THE BARNETT FORMULA
CHAPTER 1: BACKGROUND TO THE INQUIRY
1. The Committee was appointed by the House:
"to examine the purpose, methodology and application of the
Barnett Formula as a means of determining funding for the devolved
administrations of the United Kingdom, to assess the effectiveness
of the calculation mechanism to meet its purpose and to consider
alternative mechanisms". [1]
2. Our orders of reference were intended to exclude
consideration of three areas:
- the overall system of funding the devolved administrations—in
particular the question of whether greater tax-raising powers
should be accorded to the devolved administrations;
- other political aspects of the devolution settlements;
and
- the distribution of funds within the different
regions of the United Kingdom. [2]
3. The scope of this inquiry is therefore tightly
focused on the methodology and practical application of the Barnett
Formula. It focuses on the funding provided by the United Kingdom
Government to the devolved administrations. The inquiry does not
consider the policy and funding decisions of each devolved administration.
Under devolution legislation[3]
it is for each devolved administration to decide the funding policy
for its activities. From the outset we accepted the principle
of the provision of a block grant from Westminster to fund the
devolved administrations so that each administration would be
free to allocate resources in line with its own policies.
4. The Formula has been criticised for many years.
In 2002 the House of Lords Constitution Committee acknowledged
that "there are serious difficulties presented by the long-term
continuation of the Barnett Formula. We do not think that it will
be a sustainable basis for allocating funds to the devolved administrations
in the long term".[4]
Criticisms of the Formula have increased over time as public services
across the United Kingdom have diverged as a result of the policy
decisions of the individual devolved administrations (for example
university fees or medical prescription charges) which are not
replicated throughout the United Kingdom but which are a consequence
of devolution. Differences in public service provision have given
rise to debate about the equity of the funding allocations made
through the application of the Barnett Formula.
5. The current financial climate is also likely
to lead to increased pressure on public spending, including that
distributed through the Barnett Formula.[5]
We are aware that any mechanism which distributes public money
will attract some criticism and that recipients of public funding
rarely consider their allocation to be adequate. However, the
spending decisions and the subsequent policies of each administration
are beyond the remit of this inquiry. They are a matter for each
administration, not for us.
6. In conducting this inquiry we assumed that
a mechanism for distributing financial resources from the United
Kingdom Government to the devolved administrations was necessary.
The questions we asked ourselves therefore were:
- Why was the Barnett Formula created?
- What were its original purposes and have they
been achieved?
- Are the original purposes of the Formula still
valid?
- If it were to be replaced what mechanism should
be adopted as an alternative?
7. When we began our inquiry in December 2008
several other commissions and committees were investigating issues
associated with the Barnett Formula. Our inquiry was conducted
in parallel with the following:
- the House of Commons Justice Committee's inquiry
into devolution;[6]
- the Calman Commission review of the devolution
settlement, including the financial powers of the Scottish Parliament;[7]
- the Welsh Assembly Government's Independent Commission
for Funding and Finance for Wales chaired by Mr Gerry Holtham[8];
and
- the First Minister of Scotland's "National
Conversation" to consider the constitutional future of Scotland
including financial arrangements.[9]
8. This report sets out broadly how a new system
might be determined.
9. The membership and interests of the Committee
are set out in Appendix 1 and those who submitted written and
oral evidence are listed in Appendix 2. Our Call for Evidence,
which was issued on 2 February 2009, is reprinted in Appendix
3. In response we received 41 submissions of written evidence,
and we subsequently took oral evidence, in London, Edinburgh,
Cardiff and Belfast, from 46 persons or organisations. We would
like to thank all those who have assisted us in this way: without
their help our inquiry could not have been carried out.
10. Finally, we are very grateful to our Specialist
Advisers, Mr Alan Trench of Edinburgh University and Dr Peter
Kenway, for their expertise and guidance. We stress, however,
that the conclusions we draw and the recommendations we make are
ours alone.
1 The members of the Committee were appointed by the
House on 10 December 2008. Back
2
Liaison Committee, 2nd Report, 2007-08, HL Paper 142 p3. Back
3
Government of Wales Act 1998; Scotland Act 1998; Northern Ireland
Act 1998; Government of Wales Act 2006. Back
4
House of Lords Select Committee on the Constitution: Devolution:
Inter-Institutional Relations in the United Kingdom HL 28, 2002-03
para 103. Back
5
This was acknowledged by the Finance Committee of the Scottish
Parliament on 9 June 2009. Back
6
House of Commons Justice Committee, 5th Report 2008-09
HC 529. In addition the Barnett Formula was considered by the
House of Commons Treasury Select Committee HC 341 1997-8 and the
House of Lords Select Committee on the Constitution: Devolution:
Inter-Institutional Relations in the United Kingdom HL 28,
2002-03. Back
7
Commission on Scottish Devolution Serving Scotland Better: Scotland
and the United Kingdom in the 21st Century; Final Report; June
2009. Back
8
Independent Commission on Funding and Finance for Wales: Funding
devolved government in Wales: Barnett & beyond, First
Report to the Welsh Assembly Government, July 2009. Back
9
Scottish Executive Choosing Scotland's Future: A National Conversation,
2007; Scottish Government Fiscal Autonomy in Scotland: The case
for changes and options for reform, 2009. Back
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