CONCLUSIONS AND RECOMMENDATIONS
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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