The Financing of the Scottish Government: Written Evidence Submitted by the Fraser of Allander Institute (FSG0007)

Our response covers the history of the Barnett formula and how it came to be arrived at. We discuss the fact that devolution inherently causes difficulties in terms of allocating funds, but that this is precisely the point of it – to be able to make different choices. There is also a need for some sort of mechanism which takes into account the comparable allocation of funding by the UK Government and devolved administration, but it is hard for it to be easily understandable and fully fair, as well as addressing relative need.

The Barnett formula has stuck around, and has stopped some of the divergence that the Goschen formula that preceded it had created – but it has not really led to the substantial convergence it promised over time, largely due to stronger population growth in England. There has been no significant convergence since the early 1990s.

The transparency of the Barnett formula is commendable, but the lack of recourse over some decisions is not. The Treasury is the ultimate arbiter of comparability and geographical scope of programmes, which is not an institutionally optimal outcome. As we highlight a number of times, having a third party arbitrate disputes would be preferable. But we do not see the Barnett formula being on a statutory footing as making any significant difference to the process, and one needs only look at the lack of impact of the legislation regarding the Sewel Convention to see that would be no silver bullet.

In terms of the Fiscal Framework, we see some of the updates as positive, particularly in terms of uprating limits, even if we think nominal GDP would be a better metric for that. But the Scottish Government is still limited in terms of how it can manage the economic cycle and promote short and medium-term outcomes, and we discuss ways that could be achieved by changing the framework. We also discuss the advantages of multi-year spending reviews to the Scottish Government’s planning, as well as the need to solve the poor incentives faced by the Scottish Government when there are unforeseen in-year changes in policy by the UK Government.