DON’T MENTION THE FORMULA

1 June 2009

UPDATES
See the Isle of Man updates 27 October and 30 November 2009. I have also updated the PESA data to 2008/09.

Among the silenda and tacenda of Cornish nationalism is the redistribution of UK taxes to public expenditure among the four countries of Britain. The allocation of public expenditure per capita benefits the three devolved countries more than England.

Barnett Formula

The vehicle for the redistribution of collected taxes is known as the Barnett Formula, which I have discussed before. This formula now seems to be on the ropes.

A House of Lords committee has been examining the formula since last December and a House of Commons committee has commented on it as part of a completed examination of the working of devolution: Lords, Barnett Formula Select Committee ; Commons, Justice Select Committee . The Commons committee have looked at asymmetric devolution and suggestions for territorial powers for England.

Most people giving evidence seem unhappy with Barnett, mainly because it is largely based on the population numbers of the countries of Britain rather than on people’s needs for public services, though there are also challenges to the degree that tax collection and, more specially, spending are centralised in Britain. The consistently larger share to Scotland, Wales, and Northern Ireland as against England (though not as against London), as measured by per head spending, is also increasingly challenged as unfair. The Commons committee has declared that “the Barnett Formula is no longer fit for purpose” and is “overdue for reform”.

The latest per head annual public spending figures (2008/09) due to the formula are: Northern Ireland £10 127, Scotland £9412, Wales £9209, England £7960. (Source: Public expenditure statistical analyses (PESA Table 9.2 in chapter 9) here ).

Those higher figures are the primary cause of what is seen as the better provision of public services in Britain outside England. The Taxpayers Alliance (TPA) has estimated the money total of the “excess” spending in Northern Ireland, Scotland, and Wales from 1985/86 to 2007/08 is about £202 billion: see Unequal shares: the Barnett Formula (2008) . Incidentally, in the same document the TPA has also said that the North Sea oil revenues do not balance out the higher Scotland allocation: only in five of the last twenty three years has the revenue exceeded the excess allocation.

The Centre for Economic and Business Research (CEBR) makes the reasonable point in its evidence to the Lords committee that per head comparisons, while important, do not take into account the effect of differing prices and earnings in different places and their consequent effect on the differing costs of providing the same level of services in different places.

CEBR also draws attention to another and damaging aspect: the share of public expenditure as a share of an area’s GDP. Those figures also show that Northern Ireland, Scotland, and Wales have a much higher share of their GDP on public spending than England. The large share taken up by public spending probably discourages enterprise by creating a world in which the ready assumption is to look to the public rather than the private to provide services. Additionally, in areas with higher GDP, with in general higher incomes (that is, areas in southern England), public services tend to be poorly funded. In such areas the poorest, dependent on public services, are seriously adversely affected.

All in all, the Barnett Formula is discredited, irrationally based on population numbers not need, and consistently discriminating financially against people in England outside London. However, London is a nett contributor to the UK: CEBR estimates its subsidy to the rest of Britain in 2007 was about £30 billion, though falling significantly as the recession bites.

However discredited the present formula is, there are political difficulties in changing it. Labour in the UK is increasingly dependent on votes in Scotland and Wales; the Conservatives wish to prosper in Scotland and Wales and are reallied to the unionists in Northern Ireland; they (and the Liberal Democrats) are reluctant to do anything that could be presented as reducing help or subsidies to those places and thus losing votes in them. Of course, this assumes that a rejigged allocation based on need, for example, would reduce the flow; it might increase it as some have argued. However, allocations over large areas, even if based on need, will always contain unfairness because need very much varies within countries and regions as well as between them.

Isle of Man

The Isle of Man is another part of the Cornish nationalist silenda. Richard Murphy’s Tax Research UK blog has been arguing that the Isle of Man is subsidised by taxpayers in the UK. The post of 18 May 2009 is headed “Isle of Man costs UK at least £1.5 billion a year” and says Britain provides a “heavy subsidy” to Man. The post from Murphy of 21 May at 1113 hours gives a short and straightforward account of his argument. I think the Isle of Man and the British government have a case to answer.

ADDENDUM 27 October 2009: In October 2009 the Vat revenue sharing agreement between the UK and Isle of Man was changed on the initiative of the former. This revision, along with other consequences of the recession, will result in the Isle of Man receiving £90 million less in 2010/11 and £140 million less in 2011/12 and each year thereafter. This revision strikes me as confirming that the agreement subsidised the Isle of Man. The Tax Research UK blog says that the island will still be getting a subsidy. The Celtic League said that the Isle of Man “should rethink its links with the UK” including the option of independence in the light of the tax changes. It did not mention the claimed subsidy aspect of the UK/Isle of Man agreement.

ADDENDUM 30 November 2009: See this post (‘The Isle of Man is still being subsidised – by at least £40 million a year’) for a further update.

Cornwall

Of course, there is wailing, essentially unjustified, about the share that public services in Cornwall get relative to other parts of England, but the wailers never seem to ask about the larger redistribution among the four countries of Britain. Why is that? It is time that Cornish nationalism faced the formula.

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