The Barnett Formula - Select Committee on the Barnett Formula Contents


The original purpose of the Formula

23.  A formula was first used to calculate funding for services in Scotland and Ireland compared with England and Wales in 1888. The 'Goschen Formula', named after the then Chancellor of the Exchequer, allocated funds based on population in the proportion 80:11:9 to England and Wales, Scotland and Ireland respectively (p 301). After World War II successive Scottish Secretaries of State negotiated additional allocations for their territorial departments by arguing special needs, such as sparsity of population in the remote areas and density and poor housing in the central belt. The current Secretary of State for Northern Ireland, Shaun Woodward MP, suggested: "certainly what was there before 1979 was tortuous, unfair, involved line by line negotiation, was pretty opaque and did not much work" (Q 893).

24.  The introduction of what became known as the Barnett Formula was part of a wider attempt to constrain public spending in what were difficult times, for the economy in general and for public spending in particular (Q 7). It coincided with the introduction of cash limits for public spending by Denis Healey MP, then Chancellor of the Exchequer, following the 1976 loan from the International Monetary Fund. The creator of the Formula, Joel Barnett MP, intended to find a way of apportioning changes in public spending to the territorial departments by allocating proportional shares to the Scottish and Welsh Offices and Northern Ireland departments when there were changes in spending on 'comparable functions' for England. Those proportional shares were based on the relative populations of the regions and countries of the United Kingdom in the late 1970s (Q 11).

25.  In essence, Barnett was an update of Goschen, but with the distinguishing feature that, instead of quantifying the annual per capita spending increase as a percentage of the Scottish baseline it was granted instead as a cash figure per capita, derived from the percentage increase granted to the (lower) English baseline. In other words, if England received say, a 4 per cent increase per capita which amounted to £1,000, Scotland would receive £1,000 per capita although that would be less than 4 per cent of the (higher) Scottish baseline. This new arrangement injected into the process the concept of gradual convergence.[22]

26.  The Barnett Formula began to operate in Scotland and Northern Ireland in 1979 and in Wales in 1980. The Secretaries of State continued to be free to allocate money to their chosen spending priorities in Scotland, Wales and Northern Ireland (p 204).

27.  The purpose of the new Formula was to respond to pressure from ministers in other departments to rein in the excessive, as they saw it, share of resources going to territorial departments, in particular to Scotland, at a time of cash limits and in dire economic circumstances nationally. Although intended to be temporary, until a formula that paid more attention to relative need could be devised and agreed, Barnett brought a welcome measure of certainty and stability. However, since the Formula did not cover all public spending in Scotland, Wales and Northern Ireland, the territorial Secretaries of State remained able to negotiate special deals outside the Formula.

The Formula before devolution


28.  The decision to introduce the Formula took place at a time when devolution to elected assemblies in Scotland and Wales was being contemplated by the Government, and the question of their funding had yet to be resolved. The Government planned to fund the devolved administrations on the basis of their relative spending needs, and details were to be discussed with the devolved bodies when they came into being.[23] At the time the Formula was introduced, a needs assessment study was underway in the Treasury to assess the relative needs of Scotland and Wales for the six main policy areas which were to be devolved.[24] Following referendums in March 1979 the project to create devolved assemblies was halted and the Needs Assessment Study was never pursued.[25]

29.  Although the Formula (including the baseline) was not reviewed during this period, funding was nonetheless a recurrent topic of debate between the Scottish and Welsh Offices and the Treasury. The Treasury periodically sought a review of Scotland's relative needs in order to counter bids from Scotland for increased spending; it was for the Scottish Secretaries to resist such calls. Twice this reached the stage of an interdepartmental discussion: in 1986 a report was prepared by the Cabinet Office on 'corrective action' which might be undertaken; and in 1993 a new needs assessment was carried out by the Treasury updating the 1979 exercise but its results were never published.[26] The most recent needs assessment is therefore fifteen years out of date.

