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Barnett formula is broken, says new ippr analysis

19 June 2009

• New ippr analysis exposes current level of spending disparities across UK nations
• Funding across the UK is not distributed in a fair or equitable way
• England is loosing out to Scotland and Northern Ireland

New analysis from leading independent think tank the Institute for Public Policy Research (ippr) published today (Friday 19 June) reveals that the distribution of public spending across the UK is neither fair nor equitable.

In the week that saw the landmark Calman Commission report published, recommending greater fiscal powers for the Scottish Parliament and the eventual replacement of the Barnett formula with a full needs-based assessment, new ippr analysis exposes the current level of spending disparities across the nations of the UK. 

Using spending data published by the Treasury yesterday, ippr analysis of identifiable spending per head, minus social security, shows that Scotland and Northern Ireland receive substantially more than the UK average, while England receives less.

Table 1: Identifiable public spend per head, minus social security, across the UK nations 2008/09

(ippr analysis of HM Treasury Public Expenditure Statistical Analysis data)

These differences equate to the following cash amounts:

• Scotland: £1,019 per head more than the UK average
• Wales: £509 per head more than the UK average
• Northern Ireland: £1,123 per head more than the UK average
• England: £170 per head less than the UK average.

The Barnett formula is intended to bring about equal spending per head across the nations – a process known as the ‘Barnett squeeze’ – but our analysis shows little evidence of this happening outside of Northern Ireland.

Table 2 Index of identifiable spend per head, minus social protection, across the nations, 2003/04 to 2008/09 

Guy Lodge, Associate Director, ippr said:

“At the beginning of this week the Calman Commission published their landmark report looking at how Scottish devolution is financed. It rightly recommended that the Scottish Parliament should be responsible for raising a proportion of the money it spends. We strongly welcome the report.

“We also strongly support the report’s view that the Barnett formula should be replaced by a needs-based grant. Our analysis of Treasury figures shows that funding across the UK is not distributed in a fair or equitable way. We agree with the Calman Commission that it is for the UK government to conduct a UK-wide needs assessment and we urge them to seize this opportunity for reform.”

ippr says a new financial settlement is needed to combine greater revenue raising powers for the devolved administrations, with a block grant from the UK government based on an assessment of need.  Such a system would be more equitable and encourage efficiency.  It would also give the devolved administrations more control over the amount of funding available to them.

ippr analysis of Treasury data also shows considerable disparities in levels of spending across the regions of England, with London joining Scotland and Northern Ireland as the parts of the UK that receive the most public spending (minus social security). 

Table 3 Identifiable public spend per head, minus social security, across the UK nations and regions 2008/09.

Notes to editors

ippr’s report Fair Shares: Barnett and the politics of public expenditure analysed spending in comparison to need, based on measures of economic wellbeing and levels of poverty. Download the report here.

1. The Barnett formula is not based on an assessment of needs, but on historic spending patterns and population levels.  It is used to calculate the increase (or decrease) to a baseline block grant which is historically too generous to Scotland and Northern Ireland, and too mean to Wales.  In effect, for every £ of extra spending in England on a service which is devolved, Scotland Wales and Northern Ireland will get an increase in their block grant proportionate to their relative populations. The Barnett formula does not govern the distribution of spending within England but including the English regions in the analysis provides a richer picture of how public spending is distributed across the UK.
   
2. Analysis of identifiable public spending per head minus social security is the closest proxy we can get to the amount of money distributed by the Barnett formula.  Social security is removed because this operates outside of the Barnett formula.  Also, it is an entitlement, meaning the amount of money spent in each place will rise and fall according to changing need.
   
3. Figures are calculated using the Treasury’s Public Expenditure Statistical Analysis publication available at http://www.hm-treasury.gov.uk/pespub_pesa09.htm
   
4. British Social Attitudes survey research shows that the Barnett formula is no longer seen to be fair and that an increasing number of people in England think Scotland receives ‘more than its fair share’ of public spending, rising from one in five in 2003 to one in three in 2007. It also shows that there is public support in both Scotland (57%) and England (75%) for the Scottish Parliament to fund a greater proportion of devolved services out of taxes raised in Scotland.  

Contacts:

Kelly O’Sullivan, Media Officer, 020 7470 6125 / 07813928239 / k.osullivan@ippr.org