Leah Gunn Barrett
The Barnett Formula is not a subsidy. To understand why it’s not, we need to understand the formula.
Scottish public sector revenues are sent annually to the UK Treasury. Every five years there’s a spending review that decides England’s budget and then the Barnett Formula is applied. The formula gives Scotland the same revenue per person change in funding as the change in funding for similar English public services. From that, the UK Treasury allocates the Scottish government its block grant out of which it must fund the services for which it’s responsible. But the block grant doesn’t meet Scotland’s needs and is smaller than the revenues Scotland generates.
Take health spending. If England’s NHS budget increases by 3.4%, Scotland’s health budget doesn’t increase by 3.4% because the Barnett Formula doesn’t pass on the full amount. Scotland’s health budget has always been bigger than England’s so this produces a ‘Barnett squeeze,’ meaning the percentage premium of the block grant over equivalent UK government spending shrinks over time, lowering Scotland’s health spending until it reaches the same level as England’s.
Scotland spends more on health due to decades of Westminster-imposed deindustrialisation, lower population growth, an ageing population and higher levels of poverty.
To make matters worse, Scotland has been subsidising the UK for decades. The bogus GERS accounts are how the UK dumps its debt onto Scotland. It explains why Scotland with just 8.3% of the UK population and possessing up to 34% of its natural wealth records a phony ‘deficit’. The UK has loaded onto Scotland over £150 billion in debt interest payments over the last 43 years.[1] GERS also contains spending outside of Scotland which doesn’t benefit our economy and that we didn’t generate.
What will it take for the Scottish Government to wake up to this giant con and finally end it by leaving the failing UK?
[1] https://www.businessforscotland.com/revealed-the-accounting-trick-that-hides-scotlands-wealth/?doing_wp_cron=1705412898.3005409240722656250000Leah Gunn Barrett
Talking-up Scotland 'Albatraz' 
Thanks for this useful reminder about how the Barnett Formula works. You are right to emphasise that it is NOT a subsidy.
Although I support independence Scotland is part of the U.K. and, as such, is entitled to an equitable proportion of the planned Treasury expenditures. So it is not a ‘subsidy’ as the unionists and their media like to present it to bolster their contemptuous and contemptible assertion that Scotland cannot support itself and is a ‘subsidy junkie’.
The Barnett Formula long predates devolution. It was a policy of the Wilson Governments of the 1970s and was devised by Joel Barnet MP who was financial secretary to the Treasury at the time.
As is the case with federal and union states throughout the world, central government often acts as a redistribution mechanism. The purpose of this is to try to ensure a more equitable distribution of resources in all parts of the country, so that, for example sparsely populated areas or areas which had low industrialisation or low natural resources received a net inflow from more populous and more economically productive areas.
Such redistributions have always been subject to what in the US is called ‘pork barrel’ politics, whereby a President will give a Federal government contract to a particular state in return for supportive votes for a presidential policy by the Senators and Representatives of that state. In the U.K., the May minority government gave the DUP a £1billion bung if its members supported some of her policies.
The Barnet Formula was a way of ensuring an equitable distribution which avoided nods and winks and favoured status. So, it had an honourable basis, although the practice was a bit more iffy. The other aspect of the Formula was, over the longer term, to bring per capita spending in all parts of the U.K. to the same level. This was DISHONOURABLE in that it favoured London and the Southeast over the rest of the U.K. So places which received redistributive support – Wales, Scotland, NI, the North East of England, the West Country were called ‘subsidy junkies’. But the money poured into London and the South East such as for Docklands was ‘necessary’ because this was the ‘dynamo’ of the country and its earnings would ‘trickle down’ to the rest of the U.K.
It was perfidious Albion at its most cynically mendacious.
Alasdair Macdonald
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Just one thing that would be of use to Scotland.
https://www.insider.co.uk/news/scotch-whisky-boosts-uk-economy-31884785
Plus 75% Tax on a bottle of Scotch
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Westminster Gov decides how half of Scottish budget is spent, £50Billion. Gives Scotland accured debt of Westminster poor, bad, decisions. Hinkley Point, HS2, Trident, redundant weaponry etc, A total waste of monies. Scotland raising £87Billion? In revenues.
