Barnett formula bonus won’t last

The present and future  cuts may seem tough – and they are – but here I belatedly post the good news from the Institute for Fiscal Studies (IFS), s that they could be much worse, were it not for a” flaw “ in the Barnett formula for allocating the block grant.

 The calculations presented in this paper suggest that these flaws have resulted in Scotland receiving around £400 million more and Northern Ireland around £130 million more in funding this year than they would have if a ‘corrected’ version of the formula had been in place when the fiscal consolidation began in 2010. By next year, 2015–16, these figures will have grown to £600 million extra for Scotland and £200 million extra for Northern Ireland. In the context of block grants and business rates revenues that together total around £30 billion and £11 billion, respectively, this means funding will be over 2% higher than it would have been had a ‘corrected’ Barnett formula been introduced in 2010. Put another way, the cuts Scotland and Northern Ireland will have had to deliver between 2010–11 and 2015–16 will be more than one-fifth smaller than if the ‘corrected’ formula had been in place during this period.

The Barnett formula is based on the proportion  of English spending  Scotland, Wales  and Northern Ireland , W and NI  receive according to ( pretty ancient) population levels, were they part of England.  English local spending is dispersed by the Department of Communities and Local Government and has been subject to big cuts. But these cuts have not been factored in when it came to allocating the block grant. This to the English especially, seems like a political fiddle to try to buy off independence calls.

English opinion which is on the move will surely not tolerate this “unfairness” for much longer.

The Vow of the three UK party leaders signed in panic over  the slim lead in favour of independence  that registered  in the climax of the referendum campaign contained the pledge that the Barnett allocation of resources  would be maintained. It did not  say that the present level would be maintained.  Politicians are soft pedalling on this crucial  point. But the block grant which has in fact already reduced in real terms is bound to diminish  further, in proportion to the share of taxation which is newly devolved . Scotland be careful for what you wish for. And Northern Ireland, do nothing during the present austerity to reduce the level of subsidy from London. Leave corporation tax alone. Keep your wee heads  down.


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