Talk:Barnett formula

Link needed to McCrone Report

Please provide a link to McCrone report. People looking for information on the relationship of Scottish to UK finances tend to look up Barnett Formula, seeking facts and figures to cite in debating independence from the UK. They look up Barnett because they don't know of any other information source and are unaware the McCrone Report exists. It was commissioned for just this purpose - illuminating the fiscal relationship and informing government and public on Scotland's financial situation in or out of the UK. — Preceding unsigned comment added by Jistaface (talk • contribs) 13:15, 13 January 2012 (UTC)

Oil revenues and NPOV

I removed "Scottish oil revenue subsidy that England receives from Scotland, estimated at £200bn since 1975" as POV. If it is to remain, I think it would need

1. a source which is not the SNP: the Treasury says UK North Sea revenues in 2004-05 were just over £5bn [1], some of which comes from natural gas from the southern North Sea, so the figure is not impossible though it looks high at first glance
2. a differential public expenditure analysis: my quick reading of [2] suggests that Scotland was getting about £7bn more a year in 2004-05 than it would if public expenditure levels were the same per capita as in England (a difference of about £1400 per head times a 5 million population)
3. a differential tax analysis covering other taxes: I don't know a source for this but I would be surprised if as much per head was collected in Scotland as in England in income tax, national insurance, VAT or non-North Sea corporation tax

Without this balance the statement is just spin from a political party as in [3]. --Henrygb 00:53, 16 February 2006 (UTC)

1 Oil revenues take into account more than just corporation tax derived from them there's also the Petroleum Revenue. According to the Royal Bank of Scotland [4] revenues were £9.1bn in 2005 and to this year, and forecasted to be £11.7bn this fiscal year to March 2007 - when one takes into account all of the revenue derived from Scottish Oil.

Those are the same numbers as mine - which also include corporation tax: the £9bn in 2005-06 and £12 bn in 2006-07 also include a windfall tax, while the £5bn in 2004-05 and £4bn in 2003-04 are more typical of recent levels of receipts.

It doesn't matter, those levels ameliorate Scotland's "supposed" fiscal deficit. Whether there is a windfall tax or not is absolutely irrelevant - oil taxation has been altered innumerable times over the last 30 years - royalties were abolished some years ago, and taxation structures - for corporation tax have changed over that period too. The £12bn level is very close to the £15bn accrued by the government in 1984/85 - when the North Sea was at its most productive.

2 Recently there was evidence, unearthed by a Radio 4 programme [5].

That was based on papers written before rather than after the receipts started coming in.

And if you actually listen to the programme in question, which features interviews with those involved at the time, with retropect you'll hear politicians and ministers - such as Dennis Healey - admit their calculations were an "underestimate" of the true position.

3 Even as far back as 1997, Government Ministers admitted the net subsidy Scotland had paid the UK was at least £27.1bn [6].

That is interesting, though severely spoilt by the requirement in the question that a constant figure was needed for Scotland's share of the deficit (17.9% in 1994-95 is twice Scotland's population share). Adding up the oil revenues (on Salmond's assumption of 90%) for those 17 years gives £69bn. The fairly meaningless £27bn figure is decreasing over time from 1991-92 onwards.

It still shows quite a few years of Scottish subsidy to England, I do agree the conditions were very strict, and of course apportioning a 17.9% deficit to Scotland is utterly ludicrous, given its population share, wealth share and even hypothesised fiscal deficit, but it still on balance shows net outflows from Scotland to England, which I'm afraid are indicative of a subsidy, even with these, rather strict, terms. You should also note in that figure the oil revenues ARE NOT standalone, and they are at "current prices" - presumably 1997 prices, which makes a substantial difference, to their true value - that's just simple economics.

4 Of course there is the problem of differential tax analysis. But the fundamental point is oil isn't allocated to Scotland's fiscal position - it is, by proxy, allocated to the rest of the UK's. However, Scotland has 8.6% of the UK population, and its share of receipts is here [7] - crucially which doesn't include oil.

That publication as a whole [8] is a useful source. Among other things, it suggests that UK North Sea receipts in total were £105.5bn from 1980-81 to 2003-04 (an they were minimal before that). It also quotes an analysis from the University of Aberdeen suggesting about 75% of this was "Scottish".