Block Grant £40Billion. Scotland spends £54Billion. Westminster decides how the rest is spent. Giving Scotland debt. (£106Billion). . Not the way people in Scotland want the money spent. No taxation without representation in a Democracy. Scotland outvoted 10 to 1 at Westminster. Westminster reckless spending and debt.
Westminster poor, bad policies, illegal wars, tax evasion, financial fraud. Brexit a disaster costing £Billions lost. Affecting Scotland who did not vote for it.
UK Gov raises £731Billion in tax revenues. Spends £1090Billion. No money for the NHS.£2.5Billion to kill more people in Ukraine. £Billions and lives lost because of no ceasefire in Gaza. Months to go for the Tory exit. After ruining the economy and no growth. Westminster Gov a complete and utter shambles.
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Scotland lost the equivalent of £Billions. Losing oil and gas revenues etc to the devised Barnett Formula. Kept secret under the Official Secrets Act. Alex Salmond found out and revealed the corruption. The Westminster lied and hid the Accounts.
Scotland in surplus in fuel and energy, and nearer the source, pays more because of Westminster policies. Poor, bad decisions.
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There have been a few attempts by Westminster politicians over the years to get rid of the Barnett formula.
Not to benefit Scotland but to reduce the amount of “subsidies” generously given to Scotland by England,in their view.
It also suits the political purposes of the representatives of England’s political parties here in Scotland to justify their constitutional position by claiming that without England,Scotland is nothing.
However,the recent ruling by England’s Supreme Court that Scotland cannot leave England’s Union without their permission,means that they do not even have to lie about subsidies any more.
They can just say No to self government and self financing because the law says that we do not have the right to choose that and there is no way that the London treasury will ever grant us the right.
A colony in all but name,subject to undemocratic decisions taken by political leaders in another country.
Maybe Scots will waken up to this reality and stop voting for this constitutional arrangement which was designed from the outset to benefit England at our expense.
That is how colonial governments operate.
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“The bogus GERS accounts are how the UK dumps its debt on Scotland.” GERS is compiled using single-entry bookeeping: In other words no balance sheet is produced and debits are not automatically balanced out by credits (and vice versa) as they would be in standard double-entry bookkeeping. It’s a device much favoured by various UK Gov’t reports and fraudsters: costs/expenses can be loaded with estimates such as the costs of London staff engaged in work supposedly for Scotland (e.g. London civil servants, Defence Ministry staff etc – all that cost of running the nuclear subs that we don’t want). However the multiplier effect of all those London staff paying their taxes and spending money into the London economy isn’t deducted from the GERS costs. Hey presto, an otherwise healthy economy is depicted as a basket case!
Many years ago when I first encountered GERS I did an analysis of GERS data based on audit trail and found that only about 4% of all entries had an audit trail back to firm, probative data and the other c96% was arrived at by estimates and allocations of percentages of Engish/UK data. Those percentages may have changed a bit over time, but the point is there’s hardly any reliable primary source data available for Scotland. Take VAT for instance: it’s a devolved matter, but there are no separate figures for VAT raised in Scotland. All VAT in UK is collected by HMRC and all VAT registrations number are allocated on a UK basis so, for instance, VAT on sales by M&S in its Scottish stores cannot be separated out by HMRC (it probably could be by M&S but HMRC doesn’t ask them) and when it pays VAT collected to HMRC it’s a lump sum for all UK stores. Hence VAT due to Scotland is estimated and so the Scottish Budget for a very significant income item is estimated. In time these estimates are generally shown to be inaccurate so retrospective adjustments are required, which in turn means that Scotland’s budgeting for several years is skewed. Also, since there can never be a probative figure for VAT raised in Scotland under present arrangements, these retrospective “corrections” are themselves just estimates!
