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Chill winds

Betsan Powys | 18:17 UK time, Friday, 23 April 2010

_45461334_weather0600tue.jpgDuring election time, the slew of press releases and diary markers dropping into the inbox becomes even more fevered than usual. Like old Sisyphus, if he'd had access to Outlook Express that is, no sooner have you opened/closed/forwarded/deleted than another one pops up.

That can make it hard to see the wood from the trees but two things landed yesterday that deserve more thought than usual.

The Political Unit's number one anorak and I put our heads together and thought, talked, then thought some more. This blog entry is the result, one that might even appeal to Scottish friends who've taken to dropping by this blog during the election campaign. Croeso i chi.

So what were these two things?

The first was from the think tank the Institute for Public Policy Research, with details of a study by Professor David Bell entitled "Devolution in a Downturn".

He warns of a potential public opinion backlash in England, since, according to his reasoning, devolved budgets will be better protected from the public sector cuts to come.
Firstly, he says, devolved administrations' budgets will be relatively well sheltered from the worst cuts that fall on England, since the bulk of the block grant going to them is based on health and education spending which the Conservative and Labour parties have promised to protect. Health and education funding make up more than half of the 'comparable' spending programmes in England upon which the value of the grant is based.

Secondly, the so-called 'Barnett squeeze' (which means that over time the Barnett formula is supposed to bring about equal spending per head in the four nations) goes into reverse if spending cuts are being made. This means -according to him - that the proportionate fall in spending in the devolved administrations will be lower than that experienced in England.

The second was some copy sent through from my BBC colleagues in Scotland, from First Minister's Questions in Holyrood yesterday.

Discussing the a study he'd commissioned into the impending cuts, here's what Alex Salmond had to say:

"Based on the chancellor's most recent budget statement, in broad terms, the analysis shows potential real-term reductions in Scottish Government expenditure of 3 per cent per annum between 2011-12 and 2014-15. Projecting further forward, the analysis forecasts a period of up to 12 to 15 years before 2009-10 levels of expenditure are reached again. That represents a cumulative loss of between £22 billion to £35 billion of public spending over that period, depending on what assumptions are made in the forecast."

He agreed with an intervention with a fellow MSP that this was "chilling".

Ouch. While the range of areas covered by the formula is wider in Scotland than it is in Wales, the rough rule of thumb is usually - follow the money - for Holyrood, see Cardiff Bay.

The sharper eyed among you will have noticed that Mr Salmond and Professor Bell are somewhat at odds on this. As the Scottish First Minister warns of agonies to come, the Professor warns that in his his view "public opinion may not tolerate a situation whereby the devolved administrations, and Scotland in particular, is perceived to be suffering less pain than England."

He cites previous IPPR research showing that the number of people in England who think that Scotland gets 'more than its fair share of funding' has almost doubled in recent years (from 22% in 2003 to 40% in 2009) which, suggests the IPPR, shows growing public unease about the distribution of money. This, the professor warns, is only likely to grow if spending disparities widen during an era of cuts.

Well that's the theory. So how can that English backlash be avoided? Reform the formula, is the simple answer. There's cross party consensus on that, to the extent that all think it needs to be overhauled, but much less in the way of consensus as to exactly how that should happen.

Mr Salmond's analysis, of course, is based on the Barnett formula as it currently exists. It's pretty much widely acknowleged that any substantial reform of the way the system operates - most obviously, introducing a needs-based element - would mean a reduction in the money coming to Scotland. Assuming that's in the region of a couple of billion a year, then the prediction coming from the Scottish Executive analysts gets a whole lot more chilling.

The joint press conference between Plaid Cymru and the SNP just before the election starting gun was fired received most attention for the statement that they would offer their support for a minority administration on a case-by-case basis, a sort of cash in hand deal. But it's worth looking a bit more closely at the agreement itself - '4 Wales, 4 Scotland'

Point one is as follows - Fair funding for Wales and Scotland.

But what does that actually mean?

Mr Salmond explains, "As it currently stands, the UK Government can and does slash the Scottish and Welsh budgets with impunity. The Barnett formula has let Scotland and Wales down. That's why in Scotland we need fiscal autonomy and Wales requires a fairer funding deal."

Putting aside for a moment the substantial increase in devolved budgets over the past decade, which most fair-minded people would put in exactly the opposite category to "slash", I spoke to a senior Plaid Cymru figure a couple of days after that announcement and voiced surprise that agreement on a joint Plaid-SNP fair funding had been so easy to reach, given the potential impact on the Scottish budget. "Fair funding is a banner we can both work with" came the response. A colleague had a similar chat. "Yes, we were pretty surprised too," was the answer he got. "But they really want fiscal autonomy, and if that means, y'know, losing a couple of billion, maybe, well there you go..."

Y'know, losing a couple of billion. Hmm.

Our parliamentary correspondent David Cornock, interviewing the Tory Shadow Chief Secretary to the Treasury Phillip Hammond on a visit to Wales earlier this week, got chatting about precisely this. Mr Hammond told him that in private preparatory talks in the event that the Tories take office in Westminster, Mr Salmond had used words to the effect that "the Barnett formula must stay."

So where does this leave Wales? Well, it doesn't have the generous over-funding that Scotland has historically enjoyed but it will probably see similar levels of budget cuts (or to use a current much-used euphemism, "disinvestment"). So we're starting from a low base and getting lower.

Point one of 4 Wales 4 Scotland sounds simple, but the Treasury, on past form, won't be shy about driving a wedge between the two competing demands of more money for Wales and maintaining the Scottish budget. If the IPPR's English backlash - if it materialises - is to be headed off, that will, if anything, mean equalising the spend per head between England and the devolved nations.

It has to be said that, to echo politicians in Scotland, things are looking pretty chilly.

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