Reform of the Barnett Formula with needs assessment: can the challenges be overcome?

Citation

King DN & Eiser D (2013) Reform of the Barnett Formula with needs assessment: can the challenges be overcome?. http://barnett-or-needs.stir.ac.uk/documents/finalpaper21febweb.pdf

Abstract
Block grants to the UK's devolved administrations (DAs) are allocated using the Barnett formula. There have been widespread calls to replace this formula with one based on some form of spending needs assessment, but two major objections to doing so have been put forward. This paper explores these objections. First, it explores the argument that the DAs would be unable to agree on how need should be assessed, by comparing the Scottish and English formulae that are used for allocating funding for health and education within each country. Second, it explores how needs assessment could work for DAs which pursue significantly different public spending policies. It concludes that these arguments against replacing the Barnett formula with grants based on spending need are much weaker than some commentators argue.Block grants to the UK's devolved administrations (DAs) are allocated using the Barnett formula. There have been widespread calls to replace this formula with one based on some form of spending needs assessment, but two major objections to doing so have been put forward. This paper explores these objections. First, it explores the argument that the DAs would be unable to agree on how need should be assessed, by comparing the Scottish and English formulae that are used for allocating funding for health and education within each country. Second, it explores how needs assessment could work for DAs which pursue significantly different public spending policies. It concludes that these arguments against replacing the Barnett formula with grants based on spending need are much weaker than some commentators argue.

Keywords
Barnett Formula; spending needs assessment; devolved government

JEL codes

• H71: State and Local Taxation, Subsidies, and Revenue
• H72: State and Local Budget and Expenditures
• H75: State and Local Government: Health; Education; Welfare; Public Pensions
• H77: Intergovernmental Relations; Federalism; Secession
• R50: Regional Government Analysis: General