*explain*how the Barnett Formula affects the devolved nation's Block Grant funding over time. In particular it looked at the impact of different relative population growth rates and how the Barnett Formula has been applied in practice as opposed to how it was expected to work. So if you're interested in the

*how*and the

*why*of these dynamics, please read Calling Time on the Barnett Formula.

Free from the burden of explaining quite why all of these things happen, I wanted to take the opportunity to now write a simpler blog which simply demonstrates what happens under various circumstances in a way which I hope will be easier for the casual reader to digest.

My medium of choice will, of course, be the graph.

Simply put: annual application of the Barnett Formula increases each devolved nation's Block Grant by an amount calculated to give the same per capita increase to the devolved budget as that applied to England's comparable spend

^{1}.

To achieve this the formula therefore depends fundamentally on the

**relative population sizes**and how they change over time - so to understand the Barnett dynamics we need to understand how these population proportions (devolved nation vs England) have changed over time.

*entirely*explain the differences we're about to see between the devolved nations when we model the impact of the Barnett formula over this period.

The next factor we need to consider is the actual nominal growth in spending in England in those areas where comparable spend is devolved. This is a hard number to get precisely right over such a long time period

^{2}but for illustration purposes we'll use the actual annual growth rates for all public spending in "rUK" (where rUK = UK - Scotland)

^{3}. This matters because higher nominal growth accelerates convergence (and there were some high inflation years in this time-frame and nominal growth has clearly slowed dramatically in recent years).

The only other assumption we need is how much higher the (illustrative) devolved category spend per capita was for the devolved nation in 1978 when this all started. For illustration purposes I've chosen to use a fairly representative figure of 20%

^{4}.

So based on actual population changes and assuming the above nominal spend increases, we can now see how application of Barnett would affect that 20% premium in spend per capita over time for each of the devolved nations. Here's the graph:

The blue dashed line shows how "true" application of Barnett would have caused Scotland's spend per capita premium to have converged towards England's. Note that the uptick in recent years shows the premium is actually growing: this happens when absolute nominal spend/capita increases in England are small (as they have been) and Scotland's population proportion continues to fall

^{5}.

The solid blue line shows the benefit that Scotland achieved because

*"until 1992, the 1976 population estimates were used for the Barnett Formula"*

^{6}, so "as applied" the Barnett Squeeze (which causes convergence in Spend per Capita between nations) was partially alleviated. As I said in my last blog on this topic: imagine the howls of grievance we'd hear if failure to apply the Barnett Formula as agreed had resulted in a 2.2% detriment to the Block Grant instead of a 2.2% benefit

^{7}.

The red lines show Wales. Because the population proportion didn't materially change between 1978 and 1992 the "true" vs "applied" Barnett Formula issue makes no material difference. What is clear is that simply because of the different trend in population proportion, Wales has seen a far more marked squeeze in Spending than Scotland.

The green lines show Northern Ireland. Because NI's population share was actually growing between 1978 and 1992 the impact of Barnett as applies (vs "true" Barnett) was to exacerbate the Barnett Squeeze. The Barnett Squeeze for NI is worse overall purely because of the different trend in NI population proportion vs Scotland or Wales.

So there we have it. The Barnett Formula was never intended as a long-term solution

^{8}and - as I explored in my previous blog - there are strong arguments for changing to a system which is a) fairer between the devolved nations and b) fairer to the devolved nations insofar as there is a sound needs-based argument for maintaining per capita spend premia in some departments.

As I also argued last time: the easiest way to ensure spend is distributed based on need is not to devolve that spend so that e.g. social protection spend is allocated to individuals based on their need, not where they live.

***

1. This is a simplification; if you care for the more complicated detail see > Calling Time on the Barnett Formula

2. As the House of Commons briefing paper succinctly puts it: "it is hard to verify the extent to which the Barnett Squeeze is happening, largely due to a lack of comparable data". My previous blog Calling Time on the Barnett Formula provides a more detailed explanation of the complexities

3. This is mainly because I have these figures to hand and they're suitable for a realistic illustration. If one was so inclined one could dig out the England only figures, but that still wouldn't be giving us the spend just on departments which are devolved (which changes over time anyway) - this assumption is fine for illustrative purposes as it captures macro trends of inflation and general public spending policies. My rUK data series only goes back to 1981 (SNAP data), so for 1979 and 1980 only I simply assume inflation growth (inflation was high then: 13.4% and 18.0%).

4. In 1998/99 (the earliest year that GERS breaks spend out to this level) Scottish spend per capita on (the predominantly devolved areas) of [health + education + transport] was 20.1% higher than rUK.

5. Imagine the increase is zero: in this case neither England nor Scotland's absolute spend would increase, but because Scotland's poulation grows less quickly than England's, our spend per capita

*relatively*increases

6. As per the House of Commons Briefing Paper, page 11 [and discussed in more detail in Calling Time on the Barnett Formula]

7. That being the impact of not updating the population proportions up to 1992

8. Because of my last blog and some happy happenstance, I have recently spoken with some people who were there and involved when the Barnett Formula was put in place. I think it's a fair sumary to say it was only ever intended as a short-term fix to avoid what were perceived as tedious department by department negotiations between the Scotland Office and the Treasury; the assumption was always that something better would be put in place within a handful of years.

For those who care about the spreadsheet mechanics, here's a snapshot of the "true" Barnett model