Barnett formula ‘flaw’ gifts Scotland £1 billion

SCOTS have enjoyed a £1 billion windfall in the past decade due to “flaws” in the controversial formula used to work out the country’s budget from Westminster, says a think-tank.

The Barnett formula has long been a source of disquiet among politicians south of the Border who say it means Scotland gets £1,300 more in public spending per head than the rest of the UK. But all the main UK party leaders pledged to maintain the system during the referendum.

Now it has emerged Scotland was spared about £600 million of cuts in the austerity spending reviews of 2010 and 2013. In addition, Scotland enjoyed about £400m of funding hikes throughout the 2000s, according to the report from the Institute for Fiscal Studies (IFS).

This is the equivalent of about £192 for every man, woman and child in Scotland.

Northern Ireland has also benefited, to the tune of £200m of reductions in recent years, the report found.

The news has prompted fresh calls for the Barnett formula to be scrapped, particularly in Wales where ministers believe the country loses out badly.

The IFS found that the Barnett formula – the system devised by then chief secretary to the Treasury Joel Barnett in the 1970s for distributing central funds between the nations of the UK -– deals with business rates in a “flawed” way which benefits Scotland and Northern Ireland to the disadvantage of England and Wales.

The anomaly arises because the rates are fully devolved to the administrations in Holyrood and Stormont, but in England the formula treats them as a contribution towards the Department for Communities and Local Government’s budget for local authorities.

Business rates are only partially devolved to Wales at present, with full devolution set to occur in April 2015.

David Phillips, the report’s author, said: “It makes it more important than ever to examine the Barnett formula to see if it is working in the way intended, and if flaws are found, to fix them.

“Problems with the way the Barnett formula treats business rates mean Scotland and Northern Ireland have avoided hundreds of millions of pounds of cuts they would have faced under a corrected formula – cuts England and Wales have faced.”

The issue could be corrected by treating English business rates as part-funding all Whitehall departments which largely serve England, Mr Phillips said.

The Treasury said last night that the treatment of local government spending is based on the level of devolution of services, not on individual revenue streams such as business rates.

A spokeswoman said arrangements will be made to ensure that neither the UK government nor Holyrood and other devolved administrations gain or lose from further devolution.

She added: “Ensuring risks and rewards associated with decisions taken by the devolved administrations are borne by them, and mechanisms exist to adjust the block grant accordingly, will be a key consideration.”

A spokesman for the Welsh government said: “The Welsh government’s long-term goal is to see the formula in Wales replaced by a new system based on needs.”

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As you can see, we are far better off as part of the UK than under the plans of the SNP. They actually believe our bills of £65bn can be paid from an income of £53bn.