Is the Scottish subsidy unfair?

The Daily Mail's analysis fails to take into account North Sea oil revenues. But the Barnett Formula

Today's Daily Mail leads on what it describes as the "yawning gap" between England and Scotland: public spending. The latest Treasury figures show that state spending in Scotland averaged £10,212 per head last year - £1,624 more than in England, where public spending is £8,588 per head. So, is this subsidy (I'll come to the issue of whether it really is a subsidy) as unfair as the paper suggests?

First, it's important to note that Scotland isn't the only part of the UK that receives a public spending premium (see Table 9.4). The national average was £8,845 per head but Northern Ireland spent £10,706 and Wales spent £9,829. There are also discrepancies within England itself. State spending averaged £9,503 per capita in the North East and £9,349 in the North West but just £7,691 in the East. The West Midlands received £8,618 per capita but the South East received £7,533.

Were spending consistently allocated on the basis of need there would be no reason to object. But in the case of Scotland (and Wales and Northern Ireland), funding is allocated through the Barnett Formula, an outdated population-based measure that even its founder (Joel Barnett) has argued should be scrapped. In 2004, he said: "It was never meant to last this long, but it has gone on and on and it has become increasingly unfair to the regions of England. I didn't create this formula to give Scotland an advantage over the rest of the country when it comes to public funding." Most analyses suggest that Scotland would lose out under a needs-based formula and reform is long overdue. But this remains one fight the government shows every sign of avoiding.

Much of the Mail's righteous fury, however, is overblown. The paper takes aim at the seeming panoply of benefits enjoyed by the Scots: free university education, free personal care for the elderly and free NHS prescriptions. But these policies simply reflect the spending priorities of the SNP government. There is no good reason, for instance, why English students could not also enjoy free higher education. The government's decision to triple fees to £9,000 was a political choice, not an economic necessity.

But if Scotland really is subsidised to the hilt, how large is its fiscal black hole? And can the country afford to go it alone? The Scottish adiministration's annual Government Expenditure and Revenue exercise, which calculates how much of the UK's revenue is raised in Scotland, and how much is spent in Scotland, attempts to answer this question. The latest figures from the Holyrood statisticians show that in 2009-10, Scotland borrowed £14.9 billion (13.4 per cent of GDP), a gigantic deficit by any measure. But if we factor in the country's geographical share of North Sea oil and gas, 81 per cent of which lies in Scottish waters, the deficit falls to £9.0 billion (6.8 per cent of GDP), a sizeable black hole but one that compares favourably with the UK-wide deficit of 9.8 per cent.

This leaves open the question of how Scotland will pay its way when the oil runs out (my answer: it won't) but it's also a reminder that the subsidy debate is rather more complex than the Mail's splash suggests.

George Eaton is political editor of the New Statesman.

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Ken Livingstone says publicly what many are saying privately: tomorrow belongs to John McDonnell

The Shadow Chancellor has emerged as a frontrunner should another Labour leadership election happen. 

“It would be John.” Ken Livingstone, one of Jeremy Corbyn’s most vocal allies in the media, has said publicly what many are saying privately: if something does happen to Corbyn, or should he choose to step down, place your bets on John McDonnell. Livingstone, speaking to Russia Today, said that if Corbyn were "pushed under a bus", John McDonnell, the shadow chancellor, would be the preferred candidate to replace him.

Even among the Labour leader’s allies, speculation is rife as to if the Islington North MP will lead the party into the 2020 election. Corbyn would be 71 in 2020 – the oldest candidate for Prime Minister since Clement Attlee lost the 1955 election aged 72.

While Corbyn is said to be enjoying the role at present, he still resents the intrusion of much of the press and dislikes many of the duties of the party leader. McDonnell, however, has impressed even some critics with his increasingly polished TV performances and has wowed a few sceptical donors. One big donor, who was thinking of pulling their money, confided that a one-on-one chat with the shadow chancellor had left them feeling much happier than a similar chat with Ed Miliband.

