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Barnett Formula

Volume 467: debated on Wednesday 21 November 2007

I am pleased to see so many Members present. I realise that some would prefer the debate not to take place, but I do not think that any area of public policy, particularly those relating to expenditure, should not be open for the debate in the House.

I first became acutely aware of how sensitive the subject was when I tabled early-day motion 402 in the last Session. Essentially, it said that the House was worried that support for the Union between England and Scotland was falling, as was seen in an opinion poll of the time, and, potentially, one of the causes of that was the Barnett formula, which should therefore be reviewed. That remains my position: I am in favour of the Union between England, Scotland, Wales and Northern Ireland, but I believe that the United Kingdom would be stronger if the distribution of public money was seen to be carried out in a fair and equitable manner.

I shall give way on that point. I am aware that many people would like to speak, and I like to give way, but I do not want to do so too often.

If the Barnett formula was reviewed and if Scotland and Wales ended up with less money, does my hon. Friend believe that that would weaken or strengthen the Union?

I am not attacking Northern Ireland, Wales or Scotland. I wish to see public expenditure, which is directed on a per capita basis towards a person in Glasgow, Cardiff or Belfast when it comes to health or education, determined on the same basis in all four home countries.

Having tabled early-day motion 402, I found out that an official from No. 10 Downing street was going round to signatories and, without telling me, was asking them to withdraw their names from the motion because of the sensitivity of the issue. That was a profoundly wrong way for No. 10 officials to behave; such issues are better aired in public debate.

The Prime Minister has said on a number of occasions that he does not believe in a review, but I hope that we can change his mind. I listened carefully to his answer to the question on the Barnett formula today, and I am not sure in what sense he meant that the formula applied to England. It was based either on an obtuse understanding of the Barnett formula or he missed the point. Effectively, the formula applies at the margin and is based on an increase in expenditure in England, not previous expenditure, which is multiplied by a comparability factor of the population. I do not see what the Prime Minister meant when he said that the formula applies to England, apart from the fact that the calculation starts with England. My hon. Friend the Member for Blyth Valley (Mr. Campbell), who asked the question, pointed out, as I shall, that the English regions end up disadvantaged because of how the money is allocated.

The Chief Secretary to the Treasury said, as the Prime Minister had, that there would be no review. However, Wendy Alexander MSP and leader of the Labour party in Scotland—

May I advise hon. Members that Wendy Alexander is the leader of the Labour party in the Scottish Parliament? The Labour leader in Scotland, as in the United Kingdom, is my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr. Brown).

I am grateful to my hon. Friend for clarifying that, but we were talking about the same person. In The Daily Telegraph on 12 September, Wendy Alexander said that the time might now be right for a review of the formula.

It is excellent to be able to talk to the person who is potentially the greatest living source on the Barnett formula—my noble Friend Lord Barnett. I shared a taxi with him on Monday, and he is clear that the Barnett formula has lasted for much longer than he intended. He is looking to set up an ad hoc Lords Select Committee to examine how money should be distributed between the four home countries, so the debate will continue. That is unfortunate for those who do not like the debate, but it is healthy to have it.

There is actually a large constituency of support for review of the formula, but does the hon. Gentleman recognise that those of us from Wales assume that any kind of needs-based formula would increase rather than reduce the amount given to Wales?

The hon. Gentleman makes an interesting point—I was going to come to it.

Any distribution of public money should be based on equity and fairness, and it should be transparent. Preferably, given the relationship between the four countries, it should have a legislative basis, so everybody knows where they stand. The Barnett formula does not have such a basis.

It is known and recognised, even at street level, that the formula is unfair to the English regions. It is less well known, as the hon. Member for Montgomeryshire (Lembit Öpik) said, that if we were to apply the normal fiscal needs basis to Wales—it might include distribution of population, road length, crime, unemployment, substandard housing and health issues, and the things that are considered in most needs-based formulas—Wales would require more money than Scotland. In actual fact, Wales gets nearly £500 a head less. It is often thought that reviewing the Barnett formula is a matter for the English regions only. It is a matter for the regions, but not exclusively; a review would look for a fairer basis on which to spend money within the United Kingdom.

The debate is about the Barnett formula and I do not wish to get dragged into constitutional conundrums—at least not much—but there are constitutional issues that relate to the formula. People in the English regions feel that they suffer a double whammy: first, they do not get the same level of funding and, secondly, they have less immediate local control over many of the services that the Welsh Assembly and Scottish Parliament control away from Westminster.

My hon. Friend knows that I share much of his analysis of the situation. However, is it not really a triple whammy, because there are huge disparities between English regions, which strengthens the force of his argument?

Hon. Members on both sides of the House appear to have had sight of my speech even though I was still writing it half an hour ago. I am coming to my right hon. Friend’s point, but I shall first go through some of the issues that illustrate the unfairness. I could spend the rest of the debate going through the figures, some of which are in the Library debate pack and the Library guide to the formula, but I shall not go through them all.

Last year, disposable household income in Scotland was £11,753, which is £1,000 greater than in the north-east of England. However, when it comes to public expenditure, the north-east of England receives £600 less per capita than Scotland, and the north-west of England receives £800 less per capita. Overall in England, the per capita level of expenditure is £1,000 less.

Just for the record and the sake of correctness, will the hon. Gentleman confirm that he is talking about identifiable public expenditure? He is talking not about total public expenditure, but about identifiable public expenditure.

I accept the hon. Gentleman’s point. The reason why I do not want to go through a lot of similar statistics is that they do not illustrate as well as real examples why in many English regions and certainly in Manchester, people do not talk about the Barnett formula, but they do now talk about its impact. I shall give the best illustration that I can. It has not been a happy week for my right hon. Friend the Chancellor of the Exchequer, but unfortunately I will have to use him as an example.

When the Crossrail project was agreed, the Chancellor issued a press release that said that Scotland would benefit indirectly from the £16 billion Crossrail project in London. That is not happening on any basis of need and it is particularly annoying for people in Leeds, Manchester and Liverpool, because when the Chancellor was Secretary of State for Transport, he cancelled either tram extensions or trams in those cities. If we work out the so-called Barnett consequentials of that £16 billion—I do not think that they have been made publicly available yet; I have just tabled a parliamentary question to quantify them as exactly as possible—we see that that would have bought at least one tram set for Leeds or Liverpool and possibly two.

We are talking about a Scottish Secretary of State for Transport who cancelled tram systems in England even though he could not affect the debate on whether trams were on the streets of his own city of Edinburgh. Now, when he is Chancellor and there is huge public expenditure on a London project, he boasts that it will benefit Scotland. As my children say, is that really fair?

