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Spending money

Brian Taylor | 13:05 UK time, Tuesday, 8 December 2009

Intriguing take in The Scotsman on public spending.

Professor David Bell reckons that a needs review, alone, would deprive Scotland of £4.5bn per year.

Bear in mind that this would be in addition to or in consort with any cuts which are coming down the line from straightforward stringencies imposed by the Treasury.

Early signals of that may come tomorrow in the chancellor's Pre-Budget Report.

It works like this. Under the Barnett formula, Scotland gains a percentage of any annual increase in spending by comparable Whitehall departments such as education and health.

Under that same formula, Scotland suffers a percentage of any annual cut in those Whitehall budgets.

Stand by, consequently, for cuts: perhaps 7-13% in real terms in the four year review period, starting in 2011, according to Audit Scotland.

New method

Prof Bell is not talking about that exercise, which seems inevitable.

He is envisaging a scenario in which Barnett has been replaced. It is no more, it is an ex-formula.

Instead, the guiding structure of Scottish spending - as opposed to the annual or four-yearly basic figures - is determined by a new method of calculation based upon assessed need rather than historical patterns, varied annually by per centage.

According to the worthy prof, a calculation done for Wales, if extended to Scotland, would produce that loss of £4.5bn: that is round about one seventh of the entire annual Scottish block.

The new system would work like this. You take a series of parameters which reflect "need" - such as the number of dependent children and elderly people, the health profile, low incomes, population sparsity, the ethnic mix.

You tally these up with regard to the various nations/regions of the UK - and allocate cash according to the outcome.

According to the Welsh study, as interpreted by Prof Bell, Scotland's take would shrink from a 20% lead over England to one as low as 5%.

Added weight

In short, using those criteria, we are not as poor as Barnett says we are. Hence the £4.5bn cut.

Now, it is possible to challenge the figure. It is possible to argue that added weight should be given to different criteria.

The Scottish government would undoubtedly mount such a defence - in the face of a needs review.

Indeed, they are already preparing the ground.

It is also possible to factor in the political element. Is a UK government really going to implement such a dramatic change if it is serious about maintaining the Union?

David Cameron, for example, is quite pointedly cooling the ardour of his Conservative colleagues towards the concept of plundering Scottish cash.

His verdict remains: "Better an imperfect Union than a perfect divorce."

Formula distrust

Labour is attempting to argue that Prof Bell's figures display the Union dividend, the value of the current set-up to Scotland.

That strikes me as somewhat specious, given that the challenge to Scotland's spending levels arises precisely within the current set-up, partly as a result of distrust of the Barnett Formula in Wales.

The SNP response is to argue one again for financial autonomy, for Scotland to raise her own revenues and control her own expenditure.

Folk, therefore, will have to calculate where Scotland's interests best lie under a range of scenarios.

Will the present set-up be retained? Will there be a needs review? Would that affect Scotland as badly as Prof Bell suggests? Would Scotland thrive or struggle under fiscal autonomy?

Remember, again, this element is in addition to the cuts which are coming anyway.

Seasons Greetings.

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