The Barnett formula: a quick guide

Scotland and Wales will receive no additional funding as a result of the agreement reached yesterday between the Conservative Government and the Democratic Unionist Party (DUP). Some thought that the Barnett formula would see Scotland and Wales benefit indirectly from the agreement’s promise of financial support to Northern Ireland. The Government has stated clearly that the Barnett formula does not apply in this case.

The Treasury’s guidance says that:

“Under the Formula, the Scottish Government, Welsh Government and Northern Ireland Executive receive a population-based proportion of changes in planned UK government spending on comparable services in England, England and Wales or Great Britain as appropriate”.

Spending in England is not changed by the agreement with the DUP, so taking the guidance literally implies that the formula does not apply.

Few formulas in UK politics are more contentious or misunderstood than the Barnett formula. Here we discuss some key points that should help demystify the formula, which is named after its creator former Chief Secretary to the Treasury, Joel (latterly Lord) Barnett.

The UK Government provides each devolved government with a grant so they can provide services

The grants – generally referred to as block grants – make up the majority of the money available to the devolved governments for providing services such as health.

The Barnett formula calculates the annual change in the block grants

The Barnett formula doesn’t calculate the total value of a devolved government’s block grant: it works out how much the grant should change each year, and adds the change to the previous year’s block grant to come up with the following year’s grant.

When budgets for comparable services in England change, the Barnett formula aims to give each government the same pounds-per-person change in funding

The formula does this by considering:

  • the change in money given to UK government departments to run services in England (or England and Wales or Great Britain);
  • the extent to which the UK departments’ services are provided by the devolved government – what is known as the comparability percentage; and,
  • the relative population of the devolved nation.

 

The formula doesn’t cover all of the UK government’s spending

The point of the Barnett formula isn’t to give the devolved governments a share of everything spent by the UK government. Its focus is on contributing towards the funding of services provided by the devolved governments.  This means that the Barnett formula isn’t applied to the UK government’s spending on non-devolved areas such as defence.

The formula is mainly used at Spending Reviews

The UK government sets out how much money it will give its departments to run services at periodic Spending Reviews. The Barnett formula is applied to these allocations to come up with the devolved governments’ block grants for the two to three years typically covered by a Spending Review.

The formula is applied to changes in the total budgets of departments, not spending on individual projects or programmes

Sometimes people try to link a department’s spending on a particular programme or project to changes in the funding received by the devolved governments. In general this isn’t possible as the Barnett formula isn’t concerned with such detail: the formula is only applied to changes in a department’s total service budget, not budgets for individual projects or programmes.

There are exceptions to this general rule. The UK government might announce additional spending on a programme outside of the Spending Review, perhaps at a Budget or Autumn Statement. If the additional spending requires an increase to a department’s total budget then the Barnett formula will be applied to the change. In such cases it is therefore possible to say by how much the new programme increased a devolved government’s grant.

The formula is a Treasury convention

The formula isn’t enshrined in law, it is a policy that the Treasury chooses to follow. It was introduced as a temporary measure in the late 1970s but, with no commitment to replace it, the Barnett formula looks like being around to celebrate its 40th anniversary in the not too distant future.

You can read more about the Barnett formula in the Library briefing The Barnett formula.

Picture Credit: DIL_1336 by Switchology.  Licensed under CC BY 2.0 / image cropped.