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 majority of the devolved administrations’ spending is funded by grants from the UK Government – the block grant being the largest. Since the late 1970s the non-statutory Barnett formula has determined annual changes in the block grant. The formula doesn’t determine the total amount of the block grant, just the yearly change.
When there is a change in funding for comparable services in England, the Barnett formula aims to give each country the same pounds-per-person change in funding. In general, if a service is devolved it is considered to be comparable.
When a change is made to a UK Government department’s budget (normally at a spending review) the Barnett formula takes the budget change, considers how comparable the services provided by the department are to those provided by the devolved administration, and applies a population proportion, as shown below. This calculation is carried out for all UK departments and the results are added to the devolved administrations’ block grants.
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 for less predictable demand driven spending. Changes in these grants are negotiated by the UK Government and devolved administrations; the Barnett formula is not used to determine their change.
There have been frequent calls for a review of the Barnett formula and the wider funding system for devolved administrations. Some detractors point to what they see as unfair relative differences in public spending across the UK, while others highlight that the formula pays no attention to differing need. Issues highlighted by a commission that considered funding for Wales has resulted in Wales’ Barnett formula being amended so that its block grant doesn’t fall below a needs-related floor.
Recent devolution, and proposed devolution, of tax and spending powers to Scotland, Wales and Northern Ireland have left the Barnett formula largely unchanged. However block grants are being adjusted to accommodate the new powers. Additional spending powers will see block grants increase, while additional tax powers will see block grants decrease. Such adjustments aim to ensure that neither the UK Government nor the devolved authorities are made worse off simply from the power being devolved.