Why does the SNP publish and pay for a so-called “report” that is known to be wildly inaccurate and thereby give the Unionist media an opportunity to “play shooty-in” with Scotland year after year?
Coinneach
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Scottish politicians have to swear allegiance to Westminster under the Official Secrets Act. Even in the devolved administration. Make it difficult to challenge the Barnett Formula and the false figures. They could be charged with breaking the Official Secrets Act.
The Devolution set up by unionists does not allow for freedom, of opinion, regarding the Devolution settlement. Criticism from is limited. Even the unfairness. Scotlands limited powers under the Devolution agenda. Set up by unionists to restrict the Scottish Gov powers and keep control. Unequal and unfair.
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The Institute for Government published in 2020 a description of how the Barnett Formula works.
Source: https://www.instituteforgovernment.org.uk/article/explainer/barnett-formula
It gives this example: ‘if spending on healthcare in England increases by £100m, the Scottish Government’s budget would increase by £9.7m since Scotland’s population is 9.7% of England’s. Agreements between the UK governments and devolved administrations to account for historical underfunding and pre-existing VAT exemptions respectively mean the Welsh block grant would increase spending by 115% of per-capita spending in England and the Northern Irish block grant would increase spending by 97.5%. Accordingly, the Welsh government’s budget would increase by £6.4m and the Northern Ireland executive’s budget would increase by £3.3m. Since the devolved block grants are not ringfenced, the devolved administrations would be free to spend the additional money on services other than healthcare.’
The main TuS blog post notes: ‘If England’s NHS budget increases by 3.4%, Scotland’s health budget doesn’t increase by 3.4% because the Barnett Formula doesn’t pass on the full amount.’ Indeed it doesn’t: this has never been how Barnett works. There is no direct FORMULA-BASED link between an increase in NHS spending in England sanctioned in Westminster and the funding allocated specifically to the NHS in Scotland by the government in Edinburgh.
The squeeze comes through the level of the (aggregated) Block Grant and especially during times of Westminster-imposed austerity and/or when there is a high level of inflation and/or increased levels of need and demand for public services which outstrip the ability of available resources to meet these.
Political decisions made in Westminster for England e.g. over prioritising austerity and/or how to address inflationary pressures and/or how to resource adequately public services (e.g. in health, social care, education, local government etc.) all impact the Scottish Government’s overall budget. Arguably, it is this crucial link to the impact of the ‘aggregate’ that makes communicating – and disentangling – these issues more challenging: opposition politicians and oppositional media of course focus typically on individual line items in the Scottish Government’s budget allocations. They frame their criticisms as if the Scottish Government can decide on a budget allocation to one area of devolved responsibility without having to consider the impact of this on all other areas of spend which are also dependent on the scale of the ‘Block Grant’.
Returning to the Institute for Government’s briefing, it (oddly) juxtaposes these statements concerning the Barnett Formula (with my emphasis):
‘An advantage of this mechanistic formula is that it HELPS DEPOLITICISE THE PROCESS of setting devolved budgets, removing the need for annual negotiations between Westminster and the devolved administrations’
But later adds: ‘Aspects of how the formula operates, however, remain open to interpretation’ noting crucially: ‘Currently, the UK TREASURY EXERCISES FULL DISCRETION over this process, with NO OBLIGATION TO TRANSPARENTLY PUBLISH ITS CALCULATIONS. The Treasury CAN ALSO CHOOSE TO BYPASS THE BARNETT FORMULA ENTIRELY, as it did for the £1bn funding package for Northern Ireland that was negotiated as part of the Conservative-DUP supply and confidence agreement after the 2017 general election.
‘The Scottish and Welsh governments objected to the fact that they would not also receive more funding as a result, however there was NO FORMAL MECHANISM TO CHALLENGE THIS DECISION.’
A ‘depoliticised process’?
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Re Whisky exports I noted that DRoss brought this up at FMQs saying how good this was and praising Westminster but forgot to mention all taxes go to England to spend on whatever takes their fancy.
A real crawlier is DRoss
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