Saturday, 18 July 2009

House of Lords Committee on the Barnett Formula

The House of Lords Select Committee on the Barnett Formula (the Richard Committee) published its report yesterday. The Barnett formula is the formula which distributes block grant to the devolved administrations in Scotland, Wales and Northern Ireland for the funding of devolved matters. It does this mechanically, by apportioning a percentage of any increase of expenditure in England in any financial year on those matters to the block grant paid to the devolved administrations.

The Committee recommend that the Barnett formula should be scrapped and a needs based formula substituted for it to distribute funding on devolved matters. The Committee have come up with their own formula based on a combination of the relative number of infants (under 5s), children (5s to 16s), pensioners (over 65s), the level of child poverty, household income, unemployment, disability, and mortality rates. It concludes:

"The main points of note here are as follows:

  • On most measures, the levels of relative need in England and Scotland are quite similar (that is, the blue and the white lines are usually quite close to one-another). England has slightly higher levels in matters to do with children and poverty and Scotland has much higher levels regarding disability and mortality.
  • With the main exception of mortality, need in Wales is usually higher than in Scotland (that is, the red line is usually outside the blue one).
  • Reflecting its young population, need in Northern Ireland is high on the children measures and low on the pensioner measure. In this combination of highest need on some measures and lowest need on others, Northern Ireland is unique."

In comparison with the Barnett formula, the general effect is that on the Committee's needs measure, people in England would not see their position changed to any great extent in terms of share of overall UK resources, people in Scotland would see less, people in Wales would see more (although even now they receive more per capita than do those in England albeit less than Scotland) and I am not clear about the position on Northern Ireland - the Committee's proposal is probably broadly neutral for Northern Ireland because the administration there already receive considerably more per head than the rest of the UK under the Barnett formula. Broadly therefore, the Committee's proposed formula would transfer some of Scotland's block allocation to Wales.

What is the chance of this being implemented? Next to zero. The Treasury are against the changes: their spokesman said about the report "The Barnett formula has served the UK well over the years. It has proved to be a robust mechanism for allocating spending to the devolved administrations and has stood the test of time". This reflects Treasury evidence given to the Committee. Whilst David Cameron has recently made some noises about looking to revise Barnett, he has also said that this ought to be on the basis of consensus and generally agreed principles.

It would be unfair to label the Committee's proposed needs formula by reference to the axiom "Garbage in, garbage out". But any particular outcome under the Committee's proposals is highly dependent on what indexes of "need" are chosen and how they are measured. The Committee suggest that respective needs can be settled in accordance with recommendations made by a new "independent" UK Funding Commission. The problem is both that such a Commission could never and should never be independent because any needs-based funding formula requires taking a view on social priorities, which would inevitably and rightly have to be subject to political control, and that the temptation for politicians to tweak the inputs to achieve previously determined and desired outputs would probably be irresistible. By contrast, the Barnett formula is purely mechanical - find out what the uplift or reduction in England in any financial year has been on devolved matters, and apply a proportion of the same uplift or reduction to the block grant to the devolved administrations.

But the main problem, and the one probably causing the Treasury to pour cold water on it, is the likely impossibility of achieving agreement. First, the Committee's approach would not cater for those in England who, rightly or wrongly, see themselves as unfairly treated (an overlooked majority) as a source of subsidy for the rest of the UK. Secondly, there is no way that the Scottish government will do anything other than oppose it - their "remedy" to the Barnett formula is fiscal autonomy for Scotland. Thirdly, it is difficult to see the Tories, with their miserable Scottish representation, wanting to reignite claims that they are an "anti-Scottish" party by cutting Scottish block grant in comparison with the rest of the UK as one of their first actions should they take office after the next general election, particularly as all devolved block grants will almost certainly be cut anyway in proportion to the ramping down of UK public expenditure from next year to cope with the ballooning of the national debt. Fourthly, any tweaking of funding arrangements within the UK is likely to give rise to fresh calls for some of the other constitutional anomalies affecting England to be remedied, which the current Labour government would like to avoid in their own self interest, particularly as in the lobbying that would inevitably be made to the proposed independent Commission with respect to how funds should be shared out, someone somewhere would need to be seen to be standing up for people in England in the same way that the devolved administrations would undoubtedly stand up for their own people.

The fact is that devolved government has heightened sensitivities between the constituent parts of the UK and this has resulted in the making of revisions of the Barnett formula having become too hot a political potato to handle. "Do nothing" would probably be the favoured course for any government in the forseeable future.

1 comment:

Ronnie said...

I was a civil servant in Belfast and remember the pre-Barnett days of an annual attempt to allocate taxes at their source, of a somewhat notional Imperial Contribution to pay for warships and ambassadors and of "leeway" to enable us to catch up where we were behind. Happiness depended on constant negotiations and some goodwill at HMT. The present formula, mechanical as you describe it, is simpler and gives a quicker answer. It does have its problems or opportunities. Thus there is for example a proposal to transfer police and judicial powers to Belfast and though the two main power-sharing parties are not equally enthusiastic in principle they are similarly concerned to secure the naximum addition to the baseline. I should not be surprised if HMT were being difficult, painting a picture of a peaceful crime-free future. One should be wary of applying too easily the scientific or mathematical metaphor of a formula where financial relations are concerned.