Posted by: secretperson | March 6, 2008

Barnett Formula Lies

Read this guardian piece. Why is it that the Barnett formula is so misunderstood. It is not hard to understand, but there have been a series of articles trying to ‘dispell myths’ about Barnett which are just adding to the myths themselves with poor research. For example, Ian McWhirter in the linked article claims Barnett ignores projects like CrossRail, which in fact resulted in Scotland recieving £500 million.

The Barnett formula was instigated in 1978 and designed by Joel Barnett (now Lord Barnett). Changes in spending in England are reflected in Scotland and Wales in proportion with population. So if English spending increases by 100 million, Scotland will recieve 10million. But this only applies to changes, it works from the base of a late 1970’s need assesment on what funding would be required to provide the same level of services. In theory over time Barnett should act to bring spending per head to the same level all over the UK, but different rates of population change, and arbitrary government decisions on what is included mean this has not happened and Scotland retains almost an identical per capita spending gap over England as in 1978.

So what are these lies we keep hearing? If not lies then irrelevant arguments.

1. Oil. Most of the North Sea oil is in Scotland’s waters so it is actually this oil revenue that subsidises England.

True, most of the oil is in Scottish waters, but this is unrelated to Barnett. Most estimates are that if Scotland kept 95% of the oil, but Barnett was removed there would be no change. So it is a valid argument in as much as an independent Scotland would probably be ok financially at first. But it is not relevant to the Barnett formula, which takes no account of income of a region. Scotland recieves more money because of a 1970’s assesment not its oil. Plus it is technically UK oil, exploited by private companies and sold all over the UK.

2. Need. Scotland gets more money because it is a poorer country, more rural etc and needs more.

Barnett is not based on need though. It is based purely on population. If Scotland needs more it should be happy to submit to a needs based formula, but it would almost certainly lose out (Wales would be likely to gain). If the extra money was needed to provide the same level of services that would be ok, but as Scotland seems to be able to provide a higher level of service it probably doesn’t need the money.

3. Regions. London and the North-East recieve more money than Scotland.

Well actually London and the North-East recieve almost exactly the same per head as Scotland. Different sources seem to give different amounts, but, importantly, the spending in London is not determined by the Barnett formula. Only England as a whole spending determines Barnett consequentials. Choosing the areas of England recieving most and comparing them to the whole of Scotland is just dishonest, if you had chosen the areas recieving least the gap would look even bigger! The Barnett formula is national, it only makes sense to compare nations. As I have argued before, this is like comparing female basketball players to men and concluding men aren’t taller than women.

4. Barnett Squeeze. The Barnett formula actually reduces spending in Scotland.

In theory yes, over time Scottish spending should come in line with English. However because the formula tended to over estimate Scotland’s population, the per-capita figure has remained relatively constant. Also it is arbitrary for government to decide what is counted under Barnett and what isn’t. In the most disgraceful example, top-up fees for students which are only paid in England mean money is sent to Scotland. This funding formula for UK income includes income from England only. This adds to the insult that these top-up fees were passed only with the votes of Scottish Labour MPs who’s constituents would not be affected. If the Scottish parliament was to use its tax raising powers, this would not result in increased English spending.

In conclusion, fiscal independence is the only way to solve all these stupid arguments.

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Responses

  1. 1. Oil is a UK resource not a Scottish resource. If Scotland wants its oil revenue it should vote for independence. In any case the exploration rights are sold, and most of the tax revenue from oil comes from taxes paid by English motorists at the garage forecourt.

    4. England’s population is rising more rapidly than Scotland’s due to unprecedented immigration into England. The Barnett formula is more unfair to England than supposed because England’s population is higher than Government figures suggest.

  2. Thanks for adding to my points. I can’t think of any justification for keeping Barnett, except that changing it will upset someone. And then Scotland might take independence and we can get to work on persuading Wales and NI to go, as England is unlikely to be allowed a vote!

  3. I must say, I had a wry smile when I read the response in 1. above. To say the English are subsidising the scots because they pay taxes for forecourt petrol, is as close as I’ve come to understanding George Bush’s reasons for waging war on terrorism! Quite obviously, the posting is from someone who is- shall we say- intellectually challenged!

  4. The argument over Barnett is one that really needs to be better understood -not in Scotland- but in England. Methinks if the ignoramusses who spout forth about the disparity between England & Scotland did their sums, they’d find that using the Barnett formula means Scotland is 3rd after Wales & England in respect of distribution.

    Also, what would happen to “England” if Wales, Scotland & NI became completely autonomous? The loss of tax revenue alone would mean a basic 4p in the £ rise in taxes for English citizens. Finally, who would then subsidise their historic chattels? Would the Queen and her entourage be able to live the lifestyle they presently enjoy? methinks not!!

  5. Well Richard, I have to disagree. The point about the forecourt is that this money, tax money on petrol sold in England, like VAT, doesn’t go back to the country of origin of the product. How would an independent Scotland benefit from an English sales tax?

    Perhaps you’d also like to give some figures on how Scotland is third in the Barnett formula. Identifiable public spending per head is highest in Northern Ireland, then Scotland, Wales and England. The difference between English and Scottish spending is £1500 per person or roughly 20%.

    You may believe this is justified by need, or because of Scotland’s input to the treasury (I don’t) but it is a fact.

  6. My god, secretperson, what a racist you are!

    Lets get this straight: the barnett formula governs changes in spending and distributes them according to population distribution, there is nothing unfair in that at all. It also has nothing to do with any initial and current differences in expenditure per head in health or anywhere else.

    Secondly, if Scotland were independent, which I do not advocate, then the oil revenue would be ours, in which case it is obviously fair to include it in any sort of ‘what-if’ scenario.

    People from the south-east (and the media) have no compunction in telling us how much ‘the city’ puts into the nations coffers, so I think that actually attributing the oil revenue as coming from Scotland is only fair.

    Your point about forecourt tax is also laughable. If Scotland were independent the fuel duty would be levied on all companies bringing oil up from Scotlands territorial waters and then processing it and selling it on. VAT on fuel, the only tax actually payable at the forecourt, is vastly less than duty (Duty is currently approx 52p per litre)l and the Scottish treasury would already have all of the duty. If you intend to argue the facts, get some intelligence and learning and read about how the tax and revenue system actually works.

    Grow up and make some reasoned arguments based on where you want to be as a people and not on supposed grievances with other member-states in the union.

    I live in england, and have an english wife and children, and crap like this makes me sick.

    Yours,

    A scotsman, who unlike secretperson, doesnt actually hate the ‘other side’

  7. My God, Jonny Scotsman, how paranoid you are!

    Thanks for your point about fuel duty and tax though, I didn’t understand the system correctly. I agree that Scotland would benefit from oil if it was independence, I am a supporter of that independence.

    However, I stand by all my facts in the original piece. The Barnett formula does not depend on initial spending levels, but it entrenches them. All its calculations are based on nationality, not on need or on earnings.

    It is obvious oil revenues would be relevent if I was claiming a subsidy of Scotland by England, but I am not, I am claiming a higher level of identifiable public spending, which is indisputable.

    Your false cries of racism are obviously based on reading too much into this article. I am not racist, I do not hate Scots, I object only to the UK government’s chosen system of national block grant allocation, and that England’s block grant spending is decided by a UK body.

    If you live in England you will suffer from this the same as everybody else. If Scotland becomes independent we may find England is no better off. Doesn’t mean the Barnett formula is right.

    You take this all too personally, Jonny!


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