Barnett formula here to stay

Martin Shipton

Momentum is growing for greater transparency over the way Wales, Scotland and Northern Ireland are funded - although it seems the unloved Barnett formula is here to stay for the foreseeable future.

The Scottish Affairs Committee at Westminster has called for greater transparency over the workings of the formula, which since 1978 has determined how much the Celtic nations receive in block grants from the UK Treasury.

The call echoes concerns raised by Plaid Cymru MP Ben Lake about the lack of transparency over transport funding for Wales.

He drew attention to inconsistencies between statements made by Welsh Secretary Jo Stevens and the Treasury.

Ms Stevens told the Welsh Affairs Committee that Wales would receive “just over £200m” in Barnett consequentials from recent transport announcements in England – on top of the £445m already allocated in the 2025 Spending Review.

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Contradicted

However, in response to a written question tabled by Mr Lake, the Treasury contradicted this claim, stating that it is "not possible to identify specific Barnett consequentials arising from individual programmes" such as the Transport for City Regions funding announced on June 4.

The inconsistency led to Mr Lake calling for greater transparency over Barnett allocations - a major theme in the Scottish Affairs Committee’s report on Barnett.

The Scottish report describes the system used to determine how much money will go to the devolved nations. A table is produced outlining how much is spent by the UK Government on policy areas in England. The level of “consequential” funding for the devolved nations is determined by a corresponding list of percentages relating to the amount due to each devolved nation.

The report, whose narrative applies to Wales just as much as Scotland, states: “Barnett consequentials are calculated by multiplying the annual change in UK Government departments’ budget by the relative population and the comparability percentage. The comparability percentage represents the level to which a UK Government department is responsible for delivering services in Scotland. These factors range from 0%, where none of a department’s services are devolved, to 100%, where the entirety of its services are devolved. For example, education is a policy area which is fully devolved, and so the Department for Education has a comparability percentage of 100%.

“Comparability percentages are decided by HM Treasury, in consultation with the Scottish Government, and are included in the Statement of Funding Policy, which sets out how UK Government funding for the devolved administrations is determined over the Spending Review period. “The Statement of Funding Policy lists each of the departmental comparability factors for Scotland, Wales and Northern Ireland respectively. However, the Statement does not set out how those factors have been calculated. The relevant change in each UK Government department’s budget, and the figure for relative population (taken from population estimates from the Office for National Statistics), are both traceable and open to public scrutiny. Currently, comparability factors are therefore the only component of the Barnett formula which is opaque.”

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Comparability percentages

The report concludes: “The operation of the Barnett formula is not as transparent as it could or should be. In particular, there is a lack of transparency around how comparability percentages are calculated. Comparability percentages are a fundamental feature of the Barnett formula and the only multiplier which cannot be effectively scrutinised by the public. We have heard no good reason for this opacity, which limits the ability of the public and UK and Scottish Parliaments to hold their respective governments to account.”

And it recommends: “In all future Statements of Funding Policy, the UK Government should include details of how the comparability percentage of each department has been calculated, including a programme-by-programme breakdown of what has and has not been included in the calculation.”

There has also been concern about apparently perverse decisions made by the UK Government over the allocation of funds, for example over the decision to classify HS2 as an “England and Wales” rail project. When Mark Drakeford was First Minister, the Welsh Government considered making a legal challenge, but was advised that as the Barnett formula was a convention that held no legal standing, a challenge was unlikely to succeed.

‘Ultimate arbiter’

In a further conclusion, the Scottish report states: “HM Treasury, and therefore the UK Government, is the ‘ultimate arbiter’ of the Barnett formula. As the formula is non-statutory, there is no legal recourse for the Scottish Government to challenge the UK Government’s application of it. There is also currently no formal, objective dispute resolution process relating to the application of the formula, although there are existing intergovernmental structures through which such matters can be raised. An imbalance persists however, with HM Treasury’s position enduring when agreement between parties cannot be reached, as reflects the UK Government’s constitutional position within the UK’s devolution arrangement.”

The report recommends: “We are not convinced that putting the Barnett formula on a statutory footing, or otherwise formalising it, would significantly improve its effectiveness. The use of the Barnett formula is already a well-established practice, not unlike other features of the UK’s uncodified constitution. Although new routes to legal challenge may be opened through legislation, such a change would restrict the flexibility of the operation of the formula, with little evidence there would be practical benefits for either government. We also cannot see how a new dispute resolution process specifically for the Barnett formula would not unduly overlap with or duplicate the existing intergovernmental dispute resolution process.”

Problematic

In a blow to those who would like the Barnett formula replaced by a needs-based system, the report also concludes that such a move would be problematic.

A political source told Nation.Cymru: “The fact is that Scotland does quite well out of the Barnett formula, while Wales doesn’t on the basis of social need, although in recent years a ‘Barnett floor’ mechanism has been introduced to ensure that the amount of money allocated to Wales can never fall below £115 for every £100 spent in England.

“The Scottish Affairs Committee decided that overall the Barnett formula was fit for purpose, and it’s difficult to envisage that view changing.”