Scrap unfair Barnett Formula, say Lords

16 Jul 09
The Barnett Formula must be scrapped, a House of Lords inquiry has recommended
By David Williams

17 July 2009

The Barnett Formula must be scrapped,  a House of Lords inquiry has recommended.  It said a new body needs to be established to distribute public money to the UK nations according to need.

In a report published today, the Lords select committee on the Barnett Formula condemned the mechanism as ‘arbitrary and unfair’. They said the formula, which in 2007/08 allocated £49bn of public money, gives disproportionately high grants for Scotland compared with England, Wales and Northern Ireland.

The committee found that when local needs, such as child poverty or low household income are taken into account, the Barnett Formula leads to significant under-funding in Wales and Northern Ireland.

Committee chair Lord Richard also called into question the Treasury’s part in distributing money to the nations, saying it ‘acts in ways which are not transparent and are difficult to understand’.

The study recommended funding for the nations be taken out from the Treasury and that a new, fully independent UK Funding Commission be set up to allocate grants in a way that was easy to understand, fair and based on need.

‘I wouldn’t want politicians on [the commission] and I wouldn’t want too many ex-Treasury people on it,’ Richard added.

He claimed that successive governments had failed to put together an alternative system because the Barnett Formula was simple and stable, and because reform ‘will take time and will be an effort, and governments won’t like taking the trouble.’

‘The Barnett Formula is extraordinarily simple but also extremely unfair,’ he said.

‘I know it’s contentious… everybody who has talked about Barnett has said it’s a can of worms. Well, it may be a can of worms but it’s an unfair can of worms.’

He dismissed former prime minister Tony Blair’s assertion that the formula was a ‘small price to pay’ for keeping the union together. ‘That’s an absurd proposition,’ he said.

Lord Barnett, who introduced the scheme in 1978 while chief secretary to the Treasury, told the committee he only intended the system to last a year or two . Giving evidence in January, he said latest estimates suggested that £1,600 more was spent per head in Scotland than in England in 2007/08.

The committee does not expect the government to rush through reforms before the election, but Richard said he hoped a consensus was forming that the funding system needed rethinking.

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