This briefing looks at how the Barnett formula works and includes a brief summary of the debate surrounding the formula.Jump to full report >>
The devolved administrations in Scotland, Wales and Northern Ireland receive grants from the UK Government that fund most of their spending. The largest such grant is the ‘block grant’.
The Barnett formula calculates the annual change in the block grant. The formula doesn’t determine the total size of the block grant just the yearly change. For devolved services, the Barnett formula aims to give each country the same pounds-per-person change in funding.
The Barnett formula takes the annual change in a UK Government department’s budget and applies two figures that take into account the relative population of the devolved administration (population proportion) and the extent to which the UK department’s services are devolved (comparability percentage). The calculation is carried out for each UK department and the amount reached is added to the devolved administrations’ block grant.
Change to the UK government department’s budget
|x||Comparability percentage||x||Appropriate population proportion|
The UK Government provides other grants outside of the block grant. These grants are often for less predictable demand driven spending. The UK Government and devolved administrations negotiate these grants. The Barnett formula does not determine their change.
There have been frequent calls for a review of the Barnett formula and the wider funding system for devolved administrations. The funding system has changed in recent years with the devolution of more tax and spending powers, particularly to Scotland. This has meant some adjustments to block grants but the Barnett formula itself has been largely unchanged. An exception is that Wales’ Barnett formula now includes a floor to prevent its block grant funding falling below a needs-related level.