The Barnett Formula - Select Committee on the Barnett Formula Contents

Memorandum by Professor John Simpson

  Please find below my written response to your questions in advance to your visit to Belfast on 27 March 2009.


1.  What do you understand was the purpose of the Barnett Formula was when it was first introduced, and has its purpose changed over time? Was it designed to reduce tensions arising from disparities in public spending per head of population? Has it succeeded in resolving such tensions?

  The Barnett Formula was a useful expedient to reduce the need for detailed negotiations between the Treasury and each of the devolved administrations. Only as a secondary consequence was the convergence feature of significance. The expectation that it would significantly reduce disparities has now become a source of tension since the principle that equal spending per head would be a desirable outcome is likely to be challenged.

Northern Ireland is sometimes argued to have a very generous allocation of public spending as a result of the Barnett Formula. The apparently high per capita spending figures are distorted by the exceptional comparisons for spending on law and order, justice and policing. These services are still reserved to Westminster and even when devolved will merit a separate needs assessment outwith the annual Barnett adjustments.


2.  Do you consider that convergence in per capita levels of public spending on the English level was an intentional feature of the formula, or merely an incidental one? Do you think it is overall a beneficial or harmful feature of the working of the Formula?

  The ambiguity on the convergence objective lies between the direction of change (narrowing the gaps) and the final result (equal spending per head). The lack of clarity remains. Ideally an infrequent needs assessment (say every five years) should be followed by an allocation to each devolved administration based on need (possibly a figure such as 3.5 per cent for Northern Ireland) rather than a population ratio.


3.  What criteria do you consider to be important in assessing the success or otherwise of the present formula, and of any possible replacement to it? Would a fair or equitable allocation system necessarily be a needs-based system?

  A critical assumption is that the intention is to give the devolved administrations a significant degree of choice in the deployment of resources. A needs based system should, therefore, avoid creating an expectation of direct parity in every service. That would transform devolution into only a form of administration. A composite needs indicator should suffice. This would mean that devolution allowed for (but did not necessarily mean) differences in outcomes.

4.  To what extent are there tensions between allocating expenditure according to such criteria as need, efficiency and effectiveness? How would you suggest those tensions might be resolved?

  The Barnett formula has the merit of having a justification based on historic trends and approximates to a needs based allocation. It leaves efficiency and effectiveness as issues for the devolved authorities. On a routine basis, this is an appropriate form of delegation.

5.  How effective would it be to use population or other proxy indicators of need, such as inverse GDP or perhaps social security spending per head, as alternatives to carrying out a detailed needs assessment? What would be the overall effect, in terms of the distribution of spending, of adopting those?

  Something akin to an inverse GVA per head indicator should be tested. A new formula would not necessarily change the distribution of spending.

6.  Assuming there is to be a mechanism for distributing financial resources from the UK Government to the Devolved Administrations, as the main source of revenue for the Devolved Administrations, do you think that a needs-based formula is the only real alternative to the current Formula? What other alternatives might there be?

  A population ratio weighted for some indicator of needs, or an assessed needs factor is possibly the best method of combining simplicity and devolution. However, this does not consider the merits or otherwise of a greater degree of devolution of fiscal charges. These options have been developed and challenged in the report by Sir David Varney.


7.  Are there still problems relating to the collection, quality or availability of data on the distribution of public spending and its effects? What issues are there on data about indicators of need and tax revenues?

  Yes. The present reporting and accounting systems do not demonstrate to people outside the official departments how the Barnett allocation is calculated. The outcome is accepted without detailed challenge. The accounting format for the complete devolved budget should also be made clearer in regular or annual publications.


8.  Most writers consider that procedural fairness and transparency are important aspects of any system of financing the devolved administration, and that this an area in which the present arrangements are defective. Do you agree? What information should be published or other processes adopted to improve procedural transparency?

  See comments to question 7.

9.  How workable would be a UK Territorial Grants Board given that its Australian prototype, the Commonwealth Grants Commission, operates in a symmetrical, federal system of government, with substantive fiscal autonomy for the States? Can a Territorial Grants Board improve procedural fairness or provide a system which is deemed legitimate?

  A formal post-budget review (after the UK budget) with the devolved administrations to consider the implications for them would be useful to demonstrate the consequential linkages.

  If devolution becomes more complex, with fiscal variables and/or different forms of access to capital funds, then the relationships would need to be formalised with guidelines on permitted discretionary variations.

March 2009

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