Barnett back into the debate

Following Paul Cairney’s earlier blog, Richard Parry provides a contrasting perspective on the Barnett formula and its re-emergence into the independence debate.

The UK party leaders’ ‘vow’ in Tuesday’s Daily Record (bearing all the imprints of a Gordon Brown text) stated ‘and because of the continuation of the Barnett allocation for resources, and the powers of the Scottish Parliament to raise revenue, we can state categorically that the final say on how much is spent on the NHS will be a matter for the Scottish Parliament’. In TV interviews on Tuesday, Brown suggested that Barnett meant the nations of the UK received funding on the basis of need not on population shares. As Paul Cairney blogged earlier, we need to refresh our memories on what Barnett is.

‘Barnett’ is Joel Barnett, UK Chief Secretary to the Treasury from 1974 to 1979. The now 90-year old Lord Barnett was speaking in a  radio interview on Tuesday expressing renewed dismay at the formula and the attachment of his name to it (done not by him but by David Heald of Aberdeen University in  the 1980s) (www.bbc.co.uk/podcasts/series/wtonight)

Politically, ‘Barnett’ is two things. It is the formula used both before and after devolution to allocate public expenditure around the UK. It means that, in devolved services, changes in the spending on those services in England  are passed on to Scotland, Wales and Northern Ireland on the basis of population shares. These service-by-service allocations are then merged into an assigned budget (block grant) that the devolved administrations can spend as they like (hence the controversy about whether English NHS increases are ‘fully passed on’ or not). Sometimes thought be of mind-boggling complexity, it is actually very simple. The biggest problem is working out what the English equivalent spending is (there was a big fight over whether London Olympics spending was for England –and so a source of Barnett money to the devolved nations – or for the benefit of the UK as a whole).

What the Barnett formula is not – despite Gordon Brown – is a distribution on the basis of need, nor of historical shares of expenditure. It was designed to avoid discussion about both. Barnett gets the money out annually with very much less argument than any other approach would involve.

This brings us to the second use of ‘Barnett’ – as a shorthand for the alleged privileging of the devolved nations at the expense of England. Ironically Barnett is designed to erode any such privilege, with any new money being spread around on a strict population basis. Bu this has happened slowly, if at all. Latest Treasury figures for identifiable public expenditure per head (2012-13) show Scotland still 16% above the UK average table 9.16, barely changed for years. Many technical factors lie behind this, but an important one is the way that English departmental expenditure on major devolved services (health, education and criminal justice) has been relatively protected.

The UK response had been to force fiscal responsibility on the Scottish Parliament. From 2016 it will lose grant equivalent to 10 percentage points of income tax; the UK parties’ devo max proposals will take that further.  At some point, maybe the end of decade, these ‘own resources’ for Scotland will supersede Barnett. The risk for Scotland is that it will end up paying more income tax for the present high level of spending it enjoys and not just to finance policy choices to spend more.

One way of selling devo max to England is that it would prevent Scotland having a free ride on spending and require it to raise income tax if it pursues less austere policies..  By mentioning Barnett, the party leaders now imply that Scotland might get new rights and no less of a safety net. Gordon Brown further muddies the waters by saying erroneously that Barnett is about need and rightly compensates Scotland for its circumstances. London-based politicians and journalists enjoying their time in Edinburgh and Glasgow this week might well ask ‘”Needs”? What needs?’  

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Richard Parry's picture
post by Richard Parry
University of Edinburgh
17th September 2014
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