Does the hon. Gentleman take the view that others might think that that situation should disbar any Scottish MP in this place from being Secretary of State for Transport, the Home Secretary, the Secretary of State for Health or the Secretary of State for Education? I should be interested to know the hon. Gentleman’s views and those of his colleagues.

No, I absolutely do not take that view. Not for the first time is a Conservative party proposal unworkable. It does not deal with the real issue, which is that the situation of people living in Leeds or Birmingham, in terms of their influence on local policies on health and transport, is very similar to that of people in Scotland. Rather than creating a completely unworkable situation in the House of Commons in which there are different classes of Members, it would be better to devolve issues down to local democracy. I do not accept the point that the hon. Gentleman makes.

The example that I have given illustrates the fact that the English regions are not just competing with London, Scotland, Wales or Northern Ireland for resources, but are left out of the complete calculation. That is why, when I walk down the streets in Manchester, although people do not say that the Barnett formula is wrong, they do come up to me and say, “Why does my daughter have to pay tuition fees in England, whereas if we lived in Scotland, she wouldn’t?” They go through a series of issues—hon. Members will be aware of them—from being able to get cancer drugs in Scotland that are not available elsewhere, to the care of the elderly—[Interruption.] I hear hon. Members saying from a sedentary position that that is to do with the Scottish Parliament, but the fact is that the Scottish Parliament, without raising a penny in taxes, can spend money at a higher rate than is the case in England. The whole basis of this debate is to ask for a review so that there is an equitable basis for funding.

I am part of a campaign, with a number of hon. Members from all parties, to try to secure a referendum on the Lisbon treaty or reform treaty or whatever the European constitution is called at the moment. The basis of that is trust: what people say to the electorate should be carried through. What is often not talked about is that in national elections, there is a corrosive effect, certainly within the three major parties, in terms of how they campaign at national level and in the different countries.

I have searched through the manifestos of the Conservative party, the Lib Dems and the Labour party, and there is no mention in the last three manifestos of all those parties for the United Kingdom—in the Great Britain manifestos, to be precise—of the Barnett formula, with one exception. In 2001, the Lib Dems came out against the Barnett formula and were in favour of a review and a fairer basis for funding.

I have two points. The variations in policy cannot all be ascribed to the Barnett formula; there are political distinctions to be made there. However, the most important point is that the hon. Gentleman should accept that the Liberal Democrats have been campaigning for a change in the Barnett formula—for slightly different reasons from the ones that he is giving—for many years. Indeed, we made that a key point in the 2005 general election in Wales and in the most recent Assembly elections, because we think that a needs-based formula, which I think he is calling for as well, is absolutely the right way to go. Even Joel Barnett, who invented the formula, seems to agree that the current formula is bankrupt.

I take the hon. Gentleman’s point. Of course, the nature of devolution is that there will be policies at elections in Wales, Scotland and Northern Ireland that relate to those countries, but where there are issues of taxation and expenditure, there is no doubt that the Barnett formula applies to England and has consequences in England. It is very strange, unhealthy and corrosive that it was possible for the previous Prime Minister to go to the Lighthouse in Glasgow on 13 April and say what a great thing the Barnett formula was, whereas it was not mentioned in our 2005 manifesto. That is the real point I am making. There is a level of unintended dishonesty, in that the Conservative party, the Lib Dem party and the Labour party would not campaign hard on what a great thing the Barnett formula is in England, and that needs exposing.

I thank my hon. Friend for being so generous in giving way. He perceives that there is an injustice, an inequality, in funding between various countries of the UK.

Indeed. Has my hon. Friend also considered the unequal way in which the defence budget is divided up around the UK? I tabled a parliamentary question seven or eight years ago for per capita figures, and it turned out that the north-east did well; Wales did not do too well; and the south-west did well. These issues need to be considered in the round.

The way in which parts of the Government’s expenditure are allocated around the country is clearly worthy of debate. I know that all hon. Members fight very hard for their constituencies and I accept the point that sometimes too much goes to one area rather than to another. I wanted to initiate a debate and keep it going about how one aspect of how spatial public expenditure is allocated seems to be fundamentally unfair.

My hon. Friend is a fine fellow, particularly in his views on the European constitution. However, does he agree that it is important to ensure that any review of spatial expenditure does not focus on the Barnett formula alone? Also, we need a review of expenditure not only within England—I completely accept that we need one here—but in Scotland. It is clear that my area of Glasgow is grossly underfunded in comparison with many other parts of the country, which receive far greater public expenditure although they have far less need.

I am sure that my hon. Friend will accept that there are great similarities between post-industrial cities such as Glasgow, Manchester and Leeds in terms of deprivation, health problems and having double the usual level of unemployment. One can go through the statistics. Glasgow, Leeds, Birmingham. Manchester and the other industrial cities should be dealt with similarly—I accept that—but one of those cities should not be dealt with better just because it is north of the border.

I am asking for a review for equity. I understand what some hon. Members are asking: will it mean less for Wales or Scotland? Not necessarily, because time could be taken to make things fairer—one comes to rates of increase when talking about such matters. But if we do not change things, we are accepting that the English regions—I gave what I think is the best illustration, transport policy—will be permanently disadvantaged. I know that some hon. Members in this Chamber, although I am not one of them, believe that it would be a good thing if the English regions were disadvantaged, because it would add to the arguments against the Union. I want the review because I am strongly in favour of keeping the countries in the United Kingdom together.

This debate has not been primarily about the constitution, but about how, rather than the Conservative solution to what is clearly an unfairness, decisions should be taken at a different level in Wales, Scotland and Northern Ireland. I do not think that the House of Commons should be divided into Members of different status, but I think that a serious look should be taken at how local democracy can be given back many of the powers and resources to make decisions that only 50 years ago, within living memory, were taken by county councils and major cities.

Order. May I say to hon. Members present that I intend to call the wind-ups at half-past 3? Seven Members have indicated in advance that they wish to speak. If I am to get them all in, they will have to speak for approximately five or six minutes each. I ask Members to bear that in mind as it will make the debate fairer for everybody.

I thank the hon. Member for Manchester, Blackley (Graham Stringer) for bringing this debate into the open. It has been hidden for too long. I speak on behalf of a borough that is regularly listed among the 10 most deprived areas in Britain and has been so for a long time. The needs-based formula must be debated; it is no good hiding from it. The Welsh Assembly Government recently voted that that should happen, and we should take our lead from them.

In Blaenau Gwent, one of the poorest boroughs, we also have one of the highest rates of council tax in Wales, if not the highest. Once a borough is poor, it is extremely difficult to escape from that position. Settlements come down from either London or the Cardiff Government, but our uplift is also among the lowest in Wales. The spiral of deprivation, in which a borough continues to be poor, is difficult to escape. A needs-based formula might have to be based in part on population, but to hide from the debate is not the answer.

