New funding formula could be ‘straightforward’

10 Dec 09
Replacing the Barnett Formula with a needs-based system would be ‘relatively straightforward’, according to the Independent Commission on Funding and Finance for Wales
By Paul Dicken

10 December 2009

Replacing the Barnett Formula with a needs-based system would be ‘relatively straightforward’, according to the Independent Commission on Funding and Finance for Wales.

The commission published a working paper on reform of the Barnett Formula on December 3. This followed an initial report in July, which concluded the formula was arbitrary and in urgent need of reform.

Economist Gerald Holtham, who chairs the commission, said it had been suggested that a needs-based formula would be extremely complicated and prohibitively difficult to devise.

‘Our analysis suggests that is not the case – a needs-based replacement for Barnett could be relatively straightforward.’ The replacement could preserve the simplicity and automatic nature of the Barnett Formula, which had been its main justification, Holtham added.

A study had shown it was possible to replicate very complicated needs-based formulas using a few major indicators. Such an assessment showed Wales should receive £115 for every £100 of comparable funding spent in England.

Relative needs for the devolved nations should be assessed at the beginning of each Spending Review period, the paper said. The block grant calculation should be altered by a ‘needs adjustment’.
The paper also proposed a ‘transition mechanism’ for a phased reduction in the gap between current funding and funding under a revised formula.

Commissioner Paul Bernd Spahn, emeritus professor at Goethe University in Germany, said that international experience showed it was possible to align funding with relative need and that the paper could form the basis of agreement between governments.

‘I see no reason why the UK should not be capable of developing a system that achieves this objective,’ he said.

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