The Barnett formula was a fix to settle by how much bloc grant for Scotland rose each year, given the extent of the rise in comparable English spending.
It currently polls very badly in England. The reason is that Scotland can spend around one fifth per head of the population more than England. This enables Scotland to offer free tuition for Scottish students at university, and better terms for care for the elderly amongst other matters. Now that Scotland is around the same income per head as England, and now SNP Ministers are constantly telling us Scotland is a rich country, many in England ask why the favoured treatment?
The Barnett formula relates to changes in annual spending. If, for example, a given public spending item was allowed £100 million more spending next year than this in England, Scotland would be allowed £10 million more for the same spending. The English increase is multiplied by the proportion of population in Scotland to England to derive the extra amount. If some of the spending item is not devolved, then the comparability percentage is also applied, so Scotland only gets an increase for that part of the budget which is devolved. If only 50% of the extra £100m budget was devolved, Scotland would get an extra £5million.
Given that Scotland therefore only gets the same per head increase as England, why does she end up with an advantage in the total? The main reason is the starting or base budgets in 1979 where Scotland already was allowed to spend more per head. This has been compounded by the relative decline of Scotland’s population to England. This means that the per capita value of the base budget has gone up compared to England.
The 3 leaders have made two promises to Scotland on these financial matters. The first is that Barnett will continue to apply. As a means of changing the future spend it can still make sense, as it means parity between England and Scotland for the increments. I would advise my fellow Englishmen and women to calm down a bit about the formula for annual changes, as it can make sense which is why it has endured for so long.
The second promise is that Scotland can raise its own Income Tax in future, and maybe some other taxes. As long as this money is taken off the bloc grant and the money that attracts the Barnett formula, this could help sort out the imbalances and tackle some English resentment at Barnett, as Barnett comes to cover a reducing balance of spending. There is a lot to be said for Scotland taking responsibility for more of its own revenue raising, and accepting that more of its spending will depend on its success in levying taxes on its own taxpayers. What matters is a fair baseline budget and settlement this time round when the new taxes for Scotland make a big change to the bloc grant.