The Government introduced European objective 1 funding, which was seen as a means of lifting people out of poverty. The problem is that it cannot be used for statutory responsibility, so the funding does not help to lift boroughs out of their real problem, which is statutory funding and statutory responsibility. European funding is also project-based, not long-term, and that is another worry—it can disappear as quickly as it is given. It is important that we consider the needs of every area and region in this country, and not in isolation.

If a review goes ahead and Wales gets less money under a revised Barnett formula, does the hon. Gentleman think that Blaenau Gwent will get more money or less?

The feeling in Blaenau Gwent is that we could not be any worse off. In our opinion the review, if it is based on need, can mean only that we will be better off. As we are in the bottom 10, the only way is up; in that respect, we have nothing to lose. Whatever the outcome, a review must be held. It must be open and honest, and everyone must have an input. I urge all hon. Members to push for that, because the fair distribution of moneys throughout this country is vital to areas such as mine. European funding is under threat again. Convergence funding could be taken away in one or two years’ time. We are still left with no definite funding. I urge everyone to support the call for a review.

I think that I secured the last debate on the Barnett formula, in 2001. I called for a cross-party group from the House of Lords and the House of Commons to review the formula and said that whatever its conclusions, it should start from the premise that it would take 10 years to implement the changes. I stand by that.

Three issues concern me. One is that only three regions in the United Kingdom actually have a positive GDP—the east of England, London and the south-east. Why is that? Why are the others negative after so much investment since the second world war? Is it something fundamentally wrong with the structure in our regions that makes them negative? Secondly, the formula is clearly a concern. I detect distinct nervousness in this Room in Welsh, Scottish and Northern Irish Members, and I can understand that. Thirdly, to say that there is no constitutional implication is foolish. There will be constitutional implications.

I suggest to the House—I hope that the Minister will take this seriously—that we are in government together. Our constituents are concerned about the Barnett formula. I should like to see a Joint Committee of the House of Lords and the House of Commons, and I should like it to have three purposes. One is to understand better why only three regions of the United Kingdom make any money for us. I propose that the reason is the university structure and the number of patents that are exploited. Without considering that, we will not get underneath the issue. The second purpose is to consider the funding formula, and the third the constitutional implications. A Joint Committee of both Houses, challenged to consider those three things, would come back with the most profound findings about what we must do to be a modern 21st-century country.

I congratulate the hon. Member for Manchester, Blackley (Graham Stringer) on securing this important debate. The issue has been fraught with significant controversy since 1978, when the Barnett formula was introduced, although preferential funding treatment for Scotland goes back to the end of the Victorian era and Lord Goschen. The problem became particularly strong in the aftermath of devolution, during the past eight years. However, it seems that the public at large often labour under a number of misapprehensions. [Interruption.] We all know what game the Scottish nationalists are playing. They want the whole thing shaken up; they would love nothing more than an aggressive cut in the Barnett formula, as it would allow them to play to the gallery at home. We are not going to play that game, and I hope that the same applies to Labour Members.

There is a perception that the Barnett formula is set in stone, but it is a convention that could be changed at will by the Treasury. There is also a sense that England gets an unfair deal, and that applies not only to the English regions, but in my part of London. I accept that it gets a fair amount of public expenditure. Indeed, the hon. Member for Manchester, Blackley referred to the protected £16 billion being invested in Crossrail, but as the hon. Member for Sittingbourne and Sheppey (Derek Wyatt) rightly pointed out, London is still a net donor.

When identified spending is factored into the equation, London secures more money than Scotland. What does the hon. Gentleman have to say about that? I do not ask him to accept it, but he should at least conclude that a debate is to be had about it.

We could doubtless debate statistics at both ends of the argument, but there was a tacit acceptance of the Barnett formula by the Conservative Administration between 1979 and 1997, who relied on only a small minority of votes and seats in Scotland. That is one reason why it was maintained. I disagree with the hon. Member for Manchester, Blackley. My view is that after 1997, and particularly after devolution in 1999, it ceased to be a question of economics. It is now a matter of raw constitutional politics.

The formula fails to provide for the proper fiscal independence of the devolved Governments in Scotland and Wales. Even with its own Parliament, Scotland has to work within a total sum over which it has absolutely no control, although it does have some discretion. That is unacceptable. I have always been more relaxed than many of my party colleagues and many people across England about the effects of devolution. I believe that localism should be properly respected. One of the interesting things about my constituency—the seven square miles of central London that I represent—is that it is actively cosmopolitan.

Of course, it has pockets of great wealth. It also has pockets of great poverty. I would happily go with the hon. Gentleman to literally within 200 yd of here, down to Abbey Orchard estate, and to Pimlico and Bayswater. It is much more mixed. The point is that even in the midst of a cosmopolitan constituency, there is a great passion for localism—for the idea of local residents associations and amenity societies. One of the big challenges of politics is trying to marry the fact that although we live in a global economy and a globalised world, it is one where local issues matter.

However, the postcode lottery was implicit in what the hon. Member for Manchester, Blackley said. Scotland, of course, has preferential treatment for university fees, for the long-term care of the elderly, and more recently for prescription charges. I congratulate the right hon. Member for Banff and Buchan (Mr. Salmond) on his clever political role on prescription charges, because the postcode lottery has a particular effect in relation to the health service. The nationalised health service is one subject that most people in the United Kingdom feel strongly about, and more so than about the postcode lottery or other elements of expenditure.

The hon. Gentleman is right about the policies of the Scottish National party, including the reduction in primary school class sizes, the cancellation of student debts, the hiring of 1,000 new police officers and free prescriptions. The only difference is that they have not been delivered—neither are they likely to be delivered—and they will blame us for it if they are not.

I shall not get into such localised debates, but the hon. Gentleman has put his concerns on the record. The move by the Scottish National party’s Administration at Holyrood to drive a new wedge into the area of health spending is clever politics, for it stokes up resentment on the subject that is of most concern in relation to the postcode lottery. It is a trap into which those who truly support the Union should not fall.

I have to say that my party’s view that we should support English votes for English laws is unworkable. It is absurd that we should have to go through a health Bill, saying that clause 13(7) can be voted on only by English Members but that clause 13(8) can be voted on by all Members. That is nonsense. Nor do I support the notion of an English Grand Committee. It will allow those who wish to do so to suggest that we are somehow trying to put the Union at risk. However, we must have transparency in matters financial. I hope that we will be galvanised by considering all the facts.

