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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