Lords: Scotland is ‘overpaid’ by Barnett funding formula

July 18, 2009 at 12:20 pm Leave a comment

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The formula used to allocate government funds to Scotland, Wales and Northern Ireland is unfair and should be replaced.

The Barnett Formula was devised in 1978 by Chief Secretary to the Treasury Joel Barnett as a short-term funding solution in the run up to proposed devolution in Scotland in 1979.

The House of Lords Committee on the Barnett Formula said the current allocation gives Scotland more funds, per head of population, than appears to be justified when compared to Wales and Northern Ireland and their needs.

They called 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.

It accounted for almost £49bn of annual public spending last year.

The committee’s 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.

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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