The Barnett Formula is used by the Treasury to work out how much public money should go to each devolved administration in the UK (Scotland, Wales and Northern Ireland). It was devised by Joel Barnett, then Chief Secretary to the Treasury, now Lord Barnett, and has been in use since 1978, first in Scotland, and eventually in Wales (1980) and Northern Ireland.
How does it work? Each time the government changes the amount it spends on a particular service in the UK, the Barnett Formula is used to calculate how much more or less should be spent on a similar service in a devolved administration. It works like this:
What's the problem with it? The Barnett Formula allocates spending according to population size rather than need. In practice, it disproportionately directs public funds towards Scotland, Wales and Northern Ireland over England. So, in 2012-13 public spending in Scotland was 116 per cent of the UK average, according to the Treasury. By contrast, spending in England was just 97 per cent of the average.
The Barnett Formula is incremental in nature: it deals in the changes in funding year on year. As such no effective mechanism exists within it to create a more proportionate allocation of public funds. Given that Scotland’s GDP per capita is considerably higher than Wales and Northern Ireland, it is seen as doing particularly well out of the formula.
Why is it important now? Part of the package that the three main party leaders pledged to deliver in the event of a no vote was the “continuation of the Barnett allocation of resources.” They may have set in stone a system which many outside of Scotland are extremely unhappy with. Tory backbenchers and Ukippers, in particular, are already kicking up an enormous fuss. On Prospect’s website today, Conservative MPs Dominic Raab, Jesse Norman and Philip Davies have called for a review of the formula as part of wider constitutional reform. Ukip leader Nigel Farage has called for a revision of the formula, which he describes as “arbitrary and out-of-date,” and has heavily criticised Cameron and Miliband for promising to continue it in the final “panicked” days of the No campaign. There is also protest emerging from Welsh MPs such as former Welsh Secretary and MP for Neath, Peter Hain. Wales, despite being poorer than Scotland, is allocated less funding. Hain wrote on Prospect's website today that “if Scotland is going to get the same deal under the Barnett formula, Wales has got to get a better deal [than it currently has].”
How does it work? Each time the government changes the amount it spends on a particular service in the UK, the Barnett Formula is used to calculate how much more or less should be spent on a similar service in a devolved administration. It works like this:
Change to UK Government Spending X Comparability Percentage (what percentage of a service is devolved) X Population Proportion
Let’s imagine that the Treasury planned to increase spending on healthcare in the UK by £200m. Healthcare is totally devolved to the Scotland Parliament and Scotland makes up 8.3 per cent of the UK’s total population. We can thus use the Barnett Formula to work out how much extra funding Scotland will receive:
£200m X 100 per cent X 8.3 per cent = £16.6mWhat's the problem with it? The Barnett Formula allocates spending according to population size rather than need. In practice, it disproportionately directs public funds towards Scotland, Wales and Northern Ireland over England. So, in 2012-13 public spending in Scotland was 116 per cent of the UK average, according to the Treasury. By contrast, spending in England was just 97 per cent of the average.
The Barnett Formula is incremental in nature: it deals in the changes in funding year on year. As such no effective mechanism exists within it to create a more proportionate allocation of public funds. Given that Scotland’s GDP per capita is considerably higher than Wales and Northern Ireland, it is seen as doing particularly well out of the formula.
Why is it important now? Part of the package that the three main party leaders pledged to deliver in the event of a no vote was the “continuation of the Barnett allocation of resources.” They may have set in stone a system which many outside of Scotland are extremely unhappy with. Tory backbenchers and Ukippers, in particular, are already kicking up an enormous fuss. On Prospect’s website today, Conservative MPs Dominic Raab, Jesse Norman and Philip Davies have called for a review of the formula as part of wider constitutional reform. Ukip leader Nigel Farage has called for a revision of the formula, which he describes as “arbitrary and out-of-date,” and has heavily criticised Cameron and Miliband for promising to continue it in the final “panicked” days of the No campaign. There is also protest emerging from Welsh MPs such as former Welsh Secretary and MP for Neath, Peter Hain. Wales, despite being poorer than Scotland, is allocated less funding. Hain wrote on Prospect's website today that “if Scotland is going to get the same deal under the Barnett formula, Wales has got to get a better deal [than it currently has].”