At least since devolution, I have preferred the idea of having an English Parliament with exactly the same rights as the Scottish Parliament. I am the only Conservative Member who voted in favour of getting rid of the House of Lords. I would have the Lords as a UK Parliament, with a unicameral system, and have English, Welsh, Scottish and Northern Ireland Parliaments with exactly the same powers, but allowing foreign affairs, defence and a certain amount of fiscal policy to be made by a UK Parliament.

We shall surely return to these matters many times. Make no mistake, however, that any move to recalibrate the Barnett formula would have political and, above all, constitutional implications well beyond the merely financial and fiscal elements that make up what is to many a somewhat mischievous mechanism.

I congratulate my hon. Friend the Member for Manchester, Blackley (Graham Stringer) on securing the debate. At least for its duration we will set aside the war of the roses. I thank my many colleagues and friends from Northern Ireland, Scotland and Wales for supporting us in this debate.

I strongly support the Union. We will continue to have greater international influence as a United Kingdom than if we Balkanise Britain into a number of smaller states. However, I believe that the Union is challenged on three fronts. First, and openly, it is challenged by Scotland’s First Minister, whose target is independence. Secondly, it is challenged indirectly by a groundswell of English resentment, because we in England pay the same taxes as those in others part of the United Kingdom but get a smaller share of public expenditure per person. As a consequence we in England pay for some public services—residential care, prescriptions, university student fees—that cost less or are free in others parts of the United Kingdom.

Thirdly, the Union is challenged indirectly—I will be kind and say unintentionally—by the Conservative-led clamour for English votes for English laws. The idea that Members of the House of Commons should be divided into two categories—those from England with rights to vote on all matters, and those from Scotland, Wales and Northern Ireland who are treated as second-class MPs without full voting rights—would be a serious blow to the concept of the Union.

Would it not be even more complicated than that? It would not be English Members and everyone else. The Scots would be able to vote on some things; the Welsh would be able to vote on different things; the Northern Irish would be able to vote on some things that the English did not vote on but which the Welsh may have done; and within England there would be some things that the London Members could not vote upon that other English Members could. There would be six categories of Members. Perhaps I can also ask my hon. Friend whether he supports the idea of “one Lord, one lamp post” when reforming the House of Lords.

I strongly agree with my hon. Friend’s earlier remarks.

The biggest difficulty would be to determine which issues can be voted on by each of the many electoral factions that would be produced by the Conservative proposal. More seriously, it would be an attack on the British tradition of Cabinet government. Under our system, the leader of a majority party in the House of Commons appoints a Cabinet, which is bound by collective responsibility and which remains in office while it retains the support and confidence of a majority of our House. The proposition for English votes for English laws would, in the words of Peter Riddell, writing in The Times earlier this month, “destroy the coherence” of Cabinet government.

The Barnett formula was created in the mid-1970s as a short-term fix, to prevent the annual feuding between the Treasury and the three territorial Secretaries of State. It may have made sense then, but it is no longer appropriate. As we heard from my hon. Friend the Member for Manchester, Blackley, it has been disowned by Joel Barnett himself. It has also been disowned by Lord Sewell, the Scottish Office Minister who took the Scotland Act 1998 through Parliament. Writing in a Smith Institute pamphlet recently, he said:

“Barnett served the UK well prior to devolution and was important in enabling a smooth transition to be made to devolved government…It has now outlived its usefulness.”

I first became aware of the difficulties and inappropriateness of the Barnett formula in the winter of 1997-98, when I was the Parliamentary Private Secretary to my right hon. Friend the Member for Holborn and St. Pancras (Frank Dobson), who was then the Secretary of State for Health. The incoming Labour Government were determined to avoid the winter pressures—the winter beds crisis—that we had witnessed in the previous few winters under the Conservatives. As hon. Members will remember, we were tied to the John Major Government’s spending plans for our first two years in government, but my right hon. Friend managed to negotiate an additional £269 million for England to avoid a winter beds crisis in that first winter under the Labour Government. There was no prospect of a beds crisis in Scotland, Wales or Northern Ireland, because they had had none previously and had the resources to avoid one that winter. Nevertheless, they received £17 million, £10 million and £18 million respectively in additional health expenditure under the Barnett formula. Just recently, the Prime Minister announced £16 billion for the Crossrail project in London, but that will deliver another £500 million of expenditure for Scotland. That is not an efficient use of public money.

The consequence of Barnett 30 years on is that people living in Yorkshire receive £1,400 less per year on average than people living in Scotland. However, the percentage of people living in poverty is greater in Yorkshire than in Scotland, at 22 per cent., as opposed to 20 per cent., according to the latest households below average income survey. In 2005—the latest year for which we have figures—gross disposal income per head was also lower in Yorkshire than in Scotland, at £12,200 per head, as opposed to £12,600.

On deprivation, my hon. Friend will also be aware that seven of our 10 most deprived areas are in Scotland.

I accept that there is poverty in Scotland and that there are additional costs from rurality in the highlands of Scotland, but there is also poverty in Yorkshire and the Humber, and there is rurality in my part of North Yorkshire.

We should use the same criteria to assess need and the same basis for apportioning public expenditure in all parts of the United Kingdom; if we do not, we will undermine the basis of the Union. I therefore support the proposal by my hon. Friend the Member for Manchester, Blackley that there should be a transparent needs-based review of the Barnett formula.

 I congratulate the hon. Member for Manchester, Blackley (Graham Stringer) on raising this vital issue and on the careful and measured way in which he developed his case. There is a growing consensus that we need a review of the way in which we raise and distribute resources in these islands, and that consensus embraces the nationalist parties in the three nations, some of the Unionist parties and the Alliance party in Northern Ireland, dissident Labour MPs, MSPs and AMs and the Liberal Democrats, although we are not quite sure about the Conservatives.

The hon. Gentleman put his finger on why there is a consensus about the fact that it is high time for a review: Barnett is a headcount formula, and injustice was almost written into it from the very start because it did not take need into consideration. Nuffield college, for example, has estimated that the absence of a needs-based formula may have led to a shortfall of £1 billion in Wales. The last time the Treasury conducted the needs-based assessment across the UK for which the hon. Gentleman is calling was 1976, and it is surely high time, after 30 years, for it to conduct a review. We do, however, have one needs-based formula in the UK: the Big Lottery Fund. Using a semi-official needs-based formula, it allocates 6.5 per cent. of the fund to Wales, rather than the 4. 9 per cent. that we get under Barnett.

The injustice is, however, getting worse, because Barnett is a convergent formula over time. In 2000, for example, Wales was 9 per cent. above the UK average for health expenditure per head, with a figure of 109 per cent., but we are now down to 104 per cent., and the figure is falling further, even though we have a similar sickness profile to the north-east of England. The north-east rightly deserves more money because of the legacy of heavy industry, but it has now overtaken Wales, and we currently have no mechanism to reflect the chronic ill health in our community.

