Funds formula 'should be scrapped'

The system which sets public spending in Scotland, Wales and Northern Ireland has outlived its usefulness and should be scrapped, peers have said.

They said the Barnett Formula should instead be replaced by a system based on need.

Compared to England, Scotland now has "markedly lower" overall needs than Wales and Northern Ireland, and a new system should reflect it, they said.

The call came in a report by a House of Lords committee set up to study the Barnett Formula, the mechanism by which Scotland, Wales and Northern Ireland each get a fixed share of Whitehall spending.

The formula, which applies only to some public spending - areas such as defence and social security are excluded - is determined by uprating previous budget allocations to Edinburgh, Cardiff and Belfast in line with increases in public spending in England and with population share.

The formula accounted for nearly £49 million of public spending last year and has never been reviewed since its creation in the 1970s, said the report.

The committee said there should instead be a link between spending and need - and the needs of each of the devolved administration should be calculated by an independent body, the UK Funding Commission.

This body would create a new baseline grant taking into account matters like the age structure, income, health and employment levels within each area, and this would be regularly reviewed.

A transition period of between three and seven years would be needed to bring in the new arrangement, whose principles would have to be enshrined in law.

Lord Richard, chairman of the committee, said: "The Barnett Formula was a short-term fix which became established as the method of deciding how much money goes to Scotland, Wales and Northern Ireland over the last 30 years because it was easy to administer and convenient for Treasury ministers."