News / Scrap Barnett says think-tank

The Barnett formula, which distributes funds to the devolved administrations to spend on local public services, should be scrapped and replaced with a more transparent and equitable system, the Institute for Public Policy Research has said.

The formula was introduced 30 years ago and is based on historic spending and changes in spending in England, not on need. For every pound increase in spending in England on a devolved service, such as the NHS, there is an increase in the block grant to the other nations proportionate to their relative populations (with no needs weighting).

A decrease will lead to a reduction in the block grant. Though spending on individual services in England is used to calculate the grants, the devolved administrations are free to use the funds as they see fit.

In a paper, Barnett and the politics of public expenditure, the think-tank said the formula aimed to gradually equalise spending per head across the UK. Both Scotland and Northern Ireland were 21% above UK average, while Wales was 8% above and England 3% below.

Scotland was found to be gettting ‘more than its needs would suggest’. The report warned that continuing with the Barnett formula could place strain on the Union because it gave individual administrations little influence over the size of their overall budget.

Scotland should have stronger revenue-raising powers, topped up with a needs-based grant. Northern Ireland could move to a similar system once devolution had bedded in, while in the absence of legislative powers, Wales could be funded via a needs-based grant.

‘The Barnett formula is no longer fit for purpose. It does not result in a fair distribution of spending, and is becoming an increasing source of tension between the nations of the UK,’ said IPPR senior research fellow Guy Lodge.

‘This presents a real opportunity for reform, which the UK government should now seize.’

The administrations in Wales and Scotland are currently reviewing the formula, while there was increasing pressure in Northern Ireland to do the same.