Channel 4’s Faisal Islam reports on the Barnett Formula

[Wednesday]

Dig this from yesterday’s Channel Four News – their lovely business bod Faisal Islam delves into the murky waters of the Barnett Formula, and discovers the truth about the ties that bind the British state. Sorry, I am lapsing into blurb-speak. Anyhow, kudos to Faisal for getting the ball rolling…

Scotland: the ‘land of the free’?

There’s a new force in UK politics: the power of place, and the fear that your region isn’t getting its dues from central government.

From some English perspectives it’s about the new ‘land of the free’ to the north – Scotland, the land of the free prescription, free tuition fee and free personal care for the elderly.

In Scotland almost the opposite argument is being made and debated in the Scottish press: the UK has been subsidised over thirty years by £200bn of oil that belongs to Scotland.

Meanwhile, speaking to Channel 4 News, London Mayor Ken Livingstone said that £10 to £20bn of London taxes are being lost by the capital city.

“Some small part of that goes to Scotland, but the bulk of it goes to the North and the English regions – they are the major beneficiaries.

“It’s broadly a redistribution that goes from London and the South East to the Midlands and the North – that’s the bulk,” he tells us.

Fascinatingly, that’s a shift in position for Red Ken from when, last year, the Robin Hoods robbing the Sheriff of London were definitely wearing kilts.

The English regions

And talking of Robin Hood, what about the East Midlands, in fact all the English regions?

When you ask the council leaders, as we did when we popped along to Nottingham for last week’s Core Cities conference, there’s a shrug of the shoulders.

Prod them a bit, as we did, and the concern about how the UK kitty is carved up between London and Scotland starts to pour out.

So there are three different positions, not especially reconcilable with one another. But who is telling the truth?

A cursory glance at the Treasury PESA tables and breakdowns from last month’s Comprehensive Spending Review shows that it’s the English regions that are the losers in terms of per capita spending.

Northern Ireland does well. Scotland and London are both very high. Wales is just above average. England’s regions, coincidentally those parts of the UK with no voice versus London or Scotland, do the worst.

The Barnett Formula

Read Neil Macdonald’s piece on the history behind the Barnett Formula and why the Scots get more money than the English
here.

What’s the role of the Barnett formula in all of this? Well although Bristol and Birmingham may feel the Barnett blues, that Treasury convention only allocates money between England, Scotland, Wales and Northern Ireland. The growing English resentment at Barnett may be mistargeted.

The Barnett formula merely codifies that increases in most forms of public spending in England should be matched in other regions.

So when London gets £5bn for Crossrail, Scotland will get a £500 million Barnett bonus (formally a Barnett consequential) for its budget. That led Newcastle Labour MP Jim Cousins to pounce on his own Chancellor of the Exchequer at a recent Select committee hearing

“The Crossrail bonus that goes to Scotland reappears in free prescriptions, free home care and free everything else – extra grants for heating, the abolition of graduate endowment. When is there going to be a north of England bonus?”

So what do Professor McLean’s numbers show?

London is the top recipient, in per capita terms, of public spending. Nonetheless London taxes exceed substantially the investment that comes its way. Scotland is a slight subsidy junky, but not if you include oil.

Actually including oil at current prices sees a healthy Scottish surplus. However, if money were to be allocated to those parts of the country that ‘needed’ it, ie the parts with lower average living standards, London is hugely over-provided for. Scotland does pretty well too. And the English regions are hard done by. East Midlands, the land of Robin Hood, is robbed blind.

Now, these numbers are raw. Clearly there are other ways of measuring ‘need’. The entire notion of geographically allocating tax revenues is fraught. Is Tesco’s multi-billion profit really made ‘by London’ on account of their HQ being in Cheshunt?

However, we at Channel 4 News wanted to get the ball rolling in a growing debate about how the national kitty is carved up.

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