[1] The formula is named after Joel Barnett, who devised it in 1978[2] while Chief Secretary to the Treasury, as a short-term solution to resolve minor Cabinet disputes in the runup to the 1979 devolution referendums in Scotland and Wales.
[4] In 2009, the House of Lords Select Committee on the Barnett Formula concluded that "the Barnett Formula should no longer be used to determine annual increases in the block grant for the United Kingdom's devolved administrations... A new system which allocates resources to the devolved administrations based on an explicit assessment of their relative needs should be introduced.
For areas of funding where the corresponding central government department funding covers England only, for example education and health, the formula for funding to Scotland, Wales and Northern Ireland consists of a baseline plus increases based on the increases in public spending in England in comparable programmes, applied in proportion to current populations:[3][6] For example, in 2000, the Northern Irish, Scottish and Welsh populations were taken to be 3.69%, 10.34% and 5.93% (respectively) of the population of the United Kingdom (comprising England, Scotland, Wales and Northern Ireland).
Although not subject to the Barnett formula, there are also significant variations in identifiable spending between the regions of England, in 2012/13 ranging from £7,638 in the South East (87% of the UK average), to £9,435 in London (107%).
[14] As noted below, no account is made of the amounts raised by taxation in each of the home nations, nor the relevant fiscal need (based on factors such as sparsity of population, cost of travel, unemployment rates, health, age distribution of the population, road lengths, recorded crimes, and numbers of sub-standard dwellings) in each area.
Both studies found the highest need for devolved services in Northern Ireland, followed by Scotland, then Wales, and finally England.
Since devolution, once levels of funding for Scotland, Wales and Northern Ireland have been determined by central government in a spending review using the Barnett formula, the UK Parliament votes the necessary provision to the Secretaries of State for Scotland, Wales and Northern Ireland as part of their central government departments' Departmental Expenditure Limits (DEL).
[23] The Barnett formula only applies to the devolved administrations' expenditure classified within DEL, which for Scotland is about 85% of the Scottish Parliament's total budget.
In one example, the top-up tuition fees introduced in England are counted as additional English public expenditure (as the extra income is spent by the universities) and, therefore, an equivalent amount from the Consolidated Fund, paid for by UK-wide taxation, has been transferred to the Scottish Government.
In contrast, if the Scottish Parliament were to use its tax-adjusting powers, the additional (or reduced) revenue would not be considered in any calculations by the Barnett formula of the block grant for Scotland.
The Silk Commission in Wales was expressly excluded from considering the Barnett Formula, which, following the earlier report of the Independent Commission on Funding and Finance for Wales, was reserved for bilateral negotiation between the two governments, The original formula has the effect when public expenditure is growing of very gradually reducing the relative share of countries with higher spending per head than England.
Since at the time of its report Wales received less than equivalent English regions, the Commission proposed a floor to the Barnett formula to limit any further squeeze in the Welsh case.
This proposal was eventually accepted and the Act of 2017 instituted a floor which ensured Welsh expenditure per head would not fall below 115 per cent of the English level.
[35] Also, in reality this erosion has happened extremely slowly − as shown in the table above, Scotland's reduction in identifiable spend per head from 121.5% of the UK average to 115.5% took nearly 30 years.
In 2009, the House of Lords Select Committee on the Barnett Formula concluded that, "A new system which allocates resources to the devolved administrations based on an explicit assessment of their relative needs should be introduced.
"[5] The Scottish Liberal Democrats commissioned Lord Steel of Aikwood to investigate what options existed for changing the present arrangement.