The issue of the succession is widely discussed on the left. For many, having waited decades to achieve a position of power, pinning their hopes on the health of one man would be unforgivably foolish. One historically-minded trade union official points out that Hugh Gaitskell, at 56, and John Smith, at 55, were 10 and 11 years younger than Corbyn when they died. In 1994, the right was ready and had two natural successors in the shape of Tony Blair and Gordon Brown in place. In 1963, the right was unprepared and lost the leadership to Harold Wilson, from the party's centre. "If something happens, or he just decides to call it a day, [we have to make sure] it will be '94 not '63," they observed.

While McDonnell is just two years younger than Corbyn, his closest ally in politics and a close personal friend, he is seen by some as considerably more vigorous. His increasingly frequent outings on television have seen him emerge as one of the most adept media performers from the Labour left, and he has won internal plaudits for his recent tussles with George Osborne over the tax bill.

The left’s hopes of securing a non-Corbyn candidate on the ballot have been boosted in recent weeks. The parliamentary Labour party’s successful attempt to boot Steve Rotheram off the party’s ruling NEC, while superficially a victory for the party’s Corbynsceptics, revealed that the numbers are still there for a candidate of the left to make the ballot. 30 MPs voted to keep Rotheram in place, with many MPs from the left of the party, including McDonnell, Corbyn, Diane Abbott and John Trickett, abstaining.

The ballot threshold has risen due to a little-noticed rule change, agreed over the summer, to give members of the European Parliament equal rights with members of the Westminster Parliament. However, Labour’s MEPs are more leftwing, on the whole, than the party in Westminster . In addition, party members vote on the order that Labour MEPs appear on the party list, increasing (or decreasing) their chances of being re-elected, making them more likely to be susceptible to an organised campaign to secure a place for a leftwinger on the ballot.

That makes it – in the views of many key players – incredibly likely that the necessary 51 nominations to secure a place on the ballot are well within reach for the left, particularly if by-election selections in Ogmore, where the sitting MP, is standing down to run for the Welsh Assembly, and Sheffield Brightside, where Harry Harpham has died, return candidates from the party’s left.

McDonnell’s rivals on the left of the party are believed to have fallen short for one reason or another. Clive Lewis, who many party activists believe could provide Corbynism without the historical baggage of the man himself, is unlikely to be able to secure the nominations necessary to make the ballot.

Any left candidate’s route to the ballot paper runs through the 2015 intake, who are on the whole more leftwing than their predecessors. But Lewis has alienated many of his potential allies, with his antics in the 2015 intake’s WhatsApp group a sore point for many. “He has brought too much politics into it,” complained one MP who is also on the left of the party. (The group is usually used for blowing off steam and arranging social events.)

Lisa Nandy, who is from the soft left rather than the left of the party, is widely believed to be in the running also, despite her ruling out any leadership ambitions in a recent interview with the New Statesman.However, she would represent a break from the Corbynite approach, albeit a more leftwing one than Dan Jarvis or Hilary Benn.

Local party chairs in no doubt that the shadow chancellor is profiling should another leadership election arise. One constituency chair noted to the New Statesman that: “you could tell who was going for it [last time], because they were desperate to speak [at events]”. Tom Watson, Caroline Flint, Chuka Umunna, Yvette Cooper, Andy Burnham and Liz Kendall all visited local parties across the country in preparation for their election bids in 2015.

Now, speaking to local party activists, four names are mentioned more than any other: Dan Jarvis, currently on the backbenches, but in whom the hopes – and the donations – of many who are disillusioned by the current leadership are invested, Gloria De Piero, who is touring the country as part of the party’s voter registration drive, her close ally Jon Ashworth, and John McDonnell.

Another close ally of Corbyn and McDonnell, who worked closely on the leadership election, is in no doubt that the shadow chancellor is gearing up for a run should the need arise.  “You remember when that nice Mr Watson went touring the country? Well, pay attention to John’s movements.”

As for his chances of success, McDonnell may well be even more popular among members than Corbyn himself. He is regularly at or near the top of LabourList's shadow cabinet rankings, and is frequently praised by members. Should he be able to secure the nominations to get on the ballot, an even bigger victory than that secured by Corbyn in September is not out of the question.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog. He usually writes about politics.