The Barnett Formula - what's in it for us

This is a post from Lee Waters:

The Telegraph reports that Gordon Brown has ordered a review of the Barnett formula "under which Scottish people receive £1,500 subsidy each a year from English taxpayers" ( <http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2008/03/05/nscots105.xml> http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2008/03/05/nscots105.xml )

The right-wing London press enjoy pressing home the point that Scotland benefits disproportionately from the formula, and there is no doubt that Scotland does well. What the Telegraph fails to note is that the formula also applies to Wales and Northern Ireland too.

Drawn up by Treasury Minister Joel Barnett in the late 1970s, the formula allocates funding to the Welsh block based on population and is designed to equalise over time. Wales has roughly 6% of the UK's population and gets an uplift of about 6% when spending increases are announced for England. So an extra £100m for the NHS, announced by Alan Johnson, will feed through to a boost of about £5m to the assembly's budget for Welsh ministers to spend as they see fit.

But is it fair? The formula doesn't take into account the fact that Welsh income levels are among the lowest in Europe. Nor does it factor in the legacy of ill health left over from heavy industry. In short, the formula takes no account of Welsh social and economic need. Indeed, there are claims that Wales is losing out on between £300m and £800m a year.

But the real point is that nobody knows. Which is why a broad range of civil society bodies called upon the Assembly Government last year to set up an independent Commission to look into the matter. WAG eventually agreed but disputes over who will Chair the body has held up its announcement.

Aside from the debate over need, there’s also the question about how fairly the formula is applied.

Last month the Department for Transport announced £140 million for a quango called ‘Cycling England’. As the name suggests it does much good work in England to promote the shift from cars to bicycles - tackling obesity and carbon emissions. The Welsh Assembly Government wants to roll out similar schemes but with a funding increase of just 0.6% next year is struggling to find the money.

Walking and cycling is fully devolved, therefore under the Barnett formula spending for England should result in a 'consequential' increase for Wales. But the deputy Chairman of the Principality Building Society Eurfyl ap Gwylim revealed in a letter to the Western Mail before Christmas that for some reason the Treasury regards money for Cycling England as spending on behalf of the whole of the UK - just as it regards spending on Kew Gardens and on the London Olympics (even the transport and regeneration bits). Therefore not a penny has been passed on.

The UK Government now claim that this money has already been passed on to Wales. A recent Parliamentary answer to Hywel Francis confirms this.

And indeed it does appear that spending on Cycling England spend has been made part of the spending category 'local transport’ which does give rise to a Barnett consequential i.e. a corresponding sum of money will be in the block grant to the National Assembly.

But a closer look at the figures show that while the spending is comparable the comparability percentage for is 0%; so it's comparable, but provides nothing!

A review of the way the Barnett formula works and its fairness is long overdue.