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Devolved funding mechanism 'requires reform'

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The formula used to calculate funding for the devolved nations needs to be reformed regardless of the result of the Scottish referendum, a session at the LGA conference heard earlier this month.

The Barnett formula was created by Joel Barnett in the late 1970s when he was chief secretary to the Treasury. Mr Barnett devised the formula as a short-term solution in an attempt to prevent Cabinet disputes over the 1979 Scottish devolution referendum.

The formula has been retained by successive governments ever since, despite growing protest that it is unfair, even from the now Lord Barnett, himself.

The formula bases the expenditure allocated to each UK country on its population. It applies only to expenditure on issues for which the devolved administrations are responsible, and is only used as a default option if no other expenditure arrangements are made. Any increase or reduction in expenditure in England automatically creates a proportionate increase or reduction in funding for Wales, Scotland and Northern Ireland.

At the LGA session, all three speakers agreed that the Barnett formula was outdated, and said that even in the event of a ‘no’ vote on independence, it was essential a debate took place on the future use of the formula in Scotland.

Centre for Policy Studies board member Fraser Nelson – also the editor of the Spectator – agreed that the Barnett formula was outdated.

“Nobody can think of something to replace it with,” he said.

“There is not much debate that the funding system is unfair,” he added. “Public spending in Scotland is £10,000 per head, compared with £8,000 in England. It’s because politicians get scared about the union and shovel money at the Celtic fringes.”

Mr Nelson and Lord Shipley, leader of Newcastle City Council from 2006-10, insisted the formula would have to change in the event of a no vote, despite the prime minister’s insistence that it could remain as it was.

Lord Shipley

Lord Shipley: ‘Part of the issue is who raises what tax to spend where’

The question, however, is what to replace it with. Many have proposed a needs-based formula, rather than one based simply on population size, but all three speakers were uncomfortable with the idea.

Barney Crockett (Lab), who was deposed as Aberdeen City Council leader in May, said: “The formula can’t be labelled a success.”

Cllr Crockett said the model created divisions between English and Scottish local authorities. He was referring to the complaint from English authorities that the Scottish government, having greater proportionate funding from Westminster than England, is able to prevent Scottish local authorities from having to cut back local services as severely as their English counterparts.

Last year, the LGA launched a report which claimed this inequality cost English local authorities £4.1bn per year.

However, Cllr Crockett said a needs-based formula would bring its own problems.

He said: “We still have the largest area of deprivation in the UK around Glasgow, but a needs-based formula risks not incentivising local authorities the way that we should.”  

Mr Nelson added: “A needs-based formula won’t work because there is no such thing as an objective definition of need.”

He argued that allocating more or less money to Scotland would not necessarily affect the quality of public services.

“Greater public spending doesn’t necessarily mean better services. Scottish services are not 10% better than English ones. Money, however it’s resolved, will not make that much of a difference. Cash is important but doesn’t dictate quality.”

Mr Nelson and Lord Shipley floated the idea of increased tax autonomy for Scotland.

Lord Shipley pointed out Scotland already had the power to raise taxes, but had not on the whole used it. “Part of all this is the issue of who raises what tax to spend where,” he said.

Mr Nelson said Scottish services should be funded by Scottish tax.

Barney Crockett

Barney Crockett: ‘This formula can’t be labelled a success’

“The Scottish budget should be set according to whatever Scotland raises in tax; by raising revenue in Scotland and boosting the Scottish economy, not by getting money from London. So we should raise, say, 75% of the budget in Scotland.”

Spending Review Figures

In the 2013 comprehensive spending review, which set out government spending for April 2015-16, the government outlined the funding for government departments and devolved administrations. 

Country2014-152015-16Year-on-year real growth
Northern Ireland£9.6bn£9.6bn-1.5%
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