Nation's prosperity is boosted by Barnett's formula

Published on 24/06/2006 01:09

FOR a mechanism that was devised to be a temporary way to avoid political arguments, the Barnett Formula has proved to be remarkably durable and just as controversial.

The precise origins of the formula are still clouded by the secrecy of the last Labour government of the 1970s: MPs were not told of its existence until it had been in operation for two years.

But Lord Barnett, then the chief secretary to the Treasury, later revealed that he drew up the division of public spending in 1978 partly to settle rows with other Cabinet ministers about spending allocations, and partly to allow for Scotland's larger physical area, lower average incomes and particular needs in areas like healthcare and housing.

In the very simple terms Lord Barnett himself uses, the formula dictates that for every pound the UK government distributes for spending around the country, 85 pence goes to England, 10 pence goes to Scotland and 5 pence t to Wales. With five million people, Scotland now has 8.3 per cent of the UK population.

Although it was relatively uncontroversial at its origins, friction has arisen as the wealth gap between Scotland and England has closed.

While the annual increase in Scotland's allocation from the Treasury is progressively falling - the so called "Barnett Squeeze" - the historical disparity created in 1978, and Scotland's increasing prosperity have meant the apparent generosity of the Treasury towards Scotland has persisted.