Imagine it's millennium year. Gordon Brown's two-year ban on any spending increase over the levels set by the previous government no longer applies. Real live public expenditure negotiations are now happening in earnest once again. David Blunkett, Jack Straw and Harriet Harman are fighting against the Treasury (dominated, as it happens, by Scottish ministers) for more money for schools, policemen and child care. They form a cabal and start discreetly muttering to friendly English Labour backbenchers that they there would be plenty more money to go round if only Scotland wasn't quite so well off. Why, the well-informed backbenchers start asking in public, does Scotland have to enjoy public spending 14.3 per cent higher per head than the average UK figure? After all, there is now a Scottish Parliament with tax-raising powers and the freedom to allocate spending. Isn't it time England and Wales got their fair share?
This isn't fantasy. It's the stuff of Cabinet infighting. Which is one reason why the Treasury Select Committee was prescient last week in announcing a short inquiry into why the Barnett spending formula allocates spending more generously to Scotland. The Government's present policy, as expressed in the White Paper on Scottish devolution, is rather firmly in favour of the current block grant system which it says has produced "fair settlements" for Scotland. This was not the view that all English ministers took in the run-up to devolution. The Constitution Unit, in its own authoritative study of devolution, had recommended that an independent commission should examine the whole system. But Donald Dewar, the Scottish Secretary, held firm. The prevailing Cabinet view was that it would hardly help to deliver a yes vote in the devolution referendum if Scottish voters knew the spending formula was under threat. The Treasury Select Committee's purpose is merely to establish the facts. But its inquiry may also unwittingly anticipate a Cabinet conflict.
The facts are worth having. Assessment of the relative needs of Scotland, England and Wales is a hideously inexact science. Given the social needs of some parts of Scotland, the sparse rural populations of some others, and the high relative prosperity of south-east England, an equitable settlement would almost certainly not mean the same per capita level of spending in Scotland as for England (though it's rather less clear why it should be significantly higher for Scotland than for Wales). Nevertheless the Barnett formula, for reasons Joel Barnett could not possibly have foreseen when as Jim Callaghan's tough minded Chief Secretary he devised it in 1976, has not done the job he envisaged. Post-war, successive Tory and Labour Scottish Secretaries, often conjuring the nationalist spectre, secured a series of relatively favourable public spending settlements. By linking the Scottish block grant directly to the UK-wide totals, Barnett intended to bring Scottish per capita expenditure more closely into line with that of England and Wales. Instead the opposite happened, for reasons which are complicated but include a relative decline in the Scottish population and the fact that public expenditure has been contained rather than expanded since the early 1980s. Which is one reason why Joel Barnett has himself come out in favour of change. If nothing else it looks to many experts as if the northern English regions are left relatively worse off than Scotland, and that if Barnett-style convergence had been achieved, it might have been possible to extract some pounds 2bn from the Scottish spending totals.
This is a potentially explosive problem, particularly if you happen to believe in the Union. Nothing could be more calculated to fuel the Scottish nationalist cause than exacting a price for devolution through a raid on the block grant. On the other hand, English discontent could well intensify when the debate on public spending begins in earnest. (It's even possible, by the way, that Davis's deeply controversial idea of an English parliament might appeal in time to some Labour MPs.)
You can already find English ministers cheerfully devising, in private, a long-term Catch 22 argument for cutting the Scottish block grant: if the Scottish Parliament decides to increase taxes then they should have the equivalent grant deducted to avoid an overall increase in public spending. If it cut taxes then then the grant should still be reduced, on the grounds that the English cannot be expected to subsidise Scottish tax cuts. Needing to strike a delicate balance the Government might be well advised to call for a full-scale, and no doubt lengthy, inquiry. As it happens, the devolution White Paper, in a passage that some attribute to Jack Straw, holds out the possibility of a review when it stresses that any "substantial revision" would have to be carried out "in full consultation" with the Scottish executive. Sometimes, if the bough is not to break, it has to bend.