Why we shouldn't forget the Barnett Formula

While the political temperature is rising over the fiscal framework negotiations, let’s not forget the Barnett Formula.

The fiscal framework is a key element in the devolution of income tax to Scotland. It should establish a mechanism for ensuring the ‘no detriment’ principle outlined by the Smith Commission.  Negotiations have been taking place for months between John Swinney, the Deputy First Minister and Greg Hands, the Chief Secretary to the Treasury. The details have been kept largely confidential although we can guess at the difficulties given Professor David Bell’s presentation at Holyrood and the IFS analysis.

The political rhetoric went up a gear today with Labour claiming Nicola Sturgeon has created an “artificial deadline” of 12 February and is intent on crashing the process for electoral gain. Ian Murray MP said: “Without full transparency, it would appear to the Scottish people the SNP Government is looking for an opportunity not to implement the Scotland Bill because it’s not in its political interests to have the powers to create one of the most powerful devolved parliaments in the world". In essence, Labour believes that by delaying the fiscal framework, the SNP won’t have to face up to the responsibilities of taxation before the election.

I don’t doubt the attractiveness to the SNP of a political strategy that simply focuses on ‘Wicked Westminster’ and allows us all to believe that we can have decent public services without difficult conversations about taxation - Scandamerica as I like to describe it. However, that doesn’t mean that there aren’t real risks in getting the fiscal framework wrong. Colleagues at the Reid Foundation have discussed these in a working paper, but as there is to be a revised paper shortly I will leave it at that for now.

An important part of the Smith Commission agreement was that the Barnett formula would be retained. In Saturday’s Scotsman Brian Wilson argued that we have much to thank it for. He said:

“The key to Scotland’s relative wealth and higher earnings is our old friend the Barnett Formula. This year, it provides Scotland with around £10 billion more for devolved spending than we contribute in taxation – equivalent to one-third of the Scottish Government’s entire budget and almost equal to total NHS spending.”

Historically, he has a strong point.  It means we spend £1,600 per head more than the average in England or about £8 billion. However, will the Barnett Formula continue to deliver in future?

A colleague in London recently got me thinking about this when he drew my attention to the impact changes in the way local government is funded in England is having on the Barnett Formula. In the 2010 and 2013 spending reviews the Barnett comparability percentage for Local Government was 17.3%, but in 2015 this was changed to 100%. This is mainly down to Non-Domestic Rates payments being devolved to councils 

In England, the Local Government budget is being cut over £6bn in the period to 2019/20 and the plan is to end the rate support grant in England by 2020, with further negative consequences for the Barnett formula. This year’s impact on the Barnett formula was more than £80m as shown in this table.

This isn’t a new problem. Since the privatisation of the water industry in England, Scotland hasn’t had any Barnett consequentials. This has rarely been significant because there is no real revenue support for Scottish Water – the main benefit of public ownership financially is cheaper borrowing. 

The same can’t be said for Higher Education. The reliance on tuition fees in England means negative Barnett consequentials because our universities don’t have that income flow and therefore UK government has been able to cut their contribution to the additional costs.

It’s not necessarily all one way.  As I pointed out in my analysis of the Draft Budget, there is a plan to devolve Attendance Allowance (AA) to English councils. When free care for the elderly was introduced the Scottish Government argued that they should get the savings this policy created for AA. Unsurprisingly, the Treasury said no. However, if they devolve this funding there should be Barnett consequentials of some £500m, although it will depend on how that is accounted for in English budgets.

All of this is because we made different choices in Scotland and that of course is what devolution should be all about.  However, that is the potential problem with the Barnett Formula as we go forward. In simple terms, with Barnett we are tied, financially at least, to English public service reform. With a Tory strategy of slashing the size of the state, this has serious consequences for long term funding. 

Which takes us full circle to the fiscal framework. The advantage of controlling more of our own taxation is that we are less beholden to Tory policies in England. So, yes of course we need to get that framework right, otherwise it could be a double whammy. However, it also means we need to have grown up conversations about taxation in Scotland and that appears to be equally challenging.