The hon. Gentleman was right to raise this issue for another reason. One of the problems with the Barnett formula is that it is not statutory, so there is a lack of consistency and transparency about the way in which it is applied. We saw an example of that in the comprehensive spending review when the Treasury implemented a change in the baseline for the English Departments. As a result of money not being spent and the baseline being shifted—jiggery-pokery, effectively—Wales lost £260 million. What Barnett giveth, Barnett can apparently take away, and we saw such a reverse Barnett formula applied in the comprehensive spending review.

The other problem is what is and is not included in calculating the Barnett formula. I have with me the statement of funding policy—the bible of the Barnett formula—which is published every three years. It makes curious reading, because a number of things are excluded from the formula as a result of being categorised as benefiting the UK as a whole. That is fair enough, but such things are often principally for the benefit of England and, in many cases, one part of it—the south-east.

For example, the Government have spent £552 million on the channel tunnel rail link this year alone, but that is excluded from the Barnett formula. When the Conservative Government made the original decision to build the channel tunnel back in the 1980s, high-speed one would come into London, and high-speed two and three would go into Wales and the west of England and link up the north of England and Scotland. That was fair enough, because it was a UK project, and we would all benefit, with connections across the UK and to the European mainland. Then, however, high-speed two and three, which would have connected the rest of the UK, were cancelled, so the high-speed rail link now begins and ends in London and we are no longer talking about a UK project. None the less, it is excluded from the Barnett formula.

There are other examples. Some £29 million was spent on the botanic gardens at Kew, but there was not a penny in a Barnett consequential for the national botanic garden in Wales, which is in my constituency, so I should declare an interest. Nor does the royal botanic garden in Edinburgh get a penny, although I seem to remember that it predates not only the Barnett formula, but the botanic gardens in Kew—it was actually created first.

There are loads of these anomalies. Some £17 million has been spent on cycling, but we do not get anything, even though I seem to recall that we do actually ride bikes in Wales and Scotland. There is also £72 million for sustainability and renewable energy, which are big issues in Wales and Scotland, but not a penny comes to us. The list goes on and on.

Then there are the negative Barnett consequentials, which take money away. For some reason, for every pound that the Government receive from the Dartford toll crossings, 11p is taken from the Scottish public services block and 6p from the Welsh one. Can anyone explain why the Government’s receipts from the Dartford toll crossings have anything to do with the level of expenditure that we should have on public services in Wales and Scotland?

There is also the issue of prescription charges. Income from prescription charges is included as a negative in the Barnett formula. Some £450 million is raised in prescription charges in England, but Wales and Scotland take a hit for every pound that is handed over in prescription charges. There are therefore all kinds of anomalies in the way in which the formula currently operates.

There are also some quirky things in there. Some £90 million is spent on nuclear non-proliferation and subscription to international organisations. Low and behold, the National Assembly for Wales and the Scottish Parliament get a 100 per cent. consequential on that. When Scotland’s First Minister wrote to the 178 embassies and consulates asking for observer status for Scotland on the nuclear non-proliferation treaty, he was attacked by the Scotland Office, which said that that was outside the competence of the Scottish Parliament. It should have had a word with the Treasury, because apparently that matter is part of the responsibility of the Scottish Parliament and the National Assembly.

The Barnett formula is anomalous; it is an anachronism; it is unfair; and it lacks transparency. That is the case across these islands, including for the English regions, such as the south-west, that suffer from it. It is not fit for the era of democratic devolution. We are being treated as branch offices of Whitehall. What of the language that is used—“consequentials”? Decisions are made about English expenditure, which then bind our democratic institutions in Wales and Scotland. That is no way to reflect the era of democratic devolution. We need real accountability. We need a needs-based formula and, yes, we need elements of fiscal federalism as well.

To conclude, I want to ask the Minister whether the Treasury will commit itself to co-operating fully with the first official review of the Barnett formula since it was created, which was announced by the Labour-Plaid Cymru “One Wales” Government, so that we can finally get clarity on the issue, and a clear picture of who, if anyone, gains from the formula and who, including Wales, loses.

I congratulate my hon. Friend the Member for Manchester, Blackley (Graham Stringer) on securing the debate. I sometimes wonder, when the Barnett formula is mentioned, where I should be coming from, but I think of the old “Carry On” film with Kenneth Williams, when he came out with the line, “Infamy! Infamy! They’ve all got it in for me!” That would apply to every hon. Member who has spoken in the debate. They have all told us that they live in the poorest area of the world or the universe, that they are hard up and that Scots people are well off. Yet by my figures six of the poorest constituencies in the United Kingdom are in Glasgow. My hon. Friend the Member for Glasgow, South-West (Mr. Davidson) represents one of the poorest areas in the United Kingdom. Yet we are told that everyone else’s constituency is just as poor as ours, or worse off. My hon. Friend the Member for Vale of Clwyd (Chris Ruane) mentioned the uneven circulation of money allocated by the Ministry of Defence. Some areas benefit much more than others, including in Scotland and Wales, yet when we talk about the Barnett formula we want to argue about who is the poorest, who is the richest, and who gets money for what.

The agreements were arrived at for a reason. I do not want to give everyone a history lesson, but perhaps I may explain exactly how the Barnett formula came about. The Barnett formula followed on from another formula, which was put in place in 1888, called the Goschen formula. It was based on population, which is why the Barnett formula took a similar approach. Other national characteristics were also taken into consideration. The figures for Scotland traditionally gave a higher level of spending. Why? Scotland contains a third of the British land mass, with isolated islands and rural communities. More than 60 per cent. of the UK coastline is in Scotland. Of the 10 areas with the worst life expectancy in the UK, seven are in Scotland, and six of those are in Glasgow. I have great respect for the hon. Member for Cities of London and Westminster (Mr. Field), and have spoken in many previous debates with him on many Bills, and I apologise for the time when I said that everyone who worked in the City was a crook—it is probably only half of them. But when he speaks of being able to show us poverty only a few hundred yards from here my reply is that I will take him to Glasgow and show him real poverty. We can compare things and see who has it worst.

We appear to have an unholy alliance—[Interruption.] It is disappointing.

The hon. Gentleman is saying things from a sedentary position, but I would just remind him of the saying about people in glass houses.

My hon. Friend the Member for Paisley and Renfrewshire, North (Jim Sheridan) made a good point. I do not remember a Labour Government, months into their tenure, being called liars and cheats, and being accused of hoodwinking people to win an election, as has happened with the Scottish National party. I do not remember any party getting that kind of treatment only a few months into its tenure. Promises are promises; we do our best and try to work to them. Obviously, that applies only to certain parties in this House, and I am glad to say that mine is one.

