House of Commons - Northern Ireland Affairs

Select Committee on Northern Ireland Affairs Fifth Report

IV. THE BARNETT FORMULA

20. The present arrangements for funding the Northern Ireland Assembly, and also the Scottish Parliament and the National Assembly for Wales, are set out in a Statement of Funding Policy issued by the Treasury.[28] These are based on principles set out by the Chief Secretary in December 1997.[29] A key element in the arrangements is that changes in the budgetary provision of the Northern Ireland Assembly which are funded by United Kingdom tax revenues or by borrowing will generally be linked to changes in planned spending on comparable public services by departments of the United Kingdom Government. The linkage is generally achieved through the use of the population-based Barnett formula. One advantage sometimes claimed for this approach is that it largely removes the need to negotiate allocations directly between Treasury Ministers and the relevant Secretary of State and Ministers of the devolved administration.

21. The Barnett formula dates back to the 1970s and was examined by the Treasury Committee in 1997.[30] Its operation results in the determination of an overall increase in the Northern Ireland block as a whole; it is for the Northern Ireland Assembly, acting on proposals from Northern Ireland Ministers, to determine the actual application of any new funds.[31] Mrs Brown implied[32] that, over the years, some uplift had been achieved for Northern Ireland public expenditure beyond that provided by the Barnett formula, but added that "... I believe the Treasury line is very firmly in favour of Barnett as the basis of allocation and they would therefore, I believe, want to hold fairly tightly to the line that Barnett is it unless there is some special circumstance."[33]

22. Over the years, there have been a number of proposals for modification or abolition of the Barnett formula. Lord Barnett himself, in evidence to the Treasury Committee, suggested that the formula might benefit from a review.[34] The Welsh Affairs Committee has on two occasions[35] called for changes in its operation. Very recently, Mr Mark Durkan, MLA, Northern Ireland Minister of Finance and Personnel, repeated calls for a "full and proper review" of the Barnett formula, arguing that there was a need for a move to a formula that is needs-based.[36] The Government, in its response to the Treasury Committee's report, rejected the case for changing the formula.[37]

23. As we have already pointed out, the Barnett formula has the merit of simplicity and, by basing changes on population levels, arguably does so on an objective basis. It provides central government with a straightforward means of regulating the overall volume change in the expenditure of the devolved administrations. It is implicit in the operation of the formula that any difference of emphasis on increased needs in the various territories is taken care of on a 'swings and roundabouts' principle within the overall increase. There are, however, legitimate questions to be asked about the long-term impact of the formula[38] and about whether a base-line of expenditure in the 1970's remains appropriate to determining current needs.[39]

24. Clearly, the Barnett formula could not be changed for Northern Ireland alone, as the issues of principle that revision would raise also apply to the funding of the other devolved administrations. We note that the level of public expenditure per head in Northern Ireland is, at present, significantly greater than in any other country of the United Kingdom,[40] as the graph below demonstrates. We also note that, over the period 1995-96 to 1999-2000, identifiable public expenditure per head in Northern Ireland appears to have shown a faster rate of growth than that in any of the other constituent countries of the United Kingdom.

25. While we are concerned that Mr Durkan considers that a review of the Barnett formula is overdue on the grounds that it fails to reflect the needs of the population of Northern Ireland, we recognise that any revision is likely to be a complex exercise. In view of Mr Durkan's concerns, we shall continue to keep this area under review. In the event that the Government decides to review the arrangements for the funding of the devolved administrations, it might be appropriate for this Committee, the Welsh Affairs Committee, the Scottish Affairs Committee and the Treasury Committee (or any successor Committees) to look jointly at the matter, on the model of the approach adopted in this Parliament by the relevant departmental committees[41] to the Government's annual reports on strategic export controls.