Scotland facing 'massive hikes in taxation' says McTernan

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For almost 45 years, public spending across the devolved nations of Northern Ireland, Scotland, and Wales has been decided by the Barnett Formula. As nations like Scotland bolster their cases for Independence, the Barnett Formula has become something a stinging point for the devolved nations – but what exactly is it, and how does it work?

What is the Barnett formula?

In principle, the Barnet Formula is extremely simple – when the Westminster Government chooses to spend more or less on sectors such as health and education in England, the formula is used to work out how much money the devolved nations will receive.

For example, if the UK Government were to increase health spending by £20 per person in England, the devolved governments would receive the equivalent amount for their respective populations.

The Barnett Formula doesn’t calculate the total value of a devolved government’s block grant: it works out how much the grant should change each year, and adds the change to the previous year’s block grant to come up with the forthcoming year’s grant.

However, in reality devolved governments are free to spend any extra money on whatever they want – funding doesn’t have to go on health just because it was spent on health in England.

How much does each UK country spend?

In 2020/21, public spending per person in the UK as a whole was £13,414. In England, it was £13,166 – this is 2 percent below the UK average.

In Scotland, £14,842 was spent per person, which is 11 percent above the UK average.

In Wales, the figure was £14,222, some six percent above the average, and in Northern Ireland it was 14 percent above the UK average at £15,357.

Why are the figures different for each country then?

There are several reasons why the figures are not the same for each country, despite the formula stipulating it.

The devolved nations all have populations spread considerably thinner than the comparatively dense England, which pushes up the cost of providing public services.

As well as this, not all nations have the same size public sector.

For example, Scotland’s water industry is publicly owned – but this is not the case in England.

Demographics play a part in funding as well – with older populations meaning more demand for public funding.

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Is the Barnett formula popular?

In short – not really. Each UK nation has taken issue with the formula, and that sentiment has certainly grown over time.

There have been frequent calls for the Barnett formula to take greater account of need, or to be replaced with a needs-based formula.

Those in favour of replacing the formula argue that the cost of public services is influenced by a range of factors outside of population size – for example, deprivation and population density.

A need-based formula is used in part to develop funds for Wales – but this is not the case for Northern Ireland and Scotland.

The formula isn’t enshrined in law, but it is a policy that the Treasury chooses to follow.

It was introduced as a temporary measure in the late 1970s under the Labour Government of James Callaghan.

But since then, there has been no commitment to replace it.

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