APPENDIX
DATA FOR
CALCULATING THE
BARNETT REPLACEMENT
1. To calculate "devolved" spending,
"social protection" is excluded from "regionally
identifiable public spending", because most of this expenditure
is not devolved. Agriculture is also excluded from "devolved"
spending on similar grounds to "social protection".
Most of the two categories are classified as Annually Managed
Expenditure, rather than the Department Expenditure Limits expenditure,
which broadly corresponds with the block grant to devolved governments
(as well as with UK government departments' budgets).
"Spending that cannot reasonably be subject
to firm multi-year limits is included in Annually Managed Expenditure
(AME). … It includes social security benefits,
local authority self-financed expenditure, payments under the
Common Agricultural Policy, net payments to EC institutions and
debt interest." (http://www.hm-treasury.gov.uk/spend_sr00_repannexa.htm)
Aggregate Needs Indicators
2. GVA is available for 2007 (ONS First
Release December 2008 Regional, sub-regional and local
gross value added) whereas household income by region is only
available for 2006 (ONS First Release May 2008 Regional
Disposable Household Income). On the other hand, at first
sight GVA is not such a good needs indicator as household income—because
it includes the benefits in kind that we are trying to predict.
These benefits are supplied at regional level and therefore their
resource costs should be included in regional value added. Insofar
as greater benefits are provided to lower income households, this
redistributive effect of taxation should therefore tend to equalize
GVA per head between regions with different household incomes.
But, in the opposite direction, a region such as Wales with a
low labour force participation will also have a low GVA per head.
Household income on the other hand, which includes central government
transfers designed to reduce interpersonal inequalities and "needs",
will show less divergence from the national average.
3. The figures for Wales for these two sources
show a marked divergence, with Wales 25 per cent below the
UK average GVA per head in 2007 but only 11 per cent
behind for household income in 2006. Although Welsh GVA grew more
slowly than the UK average 2006-07, by 0.9 per cent, this
is insufficient to account for the discrepancy when used to extrapolate
the household income divergence.
4. Gross disposable household income is
income after taxes and social contributions, property ownership
and provision for future pension income. It includes pension income,
income support[7]
and imputed rent values—what owner-occupiers would have
to pay for living in their homes if someone else owned them. Subtracted
to get household incomes are "Other outgoings". These
payments include those made by households to other sectors on
interest (eg mortgages) and rent. So apparently the lower costs
of property ownership in Wales are already taken into account
with this measure.
5. The GVA measure (income approach) excludes
transfer payments such as child benefit and the state retirement
pension. It also includes an imputed value for rental incomes
of owner-occupiers to cover the rental value of their properties.
Regional estimates are calculated using estimates of average property
prices by region. Higher property pries in SE England mean higher
imputed rentals and therefore higher GVA and disposable income.
But they also mean higher mortgage payments for those buying property,
or higher actual rent outlays. GVA and disposable income should
be deflated by the price index including housing costs in any
needs index.
Estimates of UK State Benefits in Kind By Income
Group
6. Data for the relation between state benefits
and final income are from the official Economic and Labour
Market Review, Vol 2 No 7 July 2008 "The effects
of taxes and benefits on household income, 2006-07", Table
14 (Appendix 1). Average incomes, taxes and benefits by decile
groups of all households, 2006-07. Figure 2 below shows the
household deciles with a constant proportionate relation between
the variables, and this is the basis of the calculation of Table
6 above. An equation relating benefits to the reciprocal
of income fits the data slightly less well.
7. The largest spending items are health
and education. How well does the ONS ELMR study estimate these
items? Any survey-based estimate of, say, health spending utilisation
will reflect not just "need" but the demand and supply
responses as well. Higher income people may well be more articulate
and accomplished at extracting the health benefits they require
from the NHS. So if we could get actual health state benefits
consumed by income group it would not necessarily tell us precisely
what we want. The approach used in this survey (described below)
is reasonable.
"Data are available on the average cost
to the Exchequer of providing the various types of health care—hospital
inpatient/outpatient care, GP consultations, dental services,
etc. Each individual in the EFS is allocated a benefit from the
National Health Service according to the estimated average use
made of these various types of health service by people of the
same age and sex, and according to the total cost of providing
those services. The benefit from maternity services is assigned
separately to those households containing children under the age
of 12 months. No allowance is made for the use of private
health care services."
Figure 1
March 2009
7 http://www.statistics.gov.uk/articles/nojournal/Regional_Household_Income_article_March_2007.pdf Back
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