Scope of the inquiry
HM Treasury decides how much funding the UK government will allocate to Scotland, Wales and Northern Ireland. Initial funding allocations are based on the funding the devolved administrations received in the previous year plus a population-based share of funding for changes in planned UK government spending. HM Treasury uses the Barnett formula to calculate these changes. Outside of Spending Reviews, the devolved administrations can receive extra funding when spending priorities change and more funding is provided to UK government departments. HM Treasury is able to decide whether and how the formula applies as new funding is announced at annual budgets or when UK Government spending priorities change. These decisions can have the effect of increasing or decreasing the initial calculation of funding to devolved administrations. Changes in the devolved administrations legal and administrative powers, including tax and revenue-raising powers, have an impact on the way funding is calculated.
A recent National Audit Office investigation into devolved funding looked at how funding decisions are reached and the different mechanisms and formulas that result in funding allocations.
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