Home Subscribe

FFS blog: the Barnett formula


(Jenny Messenger) #1

The Barnett formula has been in the news recently (see our fact check) after Prime Minister Theresa May agreed a £1bn deal of new funding for Northern Ireland with the Democratic Unionist Party (DUP).

The deal has provoked calls for Scotland to receive a similar increase in funding based on a calculation known as the “Barnett formula”.

First Minister Nicola Sturgeon described the agreement as a “grubby, shameless deal” that ignored the Barnett formula and sacrificed “the very basic principles of devolution”, while the SNP accused the Conservatives of allowing Scotland to be “short-changed”.

What is the Barnett formula?

The Barnett formula calculates the annual change in funding allocated to Scotland and other devolved powers, not the amount of money. The aim is to make sure that if changes are made to public spending in England, equivalent changes (in pounds-per-person) are made in Scotland, Wales and Northern Ireland.

The formula relates to “block grants”, which cover the predictable, everyday costs of running services. The block grant can change depending on increased devolution—greater spending powers would increase the block grant, while greater tax powers reduce it.

How is the change calculated?

The formula multiplies the change in department spending by the proportion of services that have been devolved (this is the comparability percentage), and by Scotland’s population.

For services which have been completely devolved (like education), the “comparability percentage” is 100 per cent, though many departments are made up of a combination of devolved and reserved services.

Finally, the figure is multiplied by Scotland’s population as a percentage of the population of England (or England and Wales).

Once the total for each department (known as the “Barnett consequential”) has been calculated, these are added together to produce a final sum of money, which is then allocated to the devolved power.

When did the Barnett formula come into effect?

The Barnett formula was first introduced in Scotland in 1978, during the Labour government of James Callaghan. It’s named after Joel Barnett, who oversaw the development of the formula while he was Labour Chief Secretary to the Treasury (1974-1979). It was initially used for Scotland, then extended to Northern Ireland (1979) and Wales (1980). The formula wasn’t unprecedented—a similar measure had been introduced in 1888, and was used until 1959.

Though the Barnett formula was originally intended as a short-term measure, it is still in place. However, it is non-statutory and therefore not set out in law—instead, it’s Treasury policy, and can theoretically be altered by the UK Government.

The formula has been criticised for allotting funds based on population size, rather than other factors that influence what people need—such as poverty and population density. Barnett himself condemned the formula, describing it as a “national embarrassment” in 2014.

In 2009, the Calman Commission (which recommended that further tax and borrowing powers be devolved to the Scottish Parliament, and formed the basis of the Scotland Act 2012) suggested that the block grant should be based on need. As it stands, public spending per head is higher in Scotland than in England.

What does the Conservative-DUP deal mean for Scotland?

Secretary of State for Scotland [David Mundell has said] he would make sure Scotland received its fair share of funding if Northern Ireland got any extra money.

However, he has been criticised in the wake of the Tory-DUP deal for supposedly failing to stand up for Scotland.

The BBC, however, reported that Downing Street said the extra money was in addition to Northern Ireland’s block grant and so outside the scope of the Barnett formula, much like the city deals Scotland has benefited from in the past.

It remains to be seen whether the Scottish Government will try and negotiate any more funds as a result of May’s deal.

FFS blog: checking the context