A few years ago, a House of Lords committee conducted an inquiry into the Barnett Formula.
Among those invited to give evidence was the elderly Lord Barnett, a former Chief Secretary to the Treasury who had given his name to the funding mechanism in 1978.
But as a peer involved in the inquiry later told me, it quickly became clear Joel Barnett was one of several people who did not actually understand how the Barnett Formula worked.
Indeed, itâs the Schleswig-Holstein Question of its day, understood by very few people, some of them either dead, forgetful or simply not interested in figuring it out. And this group, remarkably, appears to include the Scottish and Welsh governments.
Last week those devolved administrations began a âformal dispute resolution processâ with the UK Government over their ârightâ to receive âconsequential fundingâ as a result of the Prime Ministerâs deal with the Democratic Unionist Party. This, they argue, does not ârespectâ the âestablished funding principles and rules applied through the operation of the Barnett formulaâ.
Had, therefore, Barnett been applied âin the normal wayâ, then Wales would have received an additional ÂŁ1.67 billion and Scotland ÂŁ2.9bn (strangely, they omit to mention that England would receive around ÂŁ30bn). This, however, either deliberately misunderstands how Barnett works or displays a remarkable level of ignorance for the Scottish and Welsh finance secretaries, the latter of whom is a former professor of social policy at Cardiff University.
But the ânormal wayâ in which Barnett operates is that, as a civil servant put it back in 1978, Scottish expenditure is treated âas a blockâ and either increases or decreases âin proportion to that agreed for equivalent English programmesâ. It does not operate in reverse, so if Scotland, Wales or Northern Ireland receives additional funds, then England gets nothing.
And despite arguments to the contrary, the Tory-DUP deal is not unprecedented. In the 2000s, Wales and Northern Ireland received extra funding to support capital investment or implement EU responsibilities. Even cash in return for votes isnât new. In 2008, Gordon Brown won a Commons vote on detaining terrorist suspects for 42 days without charge after agreeing to a shopping list of demands from the DUP.
None of these examples involved Barnett, thus Derek Mackayâs letter includes a number of conscious or unconscious red herrings. His argument, for example, that because the ÂŁ1bn for Northern Ireland will be spent on âdevolved mattersâ then Barnett ought to apply sounds plausible, but only if the English âbaselineâ was being altered, which it isnât.
Mackay also rejects the suggestion that recent funding for City Deals is âwrong and not in any way comparableâ because itâs conditional upon âmatch fundingâ from the devolved administrations. That is true, but itâs still money which, to use the Scottish Governmentâs own language, âbypassesâ Barnett, almost ÂŁ1bn of direct UK Government spend on Scotland.
Mackay also alludes to the Treasuryâs âStatement of Funding Policyâ, which encourages the UK and devolved governments to âwork together in a spirit of mutual respect, and aim to reach agreement wherever possibleâ. There is a good argument that the Tory-DUP deal breached at least the spirit of that, but it still has nothing to do with Barnett.
That said, the UK Governmentâs handling of the whole affair has been woeful. When, a few weeks ago, Westminster-based journalists started framing the DUP negotiations in the context of Barnett (because, frankly, they didnât understand how it worked), it should have made it explicitly clear that it did not apply. Instead David Mundell bought into that narrative, therefore turbo-charging the Scottish Governmentâs usual grievance machine.
Setting aside the usual bizarre spectacle of the SNP posing as defenders of a funding system they want to abolish (via independence), thereâs also the inescapable fact that Scotland has generally done very well out of Barnett. Before 1999, it habitually received non-Barnett funding boosts, indeed in 1978 a Treasury official complained that the Scots, Welsh and Northern Irish were able to âhave it both waysâ, automatically receiving increases whenever English departments got more, and also additional cash for special circumstances.
The Scots and Northern Irish, that official added, had played âthis game skilfully and effectivelyâ, the Welsh less so. Indeed, if anyone has a genuine grievance about Barnett itâs the Welsh Government, which is probably what lies behind its nationalist posturing over the Tory-DUP deal. Who needs Plaid Cymru when the Welsh Labour Party does the job so well?
Among other Barnett myths and misunderstandings is the belief that itâs somehow a âneeds-basedâ formula. It is not. Rather it is based upon population, although even in 1978, when the current system was first formalised, Scotlandâs 10 per cent was more generous than its strict population share vis-Ă -vis England.
But, as usual, Scottish Nationalists start with a grievance and then work backwards, thus the intellectual contortions in Derek Mackayâs letter. Many otherwise intelligent people have convinced themselves that Scotland has been deprived of cash, despite that assertion being unsupported by either precedent or ânormalâ practice. And, when the Joint Ministerial Committee inevitably (and rightly) rejects the Scottish and Welsh governmentsâ complaint, the grievance will be ratcheted up some more.
The SNP should also be careful what it wishes for. By kicking up a stink about the Toriesâ âmurkyâ deal with the DUP (even though it wanted its own murky deal back in 2015) and linking it, spuriously, to Barnett, theyâre unwittingly shoring up arguments to replace Barnett with a needs-based formula, something the Treasury and many Conservative MPs are itching to do.
The inquiry I alluded to at the beginning of this column recommended precisely that, a ânew systemâ allocating âresources to the devolved administrations based on an explicit assessment of their relative needsâ. Devolved governments with âgreater needsâ (such as Wales), it added, âshould receive more funding, per head of population, than those with lesser needsâ (ie Scotland).
This, as last weekâs House of Lords report acknowledged, would be a âcomplex taskâ, but it believes that the prospect of Brexit means reform of Barnett should âbe delayed no longerâ. Back in 2013, Ruth Davidson referred to the âmuch-derided and little understood Barnett Formulaâ being âin its death throesâ, it would be a bit bizarre if the SNP, which claims to âstand up for Scotlandâ, helped kill it off.
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