Shifting The Curve will mean shifting away from cuts

 

The  Shifting the Curve report on tackling poverty, written by the First Minister’s Independent adviser on Poverty and Inequality, Naomi Eisenstadt  makes for interesting reading .  As well as laying out the truly appalling state of inequality within Scotland, it takes a look at the effectiveness (or otherwise) of current policies and makes suggestions for the future. 

From a UNISON perspective there is even more to catch the eye as (at least) 11 of the fifteen measures that are recommended by as ways of tackling poverty and inequality are likely to involve UNISON members  either directly delivering services  or making sure services have the intended effect.

 And even taking into account the way things here are a wee bit better than they are in the rest of the UK the details make for painful reading.  

“For children, for example, there’s a six percentage point positive difference between the Scottish figures and the UK ones. The bad news is that the Scottish AHC poverty figures are still too high, affecting 18% of all individuals in 2013/14; 22% of children; 19% of working age adults; and 12% of pensioners”

 As you would expect in a report by someone commissioned individually by the First Minister care is taken to give the Scottish Government initiatives credit where they are due and criticism is expressed in a highly diplomatic manner.  Given  that the ditching the Council Tax freeze is so explicitly recommended is a testament to how deeply unhelpful this policy is.  (Anyone with doubts as to why the Council Tax freezer is a bad thing should look here. )

 But it’s some of the other recommendations that draw the attention. Not the urging of greater social house building or use of welfare powers as they come on stream, welcome though both of these are.   UNISON members are at the heart of most of them. Encouraging benefit take up -  the responsibility of Welfare Rights Officers and Housing Staff , improving the quality of childcare – the responsibility of UNISON members delivering childcare, providing a more focussed delivery of employment programmes for young people , and more employer engagement with education – it’s difficult to see how this can be done without involving Careers Scotland, and so on.   These might well be useful ideas which ought to be implemented, but they are also the responsibility of bodies which have seen significant cuts in recent years and are about to see more.  

And there’s the rub.

It’s good that the Scottish Government sees poverty and inequality as an issue worth tackling, and it’s good that there advisor recognises the role of public services in doing so.  It follows from that that cuts will add to, not help solve, the problem.  There is much in this report to welcome – if it helps prompt a rethink about cuts then it will have gone part of the way to delivering on its recommendations.

 

Good News on Jobs? Aye, well, sort of.....

“Record Numbers in work said the headlines.  The Office for National Statistics said 21,000 more Scots were in work, compared with the previous quarter, bringing the total to 2,631,000 and unemployment had fallen by 11 000 to only (!!!) 152 000. Separately a study reported that Median pay* in Scotland had exceeded pay in England for the the first time. A  typical Scottish Pay rate is £11.92. compared to  £11.84  South of here.  All good news then  

 

Well not quite.  A report by think Tank the Resolution Foundation into The State of Working Scotland doesn’t paint a particularly rosy picture ( that’s assuming a picture with  152 000 people unemployed can ever  be described as rosy). The story of the financial crash was one  where Scotland from a higher level of employment lost more jobs than the rest of the UK  but pay held up a bit better.  It’s not in this report – but part of that will be down to higher public spending ain Scotland and the degree of success in getting the Living wage paid in public services.

 

Unemployment is still higher than before the crash – don’t be fooled by the ‘more people in work than ever before’ headlines.  That happens with a degree of regularity and tells you more about population demographics than the economy.  It’s also been caused by a big jump in the number of people becoming self employed and a huge expansion in part time work.

 

The overall impact has been that wages are still below their 2009 levels  median wages are £30 a week down.  We may have large numbers in work but the there is a problem with getting enough work.  Under employment is a big issue in the economy as a whole and in certain areas of public services where workers have seen hours either cut back or restricted.  It is far higher than it was in 2008 and will unless tackled will undermine the progress being made in restoring pay.

 

The report also looks at the potential impact of the rising Living wage, higher tax thresholds and Universal Credit. The worry about the latter is that it will encourage short hours working.  Most, but not all, benefits of raising the tax threshold are  likely to go middle and high earners.

