The Barnett formula raises all sorts of questions about how public spending is distributed around the UK. But we should think twice before abandoning itby John McTernan / November 13, 2014 / Leave a comment
Listen to a recording of a Prospect roundtable on this topic featuring John McTernan below:
The Barnett formula: for many years, no one cared about it. It sounded like something from 1066 and All That: “The Barnett formula. Choose to (a) Paint it in the style of Picasso; (b) Describe it in the language of Finnegans Wake; (c) Express it as a function of π.” Now, though, in certain circles at least, it’s being widely discussed—if no more understood.
I recently chaired meetings held by the Chartered Institute for Public Finance and Accountancy at the Labour, Conservative and Liberal Democrat party conferences. The topic was how to revive the regions by removing the dead hand of the state. It was a provocative subject and created a lively debate among all the parties. Each had their own emphasis. For Labour, it’s about the northeast of England. For the Tories it’s the counties—Cambridgeshire, Hertfordshire, Kent—the most dynamic economic regions outside London. And for the Lib Dems it’s all about decentralisation—as a good in itself, as a process, not a means to an end. But all three parties identified two common enemies—London and Barnett (the formula, not the Labour peer, Joel, who died on 1st November at the age of 91.)
What’s the problem with the Barnett formula? It is seen as the basis for the apportionment of public spending between the nations and regions of the United Kingdom. So, if some region or nation is getting more money than yours, who gets the blame? Barnett, of course. All this is unfair. Barnett is not an allocation formula for all public spending. It is, rather, a much more modest thing—a formula for the allocation of changes in expenditure, whether growth or cuts.
It is certainly a crude formulation. When expenditure for England changes then automatically it changes for Scotland, Wales and Northern Ireland. A 2001 House of Commons Library research paper explained it thus: “There are three elements in the calculation: 1) The change in planned spending in departments in England; 2) The extent…