The Treasury’s system for funding devolved areas of the UK is under attack from different directions after the National Audit Office, the spending watchdog, said its decisions were sometimes hard to understand, our Scotland editor Severin Carrell reports.
The NAO investigated the controversial way the Scottish, Welsh and Northern Irish governments are funded, flagging issues in several areas – including the Treasury’s opaque ways of sharing out cash, and higher per-head funding of devolved areas.
The Treasury provides core funding for the devolved nations worth £287bn for the five years to 2020/21 through a method called the Barnett formula. That allocates their funds on the basis of need (particularly for Wales), their geographic challenges and population, and it also shares out extra cash if there is a major England-only spending decision such as the Crossrail project in London.
The Treasury said Crossrail was “local” funding, so handed out £500m to all three devolved areas. The NAO wondered why it then ruled the HS2 high speed rail line to Birmingham was “national” infrastructure, which triggered payments to the administrations in Edinburgh and Belfast, but not Cardiff.
Then there was the notorious decision to give Northern Ireland £410m for 2018/19 under Theresa May’s deal with the Democratic Unionist party, but no extra money went to Scotland or Wales. Conversely, if the Treasury awards special one-off funding to devolved nations, there is no consequential extra cash for England.
The Scottish government said these funding disparities needed to be addressed by the Chancellor in today’s spring statement.
It said Scotland should have had £3.3bn extra if the Barnett formula had been properly applied to May’s sweetheart deal with the DUP.
“We have urged the UK government to use the spring statement to provide a proportionate amount of additional finance and flexibility to Scotland in line with the Barnett formula,” a spokesman said.
The Barnett formula, which has no legislative basis, has other unexpected quirks, the NAO said.
Its calculations showed Northern Ireland got £2,110 per capita more than the £9,080 spent in England last year, Scotland £1,801 more and Wales £1,317 more. However, the Barnett formula does not seem sensitive enough to reflect the fact that because England’s population is rising faster than in the devolved nations, their per capita share was growing at England’s expense.
Alan Bermingham, government policy manager for the Chartered Institute of Public Finance and Accountancy, said the NAO’s findings justified Cipfa long-standing criticisms of Barnett.
Bermingham says:
“In light of this investigation, we call on government to consider the long-term future of the formula, and to consider an independent needs-based funding system covering all regions of the UK.”.
The Treasury denied there was a problem, insisting its funding rules were “clearly set out in the published statement of funding policy, the Scottish government fiscal framework, and the Welsh government fiscal framework.
“The Treasury works closely with all three devolved administrations to ensure they understand how these arrangements have been applied.”