 

 It’s an interesting report and if the overall story it tells is bleak - there are areas it points to where some things have improved since the start of the financial . What does come across clearly though is that unless the problems with unemployment and underemployment are tackled, whatever progress has been made to regain wage levels since the crash are under threat.

 

Massive cuts to public bodies and the possibility of thousands of job losses in public services therefore, aren’t going to help anybody

The Council Tax freeze debate favours a thaw

The Council Tax freeze has come under a lot of analysis since Moray Council stuck their heads over the parapet. Much of it is supportive of UNISON Scotland’s position as we set out in our latest briefing on the issue.

In the media, the right of centre Scotsman editorial said: “It is unsustainable, with budget shortfalls merely getting bigger as the effects of the recession continue to bite.”

The First Minister’s poverty advisor Naomi Eisenstadt also came out against the freeze in her report this week, helpfully highlighting the importance of public services in tackling poverty.  She said the Scottish Government had been "signalling changes to the council tax since its first term in office”. They should "consider ending the council tax freeze from 2017/18 onwards", saying this would "make a contribution to protecting public services that are particularly supportive of families in poverty".

Former Scottish Government policy advisor Alex Bell linked the Council Tax freeze with an unwillingness to address pay inequality, he said; “There could be a fascinating political debate over council tax, and perhaps other taxes, in order to raise the pay of nurses, social workers and other public servants.”

A report from the equality organisation ‘Close the Gap’ also makes the link with pay and inequality. Their document says: “The Scottish Government’s continuation of the council tax freeze will impact on women disproportionately, both as employees, and as service users. The public sector has traditionally offered more favourable terms and conditions for women, and has been more likely to have employment practices in place which support their equal labour market participation. This is being eroded however with the impact of spending cuts, and the council tax freeze will only serve to exacerbate existing labour market inequalities”

The Scottish Property Tax Reform Group points out that the cost of the freeze could make a big impact on the housing crisis: “Just one quarter of the £560 million that it costs to pay for the Council Tax freeze this year could help to increase the output of new social rented homes by more than 3,000 units a year.”

The broader impact on services, including health, and how we view council services is something we pick up on in another UNISON briefing and in an article in today's Scotsman.  

The Scottish Government’s main defence is the claim that the freeze is fully funded quoting a SPICE report. The accuracy of that claim depends on the assumptions you make on the rate of increase councils would have decided on. However, it simply misses the point. Any increase councils democratically decided on in the past 8 years would have increased local budgets over and above the money allocated for the freeze. In addition, saying you have funded one small part of the local government budget allocation when you are cutting £500m from the total, really isn’t very convincing.

There are also some very good local contributions to the debate. Here is one from the North Edinburgh News, which makes the point that; “Even at this late stage, the Scottish Government, AT NO COST TO THEM WHATSOEVER (their emphasis), could choose to end this unfair freeze. And they could, and should, allow councils to raise their tax with no penalty clawback.”

In many ways that is the key point. Tory austerity is indeed the underlying cause of budget cuts, although the Scottish Government has chosen to shunt the brunt of those cuts onto local services. One way of mitigating the cuts is to grow the budgetary envelope. The Scottish Government could do that using its devolved taxation powers and that includes the Council Tax. 

Another Year Another Massive IT System Overspend.

The new NHS 24 IT system is now £41.6m over budget and far from complete. The Public Audit Committee (of the Scottish Parliament) is unsurprisingly conducting a review of how this has happened. The former Chief Executive told MSPs that he felt let down by a senior colleague that “didn’t advise him at all". He is also claiming that he was not told of a fundamental flaw in the system for 22 months and that junior staff were aware of omissions in the contract but didn’t let him know.

This leaves 2 questions

Why didn’t staff feel able to inform senior staff of problems in a system?
Why do Chief Executives sign contacts that they have not checked with relevant staff?

Paul Martin MSP pointed out that the overspend would have paid for 1900 nurses.

Sadly this is not a one-off problem. Again and again we see sales pitches from IT companies treated as impartial advice and the knowledge and skills of in-house IT staff ignored.

