Barnett Formula — Question for Short Debate

Part of the debate – in the House of Lords at 7:57 pm on 15 June 2011.

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Photo of Lord Forsyth of Drumlean Lord Forsyth of Drumlean Conservative 7:57, 15 June 2011

My Lords, I believe that we are heading for a real constitutional crisis. The Scotland Bill, which is still in the other place and heading for this Chamber, introduces powers for a separate rate of Scottish income tax. I congratulate the noble Lord, Lord Barnett, on securing this debate, and the Select Committee on which I sat.

As the noble Lord pointed out, the effect of the Barnett formula has been to give Scotland much more than it would have received on a needs basis. The needs basis is firmly established because it is the basis on which the Scottish Parliament distributes money to health authorities and local authorities. There is no magic about this. Professor David Bell of Stirling University has done some work on the size of that amount. Scotland gets around £4.5 billion extra. You cannot change that overnight. It would need to be phased in over a period of years, as the Select Committee indicated.

We need to get on with this. It is the height of stupidity to give a Parliament the power to set income tax rates, but at the same time not deal with the basis on which the baseline funding is achieved. Baseline funding would alter according to policy decisions taken in Westminster rather than in Scotland. That would create opportunities for conflict. Trying to raise £4.5 billion as a Scottish income tax would involve doubling the basic rate of income tax after you allowed for a loss of yield. It is a huge sum of money.

It is therefore imperative that we have a stable, well established basis on which the Scottish Parliament is funded. It should not be open to criticism, and must be seen to be fair to the rest of the United Kingdom for this policy to work. Otherwise, if the Government down here change their policy on health, education or law and order, that will in turn result in a change to the revenue gain to the Scottish Parliament. We now have-contrary to what we were assured would not happen when we had devolution-a nationalist Administration determined to break up the United Kingdom, which will use this as an issue. The noble Lord is right; we cannot have the Treasury deciding how the formula is created; we need to have an independent commission along the lines of the Australian system, which phases its results over a period of time.

I find it extraordinary that the present Government, whom I support, and the previous Government have both taken the same line in saying that it is too difficult to tackle this issue. It should never be too difficult to do what is necessary to maintain the unity of the United Kingdom and to end the resentment which has been created on both sides of the border because of these anomalies. This marriage that was created, the union between Scotland and England, is the most successful the world has ever seen. It is being put under strain because of a failure to address the policy consequences of constitutional change. Parliaments are about raising resources and voting means of supply. It is essential that this is addressed in the Scotland Bill before it has completed its passage through Parliament.