The Barnett Formula - Select Committee on the Barnett Formula Contents


Annually Managed Expenditure (AME). Expenditure within Total Managed Expenditure (TME) that does not fall within Scotland's Departmental Expenditure Limit (DEL). Expenditure in AME is generally less predictable and controllable than expenditure in DEL and cannot reasonably be subject to firm multi-year limits.

Asymptotical. An asymptote is a straight line always approaching but never reaching a curve.

Barnett Formula. A non-statutory mechanism that is used to determine changes in the budgets of the Devolved Administrations in Scotland, Wales and Northern Ireland. Introduced in relation to Scotland in 1978 and extended to Wales and Northern Ireland in 1980 and 1981 respectively, it was named after Lord Barnett who was Chief Secretary to the Treasury at the time.

Barnett squeeze. A term used to describe one of the theoretical effects of the Barnett Formula, given its properties. Namely that, all other things being equal, the Formula would produce convergence in levels of funding per head. There is some debate about whether convergence has actually happened in practice.

Cash planning: A method of planning government expenditure entirely in cash. Under cash planning, expenditure plans for later years are expressed in expected outturn prices, and there is a strong presumption against compensation for unexpectedly high inflation. This can be compared to the earlier system of Volume Planning which expressed future years in terms of the prices of the current Survey year and which involved revaluing these plans each year in line with specific-price inflation.

Departmental Expenditure Limit (DEL). Expenditure within programmes which is not classified as Annually Managed Expenditure (AME). Expenditure in DEL is generally more predictable and controllable than expenditure in AME. DEL is therefore set on a multi-year basis.

Devolution is the process of transferring power from the centre to sub-national units. It can take three forms. Administrative devolution is the practice of transferring responsibilities from central government departments to territorial departments of the same government. Executive devolution is the process of transferring the prerogative powers from ministers of central government to ministers of devolved governments, usually under statutory authority. Legislative devolution describes the transfer of law-making powers from the centre to other legislatures. The devolution settlement in the United Kingdom is often described as being "asymmetrical", meaning there are fundamental differences between the arrangements in each country.

End-year flexibility (EYF). A mechanism to allow unspent provision in the Departmental Expenditure Limit in one year to be carried forward to the next.

European Structural Funds. The European Structural and Cohesion Funds are the European Union's main instruments for supporting social and economic restructuring across the EU. They account for over one third of the EU budget and are used to tackle regional disparities and support regional development through actions including developing infrastructure and telecommunications, developing human resources and supporting research and development.

Formula by-pass. A term used to describe the phenomenon of the UK Government providing funding to the Devolved Administrations without applying the Barnett Formula, in circumstances where the Formula would appear to be applicable.

Gross Value Added (GVA). Gross value added is the difference between output and intermediate consumption for any given sector/industry. That is, the difference between the value of goods and services produced, and the cost of raw materials and other inputs used in production.

Identifiable expenditure. The spending that can be identified as benefiting individual regions and countries in the UK. The Public Expenditure Statistical Analyses (PESA) take know out-turn spending data across all government departments and the devolved administrations and therefore across the whole UK and split this spending data into spending that can be identified as benefiting individual regions (identifiable expenditure) and that which cannot, because it benefits the UK as a whole, such as defence spending.

Horizontal fiscal equalisation (HFE). Transferring resources from rich areas to poor ones. In Australia, the Commonwealth Grants Commission, an independent statutory authority, oversees a horizontal fiscal equalisation regime.[62] See also Horizontal fiscal imbalance (HFI)

Horizontal fiscal imbalance (HFI). A situation in which governments at the same level have access to different levels of resources. Within each level of government, there are inevitably some jurisdictions that are richer than others, and it is this that results in differences in resources available to governments at the same level. See also vertical fiscal imbalance.[63]

Hypothecation means earmarking particular sources of finance to particular issues. Thus, hypothecated taxes are those earmarked to particular forms of spending. Hypothecation is designed to clarify the link between what the public pays and the services that it gets. Its advantages are that it can be a good way of ensuring revenue for popular programmes and overcoming public mistrust of the way politicians use tax revenue. Its disadvantages are that it introduces an element of inflexibility into spending and sometimes makes it hard to cut programmes once they are underway. Moreover, hypothecated taxes may prove to be less hypothecated than the public is led to believe. Officials can usually find ways to fudge the definition of the specific purpose for which a tax is hypothecated, letting government regain control over how the money is spent.

Northern Ireland Office. The Northern Ireland Office (NIO) was created in 1972. Its role is to support the Secretary of State for Northern Ireland in taking forward Government policy in Northern Ireland. In addition to supporting and fostering the political and democratic process in Northern Ireland, the Department has overall responsibility for upholding law, order and security including the provision of criminal justice services.

Scotland Office. A UK Government Department established on 1 July 1999. The Scotland Office replaced the old Scottish Office that existed before devolution and had been a major government department led by the Secretary of State for Scotland. Now part of the Ministry of Justice, the Scotland Office is headed up by the Secretary of State for Scotland and has two key roles: to represent Scotland's interests at Westminster and to act as guardian to the Devolution Settlement.

The Treasury. Her Majesty's Treasury is the United Kingdom government department responsible for developing and executing the British government's public finance and economic policies.

Vertical fiscal imbalance (VFI). A situation in which some levels of government have relatively large tax revenues and relatively small expenditure responsibilities whilst other levels of government have relatively small tax revenues and relatively large expenditure responsibilities. In federal states, central (federal) governments often collect most taxes whilst state and local governments are often responsible for more expenditure than they can finance from their own sources of revenue. VFI is the difference between expenditures and own-source revenues at different levels of government.[64]

Volume planning: A method of planning public expenditure according to the volume of goods and services that the state will be providing—actual hospital beds, miles of roads and so on—rather than just the cash cost of such spending. Compare Cash Planning.

Wales Office. A UK Government Department established on 1 July 1999. The Wales Office replaced the old Welsh Office that existed before devolution and that had responsibility for a wide range of policy areas and a total annual budget of £7bn (1997-98). Now part of the Ministry of Justice, the Wales Office supports the Secretary of State for Wales in ensuring the smooth working of the devolution settlement in Wales. It is Wales' voice in Westminster and Westminster's voice in Wales.

62   Mucatelli et al, First Evidence from the Independent Expert Group to the Commission on Scottish Devolution (Edinburgh: Heriot-Watt University, 2008), p 32, available at (accessed 18 November 2008). Back

63   Bird, R., International Studies Program Working Paper 0302, Fiscal Flows, Fiscal Balance, Balance and Fiscal Sustainability (Atlanta: GSU, 2003), online at (accessed 19 November 2008). Back

64   Bird, R., International Studies Program Working Paper 0302, Fiscal Flows, Fiscal Balance, Balance and Fiscal Sustainability (Atlanta: GSU, 2003), online at (accessed 19 November 2008). Back

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