The Barnett Formula - Select Committee on the Barnett Formula Contents


The advantages of the Barnett Formula—simplicity, stability and the absence of ring-fencing—are important and should be maintained whatever the future method of allocating funds to the devolved administrations (para 51).

The changing populations of the devolved administrations and the failure of the Formula to take account of population changes over time within the baseline create a significant problem for the Barnett Formula today. In our view, the resulting per capita allocations are arbitrary and unfair. In essence the baseline of the grant provides funds for a level of population that has changed (para 56).

On every funding decision the Treasury is judge in its own cause, including whether to bypass or include any expenditure within the application of the Barnett Formula. We recommend that before decisions are made on whether the system is bypassed or creates a consequential payment there is a clear process and open consultation with the devolved administrations (para 60).

Although we acknowledge that the data on public spending have improved since 1999, we continue to be concerned that clear, thorough and readily accessible data on public spending across the United Kingdom are not yet being provided (para 62).

We recommend that the Treasury publish their statistics of the workings of the Barnett Formula, or its successor, in a single, coherent and consistent publication. This annual publication should contain all material data on devolved finance, showing the allocations of grant to the devolved administrations, changes from previous years and explanations for any changes made. We recommend that the statistics be monitored by the UK Statistics Authority (para 63).

The role of the Commonwealth Grants Commission (CGC) in Australia offers a useful institutional model of an independent body that has responsibility for making recommendations about the allocation of finance (para 72).

An independent body, similar to the CGC, should be established in the United Kingdom. It should be the role of such a body to recommend the allocation of public monies based on population and through a new needs-based formula. Within the new framework the Treasury will need to retain its authority over the overall level of the block grant but not the proportionate allocation of the grant between the devolved administrations. This independent body might perhaps be called the United Kingdom Funding Commission. This Commission would carry out an assessment of relative need, undertake periodic reviews, and collect and publish information on an annual basis about the allocation of finance to the devolved administrations (para 73).

The Commission should be advisory in nature rather than have the power to make substantive allocations of funds on its own account. Its advice should, however, be published (para 74).

The remit of the Commission should be to determine the relative needs of each devolved administration on a regular basis, perhaps every five years. The Commission should also advise on the relative proportions of public spending for the devolved administrations, compared with spending within England, during a transitional period and recommend annual increments based on the latest population figures (para 75).

The Commission should be appointed by the United Kingdom Government as a non-departmental public body. It should be politically neutral and independent. It should be composed of a small number of members with sufficient expertise to ensure the dispassionate and authoritative nature of its work (para 76).

We recommend that future grants be payable directly from the United Kingdom Government to the consolidated fund of each devolved administration (para 78).

We find the argument that devolution funding should be based on relative need to be a compelling one. Public spending per head of population should be allocated across the United Kingdom on the basis of relative need, so that those parts of the United Kingdom which have a greater need receive more public funds to help them pay for the additional levels of public services they require as a result. Those levels of need—and which parts of the United Kingdom need them—may well change over time. Historically, they have certainly done so (para 81).

The new system should be based on the following principles:

  • It should consider both the baseline and any increment in funds;
  • It should be fair and seen to be fair;
  • It should be comprehensible;
  • It should respect territorial autonomy; and
  • It should be stable and predictable (para 88).

Any needs assessment should take these aspects into account:

  • The age structure of the population;
  • Low income;
  • Ill-health and disability; and
  • Economic weakness (para 94).

While we are not in a position to reach a conclusion about precise relative needs in the four countries and regions, on the basis of our initial analysis, we believe that Scotland now has markedly lower overall need than Wales and Northern Ireland in comparison to England. The current allocation of spending does not properly reflect this basic pattern across the devolved administrations (para 101).

We recommend that an alternative system on the broad lines suggested above be created to establish a new baseline grant for the devolved administrations and to review needs on a regular basis so that allocations of funds to the devolved administrations reflect the changing patterns of relative need (para 102).

The task envisaged for the Commission is to select indicators of the type illustrated above and to combine them in the way suggested. It is a feature of this approach that there can be choice about which, and how many, of the indicators are used for the ultimate formula. All of them will be brought into the analysis (para 106).

We recognise the need for a carefully-handled transition to implement the new arrangements. We anticipate a transitional period of between three and five years, preferably no more than seven, before the new arrangements are brought wholly into effect. Smoothing mechanisms would need to be put in place to manage the change from present levels of funding to those that the new arrangements would supply (para 110).

Both the length of the transition period before the new system is brought wholly into effect and the pace at which the actual levels of grant per head converge with the needs-based levels are issues upon which the new Commission should advise the United Kingdom Government (para 110).

The new arrangements we propose will need to be embodied in statute, at least in general outline. The legislation should contain provisions to ensure that the quinquennial reviews indeed take place (para 112).

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