Sep 2008 09

THE BARNETT FORMULA HAS COST TAXPAYERS £200 BILLION11

The TaxPayers’ Alliance (TPA) presents a new and comprehensive study of the Barnett Formula, the Government system used to calculate the distribution of public spending between the four countries of the UK, that reveals the staggering cost to taxpayers of the spending gap between England and the three better-funded devolved territories (Scotland, Wales and Northern Ireland). The full report can be found here (PDF).

In the last week, with the SNP Government in Edinburgh proposing radical tax changes and Gordon Brown pledging an investigation into the financial responsibilities of the Scottish Parliament, the issue of the funding settlement between England and the devolved territories has hit the headlines once again. The TPA’s report, written by former Treasury economist Mike Denham, explores the troubled history of that funding settlement, details the burden placed on taxpayers by the Barnett Formula and puts forward the case for an end to the Formula and its replacement with true fiscal decentralisation. The report will be submitted as evidence to the Calman Commission and to the House of Lords committee currently investigating the Barnett Formula.

KEY FINDINGS

  • Identifiable public spending per head in England is £7,535 pa (2007-08). But in Scotland it is 22 per cent (£1,644) higher, Wales 14 per cent (£1,042) higher, and Northern Ireland an extraordinary 30 per cent (£2,254) higher.
  • Just over the last two decades (since 1985-86), higher spending in the three devolved territories has cost UK taxpayers a cumulative £200 billion (£102 billion in Scotland; £43 billion in Wales; £57 billion in Northern Ireland).
  • North Sea Oil has not funded the Scottish spending gap, despite Scottish Nationalist claims to the contrary. In only five of the last 23 years have North Sea Oil receipts exceeded the cost of higher funding paid to Scotland. Even with current high oil prices, the income from the Scottish share of North Sea Oil only just covers the spending gap, and North Sea Oil output is projected to fall by 50 per cent by 2020.

To read the full report, click here (PDF).

Mike Denham, a former Treasury economist and author of the report, said:

“The Barnett Formula has a troubled history and has failed to address the extremely unfair situation of English taxpayers heavily subsiding Scotland. Everyone is struggling to make ends meet, and it is long overdue for the Government to lift this burden from taxpayers’ shoulders. English taxpayers want an end to subsidising Scotland, and the Scottish Government wants financial control devolved to Holyrood, so now is the ideal time to consign the Barnett Formula to history.”

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  • Jock

    This article is a load of rubbish!

  • J Covill

    This is blatently unfair and needs considerable further investigation. My partner ad I pay a huge tax bill each year and this should be shared equitably across public speding for the whole UK.
    I bet the individual who posted the “load of rubbish” comment lives in Scotland!

  • http://www.philtaylor.org.uk Phil Taylor

    Mike,
    Read the paper. Loved it.
    But beyond learning that the formula is meant to be applied to growth and not base spending you still didn’t give any insight to what it actually is beyond that it is complex.

  • A Lewis

    The problem is we don’t have pre-portional representation in the government, i.e. 8% of the population live in Scotland but far more than 8% of Scottish MP’s make decisions on English Law and Polotics.

  • Dan Wood

    I would be delighted if Scotland received all the revenues from the Assets it clearly owns. The difficulty would be whether England would allow us to take ownership of these Assets. How about a couple of examples, our North Sea Oil assets, Even someone with a basic understanding of Geography would agree its off the Scottish Coast ! Next how about our Whisky Industry; I assume these distillaries are on Scots soil!. All the energy we send through the national grid, perhaps we could charge more for this.
    Just a number of examples.
    Perhaps the tax we pay in Scotland could be put to better use. Lets start with my TV Licence. A waste of money this is for me supporting the EBC ( English Broadcasting Corporation. The London Olympics, can I get my share of tax back I would rather spend it on something else. At last a Scottish Government is showing the rest of the UK how to effetively maximise its public spending. No tuition fees for Scottish University students a clear policy decision. What is stopping Westminister doing the same. Its the closest thing to an English paliament.
    Its not the amount of taxation which troubles me its the huge waste and lack of thought and focus when squandering these revenues which I find unpalatable.
    Scotland in its own way is showing with imagination and the power to do so can make micro changes which benefits the Scots which those south of the border look at with clear envy