Would the hon. Gentleman care to remind us what the 2003 Labour party manifesto said about council tax rebanding? Did it happen?

The hon. Gentleman has obviously caught me at a loss. He may carry the Labour party manifesto about; good luck to him. He obviously gets a lot of knowledge from it. I do not carry every one of our manifestos around, but I do know whom I represent, what a lie is, and what the truth is. I shall stand up for that. Unfortunately, it appears that his party, north of the border, cannot do that these days. [Interruption.] I hear from a sedentary position that this is scandalous. I am sure that if I were doing anything scandalous you would tell me to sit down, Mr. Atkinson. If I were telling a lie I am sure that the Scottish National party would want to take me to court.

Thank you, Mr. Atkinson; that is what I am talking about. The Barnett formula was an agreement made between Parliaments down here. When I make an agreement with someone I like to stick to it. If we had stuck to it, and merging had taken place over time as was supposed to happen with the Barnett formula, we would not be having this discussion. However, the Conservative party—whose spokesman will unfortunately speak later—let go of the formula from 1979 to 1992 without doing anything about it. If merging had occurred as was supposed to happen, the Barnett formula might have converged by now, or at least we might be contemplating that in the near future. Once again, a political party unfortunately did not do what it was supposed to. It wanted votes north of the border. Well, it got the votes it deserved, with two Members in the last three general elections. That says it all.

As a trade unionist, which I have been all my working life, I have been expected, by the members whom I have always looked after and supported, to deliver as I have said I would. Those expectations extend to the Barnett formula. The fact is that Scotland delivers quite a lot to the United Kingdom. We also have added problems that other areas of the United Kingdom do not have. We have talked of the rural areas and the highlands and islands, and the poverty in some of our inner cities, which is as great as in any inner city in the world in a nation that professes to be a civilized part of western democracy. However, there is at present an alliance between the Conservative party, which I now call the English national party, because that is what it now is, the Scottish National party, which is well known north of the border as the tartan Tories, and the Welsh nationalists, who, I am informed by my hon. Friend the Member for Vale of Clwyd, who is not in his place at the moment, are called the daffodil Tories. That speaks for itself. [Interruption.]

I am somewhat disappointed in nationalist Members. I sat in silence while the Plaid Cymru spokesman did his eight minutes and I never interrupted him with a word. All that they have done this afternoon—and this is a shining example of how the nationalists conduct themselves throughout the country—is shout people down when they do not agree with them.

Order. I remind the hon. Gentleman that we are discussing the Barnett formula and that we should start the wind-ups quite shortly.

I thank the hon. Member for Glasgow, North-West (John Robertson) for not naming my party in the unholy alliance. We are in an age in which the Government talk to us about the importance of evidence-based policy, in which we are told that the focus must be on outcomes rather than just inputs, and in which the Government’s priorities are based on equality, equity and meeting need. Does the hon. Gentleman not accept, therefore, that the Barnett formula indeed needs reviewing? It was not agreed between different Parliaments; it was agreed inside one person’s head in Whitehall. In terms of providing policy accountability, it does no justice to this Parliament to defend a policy that neither stands the test of time nor meets the needs of people throughout the country whom this Parliament serves.

The hon. Member for Foyle speaks a lot of sense. In view of the time, let me conclude by saying that, although the Barnett formula might not be the panacea for all this country’s ills, it certainly should not be used as the tool to split it up.

It is a pleasure to serve under your chairmanship, Mr. Atkinson. I congratulate the hon. Member for Manchester, Blackley (Graham Stringer) on securing the debate, which has created great interest, as the attendance shows. I compliment him on the way in which he developed his arguments, and it is a pity that the debate has not followed his example and that it has degenerated into a debate on other matters.

We await the remarks of the hon. Member for Runnymede and Weybridge (Mr. Hammond), but a consensus is developing among a number of hon. Members that it is time to review the Barnett formula and the way that it works. That review should consider not only whether the formula should apply to the devolved nations and Administrations but whether it should apply to English regions as well. We in this Chamber can debate whether we represent the richest, the poorest or the most needy communities, but the key issue is not that but our determination to ensure fairness and transparency in the way in which the Westminster Government distribute money.

As has been said, the Liberal Democrats have been in favour of reform of the formula for a number of years. Reform was mentioned in our 2001 manifesto and was included in the Welsh Liberal Democrats’ manifesto as well, so support for reform is not confined to English Liberal Democrats in Westminster but is found among Liberal Democrats in Wales and Scotland.

The formula contains an inherent unfairness in that it is based on population, and further unfairness in that the last needs-based assessment took place in 1978, since when things have moved on considerably. Changing populations and population proportions in England, Wales, Scotland and Northern Ireland have implications for the money that is available for the different Administrations. My understanding is that the population of Wales is increasing, but not as quickly as that of England. Consequently, the factor that allows calculation of the formula figures for Wales has decreased in recent years from 5.94 per cent. to 5.84 per cent.

I am listening closely to the hon. Gentleman’s arguments. He is right that populations change, but there also are significant demographic changes within populations that can create more demand, especially if there is a large elderly population. If there were a review, there is every likelihood that no extra money would actually exist. Does he therefore recognise that there would be winners and losers if there were a complete review of all aspects, and is that what he thinks should happen?

I absolutely accept what the hon. Gentleman says. The thrust of today’s debate has been about fairness, and I accept that there will be winners and losers. However, if government is about anything, it should be about fairness, rather than showing undue preference. My understanding is that the Scottish population is actually decreasing.

Well, it has been decreasing in recent years, and the increase in the English population has an effect on the Barnett consequential.

We have heard examples relating to many places in the south of England, and especially London. If there was a redistribution of a fixed amount of money to areas of dependence, we would have to ensure that places in the south of England that already receive money would not get an increase. Does the hon. Gentleman agree?

I accept that point. Whenever a formula is devised, whether for distribution of grants to local authorities by the Welsh Assembly or for distribution to English local authorities, people will debate whether it is just, which factors are relevant and how much emphasis should be put on each of them.

The hon. Member for Carmarthen, East and Dinefwr (Adam Price) made some very telling points. The key is transparency. As he pointed out in great detail, consideration of the bible for the Barnett formula reveals some extraordinary inconsistencies in what is included and what is not. Will the Minister say whether there is any possibility of simplifying the formula’s workings, so that there is more transparency and so that people can understand the formula better?

Although the debate is about the Barnett formula, the thrust of the speech made by the hon. Member for Carmarthen, East and Dinefwr was that there should not be a Barnett formula for the English regions, but that there should rather be a proper and just formula for those regions. That is what my party is aiming for in terms of a formula for the devolved nations.

