Lord Barnett

Born: October 14 1923; Died: November 1 2014

LORD BARNETT, who has died aged 91, was Chief Secretary to the Treasury between 1974 and 1979 and devised the formula for the distribution of public spending throughout the United Kingdom that bears his name.

Joel Barnett himself described the formula as a back of the envelope calculation; a short-term political fix, an embarrassment, and grossly unfair and was one of the first to argue it should be abolished (although he admitted he would not mind if the arrangements replacing it continued to bear his name). But his calls were largely ignored until relatively recently, when the independence referendum brought the financial arrangements under renewed scrutiny.

The Barnett Formula was devised in 1978 to deal with questions presented by the imminent prospect of devolution; it essentially multiplied any increased English spending by the population of each of the home countries as a percentage of UK population, and by the percentage of the English department's budget that was devolved. From this, the percentage of funding for Scotland, Wales and Northern Ireland was derived.

It turned out to be an unnecessary provision since, thanks to an amendment introduced by the Labour backbencher George Cunningham, the narrow Yes vote (51.6 per cent) in 1979's referendum did not meet the requirement that 40 per cent of the total electorate vote in favour. Devolution was abandoned until its introduction under Tony Blair's Labour Government after the referendum of 1997.

Lord Barnett had based his calculations in part on an existing formula devised by Chancellor George Goschen in 1888 to deal with proposals for Irish Home Rule. The new formula reflected changes in population over the previous century, but Lord Barnett never anticipated they would be applied for more than a couple of years.

To his surprise, however, after the failure of the 1979 referendum and the subsequent fall of Jim Callaghan's Government - which had been propped up by the SNP - Margaret Thatcher seized upon the Barnett Formula as a bulwark against devolution. Having reversed the previous Tory policy (which favoured devolution), she continued to apply it to funding. And it has been used by every administration since. Even when promising extended devolutionary powers at the recent referendum, all three leaders of the main Westminster parties claimed a version of the Barnett Formula would be preserved.

In 2012-13, the formula produced public spending per capita of £10,152 in Scotland, against £8,529 in England. Wales, despite being poorer than Scotland, received £9,709 per head, and Northern Ireland £10,876. Immediately after September's referendum, Lord Barnett wrote his system had become arbitrary and unfair, that it took no account of the fact Wales, Northern Ireland, and indeed, parts of England, have far greater social needs than Scotland and it should be scrapped as soon as was practicable.

Lord Barnett was born in Manchester to Louis Barnett and his wife Ettie. He was educated at Derby Street Jewish School and then at Manchester Central High School, before qualifying as a chartered accountant. He served with the Royal Army Service Corps and the British Military Government in Germany before returning to Manchester, where he worked as an accountant.

His first political role was as treasurer of the Manchester Fabian Society in 1953 before becoming a member of Prestwich Borough Council in Lancashire three years later. He stood in Runcorn for Labour in the election of October 1959 and failed to be elected, but in 1964 was returned as the MP for Heywood and Royton in Manchester, a seat he held until its abolition in the boundary changes of 1983, and his elevation to the Lords as Lord Barnett of Heywood and Royton.

He quickly found a place on the Public Accounts Committee, on which he served from 1965 until 1971 (and which, in Opposition, he later chaired during the first term of Mrs Thatcher's Government). During Ted Heath's Government, he was the Opposition spokesman on Treasury matters and, after Harold Wilson won the first of 1974's two elections, he was appointed Chief Secretary to the Treasury, the most powerful job outside the Cabinet.

The priority for him and Chancellor Denis Healey was to cut expenditure dramatically, a point the Prime Minister impressed on Lord Barnett when appointing him on March 7. "You will have to make yourself very unpopular with your colleagues," he said. "I am sure you will do a grand job."

This dubious endorsement was tested when, after Labour were returned as a minority Government in a snap election that October, Mr Healey announced he would have to find cuts of £3.75 billion to keep sterling afloat, and would resign unless savings of at least £3bn were found. Lord Barnett was still £140 million short of this target, with several ministers holding out, when Mr Wilson agreed they could cut the civil service to make up the shortfall.

The Prime Minister was not always so obliging; his insistence on saving the Linwood car plant dismayed the Treasury, and he misled the Cabinet over the costs of expanding the Polaris missile programme, claiming airily they would be £24m. By the time Lord Barnett even knew the project had been approved, the cost had risen to £1bn.

After Wilson's resignation, Lord Barnett retained the same post under Mr Callaghan, but became a full member of the Cabinet from 1977. He had his work cut out; the International Monetary Fund had intervened in 1976, and the economy was in trouble; yet individual ministers still resisted cuts.

His experience of such wrangling made him pessimistic and was, in part, what caused him to seize on his formula, reasoning that the Scottish, Welsh and Northern Irish offices would then have to petition the whole Cabinet, rather than arguing for more cash from him directly.

In Opposition, he chaired the Public Accounts Committee and took up a Visiting Fellowship at Strathclyde University. When, in 1983, boundary changes led to the disappearance of his constituency, he went to the Lords as Opposition Treasury spokesman (1983-1987). From 1986 until 1993 he was vice-chairman of the BBC board of governors, where he lobbied unsuccessfully for Jeremy Isaacs to be appointed as director-general (Michael Checkland got the job).

He had a range of other directorships and posts on committees and governing bodies, including the V&A Museum, the Halle orchestra, Birkbeck College's appeal fund and the Open University.

From 1989 to 1992 he was president of the Royal Institute Of Public Administration. He published a memoir, Inside The Treasury, in 1982 and the following year was made an honorary Doctor Of Law by Strathclyde.

Lord Barnett was popular and well-regarded across the political spectrum. In private life, he enjoyed walking, reading and good food. He married, in 1949, Lilian Goldstone, with whom he had a daughter.