The Barnett formula and HS2 in Scotland's share add to the budget: FOI release

Information requested

For every £10bn HS2 expenditure in England, what is the value in £'s under The Barnett Formula to The Scottish budget?

Response

The Statement of Funding Policy (SoFP) (latest version available here: Statement_of_Funding_Policy_November_2023__FINAL_.pdf (publishing.service.gov.uk)) sets out how UK Government funding for the Scottish Government is determined. The Statement sets out the policies and procedures which underpin each individual element of that funding and explains the interactions with the funding the Scottish Government raises itself.

The largest element of Scottish Government funding remains the Barnett based block grant.

Changes in block grant funding for the Scottish Government in relation to public services are linked to changes in planned spending by UK Government departments. This link is achieved through the operation of the Barnett formula (changes in Scottish Government block grant funding are often referred to as Barnett consequentials).

Under the Barnett formula the Scottish Government receives a population based proportion of changes in planned UK Government spending on services in England, England and Wales, or Great Britain. The Barnett formula therefore determines changes to Scottish Government’s funding with reference to changes in funding for UK Government departments; it does not determine the total allocation for the Scottish Government afresh each time it is applied.

There are three factors that are multiplied together to determine changes to the block grant under the Barnett formula:

• the change in planned spending by UK Government departments
• the extent to which services delivered by UK Government departments correspond to services delivered by the devolved administrations
• Scotland’s population as a proportion of England, England and Wales or Great Britain (as appropriate to the Barnett formula calculation depending on the territorial extent of the planned spending)

So the consequential is the Change to planned UK Government spending X Comparability factor X Appropriate population proportion.

Comparability is essentially the extent to which services delivered by UK Government departments correspond to services delivered by the devolved administrations. Comparability therefore ranges from 0% (where services are delivered by the UK Government) up to 100% (where services are delivered by the devolved administration). A full explanation and the comparability factors used at Spending Review 2021 can be found in Annex B of the SoFP.

The population proportions used reflect the annual mid-year estimates published by the Office for National Statistics in the summer. For the Spending Review 2021 (which allocates budgets up to 2024-25), the population estimates for mid-2020 published in June 2021 were applied. Previous and current population proportions are set out in Annex A of the SoFP.

The population proportions used in the formula reflect the coverage of the UK Government departmental programme to which they are applied. In most cases, the departmental programmes
cover England only and the proportion of England’s population is applied. However, where the UK departmental programme covers England and Wales, for example, then the proportion of the population of England and Wales is applied.

HM Treasury notifies the Scottish Government of the population proportions that will be applied in advance. Allocations which have already been set, such as those over a spending review period, are not be adjusted to reflect subsequent population estimate changes.

Applying the Barnett formula at Spending Reviews

At spending reviews, the Barnett formula is applied using changes to each UK Government department’s budget, the population proportion and the departmental comparability percentage. The formula is applied to changes in resource and capital budgets separately.

The aggregate of these Barnett consequentials is added onto the devolved administrations’ underlying resource and capital block grants. The underlying block grants (or “baselines”) essentially reflect the original block grants and all previous Barnett allocations, excluding those that are one-off or time-limited. Baselines are not therefore revisited afresh at each spending review to reflect updated information about comparability or population.

There may be occasions, in exceptional circumstances, where programme level comparability is applied to ensure the devolved administrations receive comparable funding. This was the case at Spending Review 2020 and 2021, for certain programmes in relation to Covid-19, EU Exit and the use of the financial assistance powers in the UK Internal Market Act 2020.

Applying the Barnett formula at Fiscal Events and Estimates

At fiscal events and UK Parliamentary Estimates the Barnett formula is applied at programme (rather than Departmental) level. The calculation of each Barnett consequential uses the change in the planned spending on each programme, the relevant population proportion and the programme comparability factor, which is set to either 0% or 100%. The aggregate of these Barnett consequentials is added to existing block grants for each of the devolved administrations, again calculated separately for resource and capital.

Barnett consequentials are not ring-fenced for a particular purpose and it is for Scottish Ministers to decide on how Block Grant funding is allocated to individual programmes.

HS2 is a comparable programme and consequentials could be expected to flow from changes in UK Department for Transport allocations associated with HS2. The have been no allocations of HS2 funding at Fisal Events or Estimates, so all funding for HS2 has been allocated at UK Spending Reviews. As highlighted above, at a Spending Review the consequential change to the block grant relates only to the net change in departmental allocation. In arriving at that net change figure there will have been increases and decreases across a number of individual programme lines, detail of which is not released by HM Treasury – Scottish Ministers see only the net movement in the Departmental total allocations by year. It is therefore not possible to isolate the specific amount of funding that has accrued to the Block Grant in relation to HS2. Although a total figure for allocations to the Department for Transport to date for HS2 will be obtainable, the operation of Barnett means that this will not be an amount that translates to any net change in the Scottish block grant.

In addition, as indicated above, the population proportion applied for Scotland varies over time. HS2 is a multi-year programme, so the applicable proportion will have varied over the life of the project.

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