“And because of the continuation of the Barnett allocation of resources, and the powers of the Scottish parliament to raise revenue, we can state categorically that the final say on how much is spent on the NHS will be a matter for the Scottish parliament.”

This has been misrepresented in some of the press commentary. Some people have claimed that the leaders are committing themselves to putting the “Barnett formula”, which sets the shares of public spending for Scotland, Wales and Northern Ireland, into legislation. But the vow makes no such promise. The formula is and has only ever been a piece of Treasury policy. In other words, it is an established convention.

What the formula does is allocate a share. So if the total quantity of public spending is falling, the amount for each country falls. Since the shares are conventionally expressed as ratios of expenditure per head in England, if the Westminster government cuts spending in England, the resources given to Scotland fall too. It is partly on those grounds that some Scots critics have been attacking it.

Some Conservative backbench MPs are alarmed that their leader appears to them to have signed up to permanent subsidy from English taxpayers for higher rates of spending per head in Scotland. The vow does imply that the unionist party leaders are committing their parties to refrain from reducing the sums paid under the formula in ways that would fully offset the additional revenues from any increases in taxes that the Scottish parliament might levy. That is presumably what is alarming the Conservative backbench MPs. Previously, Mr Cameron and the Conservatives had appeared to suggest and Labour explicitly announced that they would, in a technical sense, preserve the formula, but then apply an offsetting reduction to the block grant to reflect any increased tax revenues resulting from Scottish parliament decisions to raise taxes. Technically, of course, a reduction in block grant is not illogical. If the point of further devolution were simply to give greater responsibility for decisions, there would be no political difficulty with it. But many Scottish voters have gone into the referendum debate wanting more generous public spending and measuring the offers from the two sides by the amount of protection for public services rather than by the degree of self-determination they are being offered. So whether the unionist parties' plan for an offsetting reduction was ever going to be politically sustainable, when further devolution was offered, is debatable. If further devolution were ever to be regarded as worth having in Scotland, an offsetting reduction in block grant would undermine its political appeal to Scottish voters.

So the next question about the vow is whether it offers any special protection to the NHS, as the statement signed by the leaders claims. It does not. The Barnett formula is about the share of overall spending. It has nothing to say about spending levels on any particular service. Second, it is calculated on a basis of the share of total UK population. It does not reflect need for services of any kind, let alone health care needs. It certainly does not take any special account of differential inflation in, for example, pharmaceuticals or medical instruments.

All that the vow really implies for the NHS is that that the Scottish government and parliament would be responsible for deciding what proportion of the resources actually available to them, from taxes raised in Scotland and from the block grant, they will devote to the NHS in Scotland. That isn't special protection for the NHS.

Finally, the vow's words about the Barnett formula are very carefully composed. The sentence quoted above begins with the phrase, “because of the continuation...” That isn't all the same thing as a vow to continue it in its present form. In fact, in the strict and narrow reading it isn't even a vow to continue the block grant without an offsetting reduction. After all, the Conservatives had previously suggested that they would keep the formula but apply a change to the block grant. By using the words “we can state categorically... “ etc, the sentence seems to imply, without strictly entailing, that if there is any reduction in block grant it will not be a full offset.

So what does this mean for debates about public spending in the rest of the UK, if the Scots vote “yes” and the unionist leaders have to find some way of putting in place policy changes that will enable them to claim that they have fulfilled this vow? It is very hard to tell. But it seems likely that the vow about the Barnett formula will bring to the surface a lot of difficult problems about securing continuing English acceptance even for the present levels of higher spending per head on public services in Scotland. The consequence of further devolution would always have been to make these differences even more explicit and salient. Because all this is happening at a time when we are about to enter another UK parliamentary cycle which is expected to be dominated by public expenditure cuts, the debate will grow fiercer. It follows that the “devo max” on offer to Scotland, taken together with the terms of the vow, does not look entirely politically stable. Scots are making up their minds whether the fiscal instabilities and uncertainties of devolution are greater or less than those of independence.

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