Britain needs a fairer settlement than the Barnett formula

27-11-2014

CIPFA, the Chartered Institute of Public Finance and Accountancy, has today again called for the Barnett formula to be replaced in a planned way, as increasingly it becomes no longer fit-for-purpose. Whilst it will clearly be retained in the short term, it should be replaced with a more effective funding allocation model for the UK that takes account of devolved taxation decisions. This call comes as the Smith Commission today published its recommendations on devolving powers to Scotland which include increased tax powers for the Scottish Parliament but which assumes the retention of the Barnett formula in its current state.

In a CIFPA Briefing released today, the Institute instead urges the adoption of a more transparent needs-based funding framework, not just for Scotland, but for all regions across the UK, with powers devolved to the lowest local level possible. The brief makes clear CIPFA’s position that the Barnett formula is a short term solution, which fails to take into account the relative needs of different areas of the UK and that as devolved nations or English regions are increasingly able to make tax and spend decisions a new approach to funding will be needed.

 Rob Whiteman, Chief Executive of CIPFA, said:

“The Barnett formula is a totemic issue that needs sensitive and transparent handling to meet the promises made in the run up to the independence referendum in a sustainable way. With the significant increase in tax raising and spending powers in Scotland we must accept that if we are to see transparent and sustainable funding for all parts of the UK the formula will need replacement.
 
“Only by replacing it with a fair and equitable system that represents the varying needs of different areas and communities across the country will we be able to provide for the long-term sustainability of our public services.

“As the Government and politicians in Westminster address the recommendations made by the Smith Commission, it’s now more important than ever that the Barnett formula is reviewed to take account in a planned way of how devolved taxation relates to the fair distribution of resources.”

From reviewing the Barnett Formula and drawing on international comparisons, CIPFA proposes a principles-based approach to funding devolved governments. The Institute suggests four simple principles that would underpin a new public service funding system:

  • Need – the relative need and assessment of the socioeconomic circumstances of each of the devolved government areas should be assessed;
  • Equity – this would be the cornerstone principle promoting equalisation across the nations of the UK
  • Accountability – the devolved administrations should have some powers over taxation to provide a direct relationship between services provided and taxes paid, thus making them more directly accountable; and
  • Transparency – any funding mechanism should be transparent in its operation and should be the responsibility of a body independent of government.

ENDS

Contact: Matthew Patterson
CIPFA Press Office
T: 020 7543 5787
E: Matthew.Patterson@cipfa.org / saskia.black@cipfa.org 

Notes to editors

CIPFA’s briefing document: Funding Devolved Government across the United Kingdom addresses the need for a new approach to distributing funding that would be linked with tax devolution. It examines the background to the Barnett Formula and draws upon international mechanisms for comparison. The brief concludes by urging for a principles-based approach that should seek to address relative need as well as the promotion of equity.

About CIPFA

CIPFA, the Chartered Institute of Public Finance and Accountancy, is the professional body for people in public finance. Our 14,000 members work throughout the public services, in national audit agencies, in major accountancy firms, and in other bodies where public money needs to be effectively and efficiently managed. As the world’s only professional accountancy body to specialise in public services, we champion high performance in public services, translating our experience and insight into clear advice and practical services. Globally, CIPFA shows the way in public finance by standing up for sound public financial management and good governance. We work with donors, partner governments, accountancy bodies and the public sector around the world to advance public finance and support better public services.