30.  Had the Needs Assessment Studies been brought into effect, they would have changed significantly the levels of spending across the United Kingdom. Table 5 below illustrates the impact they would have had both for the 1970s and the 1990s:

United Kingdom Government Needs Assessments 1979 and 1993 and actual levels of spending (in index terms)

Per capita spending on 'devolved services' in 1976-7
Per capita spending on 'devolved services' recommended in 1979 Needs Assessment study
Per capita spending on 'devolved services' in 1993-4, according to 1993 Treasury Needs Assessments
Per capita spending on 'devolved services' recommended in 1993 Treasury Needs Assessments
Northern Ireland

Sources: HM Treasury Needs Assessment Study—Report (London: HM Treasury, December 1979), pp. 6; HM Treasury Assessment of Relative needs—Scotland, (September 1993), chapter 4; HM Treasury Assessment of Relative needs—Wales, (September 1993), chapter 4; and HM Treasury Assessment of Relative needs—Northern Ireland, (September 1993), chapter 4.

31.  In both cases, this would have meant a reduction in Northern Ireland and in Scotland relative to spending in England and an increase in spending in Wales in 1979 but not in 1993.


32.  Lord Barnett made clear to us that the Formula was not designed as a permanent solution: "I thought it might last a year or two before a government would decide to change it. It never occurred to me for one moment that it would last this long" (Q 2). The fact that the Formula was intended originally as a short-term expedient was echoed in other evidence (p 145, p205). Despite this, the Formula has proved remarkably durable, surviving both financial stringency and retrenchment in the 1970s and 1980s and considerable growth in public spending in more recent times.

Application of the Formula in practice up to 1997


33.  It is a mathematical property of the Formula, all other things being equal, that spending subject to the Formula in Scotland, Wales or Northern Ireland would tend to converge on the English level, per head of population, over time (QQ 81-82, 86). Lord Barnett told us that he did not intend the mechanism to produce convergence and was not aware at the time that it should, or could, do so (Q 12). As it was not expected that the Formula would last long, the convergent aspects of the Formula were not material when it was first applied.

34.  In fact there is little evidence that convergence actually took place during the period 1978-1997.[27] This appears to be the result of the fact that population changes were not adequately reflected year by year in the baseline.[28] The relative populations were not updated until the 1990s, despite significant changes—in particular, a decline in Scotland's share of the United Kingdom population from 9.3 per cent in 1976 to 8.7 per cent in 1995.[29]


35.  The application of the Barnett Formula during this period did not remove all negotiations between the Treasury and the Scottish and Welsh Offices. There were extensive discussions which were vital in ensuring that the system was appropriately flexible to respond to the differing needs of Scotland, Wales and Northern Ireland. This worked well when all three administrations were part of a single United Kingdom Government before devolution, and for a while after the Scottish Parliament and Welsh Assembly were in operation, as it applied in the context of decisions taken within Governments (based at Westminster, in Edinburgh and Cardiff) with predominantly shared common agendas. However, in the process, it appears that Scotland and Northern Ireland were more successful than Wales in obtaining favourable treatment from the Treasury in allocations of public spending outwith the Formula. In that respect, Wales was the least generously treated (p 178). During this period the most significant formula bypasses were to cover public sector wage increases which, if met from within the block grant, would have had a disproportionate effect on the other elements of the territorial departments' spending programmes.

22   See paras 33-34. Back

23   Devolution: Financing the Devolved Services Cm 6890 (London: HM Stationery Office, July 1977); p 66. Back

24   HM Treasury Needs Assessment Study-Report (London: The Treasury, December 1979). The service areas were Health and personal social services, Education and libraries (excluding universities), Housing, Other environmental services, Road and transport (excluding railways), and Law, order and protective services (excluding police).  Back

25   HM Treasury Needs Assessment Study-Report, December 1979. Back

26   The Unwin Report 1986, was disclosed by HMT, but not published, following a request made under the Freedom of Information Act, Sir Brian Unwin QQ 509-10. The 1994 Needs Assessment was not published and was only made available to us by HM Treasury in June 2009.  Back

27   See Chapter 3. Back

28   See Chapter 5. Back

29   Ibid. Back

previous page contents next page

House of Lords home page Parliament home page House of Commons home page search page enquiries index

© Parliamentary copyright 2009