Note: updated 30 April 2020
Context…the Barnett formula
The Barnett formula is used to allocate resources to Scotland, Wales and Northern Ireland when the UK Government spends money in areas that are devolved to the relevant administrations. For example, if the UK Government increases spending on health – which is a devolved responsibility – the Scottish, Welsh and Northern Irish administrations will all receive a population-based share in additional funding (known as “Barnett consequentials”). They can then use this funding as they choose – and not necessarily on the policy area from which the additional funding derived.
The Barnett formula has come into play in recent weeks in relation to the additional coronavirus-related expenditure announced by the UK Government.
How much additional funding will the Scottish Government get as a result of coronavirus support measures?
The UK Government initially announced a £12 billion package of support comprising measures announced at the UK budget on 12 March 2020 and additional measures announced a few days later. The Cabinet Secretary for Finance wrote to the Finance and Constitution Committee advising that Scotland was to receive £780 million in Barnett consequentials as a result of the UK Government’s initial package of support. She further outlined that this comprised £410 million in respect of the £5 billion response fund for public services (including health) and £370 million in respect of the £7 billion support for individuals and businesses. Further consequentials have since been announced in relation to additional economic response measures and extensions to the Response Fund, bringing the total Barnett consequentials for Scotland for 2020-21 to a total of £3.5 billion as at 30 April 2020.
A breakdown of the £3.5 billion Barnett consequentials and the UK Government measures from which they derive is set out below.
Which areas of coronavirus support result in Barnett consequentials?
Not all of the support being made available by the UK Government is in devolved areas. Many areas of support are UK-wide, so do not result in Barnett consequentials as Scottish businesses and individuals will already benefit through the operation of these schemes. Examples of UK-wide support that do not result in Barnett consequentials include:
- measures to protect the wages of employees and the self-employed
- increases to benefits and extension of Statutory Sick Pay
- business loan schemes
- tax deferment.
The Barnett consequentials result primarily from UK Government spending plans in three specific devolved areas:
- planned increases in health expenditure
- planned increases in local government expenditure (as a result of business rates relief schemes and small business grants administered via local authorities in England)
- planned increases in transport expenditure, largely to provide support to train and bus operators.
Are these the final figures?
The coronavirus support measures are constantly evolving and so further changes are possible. In addition, the consequentials set out above are, in some areas, based on UK policy projections of the costs and there is a possibility that these may be revised by the UK Government once costs are finalised. This would have a knock on effect on the final allocations to the Scottish Government and other devolved administrations. Also, it is possible that the UK Government might revisit UK departmental budgets seeking savings to offset the costs of coronavirus interventions, which could result in negative Barnett consequentials for the Scottish Government further down the line.
What spending is the Scottish Government proposing?
As noted above, the Scottish Government can use the Barnett consequentials however it chooses and does not need to replicate the UK Government schemes from which the Barnett consequentials result. Indeed, there has been much debate around the differences between the business support measures introduced by the Scottish Government and the UK Government (see separate SPICe blog on non-domestic rates-related FAQs).
At the time of writing, the Scottish Government’s commitments to coronavirus support measures are within the Barnett consequentials that have been allocated. However, additional health and social care allocations have not yet been confirmed. If the Scottish Government wants to allocate funding over and above the Barnett consequentials, it will need to find additional funds (either by reducing spending elsewhere, or by making use of reserves). The chart below sets out the Scottish Government’s committed spending on coronavirus support measures as at 30 April 2020. Note that the chart assumes that all Barnett consequentials deriving from health spending by the UK Government will also be applied to the health budget in Scotland as this has been the policy commitment of the Scottish Government under ‘normal’ circumstances. It may be that the Scottish Government chooses to allocate additional funding to health over and above the Barnett consequentials, but this has not yet been confirmed.
In broad terms, the Scottish Government’s spending commitments (as at 30 April) reflect the UK Government’s spending commitments. For example, in the main area of proposed spending – business support – the Scottish Government has received £2.25 billion in Barnett consequentials from the UK Government and plans to commit a similar (but slightly higher) amount of £2.29 billion to its own business support schemes. As noted above, health allocations have yet to be finalised and the final commitment could be higher than set out above. And more generally, this is a constantly shifting picture and further interventions could impact on both the Barnett consequentials and the Scottish Government spending plans.
Nicola Hudson, Senior Analyst, Financial Scrutiny Unit