Cornwall has now terminated its contract with BT Cornwall (BTC) after BTC attempts to get a high court injunction failed. ICT and other so-called backroom services have now formally transferred back to the council. Negotiations continue over the level of damages the council hopes to get following the failures which led to the termination of the contract. The council believes that they are owed millions of pounds in damages.

Publictechnology.Net is reporting that the UK cabinet office is launching yet another review of government IT contracts with the understatement that “a series of contracts have not stood the test of time". It is believed that the option of bringing IT expertise back in house is seriously under consideration. Not before time.

UNISON’s recent survey of members working in ICT is available here.

Taking the high road to better work

The Scottish Government can support good quality employment by ‘blocking the low-road’ for employers and ‘paving the high-road’ towards an empowered and healthy workforce.

That’s the conclusion of the Scottish Parliament’s Economy Committee in its report into the quality of work in Scotland; “Taking the High Road - Work, Wages and Wellbeing in the Scottish Labour Market.”

The Committee concluded that workers across Scotland are entitled to good quality employment. This should offer workers, as standard:

regular and sufficient pay which allows for a decent standard of living;

secure employment;

safe working conditions;

working hours known and mutually agreed in advance of shifts;

a culture of mutual respect;

training opportunities and routes for advancement; and,

employee engagement in company/organisational decisions.

Underpinning all of their recommendations is the need for the Scottish Government, employers and trade unions to work together to drive up employment standards and eliminate bad practice. 

That starts with a commitment to ‘blocking the low-road’ for employers and ‘paving the high-road’ towards an empowered and healthy workforce. At the heart of this should be a firm commitment towards employee engagement and encouraging the strong management and leadership skills needed to involve the workforce in improving its own wellbeing. They expect the Scottish Government to embed these aims in all of the employment and business support programmes it funds.

The ‘High Road - Low Road’ concept comes from the evidence of Professor Chris Warhurst, who detailed the difference between high-road economies focused on high-skills, and low-road economies focused on low-skills and low wages. He explained:

“It is possible to prevent people from moving down from the high road to the low road, but the key question for the UK is how we move from the low road to the high road. There are two ways of thinking about doing that. One is to block off the low road ... The other is to pave the high road … in order to encourage companies to go down it.”

The report references a number of UNISON initiatives including the Ethical Care Charter. A point made sharply yesterday with the data released by Gordon Aikman on those dying while they wait for care packages.

The Scottish Social Services Council (SSSC) also highlighted the impact low paying work can have on service users and patients who relied on continuity of care, they said: “Low pay can exacerbate staff turnover issues and ultimately affect the ability to provide continuity of care. A continuous caring relationship with an identified professional can be particularly important in many instances. For example, it can be vital when supporting an individual with dementia.”

Employers organisations like the Coalition of Care and Support Providers in Scotland (CCSPS) estimated that recruitment costs in the care sector amount to £3,500 for each new worker and that the sector suffers relatively high staff turnover rates. This was confirmed by the UK Home Care Association who said there is an average staff turnover rate of 38%. 

Another long standing UNISON concern has been the impact of work on mental health in the workplace. The Committee was concerned to see the mounting body of evidence demonstrating the link between low quality work and negative health outcomes. They urged the HSE, government and councils to explore how the monitoring and reporting of mental health impacts in the workplace could be made more effective.

The Committee also recognised the damaging impact the Trade Union Bill could have quality employment and in particular employee engagement. They said: “We believe that any further restriction on trade unions in fulfilling their longstanding roles, such as contained within the Trade Union Bill, would be damaging”.

This report is a useful analysis of quality employment that recognises the problem of definition and poor Scottish labour market data. However, they resisted the temptation simply to call for more research. Instead, they set out a roadmap towards better employment standards. This should inform the work of the Fair Work Convention and UNISON Scotland submitted its ideas to that body this month. There is a broad consensus on the way forward; the next stage is to turn that into action.

Valuing the social care workforce

Social care is delivered by people, informal carers and workers, not robots. This means improving the quality of care in Scotland has to seriously address workforce issues.

