As we’ve already noted this morning, today’s newspapers “reveal” something this site told you nine months ago – that a No vote in the independence referendum will see Scotland punished with a massive cut to its budget.
But some voters still don’t really know what the “Barnett Formula” is or how it works, so it seemed worth putting together a concise step-by-step guide to how it’ll be used to steal billions of pounds from Scots, should they vote next month to leave control of their affairs with Westminster.
1. The Barnett Formula is the system used to decide the size of the “block grant” sent every year from London to the Scottish Government to run devolved services. It’s currently a little over £26bn, and being reduced annually under the coalition’s austerity programme.
(It’s surprisingly hard to actually find out the size of the block grant, as it doesn’t appear to be published openly, but we can deduce it by matching the figures in this Freedom Of Information response from the UK government to Table 8 in this report from the Institute for Fiscal Studies.)
The Formula is designed to rebalance public spending (which is focused heavily on London and the South-East) and reflect the higher costs of providing services in Scotland, where the population is much less densely concentrated than in England.
But it’s hugely unpopular with the English public, which has been conditioned by years of media coverage to believe that it represents a “subsidy” from England to Scotland – “extra” money which is then used to give Scottish people privileges not granted to English citizens, like free prescriptions and university tuition.
A poll conducted by the Sun in February this year found that only 13% of English people agreed with the (loaded) proposition that “It’s worth continuing to give Scotland a higher proportion of public spending to keep it in the UK”, with 60% opposed.
2. The reality is that the subsidy is in the other direction – Scottish tax receipts, thanks largely to North Sea oil, more than pay for the higher spending provided by Barnett. Impartial UK research organisation FullFact calculated that over the last three decades the subsidy from Scotland to London has been of the order of billions of pounds every year:
(The only way of manipulating figures so that Scotland seems to get more back than it pays in is to attribute oil revenue to the entire UK rather than Scotland, ie cheating.)
3. As a result of English resentment of the Formula – however misplaced – politicians of all parties are under enormous pressure to end it, and have made a variety of veiled and not-so-veiled promises to do so.
4. Until now, however, it’s been politically impossible to abolish the Formula, as such a manifestly unfair move would lead to an upsurge in support for independence. In the wake of a No vote in the referendum, that obstacle would be removed – Scots will have nothing left with which to threaten Westminster.
5. It would still be an unwise move for the UK governing party to be seen to simply obviously “punish” Scotland after a No vote. But the pledge of all three Unionist parties to give Holyrood “more powers” provides the smokescreen under which the abolition of Barnett can be executed and the English electorate placated.
The block grant is a distribution of tax revenue. The “increased devolution” plans of the UK parties will instead make the Scottish Government responsible for collecting its own income taxes. The Office of Budget Responsibility has explained in detail how “the block grant from the UK government to Scotland will then be reduced to reflect the fiscal impact of the devolution of these tax-raising powers.” (page 4).
But if Holyrood sets Scottish income tax at the same level as the UK, that’ll mean the per-person receipts are also the same, which means that there won’t be the money to pay for the “extra” £1400 of spending currently returned as part-compensation for Scottish oil revenues, because the oil revenues will be staying at Westminster.
(Don’t take our word for any of this. Listen to Labour MP Ian Davidson explaining how his own party’s devolution plans will lead to a “cash squeeze” on the Scottish budget.)
6. Holyrood’s only options to make up the shortfall will then be to either substantially increase income tax rates in Scotland – impossible to do in reality, because people would simply move to England in huge numbers – or cut its spending by up to £7bn (depending on the details of the new devolution settlement) to recoup the losses.
£7bn is almost 30% of the entire current block grant. It would be politically inconceivable for Westminster to slash the Scottish budget so savagely under the current constitutional arrangements, but by giving Holyrood “power” over taxation it can be portrayed as simply forcing Scots to take responsibility – a hard position to argue against, no matter how unfairly the dice have been loaded in the process.
What’s more, the UK parties will also still be able to truthfully claim that they’re not altering the Formula itself – it will still apply to whatever small proportion of income tax revenues remain at Westminster. (Although in the case of the Tory/Lib Dem versions of “more powers”, that will be zero.)
We’ve explained the political motivations behind the move at length before. The above is simply the mechanical explanation of how it will happen if Scotland votes No. The “if” is not in question – all the UK parties are united behind the plan.
A gigantic act of theft will be disguised as a gift. The victories of devolution will be lost, because there’ll no longer be the money to pay for them. Prescription and tuition fees will return. Labour’s “One Nation” will manifest itself, with the ideologically troublesome differences between Scotland and the rest of the UK eliminated.
And what’s more, it’ll all have been done fairly and above-board, because the Unionist parties have all laid out their intentions in black and white. They’ll be able to say, with justification, “Look, you can’t complain, this is exactly what we TOLD you we’d do”. They’re counting on the fact that people haven’t really examined their plans. It might be an idea for voters to remedy that oversight before it’s too late.