The above listing for Radio 4, indicates that the Government had alternative views - over 90% types of views - the 75% figure is utter conjecture, the share of Scotland's oil is dependent on the productivity of fields, in production, those going out of production and those coming into production - using these figures, indicates an almost exclusive share, rather than a spurious geographical definition. I hardly think that the levels before 1980 were insignificant - the first Oil Taxation Act was passed in 1975 as oil first came ashore, they were around £4-5bn - at those years prices - certainly enough to rescue a bankrupt economy that was desparate to raid the riches from the North Sea, to maintain its integrity at that time

I am far from interested in what Scotland get spent on it by central government (because that is a large can of worms - especially when a little digging shows many non-Scottish elements that are included in it). The more interesting and more important question is how much Scotland accrues in Revenue and its long term net fiscal position. I also don't support the SNP, nor am I a member.

And that ultimately is the key point. The Barnett formula is and always has been solely about what Scotland (and Northern Ireland and Wales) gets spent on it by central government, or at least changes in that amount. It has nothing to do with revenues, as the article now says. And so £200bn, which now looks clearly inconsistent with other sources, does not belong in the article, and as a bald unbalanced statement is also POV. --Henrygb 13:03, 16 February 2006 (UTC)

£200bn is the widely accepted figure, it is actually, if anything an underestimate - but I suspect, given the conflicting evidence we'll never truly know - and Scotland will never truly know what it has lost.

Quite a bit of information about this subject here - It's Scotland's oil for cross reference.--Gavinio 10:49, 8 September 2006 (UTC)

Rewrite

Read quite a few academic papers and official documents, and added a heap of stuff, referenced as far as sensible. Hope people think it's OK. I've tried to cover both points of view equally.

If it seems a bit concentrated on the Scottish/English allocation debate then sorry - it's merely that that's the angle most documentation (including government) takes on the matter. The addition of further Welsh or NI issues would be welcome if anyone can find a suitable source.

Cheers!

Mauls 00:28, 18 March 2006 (UTC)

Disagreement

As far as I can tell, this article is saying that the formula has nothing to do with regional needs etc. However, Joel Barnett's article says it does, and I don't think they can both be right :S

That issue had been addressed here with referenced source documents. The Joel Barnett formula statement wasn't sourced, so I have changed it into a bland statement that the formula exists and it's most basic purpose (dividing funds between the Home Nations). There's no point replicating this article as a section of Barnett's biog!

'How the formula works'...

...was inserted and went straight into how increases in government expenditure are allocated. This is poor= the section needs to start with the baseline, and an acknowledgement that it was incorrectly based. Now changed back. Gravuritas (talk) 07:32, 30 September 2014 (UTC)

Hi. All the Barnett formula does is calculate increases (or decreases) in Gov expenditure from the previous year − there is no baseline as part of the formula − each year it only calculates increases from the previous year. (So the first year it was used the 'baseline' would have been how much was spent the previous year under the previous method). Surely the article should state the formula before talking about problems with the formula?, such as how from the very first year it was used the Scotland population estimates were wrong (thanks for the reference). Also, when the article says 'since then no attempt has been made to adjust for the initial errors', p8 of reference 1 says 'Since devolution, however, the population shares have been revised more frequently', so does this not imply that the populations have been corrected since the initial error???? Thanks Mmitchell10 (talk) 20:22, 1 October 2014 (UTC)

your first sentence is incorrect. The first year that it was used, (before it was called the Barnett formula), it allocated certain expenditures via a percentage, which was based on (knowingly incorrect) population estimates. That was the baseline. As a matter of simple arithmetic, the 'how the formula works' as originally set out by you only referred to the allocation of increases, and so can only be valid if the baseline was zero, which it was not. It may well be recent allocations have been divided on the basis of different population measures- I don't know, I haven't checked- but you need to get clear the difference between the baseline and subsequent allocations of increases in expenditure.

Gravuritas (talk) 07:22, 2 October 2014 (UTC)

Any references for that? Mmitchell10 (talk) 22:24, 2 October 2014 (UTC)

you could try the ref I put in the last edit in the article itself- from the horses mouth.

Gravuritas (talk) 07:10, 3 October 2014 (UTC)

I mean, references to how you say it was done in the first year, for the alleged baseline. Thanks Mmitchell10 (talk) 21:17, 7 October 2014 (UTC)

[[9]] is the recommendations of the HoL select committee and the Treasury's response in 2009, for instance. "2.4 Recommendation: The changing populations of the devolved administrations and the failure of the formula to take account of population changes over time within the baseline create a significant problem for the Barnett formula today. In our view the resulting per capita allocations are arbitrary and unfair. In essence the baseline of the grant provides funds for a level of population that has changed."

The Treasury's response is a lawyer's sidestep: "The Barnett formula determines changes to the baseline, not the baseline itself." This claim- that the Barnett formula is only about changes to the allocations of expenditure- is self-serving garbage. Barnett's formula was used to allocate expenditure from 1978, but was not widely publicized at the time and as far as I am aware, was not referred to by that name. In subsequent years this allocation became known as the Barnett formula, but the system was the same as Barnett's original allocation.