My constituency adjoins that of the hon. Member for Blaenau Gwent (Mr. Davies), and I know the problems that that area faces. At the moment, the Welsh Assembly is planning to set up a national commission to review the Barnett formula. I asked the Secretary of State for Wales whether, if the commission recommended a change, he would press for implementation by the Government or would act as a Government apologist and go back to Wales to explain why review was not possible.

With regard to the setting up of a steering committee to define the commission’s terms of reference, it is interesting that the only people on the steering committee are Labour and Plaid Cymru Assembly Members and MPs. Given the “One Wales” approach to government, it would have been better if members of other parties had been included.

The Secretary of State said that he could do both jobs. We are left guessing as to where he placed the most emphasis, however. Was he Wales’ representative in Westminster or the Westminster apologist in Wales?

The hon. Member for Sittingbourne and Sheppey (Derek Wyatt) suggested that a Joint Committee of Lords and Commons should undertake a review. That could be a very productive way forward, but a consensus is growing that something needs to be done to ensure that Westminster money is spent responsibly and fairly, with due consideration to everybody’s needs.

I congratulate the hon. Member for Manchester, Blackley (Graham Stringer) and all Members who have spoken in this debate. In raising this issue, I recognise that he is representing genuine concerns held by his constituents. I would like to say also that it is a pleasure to have witnessed for the second time in a week a display of fraternal relations on the Labour Benches.

The Conservative party recognises the damage that the perception of unfairness is doing to the cause of the Union. However, let us be clear on what we are talking about. As hon. Members have spelt out already, the Barnett formula was introduced in the 1970s and is still based on a measure of relative need that was last assessed in the 1970s, but since then there have been very significant changes in the structure of the UK’s economy and society.

Originally, the formula was an interim measure; there was no legislative scrutiny, and it has no statutory force or democratic mandate behind it. Given that it applies only to increases in public expenditure, its effects are magnified by any acceleration in such expenditure and will also, of course, be emphasised by a deceleration in the growth of public expenditure, as we are now seeing in the comprehensive spending review. Nevertheless, the formula has worked reasonably well for many years.

In my judgment, two things have contributed to the renewed political salience of this issue. The first is that, in the post-devolution world, the money in the block grants that goes particularly to Scotland is able to support visible policy differences, rather than just a different level of funding to United Kingdom-wide policies. The different levels of funding were largely invisible for many years, but a series of announcements on clear differences in entitlement and treatment have tended to inflame that sense of injustice.

There is more than a suspicion that the Scottish National party is now exploiting that sense of injustice to try to ferment separatist sentiment in England. We have seen policies on tuition fees, nurses’ pay rises, more generous residential care provision for the elderly, free dental and eye checks, and access to drugs and treatment that are not available on the NHS in England. All of those are “in-your-face” reminders to English electors of the effect of the Barnett formula. The fact that specific commitments in England—Crossrail has been cited—automatically give rise to additional contributions to the Scottish, Welsh and Northern Irish blocks does not help the situation. Secondly, undoubtedly, the broader political questions around the sustainability of the devolution settlement and the imbalance between England and Scotland in the political settlement exacerbate the sense of injustice.

The hon. Gentleman said that the effects of the Barnett formula are exaggerated when increases in spending accelerate. However, because the base line in Scotland for comparable Departments is higher to begin with, and because there is a fixed amount of money, based on the percentage of English increases, going to Scotland, the percentage increase in Scotland is actually reduced because it is an absolute amount. Does he not recognise that, over the long term, that is a convergence formula?

We could probably have a complicated debate about the mathematics, but I do not think that this is the time or place to do that given the time available.

Clearly, there is a legitimate question here that cannot simply be ignored, and it is more complex than some people, such as Ken Livingstone, sometimes like to present it. Let us get the matter into perspective. The figure often quoted in the media is for a £1,500 gap between England and Scotland, but almost certainly that exaggerates the effect, because if we exclude spending on social services, which is not subject to the Barnett formula and is intrinsically need-reflective, the difference is less than £1,000. Furthermore, any alternative system almost certainly would have to be based either on fiscal autonomy—Scottish taxes for Scottish spending—or on an updated needs-based formula applied to all four countries.

It is not at all clear that a needs-based distribution formula would eliminate the differential between England and Scotland, as some appear to suggest, and spending in the English regions, as has been mentioned by a number of hon. Members, varies enormously already, with public sector activity accounting for nearly 60 per cent. of the economy in the north-east, but little more than 30 per cent. in the south-east. So for those of us who wish to strengthen the Union and who are wary, therefore, of the fiscal autonomy solution, it is not clear that a revision of the formula on a needs basis would produce the results that the hon. Member for Manchester, Blackley and others seem to assume.

Let me be clear where the Conservative party stands. We are not considering changes to the Barnett formula, but we recognise a growing body of opinion that questions the settlement. It is legitimate to ask whether the formula, which has served the UK well, is best suited to dealing with the distribution of public spending in the future. That is a long-term question that might well need to be addressed. However, it must be placed in context, which I shall come to in just a moment.

I have just told the Minister that we are not reviewing the Barnett formula, but that we recognise that a legitimate question is beginning to arise about whether it will remain the best formula for the distribution of resources within the UK.

I am trying to understand where the Labour party stands. In Scotland, apparently Wendy Alexander recognises the need to reconsider the Barnett formula. In Wales, the hon. Member for Carmarthen, East and Dinefwr (Adam Price) has told us that the Labour-Plaid Cymru coalition in the Welsh Assembly is conducting an official review of the Barnett formula. In England, the Prime Minister acknowledges that the formula allows Scotland

“to spend more on schools and hospitals”,

but apparently he does not believe that a review is necessary.

The Minister will probably tell me that that is the inevitable consequence of devolution, but to some people it will look suspiciously like one party with three different policies, depending on which electorate it is addressing—something that we are more familiar with from the Liberal Democrats. Will she clarify the position of the Labour party in England, Scotland and Wales, and will she answer categorically the question from the hon. Member for Brecon and Radnorshire (Mr. Williams) about what the Government’s response will be to any recommendation from the Welsh Assembly Government on the Barnett formula?

There is no doubt in my mind that the wider need to forge a sustainable constitutional settlement between the four countries of the Union, and the asymmetry of the current arrangements, have exacerbated the perception of this problem. English voters feel not only fiscally, but now also politically, disadvantaged. There is a clear need, therefore, for a constructive Unionist solution to the West Lothian question. My right hon. Friend the Member for Witney (Mr. Cameron) has made it clear that the Conservative party is committed to delivering such a solution; and a working party under my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) will bring forward policy recommendations in due course.

