The oversight of devolution finance by the Westminster Parliament
When devolution was launched, Professor Bogdanor wrote that: ‘Finance is the spinal cord of devolution, for it is the financial arrangements which will largely determine the degree of autonomy enjoyed by the devolved administrations; the financial settlement, therefore, will exert a dominant influence on whether the aims of devolution are sustained or frustrated.'[1131] However, when viewed from the perspective of the financial arrangements which underpin devolution, the procedures for distribution and oversight have been only partially modified to take account of the changes that devolution brought in its wake.
Formally, Scotland has been different from the outset.[1132] After the devolution referendum in 1997[1133] had delivered a decisive affirmative vote to both Scotland having a devolved Parliament (74.3 per cent) and a Parliament with tax-varying powers (63.5 per cent), the Scotland Act 1998 included the power to vary the rate of Scottish income by up to 3p in the pound.[1134] This tax-varying power has never been used, which has meant that the base level of devolution-funding was established by Westminster under the block grant referred to as the Barnett Formula. Since the inception of devolution in 1999, this Formula has provided a stable financial basis for devolution. Lord Barnett has acknowledged that his Formula was originally set up under the Labour government in the mid-1970s to allow diverse spending levels between the various parts of the UK to reflect a range of variables. They included: population scarcity; transport needs; relative levels of ill health; rural needs for education; and industrial needs.[1135] As a block-grant formula, Barnett is not, however, technically a needs-based formula. Rather, it is calculated according to the change in planned spending in departments in England.Under Barnett, the devolved administrations receive the amount allocated in the previous year, plus or minus a population-based share of changes to similar UK government spending for England. The Formula is based on calculating the changed spending level in England which is then calculated according to a given fraction for Scotland, Wales and Northern Ireland. If there are changes to the spending plans for the English programmes in the same policy domain, then a fixed proportion is added to or subtracted from the amount allocated. These proportions are population-based.[1136] Since the 1998 Comprehensive Spending Review, for the purposes of this calculation the spending of all UK spending departments (Whitehall departments and the devolved administrations) is divided between the Departmental Expenditure Limit (DEL) and Annually Managed Expenditure (AME) budgets. DEL public expenditure is that which can be planned and controlled on a three-yearly basis through spending reviews. This calculation applies to the cost of providing services which can be reasonably predicted: typically education, health and transport. On the other hand, AME expenditure is public expenditure which varies according to external circumstances and cannot reasonably be subject to firm multi-year limits. The main categories of domestic AME spending comprise social security benefits and Ministry of Defence spending. The Barnett Formula applies only to spending that is territorially identifiable and forms part of a DEL. While the stability guaranteed by a secure financial underpinning should be regarded as a key positive feature, the lack of any built-in correlation between taxation and spending (or financial accountability to voters) has often been presented as the fundamental weakness of devolution.[1137]
Given that issues of funding for regional, devolved or federal government in other jurisdictions are frequently matters of political controversy, often requiring final settlement in the courts, it is next worth viewing the issue of accountability for the Barnett Formula from the standpoint of existing scrutiny procedures at Westminster.
Each year there is a spending review by central government and the amounts set aside for devolution form part of the review. After it has been calculated by the Treasury as part of the annual parliamentary financial procedure by which Parliament votes to make monies available for general disbursement by government, the amount allocated for devolution under the Barnett Formula makes up part of the consolidated fund. The consolidated fund bill is presented to Parliament annually and its approval provides Parliamentary authority for funds requested by the government.[1138] The proceedings on this bill are formal and governed by a parliamentary convention which dictates that there is never any debate on the consolidated fund.[1139] Once passed, the bill authorizes the release of money from the consolidated fund which is, in effect, the government’s bank account.[1140]While there is a virtual absence of parliamentary scrutiny at this point in the financial cycle, there is provision for resolution of disputes about funding allocations from Westminster. First, there is consultation between the Chief Secretary to the Treasury and the devolved executives before his statement of funding policy is issued. The dispute resolution procedure comes into play for resolving disputes on all financial matters if there is disagreement between Treasury ministers and devolved administrations about changes to the statement, or about any aspect of its application to determining funding. This procedure for resolving disputes on all financial issues at devolved level mirrors the arrangements between the Treasury and UK departments. The relevant devolved administration or secretary of state can first pursue the issue with Treasury ministers. As a last resort, any such matters can be raised for resolution at the Joint Ministerial Committee (as explained above) which will include the relevant ministers and officials from the UK government and ministers and officials from the devolved administrations.[1141]
From the perspective of the Westminster Parliament, it is widely recognized that Departmental Select Committees of the House of Commons which shadow the main departments of state perform an important role in delivering oversight of the executive.[1142] The Scottish Affairs Committee, Welsh Affairs Committee and Northern Ireland Affairs Committee have undertaken this role over the Scottish, Welsh and NI Offices since 1999 rather than for devolved responsibilities which now fall under the remit of the Scottish Parliament or the Assemblies in Cardiff or Belfast.[1143] However, no attempt has been made to raise the issue of the supply estimates or detailed budgeting questions about the devolved executives.
The official position is that these committees do not have a formal remit over other UK departments, including the Treasury. In practice, this limitation does not prevent Departmental Select Committees from initiating wide-ranging inquiries on matters affecting Scotland, Wales and Northern Ireland. The Scottish Affairs Committee in the course of reviewing the general effectiveness of devolution has asked questions on the annual spending review conducted by the Treasury which forms the basis for the computation of the Barnett Formula. The reply of the Scottish Officer Minister confirmed that: ‘In the course of the Spending Review one of the outcomes is that decisions are taken on spending programmes of United Kingdom departments. These are the key components of the consequentials from which will be calculated the Scottish budget. We, and indeed the Scottish Executive, have access to those figures to make sure that a fair share is coming to Scotland.'[1144] Furthermore, the Scottish Office provided supplementary data from the spending review to the committee, which allowed the calculation of the Barnett Formula to be replicated.[1145] The investigation by the Northern Ireland Affairs Committee into the possible effects of reducing corporation tax on the economy in Northern Ireland provides a more recent example of a Departmental Select Committee addressing financial questions about devolution.[1146]D.