The Barnett Formula

The underlying justification for the introduction of the Barnett Formula was that all areas of the UK were entitled to broadly the same level of public services and that the expenditure on them should be allocated according to their relative need. In 1976, a study of relative needs and expenditure for different parts of the UK found that expenditure (per person) in Scotland, Wales and Northern Ireland should be higher than in England in order to meet their greater needs. An additional allocation of funds was recommended so that the gap between the level of public services in England and other parts of the UK could be closed. It was estimated that expenditure in Scotland needed to be 20% higher per person than in England. In 1978 Joel Barnett calculated a formula for distributing central government funds between Scotland, Wales and England. The ratio for spending was as follows:- Scotland: Wales: England – 10: 5: 85 The ratio, which roughly reflected the size of the respective populations, ensured that public spending per person in Scotland and Wales would be higher than in England. The formula was adjusted in 1992 to reflect 1991 population levels but it still understated the size of England’s population and overstated Scotland’s population.Since the introduction of the Barnett Formula there has been no further assessment of relative need. The position now is that Wales receives less public expenditure than it needs to attain the original objective, while Scotland receives too much. There is a case for helping Wales, which is one of the poorer parts of the UK, but it is plainly unfair to subsidise the entire population of Scotland to the tune of £30 per person per week. In the financial year 1993/4, identifiable government spending was 21% per person higher in Scotland than in England. By 1995/6 it had increased to 24%, and for Wales it was 17% higher.

The position for England, and especially its most needy areas, is worst than the figures above suggest. The 24% extra that Scotland receives is for all public service and welfare spending, including that on social security. Spending in policy areas that have been devolved to Scotland has been on average 31% per person higher in Scotland than in England. Spending in Scotland on health and personal social services was 22% higher; education 31% higher; transport 31% higher; trade, industry, energy and employment 55% higher; housing 87% higher; agriculture 123% higher. This despite Scotland being the third wealthiest region in the UK. (London and the South East were counted as one region in 1995/6) The additional funding for services in Scotland under the Barnett formula amounts to £8 billion each year. It is for this reason that public spending on health and education is higher per person in Scotland than in England. This has meant, for example, smaller class sizes in Scotland, higher pay for teachers, and the availability of NHS prescription drugs that are unavailable in England on grounds of cost.

On 22nd June 2000, Lord Barnett gave evidence to the Commons Treasury Select Committee. “I didn’t know it would last all of these years. I thought it was a temporary expedient but it finished up as a formula – nobody wanted to change it. There is huge scope for improvement because there was no assessment of real needs – that’s the real trouble. So consequently this formula that I used in 1978 is still being used today and that was purely political – there was no proper needs assessment – but Margaret Thatcher and John Major were frightened to change it for fear of loosing seats. The present government are reluctant to change it despite the fact that it clearly needs changing, and you should look at real needs – they are reluctant to change it now because they fear what will happen because of devolution in Scotland &- Scotland gets far more than it should.”