I was facilitating a session today at the 'Social Care: An Ambitious Future' conference in Edinburgh. The conference covered a wide range of issues relating to the crisis that is our grossly underfunded social care system in Scotland. My session was on workforce issues

Let's start by understanding the workforce. 189,670 people are employed in the social care sector, which accounts for approximately 7.4% of Scottish employment. The typical weekly hours worked by staff is close to full-time at 32.5, with women accounting for 85% of the workforce. The biggest employer is the private sector with 41% of the workforce. The public sector makes up 31% and the voluntary sector employs 27% of the workforce. This is a growing workforce as demands on the sector grow. However, all providers report increasing difficulties with the recruitment and retention of staff.

Part of the reason for this is the precarious nature of work in the sector. While the workforce is predominantly employed on permanent contracts (79%), there are significant numbers (around 12%) employed on Zero-Hours contracts. This number understates the actual level of precarious work because of the prevalence of Nominal-Hours contracts. These are contracts where staff are contracted to work a set number of hours, but in practice work significantly more.

The biggest immediate problem is pay. The vast majority of care workers are employed in Class 2 (entry level) care worker positions which covers routine care and support work and which typically pays the National Minimum Wage (NMN) (£6.70 over 21) or just above. Shockingly, some providers even attempt to avoid their legal obligations to pay the NMW. For example last week UNISON won a victory over MiHomecare. Staff there were notionally paid the legal minimum, but the company did not pay for the time they spent travelling between clients’ homes — meaning that they received less than the minimum wage.

There have been efforts to establish an industry floor of £7 an hour in Scotland, but this has run into some legal difficulties over State Aid provisions. It has also been overtaken by events with the introduction of the new UK National ‘Living’ Wage set at £7.20 for workers age 25 and over from April 2016.

The Resolution Foundation has highlighted the impact of the new NMN provisions in their report 'Care to Pay'. They calculate that this will directly affect up to 1 million frontline care workers across the UK by 2020 and increasing the annual household incomes of those affected by more than £800. But this comes at a cost – in particular the National 'Living' Wage will increase payroll costs associated with frontline care workers by £23 billion by 2020, on top of £17 billion of costs already implied by the increase in the National Minimum Wage (NMW). There are also additional training, pension and sleepover payments that are not being fully funded, including for those funded through Self Directed Support

There is an agreed ambition from stakeholders to see all employers in the sector become Scottish Living Wage employers – currently £8.25 in Scotland. The latest Scottish Government statutory procurement guidance on workforce matters sets out how this can be achieved legally through procurement. The wide support for this measure recognises that the payment of the living wage and a general improvement of terms and conditions will be required to deliver a social care workforce consistent with our aspirations for quality care.

Of course fair remuneration is only one aspect of fair work. UNISON’s Ethical Care Charter is referenced in recent Commission reports and the Scottish Government’s vision for social work. The Charter covers, training, induction, zero-hour contracts and time to care properly - as well as payment for travel time, travel costs, occupational sick pay and other necessary expenses such as mobile phones.

We published a new briefing on the Ethical Care Charter last week and how all councils in Scotland could implement it. The barriers are no longer legal, they are largely financial. The Scottish Government's draft budget makes some provision for additional funding routed through the NHS budget. However, it remains to be seen how much of this actually reaches social care services given the pressures on NHS provision. Even George Osborne recognised the problem in allowing English councils to raise the Council Tax. There is no such relief in Scotland where the regressive Council Tax freeze drags on, together with further cuts to council budgets.

At today's conference there was a recognition that we need to raise the profile of social care to get the same level of public, and then political, support as the NHS. With a growing elderly population, increasingly socially isolated, there is some enlightened self interested to be tapped into here to build the case for proper funding. Social care is a universal good that we will all need at some stage, part of the fabric of the society we want to see. We also have to debate if there should be at least a national framework, if not a national service, for social care.

Finally, care workers also have strong views about the quality of care. A UNISON survey of Scottish homecare workers exposed the shocking reality of the country’s care services. The majority of workers polled in the survey - Scotland: It’s Time to Care – said that the service is not sufficient to meet the needs of the people they care for, both from the time they can spend and the quality of care they can provide.

