Lords Committee says Barnett Formula arbitrary and unfair

17 July 2009

The House of Lords Committee on the Barnett Formula has today labelled the Formula 'arbitrary and unfair' and recommended it should be replaced by a system that recognises changing population levels and the differing economic needs of the devolved nations.

The Committee argue the Formula, which accounted for almost £49 billion of annual public spending last year and has been in place since 1978, was only intended to be a short term measure and should no longer be used to determine block grants for the UK’s devolved administrations. They recommend a UK Funding Commission be established to assess relative need in the UK’s regions and advise on a new method of distributing funding to reflect those needs.

The report identifies a basic weakness in the distribution of funds throughout the UK pointing out that the baseline, which has been added to year on year since the late 1970s (through an application of the Formula) has never been reviewed. There has been no reassessment of the baseline to take account of changing population patterns; this means that the grant provides funds without reference to the needs of each of the countries and regions of the UK.

The Committee have concluded that there should be a link between the grant of funds made to each of the administrations and their actual per capita funding needs. The Committee prepared an overview of a range of accepted indicators of need which suggests that England and Scotland have markedly lower overall needs per head of population than Wales and Northern Ireland.

The Treasury have been judge in their own cause in making funding decisions for the devolved administrations for the last thirty years. The Committee have recommended that the relative needs of each of the devolved administrations be determined by an independent Commission called the UK Funding Commission.

The Committee suggest that the UK Funding Commission undertake an assessment of relative need now and in the future and that they undertake periodic reviews as well as publish annual data about the allocation of funding between the devolved administrations. That would provide a flexible system which adjusts to reflect the needs of the devolved administrations over time.

Commenting Lord Richard, Chairman of the House of Lords Barnett Formula Committee, said:

"The Barnett Formula was a short-term fix which became established as the method of deciding how much money goes to Scotland, Wales and Northern Ireland over the last thirty years because it was easy to administer and convenient for Treasury ministers.

"After thirty years of increasing allocations year on year, and in the light of possible cuts in public spending, it is now time to scrap the Formula and replace it with a clear system of determining a grant of funds for each of the devolved administrations based on their actual needs.

"When the Committee considered a range of indicators of need it became clear that Wales and Northern Ireland have greater needs per head of population than Scotland and England – the current allocations made through the Formula give Scotland more funds, per head of population, than appears to be justified when compared to Wales and Northern Ireland and their needs.

"There should be a clear and straightforward method of allocating funds, decided by an independent expert Commission, so that taxpayers can be certain that their money is going where it is most needed."

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