....
"Life before Barnett
The modern history of funding settlements
demonstrates the incremental and almost accidental side of Scottish politics.
This began in 1888 with the Goschen formula, named after the then Chancellor of the Exchequer. The
formula is a by-product of the attempts by Goschen to link local revenue to
local spending and separate it from funding designated for Imperial finance.
Although this overall project failed, the formula itself lasted over 70 years
as a means of determining Scottish entitlement from the UK exchequer (Mitchell
and Bell, 2002). The figure of 11/80 of England and Wales was a rough estimate
of Scotland’s population share at that time, based loosely on Scotland’s
contribution to probate duties (taxes levied on the estate of the deceased), but
was never recalculated to take Scotland’s (relative) falling population into
account.
As the size of the UK state
grew, so did the size of the Scottish Office, with the Goschen formula more or
less at the heart of its budget settlement. Indeed, although the formula was
not used formally from 1959, the culture of accepting Scotland’s existing share
as a starting point and adjusting at the margins became well-established.
Therefore, what began as a formula which initially advantaged per capita
spending in England and received minimal Scottish support, eventually became a
system redistributing money to Scotland as its share of the UK population fell
(McLean and McMillan, 2003: 50).
The long-term use of the
Goschen formula reinforces the idea of incrementalism and inertia in politics:
the existing or default position is difficult to shift. Fundamental change is
expensive and likely to undermine a well-established negotiated settlement
between competing interests. While the Goschen formula is not something that
would have been chosen from scratch by a comprehensively
rational decision-maker or a more open process of decision-making, as a
default position it was difficult to challenge. We may then ask why this
process was eventually replaced. The answer is that a ‘window of opportunity’
(see Kingdon, 1984) came in the 1970s with the prospect of political devolution
which drew attention to Scotland’s share of public expenditure.
Barnett and needs assessment
The high level of UK attention to Scotland’s
financial status (particularly among English MPs representing constituencies
with ‘comparable needs’) was such that it prompted governmental action. The
‘window of opportunity’ was opened by the prospect of a referendum on
devolution. This contributed to the ‘reframing’ of the policy problem - from a technical
process to ensure Scotland’s share of resources to a political process
providing advantage to Scotland. The Treasury’s response was to commission a
Needs Assessment Study to establish the share that each UK territory was
‘entitled’ to (based on indicators of need such as proportions of
schoolchildren and older people and population sparsity). This would be used in
negotiations with the newly-formed Scottish Assembly, perhaps allowing the
issue to return, eventually, to its low-salience status (although Barnett himself
disputes this motivation - see Twigger, 1998: 8).
In retrospect we may say that
the needs-assessment exercise was doomed to failure (in that it was not
officially adopted) for three reasons. First, there is no common definition or
consensus on the concept of need. More money spent on one ‘need’ means less on
another; it is a political issue involving winners and losers, not a technical
issue in which everyone’s problems can be solved. Second, there were problems
with the quality of information and its implications. For example, even when ‘objective factors’
(e.g. population sparsity or age) were taken into account it was never clear if
any extra spending would refer to inputs (e.g. number of doctors), outputs
(number of operations) or outcomes (equality in levels of health).
Third, the outcomes from a needs assessment will always require a political
decision which takes into account not only the ‘facts’ but also factors such as
the public reaction. The report itself
represented only one aspect of that process. In particular, while the Treasury
report in 1979 suggested that Scotland’s greater need was 16% (when at that
time the level of extra spending was 22%) there was no rush to close this
perceived gap.
Instead, the Barnett formula
was introduced on an interim basis. Then, following the negative referendum
vote, the needs-assessment agenda was dropped. The Treasury was not inclined to
impose a system with little more benefit than the Barnett formula in the
immediate aftermath of a referendum process seen by many in Scotland as an
attempt by the UK Government to thwart home rule. Effectively, the end result
was the replacement of the Goschen formula with a very similar Barnett formula.
This formula remains in place
today in large part because the existing process has several political
advantages. First, it satisfies broad coalitions in Scotland and England. In
Scotland, it maintains (at least in the short term) historic levels of
spending. In England, the ‘Barnett squeeze’ gives the impression that, over
time, this advantage will be eroded. Second, it satisfies many governmental
interests. For the Scottish Government it traditionally provided a guaranteed
baseline and a chance to negotiate extra funding. It allows Scottish control
over domestic spending, with limited Treasury interference. For the Treasury,
it provides an automatic mechanism to calculate territorial shares which
represent a small part of its overall budget.
The adoption of the formula
therefore represented successful agenda-setting - establishing the principle in
fairly secret negotiations and then revealing the details only when the annual
process could be presented as a humdrum and automatic process (allocating
funding at the margins) which was efficient and had support from all sides
within government. Indeed, the level of implicit support for Barnett was so
high that there was no serious, sustained challenge to this formula either
before or after political devolution in 1999 (perhaps aided by the perception
that the Barnett ‘squeeze’ was working – Cairney, 2011a: 208). In fact, the
value of Barnett has been reinforced
since 1999; the trend is towards determining a greater proportion of Scottish
Government spend from this process."