The lawyer's sidestep amounts to a claim that this way of allocating expenditure started when it was given the name 'Barnett formula', and that the system started in 1978 is not the Barnett formula, because it wasn't called by that name in 1978. Laughable.

So the baseline referred to in the HoL select committee's recommendation is the initial allocation under the Barnett formula. As a matter of simple arithmetic, if you want to explain how an allocation is made then referring only to how you allocate increases is a joke- you must explain the baseline first.

Gravuritas (talk) 07:38, 8 October 2014 (UTC)

Thank you. I'm prepared to be corrected (by seeing the actual Barnett calculation the first year it was applied - don't know if this is public domain?), but I understand that the talk of the baseline is referring to the final year under the previous method. These are the 'baseline' amounts which were carried forward into the first year Barnett was applied (although it wasn't called Barnett at the time), and from which Barnett just calculated increases that first year and ever since. It was already unfair at the time and has maintained its unfairness. Hence the baseline is not part of the Barnett derivation per se, and so the Treasury response isn't saying that the system started in 1978 is not the Barnett formula, because it wasn't called by that name in 1978, but it's saying that right from the very start, Barnett never adjusted the baseline amounts, as they were just adopted from the previous method.

Basically to resolve this I think the page needs the year by year spending calculations for one budget area, and how they were derived. Mmitchell10 (talk) 21:27, 20 October 2014 (UTC)

No. "The system that sets public spending in Scotland, Wales and Northern Ireland is known as the Barnett funding formula, named after its inventor, the former Labour Treasury secretary Joel Barnett, who devised it in the late 1970s. That's not the system that sets increases in public spending, it's the system that sets public spending. So the explanation and calculation of the Barnett formula has to include the baseline (by which I meant the first year that he did it: if you want to assert that in turn, this was based on the year before, and call the year before Barnett the baseline, then that's OK with me). Just make sure that public spending according to the Barnett formula as explained in WP results in a genuine total, not a total of rises since 1978 or 1977. Giving a calculation based only on rises since 1978 is propagandistic, because it only explains some of the public spending, and so sidesteps the question as to whether the initial calculation was fair. If you're still not convinced, I suggest you look for a calculation elsewhere of some other spending amount which ignores the baseline- you may find it hard to find.

Gravuritas (talk) 00:54, 6 November 2014 (UTC)

Yes, I agree. I think we've got to the bottom of it :-)

I think this could provide good material for something to go in the Controversy section: two closely related questions − is the baseline which Barnett adopted part of "The Barnett formula", and consequently how much can "The Barnett formula" be blamed that allocations of expenditure are unfair? On the one hand there's your quote, and other quotes from Barnett himself, no less, which regard the adopted baseline as being an integral part of the "The Barnett formula", and hence completely blame the formula for unfairnesses. (And if that's what the creator thinks, who are we to argue?) On the other hand the Treasury response to the HoL Select Committee, and also eg. ("The formula only relates to changes to the block grant, not to the underlying baseline"), don't accept this and don't regard the adopted baseline as part of "The Barnett formula", which means they can hold their hands up and say "The unfairness isn't our fault, guv, blame whoever came up with the baseline" :-) (whether or not that's correct) Mmitchell10 (talk) 13:08, 8 November 2014 (UTC)

Given that there are quite a lot of strong feelings either way about whether or not the result of the current allocation is fair or otherwise, my personal feeling is that devoting much space in the article itself (as opposed to this talk page) on whether the current spending allocation is a) the Barnett formula only, or b) the Barnett formula + an original baseline seems a little arcane. But that nitpick apart, I agree with everything you say in the para above.

Gravuritas (talk) 22:33, 8 November 2014 (UTC)

Formula Math Markup Needs Changing

The current markup used to display the formula breaks the page. It needs to be redone using a smaller font size. Vicky Coren (talk) 17:03, 14 October 2014 (UTC)

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"reserved issue spending" - wozzat?

This phrase currently (2019-12-19 10:29) appears in the last paragraph under "Options for change", with no explanation of what it means (the word "reserved" appears nowhere else on the entire page). I for one do not know what it means, and hesitate to guess as the paragraph is IMO important. — Preceding unsigned comment added by G6JPG (talk • contribs)

"reserved" essentially means "not devolved". So, for example, changes in defence spending do not lead to changed allocations to Wales/Scotland/Northern Ireland because this is a reserved issue. Changes in health spending in England has Barnett consequentials for Wales/Scotland/Northern Ireland because health is devolved. There is a link to devolved, reserved and excepted matters.