Social care plays a vital and growing role in our society. Yet increasing demand, falling real terms funding, and increasingly complex care needs has put the sector under significant strain. At the heart of this cocktail of challenges sits the workforce, which experiences low wages and poor working conditions. Most care workers are highly committed to the work they do, but such conditions are putting them under significant strain. If we want a social care system that can meet the needs of our ageing population and treat recipients in a dignified way, then we need to invest in the workforce that provides it.

 

Time for action on fat cat pay

On the day most workers in Scotland returned to work, FTSE100 CEO’s had already been paid more than the average worker will earn this year.

Fat Cat Tuesday is a useful way of highlighting just how far corporate pay has spiralled out of control. The average FTSE100 CEO pay is now almost £5m, a ratio of 183 times the pay of the average worker. As the High Pay Centre director Stefan Stern said: “‘Fat Cat Tuesday’ again highlights the continuing problem of the unfair pay gap in the UK. We are not all in this together, it seems. Over-payment at the top is fuelling distrust of business, at a time when business needs to demonstrate that it is part of the solution to harsh times and squeezed incomes, and is promoting a recovery in which all employees can benefit.”

This isn’t just a matter of fairness – it has negative consequences for the workplace. The CIPD has recently published a poll on what employees think about high pay. It shows that workers don’t buy the inspiration argument and feel high CEO pay demotivates them and damages their organisation:

• 71% agree that CEO pay levels in the UK are generally too high (while only 5% disagree). 
• 64% disagree that CEO pay levels in the UK inspire employees to work hard (while only 8% agree). 
• 60% agree that CEO pay levels in the UK demotivate employees (while only 13% disagree). 
• 54% agree that CEO pay levels in the UK are bad for an organisation’s reputation (while only 11% disagree). 

Not for the first time the gut reaction of workers is spot on. There is little evidence that paying more results in better management.

One solution is to make it a requirement that organisations publish their pay ratios. This would automatically integrate pay at the top into an organisation’s formal pay scale. Peter Marsland explains how this can be done in the High Pay Centre’s recent publication ‘Pay Ratios – Just Do It’. He demolishes the standard arguments against this approach – it’s too difficult, to onerous. This is data employers should have, and calculating the ratio ought not to challenge anybody with a decent pass in National Grade maths. 

Peter doesn’t go as far as recommending a particular ratio, arguing that all organisations are different. The primary aim is transparency and even in the free market USA, the Securities and Exchange Commission supports this approach. Those organisations who have adopted a ratio have taken pretty high figures. For example, at John Lewis it is 75:1, at the TSB 65:1.

Just before Christmas, the Scottish media reported that there are at least 64 employees in the Scottish Government, its quangos and other public bodies being paid a minimum of £100,000, according to statistics obtained by the Scottish Greens. 

In fairness, most of these senior staff manage large organisations and their pay ratios are well below their private sector equivalents – a 10:1 ratio wouldn’t cause much pain at the top of the Scottish public sector. Even so, there have been efforts to copy the private sector in recent years with the introduction of bonus systems. The voluntary sector has come under similar scrutiny.

The evidence that staff are less productive in organisations that have big gaps between top and bottom pay and where decisions on pay are felt to be unfair also applies to the public sector. Interestingly, the CIPD survey asked respondents about ratios of 5:1 and 10:1 – far removed from the private sector norm.

The Hutton report for the Treasury on public sector pay found that: “A wide range of academic studies [...] suggest there is a strong correlation between narrower pay dispersion within an organisation and improved organisation performance [...] wide gaps between top and bottom pay within an organisation harm performance [...] there will be gains to morale and productivity in organisations where everyone is seen to be paid according to their contribution” 

The growing problem of high pay reflects the damage inequality does to our society. It also damages organisational performance and the reputation of organisations. Improved transparency through the publication of pay ratios is an important starting point. However, while one size shouldn’t fit all, maybe it is time for the Scottish public and voluntary sector to lead the way by establishing pay ratios. Perhaps something the Fair Work Convention should be considering?