Devolved Government finance: autonomy or accountability?
Thirty years on, new research by Glasgow University's Professor of Government Jim Gallagher turns the spotlight on the Barnett Formula, exposing its strengths and weaknesses, as well as the options for change.
The Barnett formula predates devolution - it was devised in 1970s. This research examines what a system for financing devolved government should be like and measures Barnett against that standard.
The authors of the research suggest that an ideal financing system should allow the parliament real spending autonomy. Also it should be fair; it should produce stable results; and it should recognise that responsibility for macroeconomic policy lies elsewhere.
The research emphasises that Barnett offers the Scottish parliament (and the Welsh Assembly) what is by any international standards remarkable autonomy. In most other countries, sub-national levels of government get funding with strings attached. Barnett avoids that.
So if Barnett has all these strengths, why the fuss?
According to the authors, because Barnett has one obvious shortcoming - accountability.
An ideal financing system would have clear fiscal accountability, so that spending and tax decisions were looked at together. At the margin the best decision could then be taken between spending on public services or leaving the money in the taxpayers' pockets.
In fact the present system has more tax flexibility than meets the eye, but the only element that offers direct accountability to the voters is the power to vary the basic rate of income tax ﾖ which none of the major parties proposes to use.
Professor Jim Gallagher said: " It would be possible to develop the funding system to improve fiscal accountability, by extending the scope of the Parliament's income tax powers. But there are babies not to be thrown out with the bathwater here: spending autonomy, some degree of equity in spending levels, as well as stability and economic efficiency.
'Any changed system would inevitably ﾖ and rightly ﾖ include some mixture of Scottish tax decisions and UK grants. So it is at least as important to preserve the strengths of the present system as to improve accountability."
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NOTES FOR EDITORS: A full copy of the Report can be found at: http://www.gla.ac.uk/economics/discussion05.html **Please scroll to the bottom of this weblink**
Professor Gallagher is Visiting Professor of Government at the University of Glasgow. On secondment from the Executive, Professor Gallagher is further developing the University's contribution to Scottish policy-making in the justice area and beyond.
First published: 12 January 2006