The Barnett Formula - Select Committee on the Barnett Formula Contents



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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