Nearly 45 years have passed since he devised a formula to determine block grant without suffering inter-departmental pitched battle. Occasionally name-checked after he left office, little was made of what has become his signature contribution to British politics. His memoires did not mention his eponymous formula. In 2014, he demanded that it be scrapped.
Julian Hoppit (2021) blames Scottish and Welsh special pleading inside government and the rising tide of Scottish and Welsh nationalism outside it for Barnett’s exasperation. In their defence, circumstances had been changing rather quickly in the 70s: 480,000 people voted SNP and Plaid Cymru in the 1970 General Election with only one MP returned. A significant minority of voters in Scotland, Wales and Northern Ireland (where the Troubles were just beginning), were evidently disenchanted. Fuel pump crisis was followed by North Sea Oil and Gas production in 1974. Petro-revenues poured into the Treasury at globally-fluctuating prices: public financing rigour went out the window.
Faced with this, Barnett’s first aim was to curb spending in Scotland. The formula achieves this by locking increases per head there to changes in public expenditure in England. At the heart of this is at least one subterfuge. England’s rising relative population would perpetuate higher levels of public expenditure in the other nations. But left unsaid was the familiar tenet of faith that policy changes in England would drive changes elsewhere. More privatisation would mean less block grant. Unforeseen was how its mechanical application would reinforce narratives in Glasgow and Llanelli that local needs were secondary to those in England. The formula did not take account of the economic condition of each nation. This is most keenly felt in Wales, which receives less per head than Scotland despite having greater socio-economic needs.
Inadvertently, the formula also put a ‘price’ on membership of the union, feeding the comparison tables that are a tabloid staple (both regional and national), blithely placing the paying and the paid in a perennial national struggle. The title of Julian Hoppit’s last work released in 2021 (“The Dreadful Monster and its Poor Relations”) was not accidental.
In the meantime, Barnett’s magnum opus has seen off every Prime Minister from Thatcher to Johnson. Spending is higher than ever and nationalism is on the march. Paradoxically, whereas devolution was intended to contain nationalist sentiment, the experience of self-government has achieved the opposite. Austerity, the impact of Brexit and a pandemic have only served to accentuate its unsuitability to a union as diverse asthe UK. One wealthy, globally-connected English region funds the rest of the United Kingdom. Forty-five years later, the formula is roaring into its second life. Blair and Camerons’ mistaken belief that devolution would cover over the differences and allow the Union to “kill Scottish nationalism stone dead” (in the words of George Robertson, Shadow Secretary of State for Scotland, 1995) did not suffocate the debate. Instead, Barnett is fuelling it there and elsewhere.
Most unhelpful are high-profile Treasury decisions about “consequential” funding. Increases in expenditure in England mean corresponding increases for devolved budgets (“Barnett consequentials”). Controversial decisions include spending in London on the 2012 Olympics that was deemed to benefit the whole of the UK, and the £1.5bn ‘bung’ negotiated by the DUP in July 2017 in return for supporting the May government. This triggered furious responses from Scottish and Welsh governments who argued in a joint letter that Barnett had been bypassed. More recently, consequential funding in respect of HS2 (linking Manchester and London by High Speed Rail) was denied to Wales. HM Treasury claimed that North Wales profits from being connected to HS2 at Crewe. Uncomfortably for Labour Senedd benches, when HS2 was raised in the House of Commons on 18th September 2023, Alun Cairns MP (Con, Vale of Glamorgan) reminded Labour members that their leader was also cool on the matter of consequentials.
It is in Scotland that Barnett’s creation has nurtured the most opportunities for nationalist agitation, of both English and Scottish varieties. Formidable election management has delivered tory governments for 31 of the last 44 years, mostly with negligible representation in Scotland. As spending per head declines in England, so too must spending in Scotland. This convergence is the so-called Barnett ‘Squeeze’. Designed to throttle spending: that is what is happening. Nevertheless the needs of Scotland, steadily deindustrialised almost as if by plan, are more complex. The ‘need’ for public spending is more urgent. Lives end sooner. Yet, the higher spend per head triggers English voters: Scottish voters respond in kind, mostly defensively. It’s a cycle that benefits nobody.
