The Barnett Formula Explained
Tuesday 16 September 2014 15:36, UK
It's been used to distribute UK wealth across England, Scotland, Wales and Northern Ireland for 35 years. Faisal Islam explains.
What is the Barnett formula?
It's a system of grants for Scotland, Wales and Northern Ireland that's based partly on which powers they have devolved to them, and partly on population.
What does it do?
The formula, strictly speaking the Barnett settlement, allocates state spending between the nations of the United Kingdom. The end result is wide disparities between the per-person spending of up to £2,000 a year in those nations.
Who wins from Barnett?
Scotland wins versus England and Wales. Northern Ireland does best. Average UK per capita spend on "geographically identifiable" things is £8,788. England is 3% less, Scotland 16% more (a 19% differential with Scotland), Wales 10% more and NI 24% more. That is just the basic numbers.
Some politicians argue a fairer funding formula would reflect "need" ie. poverty, ageing etc in each country. On this measure Wales is very hard done by, and Scotland does spectacularly well.
What is its relevance to the Scottish independence referendum?
If you aren't Scottish and you think the settlement is iniquitous, you might welcome Scottish independence. At that moment Scotland's higher level of public spending will have to be raised from Scotland's own tax base. The SNP's calculation is that oil and other revenues will cover it. The Institute of Fiscal Studies and the respected Barnett expert Iain Maclean disagree. The real relevance is that a maintenance of the formula was promised in Tuesday's three party "vow". That is highly controversial with politicians in England and Wales.
It's all about oil though, isn't it?
No, it isn't. The "tartan top-up" on public spending goes back more than a century, well before the oil industry, let alone North Sea Oil. In the 1880s Chancellor Viscount Goschen was essentially trying to buy off home rule in Ireland and Scotland.
It failed in Ireland but in Scotland the so-called "Goschen Proportion" channelled £11 to Scotland for every £80 spent in England and Wales. This continued even as Scotland's population fell: effectively a windfall for Scottish spending. Barnett was meant to equalise spending levels through a careful "squeeze". But it was never allowed to bite.
Who is Barnett?
Lord Joel Barnett was Labour's chief secretary to the Treasury in 1978 and now a peer. His formula hardwired the Scottish head start in public spending, and then divvied up any increases after that according to the formula. It's probably worth noting that Lord Barnett himself is recorded as not being a great fan of the Barnett formula, saying it is outdated.