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Unformatted text preview: England. Initially, Scotland received
10/85ths and Wales 5/85ths of the change in England. A parallel formula allocated 2.75% of the change in equivalent expenditure in Great Britain to
Northern Ireland. The essential distinction is between base expenditure, whose current levels are carried forward, and incremental expenditure, which
is determined by the formula (Heald, 1994). Under this arrangement, block expenditure relatives would in the long run converge on the UK per capita
average. However, the intention was to seek a better alignment of expenditure and needs relatives, not full convergence (Mackay, 1996). It was
understood that a territorial Secretary of State would have the right to call for a Needs Assessment should convergence go ‘too far’. In practice,
convergence has been substantially frustrated by formula bypass, and in Scotland by relative population decline. In 1992, the formula was
recalibrated (10.66:6.02:100.00 and Northern Ireland 2.87%) in recognition of the results of the 1991 population census. In 1997, it was announced
that the population figures would be updated annually. The effects of annual upratings of population are likely to be minimal, as these will affect only
the increment. The significance of Scotland’s relative population decline is that it offsets the convergent properties of the Barnett formula. Throughout
this paper, an expenditure relative denotes the index for a particular territory or region of per capita expenditure relative to the UK per capita average.
This is an oversimplification, as is noted in the discussion on relative population change. A mathematical analysis appears in Heald (1996). 267 Commission on Fiscal Imbalance Figure 2 breaks the assumption that the original 10:5:85 proportions reflected exact population shares, but keeps the
assumption that relative populations are unchanged. In this case, the relatives converge to different values for each
territory, though not far from 100. This result is less important, of itself, since the annual updating of population
proportions was implemented in 1998. Nevertheless, it serves as a convenient reminder that, when population relatives
do change through time, there are separate limits for each territory. On plausible assumptions about Scotland, Cuthbert
(2001) proves this result mathematically for Scotland (which converges on a value above UK = 100).
Figure 3 shows graphically the automatic result that such a formula, which delivers equal per capita increments to each
territory, delivers smaller percentage increases to those territories with highest starting values of the relative. In
consequence, Scottish expenditure rises faster than Northern Ireland’s expenditure, whilst it rises slower than English
expenditure. Whilst Figure 3 makes the same assumptions as Figure 1, a comparable diagram can be produced on the
assumptions of Figure 2. The Barnett formula is therefore a populationbased mechanism to allocate increments of
public expenditure, not a needsbased formula as it is sometimes described. Contrary to some claims, it was never
intended to...
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This note was uploaded on 03/06/2013 for the course ECON 220 taught by Professor Paulo during the Spring '13 term at University of Liverpool.
 Spring '13
 paulo
 Microeconomics, The Land, The Prince

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