Higher spending in the devolved nations

Whatever the outcome of this election, everyone knows that public spending is going to be cut dramatically in future years. But how might cuts affect the distribution of funding across the UK as a whole?

A new ippr paper by David Bell, Professor of economics at Stirling University, argues that thanks to the perverse properties of the funding formula used to dish out money to the devolved nations, Scotland, Wales and Northern Ireland will be better protected than England. He warns that the current funding disparities that exist between England and the devolved nations will actually widen as overall spending across the UK falls.

Why? First, because the main parties have promised to protect health spending, while Labour is also promising to protect a substantial proportion of the education budget, and it these two items of spending which make up well over half the grant that goes from Westminster, via the controversial Barnett formula, to the devolved administrations. Protecting health and education therefore safeguards a bigger share of the budget than in England. The effect won’t be huge but it will be felt. Certainly we won’t see the current spending gap across the nations fall.

Of course the realities of budget-deficit reduction after the election might mean that health and education don’t survive unscathed. But even if these areas face some pruning the oddities of the Barnett formula will still ensure that devolved budgets don’t fall as much as those in England.

The so-called Barnett squeeze, a reference to the fact that overtime the formula is supposed to bring about equal spending per head, actually goes into reverse when spending in England is cut. For example a 5% reduction in English spending will actually increase the gap between English per head spending and that received by Scotland, Wales and Northern Ireland.

Does this matter?

Arguably it will exacerbate English resentment over the higher spending enjoyed by the devolved nations. Earlier this year we published research that shows that the number of those in England who believe that Scotland gets ‘more than its fair share’ of money has nearly doubled in the last 7 years. Awareness of spending disparities is on the rise. So if the English were increasingly annoyed about how much money went to Scotland in an era when spending was growing how will they react when they learn that the funding gap is likely to widen as cuts are unleashed?

Guy Lodge