An alternative to the Barnett Formula
Mike Denham 6:39pm
Many thanks to Mike Denham - the author of a Taxpayers' Alliance report on the Barnett Formula, released today - for the following post...
In the last week, the allocation of money between England and Scotland has been in the news with the Scottish National Party planning to abolish council tax in Scotland, replace it with a local income tax and have English taxpayers foot a part of the bill. The Government's Calman Commission, set up to review devolution, is mandated to investigate whether fiscal devolution would be a good idea.
Disputes over the distribution of taxpayers money between Scotland and England aren't new, but those disputes have rarely been well informed. Today's report aims to remedy that situation by providing a comprehensive analysis of how the various mechanisms to disburse money to the different regions have operated.
For the last 30 years the Barnett Formula has been used to allocate British taxpayers’ cash between England, Scotland, Wales, and Northern Ireland. It has been widely blamed for the substantial public spending gap that exists between England and the three devolved territories.
Identifiable public spending per head in England is running at £7,535 pa (2007-08). But in Scotland it is 22 per cent (£1,644) higher, in Wales 14 per cent (£1,042) higher, and Northern Ireland an extraordinary 30 per cent (£2,254) higher. These spending gaps have persisted for many years. And in public expenditure terms they are big: just over the last two decades (since 1985-86), we calculate that higher spending in the three devolved territories has cost UK taxpayers a cumulative £200 billion, divided between £102 billion in Scotland, £43 billion in Wales and £57 billion in Northern Ireland.
The arguments used to defend this unfairness do not stand up to scrutiny. For example, the oil revenues that the SNP claims Scotland should enjoy would only have covered the spending gap in five out of the last 23 years.
In an era of devolved government, such spending gaps are impossible to justify to English taxpayers. They, quite reasonably, ask why they should subsidise higher Scottish, Welsh, and Irish spending? Why shouldn’t those areas pay for their extra benefit themselves through higher local taxes? There is particular anger about the Scottish advantage because, whereas Northern Ireland’s position is arguably justified on the basis of peace and reconstruction, there is no such case in Scotland. This popular discontent could threaten the viability of the United Kingdom.
The Barnett Formula is little more than than a crude “back-of-envelope” rule for splitting annual increases in public spending, back in 1978 it was a short-term expedient, put in place as a temporary measure prior to planned Scottish devolution. It has clearly past its prime. It was never designed to last for thirty years and to bear the public scrutiny and resentment it now engenders. Even Lord Barnett, who drafted the rule originally, now believes it needs to be scrapped.
A range of options has been suggested, including the use of needs assessment formulae. But sustainable reform needs to address the major underlying problem: the structure of UK taxation is far too centralised. With only 4 per cent of total taxes raised locally, Britain has the most centralised tax system of any major economy. That’s fundamentally at odds with the devolution of spending authority.
Unless there is a significant decentralisation of tax raising powers, Westminster will always have ultimate control of the purse strings. And allocation will always be subject to the kind of blatant unfairness that exists today.
To read the full report, go to www.taxpayersalliance.com.
Previous
dilys
September 10th, 2008 6:55pm Report this comment...and while the Scots mafia runs the UK Scotland will get more than its fair share
Diversity
September 10th, 2008 7:52pm Report this comment" ..significant devolution of tax raising powers... "
This LibDem policy seems sensible; but it is a surpris3e to find it gathering support from the Taxpayers Alliance and the Spectator
Scott S.
September 10th, 2008 8:11pm Report this commentTime to dust off "no taxation without representation." A portion of the British Empire put that notion to rather good use once.
Seasurfer1
September 10th, 2008 9:06pm Report this commentWhat about the long suffering Businesses in "England" who are having to finance Browns big repayments this week of Income Tax because of the COCK-UP by Browns administration at budget time of the 10p Tax Rate. Yes it is this week, when repayments are being made, and politically engineered by Brown to maximise cash payments by businesses and not the Tax Man. Most Businesses pay monthly on or after the 10th of the month, nicely timed so that repayment by the Tax Man does not come until after the 19th of the following October Month.
A 1/2 Billion is being financed by Business. This will of course be spent in the economy giving Inflation a little push in the coming days. But the tax take at the end of October will be less for Brown and we will see Borrowing adjust upwards.
Scott
September 10th, 2008 9:20pm Report this commentGo over to Iain Dale's post on this matter to see why this report is just as flawed as the old GERS. Any report that only focuses on identified spending is pointless.
Helen Wright
September 10th, 2008 10:13pm Report this commentHere's an even better answer to the Barnett Formula - Indepdence for England.
It's coming - 2 years from now, the real biting and scratching begins, as we see Scots negotiating with Scots over English land and assets, following the Scottish Independence Referendum (a Tory government in Westminster, headed by a self-confessed anti-English Scot, provides the backdrop).
Only then will the Barnett Formula draw to a close. Only then will England finally see light at the end of a long, dark, tartan tunnel
James J
September 10th, 2008 10:25pm Report this commentAnother one of the problems our political class has filed under:”Too Difficult”
Chris Rose
September 11th, 2008 6:06am Report this commentI am sure that the solution to this problem is to have local taxing powers across the whole of Britain. This could be an income tax or a sales tax (VAT). No tax is popular, but I think either of these taxes is preferrable to the present council tax and would enormously strengthen local democracy.
Such a change would be a huge gamble for any political party - a leap in the dark, but we must not go on ignoring the fact that we are a grossly overcentralised country.
Tinkering with Barnett formula would be pure fudge. Somehow it has to be phased out.
James
September 11th, 2008 1:46pm Report this commentLet the Scots, Irish and Welsh have their devolved UK. Let the English have independence and we will see where we all are in 20 years? My guess we will still be four small states still arguing with each other over why they are better. There is more that unites us then divide us.
cuffleyburgers
September 11th, 2008 5:01pm Report this commentIn the light of labour's bungled devolution it is clear to me that what is required is a federal structure with clearly defined "federal" responsibilites from a London based government eg Defence, FCO, Immigration with powers to raise federal taxes to cover these expenses. The "States" - England, Wales, Northern Ireand and Scotland would have their own tax raising powers and their own clearly defined responsibilities.
Elephant in the room is of course the Eu which would abolish all of them and replace them with quasi automomous regions responding to Brussels.
Hardly a prospect to savour.
Wicked Witch
September 13th, 2008 1:32pm Report this commentI vote for full English Independence - and as the Lisbon treaty was signed without the agreement of the English people, we can ignore it!
Let's stop paying into illegal accounts and spend that money where it is most needed in England. Without the amount that we unwillingly donate, there won't be so much to go around. *grin*
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