The Comprehensive Spending Review, which was announced in early October by the Chancellor Alistair Darling, has sparked controversy between the Scottish Administration and Westminster.
First Minister, Alex Salmond, claims that Scotland has been "squeezed and short changed" in the latest settlement. Conversely, the Chancellor and the Scottish Secretary have stressed that the Scottish spending increase is very generous in the context of the overall review, which has been tighter on many departments than in previous years.
The controversy has again raised questions about the appropriateness of the Barnett formula as the basis for financing Scotland's devolved administration. Established in 1978 by the then Chief Secretary to the Treasury, Joel Barnett, the Barnett formula is used to distribute resources to the devolved administrations and avoiding the need for Scotland to negotiate its budget. It applies only when there is a change in spending in an equivalent English department and does not apply to reserved functions. The formula allocates funds on the basis of population share, rather than need, in proportion with the increase or decrease in spending for England in the comparable Westminster spending department.
The Spending Review process was put in place by the Labour Government as a mechanism by which it could set out the government's public spending priorities and, in particular, how government funds are to be divided up between government departments. It appears that current debate appears to have arisen predominantly on the back of the NHS in England not spending its whole budget last year. Recalculations based on what the NHS actually spent have resulted in the UK health spend being re-determined. This recalibration flows through as an adjustment to the Scottish baseline budget figure through the Barnett formula.
The political argument flowing from this recalibration centres around the fact that if the base line is reduced, then the increase in spending allocated to Scotland appears greater when expressed as a percentage. In addition, there are also disputes relating to the way that inflation and the treatment of certain capital assets have been reflected in the statistics.
The UK Government's position is that recalibration is a normal part of the Treasury mechanism; that the devolved administration in Scotland will be getting more money; and that there has been no discrimination against Scotland. They highlight that the lower spending increase in Scotland is part of a plan to increase spending in reserved areas such as counter terrorism and international development, which also benefit Scotland. Des Browne, the Secretary of State for Scotland, has also highlighted that the Scottish Government has access to £900 million that it has negotiated with the Treasury in respect of past under spend, known as End Year Flexibility.
The crux of the SNP's grievance is not only the reduction in the rate of funding increase in Scotland in the Comprehensive Spending Review but also the way that the information has been presented. They argue that the figures are misleading and that for a fair comparison, the reduction in the baseline should be deducted from the increase announced. In addition, the SNP administration maintains that while they had anticipated a drop in the Scottish baseline, they had expected it to be phased in over a three-year period and not in the first year.
Debate will now move on to the impact of the recalculation on the Scottish Government's plans for public spending. However, this most recent controversy has again seen questions raised about whether the Barnett formula is the best mechanism with which to finance Scotland's government. In particular, it has sparked debate about whether the Scottish Parliament should be given greater powers to raise its own revenue. Such debate is likely to be ongoing for some time.
For further a further explanation of the Barnett Formula, please see the Shepherd and Wedderburn Parliamentary E-Bulletin article - http://www.shepwedd.co.uk/knowledge/article/678-1086/what-is-the-barnett-formula-/archive/?page=2.