  • Ken Stevens

    Though it’s not to do with the national apportionments under Barnett, as such, a frequent retort is that per capita spending in London is around the same level as for Scotland. This seems counter-intuitive and needs to be examined. There have been suggestions that expenditure not directly attributable as a benefit to defined geographical areas is simply lumped onto London, because, e.g. that is where the headquarter ministries are for such UK-wide functions as defence and foreign affairs.
    Is this so?
    I think the point needs either to be confirmed or rebutted.
    Another point of interest would be whether, if expenditure were apportioned according to adjudged need as for the counties etc within England, the total for those counties etc comprising Scotland would total more or less than its Barnett allocation.

  • Phil B

    Very thorough and interesting article, but could anyone out there clear up one point I haven’t been able to resolve. I assume that North Sea revenues include both oil & gas revenues, so what is the split between these 2 in terms of Government revenue? I understand that most of the oil lies in scottish waters (83% as per the recent survey), but does this include gas which I understand lies mostly in english waters? Thanks

  • http://tinyurl.com/6m3w2t Duncan Macniven

    “The great masses of the people will more easily fall victim to a big lie than a small one.”
    Adolph Hitler. ‘Mein Kampf‘ Chapter 10 1925.
    “If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”
    Josef Goebbels. Hitler’s propaganda chief.
    Please read and digest the report by Niall Alsen a respected professional accountant who rips the myth to shreds as have many reports, and then publish you critique, I dare you.
    tinyurl.com/6m3w2t
    The truth is out there.
    tinyurl.com/6m3w2t

  • T.Percy

    Dan Percy says:
    “I would be delighted if Scotland received all the revenues from the Assets it clearly owns. The difficulty would be whether England would allow us to take ownership of these Assets. How about a couple of examples, our North Sea Oil assets, Even someone with a basic understanding of Geography would agree its off the Scottish Coast”
    Dan, you clearly haven’t read the report – it addresses in detail the calculations regarding Oil revenues and shows they don’t come close to covering the Barnett payments, added to which the price is falling and output is declining…
    “a Scottish Government is showing the rest of the UK how to effetively maximise its public spending. No tuition fees for Scottish University students a clear policy decision. What is stopping Westminister doing the same?”
    Erm the fact that you can only afford to do it because we are sending our money up to you?
    “can I get my share of tax back I would rather spend it on something else”
    Again, you obviously haven’t read the report – it SUPPORTS fiscal devolution! The things you want, i.e. tax powers are being supported by this TPA report! Yours is a typical kneejerk reaction and you are firing at people adding strenght to your case…

  • http://burningourmoney.blogspot.com/ Wat Tyler

    Thanks for the comments everyone
    Clearly, the idea that current arrangements are unfair to English taxpayers will not be popular in Scotland. But we believe in the long-term they are damaging to Scottish taxpayers as well.
    As Dan Wood points out, there is a real issue for all of us – North and South of the border – about how our taxes get used. And international experience is that taxpayers get most value for money if local services are substantially financed by local taxpayers.
    The reason is obvious – if you know you are going to have to finance your local schools and hospitals directly, you are going to be far more demanding of their services, and they are going to be far more responsive to your local needs. That’s common sense, but it’s also now born out by the extensive international research on fiscal decentralisation conducted by the OECD an others.
    So both Scottish and English taxpayers would be winners longer term.
    As for Scottish oil revenues, as we say in the paper, right now with high oil prices, a geographic allocation of revenues would approximately pay for Scotland’s higher public spending. So now would be a relatively “painless” time to make the switch to fiscal decentralisation.
    Then – without dismantling the Union – Scotland could have much more control over its own economic destiny. And as the PM said last week, the Scottish government would then have a direct revenue stake in boosting Scottish economic performance.

  • http://burningourmoney.blogspot.com/ Wat Tyler

    Duncan Macniven
    I will read the reports you link and respond to them once I have digested the (considerable) detail.
    I suspect most of the ponts have now been taken on board in the latest Scottish Gov GERS (June 2008), but I’ll come back to you.