The Barnett formula and before:
The funding of those parts of the UK that are not England remained largely obscure until devolution shone a light on to the situation and allowed the greater funding per head of all parts of the UK which are not England to be revealed and exposed. A differential formula was established in 1888.
“In 1888, the then Chancellor of the Exchequer, George Goschen MP, announced in his Budget Statement the distribution of a predecessor of revenue support grant to local authorities on the basis of a formula giving 80 per cent to England and Wales, 11 per cent to Scotland, and 9 per cent to Ireland. The use of that formula was formally discontinued in 1959, in parallel with the introduction of the Plowden reforms. From 1959 until 1978, the budget of the Scottish Office was determined in the same way as that of other government departments. During the protracted proceedings on devolution in the 1970s, the then government proposed that the funding of the (proposed) devolved assemblies in Scotland and Wales should be determined by a new formula giving the Assemblies a set proportion of English expenditure (now known as the Barnett formula). That formula was to be determined, in consultation with the Assemblies, on the basis of a needs assessment, and would be reviewed, again taking account of changing relative need, from time to time (perhaps every four years) to coincide with the term of the Assemblies”.
Abstracted from “the origins and role of the Barnett formula”, Aberdeen University
“Analysis shows that the Goschen proportion gave Scotland a poor deal until 1901, but an increasingly good deal thereafter. Thus when devolution in the UK reawoke in the 1970s, spending per head in Scotland and Northern Ireland was far ahead of spending per head in England and Wales.”
From The Fiscal Crisis of the United Kingdom, Iain McLean and Alistair McMillan Nuffield College Working Papers in Politics, 2002 W10
The Barnett formula was introduced By Lord Joel Barnett in the 1970s was never related to need (despite the frequent assertions to the contrary made by Gordon Brown and others) (http://www.publications.parliament.uk/pa/ld200809/ldselect/ldbarnett/139/9012802.htm) (House of Lords, Select Committee on the Barnett Formula, 1st Report of Session 2008–09 published 17 July 2009) and this was acknowledged to CEP representatives by the late Lord Barnett himself when interviewed in the House of Lords. It is used to increase the money available to devolved administrations when overall public spending in England rises, but there are no good records of the grants falling when expenditure in England falls! It is based on the relative populations in 1979 of England, Scotland and Wales. The Barnett formula also helps to determine the size of the Northern Ireland block (http://www.parliament.uk/commons/lib/research/rp98/rp98-008.pdf). Thus Scotland gets 10% and Wales 5% of all capital expenditure in England. The Formula has been neither reviewed nor revised during the last thirty years.
However the Office for National Statistics (ONS) estimated there were 64.1 million people in the UK in June 2013. Estimated populations of the four constituent countries of the UK were 53.9 million (84%) in England, 5.3 million in Scotland (8%) and 3.1 million (5%) in Wales. Clearly in relation to Scotland and the UK the ratio has fallen and there is no rationale to the current formula.
Now the Barnett Formula ensures higher per head funding for Scotland (115% of the UK average) and Northern Ireland (123%) than for England (97%) and Wales (112%). (Office for National Statistics, Public Expenditure Statistical analysis 2010). The Formula is used to determine the annual increase in allocation (the increment). Each year these increments are added on to the previous year’s allocation (the baseline) to create what is now a significant block grant of funds. Based on ONS figures for 2012-2013 in real terms, £464,102 million was available to spend on public services in England (£8,676 per head), in Scotland £54.875 million (£10,327 per head), Wales £30,362 million (£9,877) and Northern Ireland £20,176 million(£11,064). Clearly England is being short changed by British governments and the result has been that public spending per head in England is far below that of the rest of the UK, which leaves less to apportion throughout England.
It is abundantly clear that the funding is based on country, not area or ‘region’. It also appears that the distribution of funding on services in England depends on what the British Government’s treasury deems to be available after the agreed block funding for the other countries of the UK and the cost of reserved matters has been taken into account. When the funding is considered per capita it becomes glaringly obvious that the people of England have always been and remain the poorest relation when it comes to apportioning revenue (http://www.publications.parliament.uk/pa/ld200809/ldselect/ldbarnett/139/9032715.htm). However, as a community, we have no say in how our taxes are spent although treasury decisions are influenced by Ministers from the devolved administrations and do not include representation for England.
Despite the political changes within the United Kingdom the Formula has continued to be used and while there is no-one in England to stand up for us in Parliament this situation will never end. The result is that public spending per head in England is far below that of the rest of the UK leaving less to apportion throughout England and we will continue to see cutbacks in the health service and elsewhere and the selling off of English national assets such as forests and portions of our national parks.