Smith Commission leaves Barnett formula ‘increasingly unfit for purpose’

27 Nov 14
Plans to devolve a host of fiscal powers to the Scottish Parliament, including full retention of income tax, make it more important than ever to replace the Barnett formula used to determine levels of government funding across the UK, CIPFA has said.

By Richard Johnstone | 27 November 2014

Plans to devolve a host of fiscal powers to the Scottish Parliament, including full retention of income tax, make it more important than ever to replace the Barnett formula used to determine levels of government funding across the UK, CIPFA has said.

Publishing a briefing on the controversial formula today, CIPFA said the model, which increases spending on public services devolved to Scotland by a fixed proportion in line with increases in England, should be abolished. Its replacement should increase the transparency of funding allocations, and incorporate the principles of need, equity and accountability.

The proposals from the Smith Commission would lead to around two-thirds of spending by the Scottish Parliament, which is currently around £30bn, being raised from Scottish taxes. However, it also called for the Barnett formula to remain in place for the funding that continues as a bloc grant from Westminster.

But CIPFA chief executive Rob Whiteman said increased powers for Holyrood would leave the formula increasingly unfit for purpose.

Continuing with the current arrangement could only be a short-term solution as it fails to take into account the relative needs of different areas of the UK.

Reform would require sensitive handling, but the significant increase in tax-raising powers for Holyrood meant it would need to be replaced, Whiteman added.

‘Only by replacing it with a fair and equitable system that represents the varying needs of different areas and communities across the country will we be able to provide for the long-term sustainability of our public services.

‘As the government and politicians in Westminster address the recommendations made by the Smith Commission, it’s now more important than ever that the Barnett formula is reviewed to take account in a planned way of how devolved taxation relates to the fair distribution of resources.’

Also responding to the Smith Commission, the Local Government Association said its proposals should form a blueprint to boost the powers of councils in England.
As well as control of income tax, Smith set out plans for a portion of VAT to be
assigned to Holyrood alongside control of some benefits.

LGA chair David Sparks said next week’s Autumn Statement should begin a similar process of devolution in England.

When the Smith Commission was formed, Prime Minister David Cameron announced that leader of the House of Commons William Hague would consider reforms for England. Cameron confirmed today a plan to implement English votes for English laws would be published before Christmas.

However, Sparks called on Hague to seize the opportunity presented by Smith to ensure his proposals lead to real devolution rather than simply changes to the workings of the House of Commons.

Giving local areas greater control over skills funding could reduce youth unemployment by half. Freeing councils to invest in housing, create land trusts and work with developers could create an extra 500,000 homes. Fully integrating funding for health and social care would help people live independently at home longer into their older years and save almost £4bn.’

Plans for devolution in England should be devised by a constitutional convention, he added, but Osborne could set out initial plans next week.
‘Government should use next week’s Autumn Statement to set out a new settlement for England which devolves decisions about housing, transport, skills and economic development as well as health and social care, down to local areas.’

Sparks is also among the local government signatories to a letter, published in the Times today, which calls for plans to boost the powers of councils to be agreed by a similar cross-party process to Smith. Others who signed the letter include Manchester City Council leader Sir Richard Lees, Mayor of London Boris Johnson and the chair of the RSA’s City Growth Commission, economist Jim O’Neill.

Spacer

CIPFA logo

PF Jobsite logo

Did you enjoy this article?

AddToAny

Top