A proper, sustainable constitutional settlement would go a considerable way towards reducing the sense of injustice felt by English voters, and would provide a long-term context for a rational discussion about the future allocation of resources. Do the Government recognise the contribution of the West Lothian question to the sense of injustice felt towards the Barnett formula, and does the Minister recognise that the constitutional settlement within the Union represents unfinished business that needs addressing?

Clearly we will have a debate on that. The hon. Member for Manchester, Blackley, and others, will ensure that we do. We ought to ensure at least, therefore, that it is a well informed debate. To that end, will the Minister explain why no new four-nation needs assessment has been made since 1977? Does she recognise the need for such an assessment in order to inform a sensible debate, and will she give us any hope that something will be done on that front? Will she make a commitment on behalf of the Government to publish data on the comparable block grant spending in England so that we can have an official figure that would be the basis of proper comparable figures between the four countries?

We Conservatives recognise the concerns raised by the hon. Member for Manchester, Blackley; those concerns are legitimate and they are not going to go away. However, ours is a Unionist party and we believe that we should seek solutions to the political and economic question within the family of the Union, solving problems and not using them as a lever to split the Union apart. We reject the approach of those who seek to exploit this debate to promote the cause of separatism. I urge the Government to recognise and embrace the case for a lasting resolution of the West Lothian question as a critical first step to achieving a sustainable, enduring constitutional settlement within which the issues that we have been discussing can be considered calmly without being overshadowed by the spectre of separatism at the table.

It is a great pleasure to be here today to discuss this extremely important issue. The Government are committed to improving economic prosperity in all our regions and within them, too, and in the devolved countries. The Government have a public service agreement target to increase growth in the poorer regions and to try to get more growth in areas that have lagged behind in the past. To some extent, I have a great deal of sympathy with some of the points that my hon. Friend the Member for Manchester, Blackley (Graham Stringer) made about productivity and differences between regions.

The longevity of the Barnett formula is a tribute to its effectiveness in determining the allocation of funding expenditure in Scotland, Wales and Northern Ireland and it continues to have some substantial advantages. We have debated some of the disadvantages, some of which are perceived and some real. However, no formula is perfect or above criticism. The Barnett formula has produced distributions of public funds over the period since it was introduced that have been perceived as generally fair and broadly acceptable. The formula has been used by both Labour and Conservative Administrations and it also underpinned the devolution settlements, which were supported by referendums in Scotland, Wales and Northern Ireland.

The Barnett formula has existed for many years, as hon. Members have said, but it is regularly updated. The most recent update was in the comprehensive spending review in October. That version of the formula uses the latest Office for National Statistics population figures produced in the summer, so changes in spending in the CSR reflect the latest changes in population relativities between countries.

The point of the Barnett formula in the first place was to avoid the need for detailed, line-by-line negotiations between Treasury Ministers and their counterparts in Scotland, Wales and Northern Ireland during public spending reviews, which happened before it was introduced. It has provided a transparent, endurable and fairly simple rule for reaching spending settlements without direct negotiation. As hon. Members have pointed out, the formula is written, in all its glory, in “Funding the Scottish Parliament, National Assembly for Wales and Northern Ireland Assembly: a statement of funding policy”, which is available as published by Her Majesty’s Treasury.

There is a widely held impression that the formula is responsible for determining the level of spending per head on services in Scotland, Wales and Northern Ireland. Some colleagues have used those levels as an argument to say that there is unfairness, but that is not so. The formula is a device to allocate to the devolved Administrations a relative population share of changes in planned spending on comparable UK Government Department programmes. It is not used to determine the initial baselines because, as hon. Members have pointed out, they are inherited from the past. It is only used to determine the overall increase in the budgets of the devolved Administrations, and it is for those Administrations to decide how to allocate their budgets to individual programmes.

The Barnett formula does not determine annually managed expenditure, such as devolved spending funded by council tax and business rates, and, for example, social security, which is why sometimes the figures on public spending per head give a false impression of the actual spending. My hon. Friend the Member for Manchester, Blackley argued for a shift away from a population base for public expenditure under the Barnett formula to one based on needs, but failed to recognise or acknowledge that the annually managed expenditure parts of public spending are already needs based, be they allocated through local government grants, national health service expenditure or, crucially, in poorer areas, through social security spending. So a considerable part of the expenditure of public money regionally, which appears in the figures that are often quoted, is already needs based.

The Barnett formula seeks to allocate increases in what are known as departmental expenditure limits based initially on English departmental allocations and it seeks to ensure that the increases in DEL, rather than annually managed expenditure, are conveyed fairly on a per-population basis to the devolved authorities, which are allocated their spending through a block grant. In England, each part of public expenditure that is departmentally limited is allocated departmentally rather than on a block basis. [Interruption.] I have explained that annually managed expenditure, such as social security, that is allocated on a demand basis is not part of the Barnett formula. The formula allocates Department expenditure-limited moneys that are in some ways devolved or not devolved, as the case may be, to Scotland, Wales or Northern Ireland. It is a needs-based formula for financial allocation.

The Barnett formula does not determine annually managed expenditure; its needs-based allocations are included in the limits, which hon. Members used to say that there was unfairness, whereas it distributes only part of total managed expenditure, which is known as DEL, rather than annually managed expenditure.

I accept my hon. Friend the Minister’s analysis, but does she think it fair that a huge capital project in London transfers money on no basis of need whatsoever to Scotland, Wales and Northern Ireland and not to the English regions?

In respect of the Barnett formula, the issue is whether such moneys are devolved or not and, if they are, by what percentage they are devolved. That is the technical mathematics involved in all this. If money is distributed, it is because the policy is nationally determined and therefore the devolved Administrations are allocated their percentage of it on a population basis. It is purely about whether it is a devolved matter or not. Crossrail is not a devolved matter, which is why the distribution was made.

In relation to Crossrail, it is also important to stress that a significant proportion of the money will come from the private sector and another part of it will come from the London council tax payer. However, I recognise what the hon. Member for Manchester, Blackley said, which is that there seems, at least on the surface, to be some perversity: moneys find their way to the devolved nations, but not to other parts of the UK. It is important that that £16 billion is a headline figure but a significant proportion of it will be coming from London taxpayers and businesses.

The hon. Gentleman’s point is well made.

The point of this debate is to try to improve the economic performance of all areas of the country, rather than to argue that there is unfair distribution between different regions and countries in the Union. When there is differential need within as well as between regions, the Government are far more interested in improving the economic performance for everybody to ensure that we can maximise economic opportunity. That is why it is important that at the same time as we publish the pre-Budget report, we publish a review of sub-national economic development and regeneration in England, which devolves significant economic power in order to improve economic performance regionally. That has been improving faster in the poorer regions than in the others so I hope—

Sitting suspended for a Division in the House.

On resuming—