What is the Barnett Formula?

The Barnett Formula has been getting a lot of airtime today as politicians and pundits discuss the future of the British constitution. So what is it, and why is it controversial?

The Barnett Formula is the method used to distribute public expenditure between Scotland, Wales, and Northern Ireland. It also provides that changes to public expenditure shall be allocated proportionally, so that changes to expenditure in England have a proportional impact on the other nations.

The formula is the brainchild of Lord Barnett, who devised it while he was Chief Secretary to the Treasury in the 1970s. The Barnett Formula was never intended to be a permanent solution. It was originally supposed to be a temporary expedient to smooth things over before the creation of a Scottish Assembly in 1979.

Although the Assembly was never set up[1], the Barnett Formula stuck around. For twenty years, it was used to set the budgets of the territorial departments,[2] and it has been used to set the budgets for the devolved administrations since the first round of devolution in the late 90s. The formula takes into account each nation’s population as well as the powers enjoyed by the devolved administrations,[3] but it doesn’t consider each nation’s tax revenue or its fiscal need.

The Barnett Formula has long been criticized for its lack of nuance, and a major complaint is that Scotland typically ends up with higher per capita spending than England (last year, for example, Scotland received £10,152 per head, while England only received £8,529). Politicians in the devolved legislatures also complain that the lack of a statutory basis for the Barnett Formula undermines their independence by making them totally reliant on the goodwill of HM Treasury. But although Westminster party leaders have historically been reluctant to tamper with the Barnett Formula, it will almost certainly be re-evaluated as the British constitution adjusts to the new political realities.

NOTES

[1] The Scotland Act 1978 (1978 c. 51) stipulated that devolution would only occur if at least 40 percent of the Scottish population voted for it in a referendum. Only 32.9 percent ultimately backed devolution.

[2] That is, the Scotland Office, the Wales Office, and the Northern Ireland Office.

[3] The Barnett Formula does not affect expenditure on matters reserved to Westminster.

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