Scottish independence: The Barnett formula has outstayed its welcome

Harry Fairhead
There is no good reason to give more money to Scotland than any other part of the UK (Source: Getty)

By any objective measure, the Barnett formula’s time is up. It was a temporary solution that was never intended to last thirty years and the time to do away with it was reached long ago.

Scottish independence will probably not happen any time soon, but the Barnett formula remains and continues to allocate a premium to Scotland (and Wales and Northern Ireland). In 2013-14, identifiable spending per person was £1,600 higher in Scotland than it was in England, and over the past five years, on per head basis, Scotland has spent £40bn more than England including over £8.5bn in 2013-14 alone.

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This year the UK’s budget deficit will be almost £70bn and our national debt has climbed to over £1.5 trillion so we must look to balance funding across the four nations in order to achieve the savings which we need. Besides this, there is the basic consideration of fairness to the rest of the country. There is no good reason to give more money to Scotland than any other part of the UK.

Typically those in favour of maintaining with the status quo argue that "Scotland’s oil" tax receipts more than make up for the higher spending. Sadly this doesn’t stand up to scrutiny; over the last five years (when the oil price was much higher than it is now) Scotland’s 83 per cent geographical share of Petroleum Revenue Tax receipts total just over £6bn which doesn’t even come close to offsetting the £40 billion of additional funding Scotland has received.

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Moreover, average household incomes in northern parts of the UK can be considerably lower than those in Scotland. In the North East, for example, average household incomes (including cash benefits) are almost £5,000 less than in Scotland. So the justification of higher spending on grounds of poverty is ill-founded.

There will be those that say that the large rural areas of Scotland are particularly expensive to deliver services in, but there are large areas of the UK where this is also the case. So the allocation of additional funding cannot be justified because it is inordinately expensive to maintain public services.

Clearly the Barnett formula has outstayed its welcome; even Lord Barnett himself described it as a “terrible mistake”. The solution is greater decentralisation of tax raising powers. If areas of the UK (such as Scotland) want to spend more than another then they should have higher local taxes to fund it. And if the people of that area don’t want these higher taxes (as I suspect would be the case) they could vote with their feet or at the ballot box.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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