The Barnett Formula

This Statement explains the Barnett mechanism. It explains the processes through which the Assembly Government ensures that the funding settlements we receive from the UK Treasury are fully compliant with the Barnett mechanism. It also explains the complexity of evaluating the impact of the Barnett settlement in comparison with any alternative.

In recent years we have received substantial increases to our DEL as a result of the strong and sustained growth in public spending by the Chancellor.  The last UK Spending Review provided an average growth of 7 per cent each year between 2005-06 and 2007-08 – well ahead of the growth for many Whitehall Departments. Between 1999-00 and 2007-08 the Assembly budget has increased from £7.9 billion to over £14.6 billion – an increase of 85 per cent.

The Barnett formula does not determine the size of our Departmental Expenditure Limit.   It only determines changes to our Departmental Expenditure Limit in line with the changes made to the spending plans of our equivalent Whitehall Departments that deliver equivalent policies.  

The formula comprises three factors :

1) the Wales population as a proportion of England;
2) comparability or the extent to which the equivalent UK Department programme is delivered by the Devolved Administration; and
3) the change to the planned spending in the UK Department.

The application of this formula leads to a stable, predictable and automatic increase in the funds available to the Assembly. Consequently it provides stability in the flow of resources to Wales, largely because it is not affected by changes to the formula itself or variations in the underlying data.  The advantage of this is clear – we are able to plan our spending more effectively.

It is  recognised that there may be circumstances where Barnett is not an appropriate means of determining our funding.   Our success in negotiating the Barnett Plus arrangement in respect of Structural Funds has led to Wales receiving an additional £1.2 billion over and above our Barnett determined settlement.

Ensuring that the Barnett formula is operated correctly to secure the full financial settlement for Wales is vital.  Consequently,individual elements of the formula are kept under review through discussion with Treasury.   Population figures are updated annually by the Office for National Statistics and we ensure that any changes are fully reflected in financial calculation from that point onwards.

Programme comparabilities  are updated at the start of each Spending Review.  This involves a significant exercise by officials across the Assembly Government policy departments who examine each comparability figure in detail in order to confirm that they reflect any changes and fully reflect the current position.  For example, if we have taken on new policy responsibilities then these would be reflected in higher comparability factors.  Similarly if functions or organisations transfer to us these too would be recognised and if activities are transferred to the Assembly Government, for example CAFCASS, there would be an associated baseline DEL transfer in respect of the ongoing activity.

As part of our Budget settlement, we are provided with the Treasury’s calculations of our consequentials.   We test these rigorously with Treasury to establish that they represent the full extent of our share of any new money that is announced.

Monitoring the overall comparability of expenditure between devolved administration and comparable programmes in England is a complex task with uncertain results especially as the trend in devolved administrations is increasingly to set their own policy agendas which require allocations to different activities and programme areas. Nevertheless that work is currently being undertaken.

During the recent Plenary exchanges on this matter, Members referred to a range of material in their possession which suggested that an alternative  formula may provide a different  financial outcome than Barnett. It is understood that this research material is to be made available to the Welsh Assembly Government which will, following receipt of that information,  provide its appraisal of its content.  

Annex A

Worked example of the Barnett formula

The formula comprises three factors:

1) the Wales population as a proportion of England, currently 5.89 per cent
2) comparability or the extent to which the equivalent UK Department programme is delivered by the Devolved Administration; and
3) the change to the planned spending in the UK Department.

Population figures are revised annually while comparability factors are recalculated every two years in line with the Spending Review process.  Departmental comparability factors are as follows (details of the supporting programmes are at Annex 1)


Illustrating a hypothetical change to Department of Health Departmental Expenditure Limit:

Department of Health DEL change +£150 million
Comparability factor 99.5 per cent
Population factor 5.89 per cent

The consequential adjustment to the Assembly Departmental Expenditure Limit will be:

£150m  x  0.995  x 0.0589 = £8.791 million

Or, illustrating the impact of the comparability factor by a similar settlement for the Department of Work and Pensions

Department of Work and Pensions DEL change +£150 million
Comparability factor 6.4 per cent
Population factor 5.89 per cent

The consequential adjustment to the Assembly Departmental Expenditure Limit will be:

£150m x  0.064  x 0.0589 = £0.565 million