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By LGCnet political correspondent Robert Hedley ...
By LGCnet political correspondent Robert Hedley

The government has rejected calls for a review of the Barnett formula, which allocates funding to the countries of Great Britain, despite its creator leading such demands in a lords debate.

Lord Barnett, who as chief secretary to the treasury gave his name to the formula in 1978, said it did not occur to him that it would become a formula or that it would last so long. The formula applied to changes, whether up or down, in the Great Britain total of comparable expenditure. Expenditure is allocated on the basis of England, 85%; Scotland, 10%; and Wales, 5%.

'On that basis it was intended to be approximately population based. I had always assumed that the arrangement would be temporary until a more sophisticated method could be devised which took account of needs,' explained Lord Barnett.

'In fact, not only has there been no change to take account of needs, there have been only minor changes to take account of changes in population.'

Scotland's share of total UK population had declined ever since the formula was introduced. The white paper on Scottish devolution indicated the formula would be updated regularly to reflect the population ratio - and then chief secretary to the treasury Alistair Darling gave a commitment that it would be revised annually.

Lord Barnett said the substantial case that convinced his cabinet colleagues to allocate greater levels of public expenditure to Scotland and Wales than population figures alone justified was the different levels of income per head in those countries.

The situation was now very different. There was obvious unfairness in the working of the formula - although not for Wales.The figures for 1999, the most recent available, showed GDP per head in Scotland was£12,512; in Wales just£10,449 and in the north east of England,£10,024. Identifiable managed government expenditure per head in Scotland was£5,271; in Wales,£5,052; and in the north east, only£4,837.

Lord Barnett added: 'Even in what is thought of as the affluent south east, there are pockets where there is undoubtedly a need for higher levels of public expenditure. Relatively prosperous London has the highest income per head, at approximately 130% of the UK all-region average, yet I am sure that government expenditure there is much higher than in the north east or north west.

'It is about the same as in Wales, where income per head is only 80% of the UK average. I am sure that will not stop the mayor of London seeking even more.'

He continued: 'I hope that, inadequate as they are, the statistics show that the changes required go much wider than a simple amendment to the Barnett formula. The information currently available makes it impossible to propose the kind of major changes that are clearly required.

'I hate to recommend another review, but without one we shall not know where and what action is needed. The comprehensive spending review, as it is called, will not do the job.'

For the government, Lord McIntosh of Haringey ruled out a root-and-branch review and said there was no commitment to an annual revision of the formula, although changes had been made as and when necessary.

The government did not accept the formula had run its course.

'It is still as relevant as in 1978. It is updated in each spending review to reflect current circumstances in each country, without a commitment to revise or review it,' said Lord McIntosh.

'If we were to undertake a review with a particular view in mind - and no particular view has emerged from this debate - we would be responding to partial criticisms of a system that has stood the test of time.'

Hansard 7 Nov: column 225-264

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