Each day we are publishing a blog on one of the policies from our Spending Plan. Click here to read the previous policy.
The Barnett formula ensures that public spending per head is higher in Northern Ireland, Scotland Wales than it is in England. It is outdated and unfair, with Lord Barnett himself saying the policy is flawed.
The reality is that the Barnett formula cannot possibly survive. It is little more than a crude back-of-the-envelope rule for splitting annual increases in public spending, drawn up back in 1978 – a short-term expedient. It was never designed to last for thirty years and to bear the public scrutiny and resentment it now engenders. Further detail on this can be found in a paper for the TaxPayers’ Alliance authored by Mike Denham.
In the meantime, more must be done to restore fairness to the distribution of public sector spending. In 2012–13, public spending per head in Scotland was £10,152, while in England it was £8,529. That means somebody living in the North East region of England received £1,623 less in public spending than another person over the border in Scotland.
Our first proposal, as part of the menu of savings to achieve the OBR’s forecast of spending to GDP in Autumn Statement 2014, recommends that Scotland’s grant should be cut to reflect its prosperity relative to Wales, which compared to England is three times poorer than Scotland. We estimated that this could save around £4.4 billion in 2019-20. For more substantial savings, Scotland’s grant should be cut to reflect its prosperity relative to Wales with further reductions to grants for both Wales and Northern Ireland, as well as Scotland, in line with total managed expenditure. We estimated that this could save £8.7 billion in 2019-20, rising to £10.4 billion in 2020-21.