Figure 1: The Surge in UK Public Spending

11/25/02

Click here to start

Table of Contents

Figure 1: The Surge in UK Public Spending

A: If there is a UK problem of intergovernmental fiscal relationships, what is it?

Many suggestions that the present devolution funding system is unsustainable (‘there must be something better’), though these criticisms come from opposed positions

Limited capacity and willingness to absorb lessons from other jurisdictions

Learning to cope with the rough and tumble of intergovernmental fiscal relations, and not to regard every incident as a terminal crisis

How the political system copes with party and financial asymmetry, especially when it is no longer possible for the UK government to close down the debate about money

B: How we arrived here

The lessons from the history of the Barnett formula (originally 10/85ths for Scotland) and from its Goschen predecessor (11/80ths in 1888)

The convergence properties of the Barnett formula, when strictly applied (now referred to as the “Barnett squeeze”)

Limited convergence of per capita expenditure over the past 20 years, at the level of identifiable expenditure (though probably occurs on comparable expenditure) Importance of formula bypass and relative population change

C: Short-term and Medium-term issues

From ‘private government’ to ‘goldfish bowl’Virulence of the language of episodic ‘debate’ on territorial funding

Continued lack of transparency: comparable English expenditure to the devolved Assigned Budgets is still not available despite improved explanations in the Treasury’s ‘Statement Funding Policy’ (third edition, July 2002)

The impact of the 1997 Labour Government’s public expenditure strategy: two years of famine followed by five years of feast (NB UK priorities now pushing unexpected amounts of money through the Barnett formula mechanism)

1992 recalibration of Barnett formula (Scotland received 10.66% of change in English comparable expenditure rather than 10/85) and 1997 announcement of annual population updating (10.23% for SR 2002) less practically important than sounds

‘constitutional’ v ‘political’ constraints on policy diversity:- tuition fees in Scotland (Cubie) as an early test case of ‘policy spillovers’

care of the elderly (Sutherland and ‘free personal care’)- ‘top-up’ fees for higher education- ‘events’ (eg foot and mouth)

D: The Long Haul

Whether PR comes to the UK Parliament?What happens regarding the United Kingdom’s relationships to the European Union and the euro

How devolution develops - whether Wales and Northern Ireland move closer to the Scotland model?- Assigned revenues?- Explicit equalisation objectives?

What happens in England? - nothing - stronger regions - England as a political unit?At what spatial level, and by whom, should expenditure-switching discretion be held?

Use of fiscal discretion, in either direction, via(a) the ‘tartan tax’ in Scotland(b) the taxation powers of local government(c) policy on fees and charges

Whether there is pressure for a Comparative Expenditure Needs Assessment (CENA) Exercise as replacement for the Barnett formula, or as an input into the calibration of a Barnett formula Mark 2?

If evidence of rapid convergence emerges, decisions will have to be taken on formula modification (the Barnett formula was never intended to drive relatives to UK = 100)

Whether new institutional arrangements develop, such as a Territorial Exchequer Board as a neutral data generator

Whether the arrangements for ‘devolved audit’ can resist Westminster scrutiny of the Assigned Budgets?

Whether debates on fiscal autonomy will lead to a reassignment of taxes among central, devolved and local governments

Author: Heald