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Unformatted text preview: udgets are determined primarily through the mechanism known as the
‘Barnett formula’, established in 1978.11 This formula operates only on increments, not on the base, allocating to each
territory a population-based percentage of the increase in comparable expenditure in England. Heald (1990) set out the
advantages of using a broad-brush formula such as Barnett, in the traditions of the Goschen formula (announced in
1888 and of which some use was still made in the late 1950s). There are powerful arguments against drawing the
territories into a UK-wide annual needs assessment exercise, such as that used for the distribution of Revenue Support
Grant in England. In the territorial context, needs assessments should be periodic, and then used to inform the
calibration of the territorial formula for the next period. This pre-devolution mechanism has so far survived the transition
from being an internal mechanism within one government to being the basis of transfers between governments. There
has not been any formal equalization scheme across the United Kingdom, though highly complex systems exist, for
example, for National Health Service funding allocations and Revenue Support Grant distribution to local authorities
within each territory.
Applied systematically, the Barnett formula would bring convergence to the UK average per capita level of public
expenditure (ie expenditure relatives converge asymptotically on 100).12 Figure 1 provides a representation of this
process, with the initial relatives for each territory being estimates of the position circa 1981. In Figure 1’s simulation, it is
assumed that the original 10:5:85 proportions reflected exact population shares, and relative populations remain
unchanged. Crucially, the speed of convergence depends upon the nominal increase of public expenditure.
11 12 This observation is not new. Davies (1999, p. 689) refers to the complaints of Sir Andrew Fletcher of Saltoun, who vigorously opposed the passage of
the Act of Union through the Scottish Parliament: ‘Fletcher was clearly in favour of an equitable balance between England, Scotland, and Ireland. He
did not believe that an equitable solution could be found in a centralized state inevitably dominated by the strongest of the three partners. “That
London should draw the riches and government of the three kingdoms to the south-east corner of this island”, he wrote, “is in some degree as
unnatural as for one city to possess the riches and government of the world”’. Fletcher thought of Wales as part of England just as did Lord Goschen,
Chancellor of the Exchequer, when announcing the Goschen formula for territorial expenditure allocation in 1888.
The Labour Government’s plans for Scottish devolution were tested in a pre-legislative referendum held on 11 September 1997; the second question,
(about the tartan tax), was carried by 63.5% to 36.5% on a 60.4% turnout (Heald and Geaughan, 1997)
Briefly, the non-statutory formula provides that increases in public expenditure in Scotland and in Wales for specific services within the territorial
blocks would be determined according to the formula consequences of changes in equivalent expenditure in...
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