As the Olympics and HS2 episodes showed, HM Treasury does not resist flexible interpretations. On the other hand, large English infrastructure presents a vulnerable and visible target for devolved administrations. Usually heralded with much fanfare, their price tag is susceptible to inflation. Nowhere is this more welcome than in Cardiff, Edinburgh and Belfast because as the passing years of HS2 and other projects testify, delivering infrastructure has a colourful history. Previously estimated in 2019 to cost between £72 and £78bn, HS2 is now approaching the £100bn mark. Welsh MPs estimate that the amount denied to Wales is therefore in the realm of £5bn. Discontinuing the line to Manchester (thereby not servicing Crewe) could result in a windfall for Wales and a headache in the Treasury.
The thornier questions about Barnett might be blamed on geographic or historical differences. Delivering health care in the Outer Hebrides is clearly more cost-intensive than in the South Wales valleys (neither of which have had to process decades of civil disturbance). But there are other differences, some inherited thanks to the varied devolution settlements and some for historical or political reasons. Scotland eschewed tuition fees and provides free personal and nursing care. Northern Ireland tuition fees are half those in English and Welsh universities. As water utilities were never privatised, water charges are paid out of the block grant. This makes NI household charges the lowest in the UK. Prescription charges are not paid in Wales and PPI/PPP agreements (which Blair and Browninherited from the previous Thatcher and Major administrations and then championed) were not embraced there. (Welsh Labour MPs even voted against their own government on the Academy Schools Programme). As a result, Wales, Scotland and Northern Ireland spend markedly more per head than England because so much public sector activity in the latter was delivered in partnership with the private sector.
However, these distinctions are difficult to capture in the way that tables of spend per head in national newspapers might pretend. Northern Ireland’s experience with HM Treasury demonstrates the extent to which devolution was delivered, almost regardless of Barnett. Few engaged with how differences in each devolved administration would prejudice inevitable comparisons, contributing to incomprehension and tension. For over two decades of rising block grants, Treasury officials have struggled to persuade Northern Irish administrations to increase local revenue. In contrast, Scotland has embraced income tax raising powers to raise revenue from the highest earners and bring relief to the least privileged. When powers were announced to make corporation tax in NI more competitive (and close the gap with rates in the Irish Republic), HM Treasury mandated that lost revenue from corporation tax could not be recouped from the block grant and must be matched with higher local revenue (from raising household and introducing water charges in particulat). Absent political cohesion about the nature of Northern Ireland itself, there is little political will to risk losing marginal constituencies, and no progress is made on either corporation tax or increasing local revenue. The Secretary of State for NI has announced a plan to consult directly with the people on the viability of forty revenue-raising measures.
For decades, the block grant has been a keystone of Ulster Unionism. Jeffrey Donaldson’s statement (August 17th, 2023) outside Belfast Castle calling for the formula to be reformed, is a brave departure. In his assessment of the formula, he is in good company and might have much to share with SNP and Labour administrations, if he chose. Other choices make such détente more problematic for the Lagan Valley MP but the protest must be applauded as a first step.
The non-operation of Stormont (which owes its status to both national legislation and an international instrument and therefore cannot be abolished) is prolonging delays in delivering health care and infrastructure. Without ministers in office, spending decisions must wait. Crumbling hospitals and roads harm the most vulnerable and the economy as easily in Lisburn as they do in Newport. However, funding port infrastructure and checking facilities puts Northern Ireland in a different category. Thanks to Brexit, Northern Ireland’s hybrid status will warrant a keener audience in London and further afield.
There has perhaps never been so much to unite Stormont, Holyrood and Cardiff Bay as the contemporaneous realisation of being poor relations (Hoppit) in a union of equals that was never designed to be equal. Despite them all sharing the same formula (and the same revenues), little connects each to the other. The traditional Labour default on Irish unity (from which Starmer has signalled he may resile) sits uncomfortably with the DUP. Calls for IndyRef2 sit uneasily with unionists in either Cardiff or Belfast. Barnett may not be adequate but the very communities it sustains have little common language to make their case. Uncomfortably for everybody, it has endured because few Westminster politicians have ever wanted to open the ‘can of worms’. Scottish Nationalists are conflicted by their need for funding: Northern Irish unionists are conflicted by their need for Union. Sustained higher spending is mitigating resistance to the union in Scotland. What Northern Irish (or Welsh) voters receive for their loyalty has not yet been priced.