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The UK Government determines the level of public expenditure to allocate to Scotland, Wales and Northern Ireland for devolved functions through a mechanism known as the Barnett Formula. Introduced in 1979 (1980 in Wales) the Barnett Formula allocates an unconditional block grant to each of the devolved administrations (DAs) based on changes in comparable spending in England and the population share of each DA.
There is increasing dissatisfaction with the Barnett Formula. In particular, the formula is seen as unfair because it takes no account of the relative spending needs of the DAs due to either higher demand for, or higher costs of, service delivery. As a result, there have been increasing calls for Barnett to be replaced by some form of expenditure needs based assessment. The recent House of Lords Select Committee on the Barnett Formula (Select Committee on the Barnett Formula 2009) for example argued that:
‘Public spending per head of population should be allocated across the United Kingdom on the basis of relative need, so that those parts of the UK which have a greater need receive more public funds to help them pay for the additional levels of public services they require as a result.’
However, many commentators argue that needs expenditure assessments, being based on political judgements about what constitute needs, are necessarily contestable and therefore politically infeasible. There are also a number of methodological issues to resolve in any assessment of expenditure need.
This two-year, ESRC funded project will investigate the methodological, practical and political issues surrounding the development of expenditure needs assessments to inform the allocation of funding to the DAs. There are three main strands to the research.
The first strand will review the use of needs based funding models for allocating resources within the devolved administrations. Needs assessments are used extensively to allocate resources to health boards and local authorities, and we will explore the wider applicability of these approaches within the context of a revised Barnett formula. Our initial work has compared the healthcare expenditure needs of the DAs by applying Scotland’s health resource allocation formula to health trusts in England, Wales and Northern Ireland.
The second strand is to explore the political issues involved in establishing needs-based allocation mechanisms through consultation with relevant politicians and policy makers. We will explore the extent of non-negotiable issues, and investigate the potential role of a needs based approach within the context of greater revenue-raising autonomy within the DAs.
The third strand is to explore the lessons from other systems of devolved governance. In particular we will study Spain, which has an asymmetric system of governance similar to that of the UK, and Australia, which allocates resources to its states based on sophisticated needs formulae.
The research is due to complete in March 2013.
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