May 11, 2011 • 1:41 pm

 

“[Scotland] have the luxury of taking this view at the expense of the English taxpayer, who sends £24 billion a year up to Scotland in subsidies, and funds a parliament whose principal role appears more and more to be to exploit the larger neighbour to the south. This is untenable.” Simon Heffer, Daily Telegraph, 10 May 2011. 

The Telegraph’s Associate Editor used his column in the paper to yesterday criticise the public spending ‘subsidy’ paid to Scotland by English taxpayers, which he argued allowed them to make unfair spending commitments, such as offering free university places to Scottish students and free prescriptions.

The funding settlements given to the devolved assemblies in Scotland, Wales and Northern Ireland have been the topic of growing debate following last week’s regional elections, with suggestions that the Barnett Formula used to determine how much money the Treasury allocates these nations is unfair. 

With Scottish voters granting an unequivocal election victory to Alex Salmond’s SNP last week, the issue of Scotland’s funding settlement has already started to register on the political agenda south of the border. But is Simon Heffer correct to suggest that the English pick up a £24 billion bill on Scotland’s behalf? Full Fact took a look.

The Barnett Formula uses a complex system of calculations to determine the block funds to be allocated from the Treasury to the devolved nations of the UK. The devolved administrations then decide how to allocate this funding between services and departments. The Institute for Fiscal Studies’ Green Budget from February 2011 lays out the sums to be allocated over the current parliament, according to Treasury forecasts. 

Breaking down the overall figures for regional fund allocations on a per capita basis gives more of an idea of whether certain regions of the UK receive a ‘subsidy’ in funding. 

The Institute for Public Policy Research (IPPR) did such an analysis in 2008, looking at how funding from 2007/8 was allocated. Their work showed the spend per capita in Scotland at 21 per cent above the UK average. However, the table below shows that a more complicated picture emerges when English regions are also included in this analysis. 

On this analysis, Scottish people do receive a public spending premium over all other UK citizens save those living in London. However, within England there is wide variations in per capita spending between different regions.

If we look at what was allocated for the 2008/9 financial year, the per capita public spending in Scotland was £1,567 higher than then that in England, and £1,319 higher than the UK average. With a Scottish population of 5,222,100, this works out as £8.2 billion or £6.9 billion extra being allocated to Scotland per year. 

Taking the £6.9 billion as the difference between what Scotland is allocated and the UK average, and multiplying this over the current 5 year parliament, spending totals £34.5 billion – close to the £35 billion mentioned in the Daily Telegraph article. 

However, drawing the conclusion that this money is a simple subsidy from English taxpayers to Scottish people would be (and is) strongly contested; not least in Holyrood. 

The Scottish government publishes their own data on Scotland’s public finances. This shows the gap between what is raised and spent in Scotland, which in 2007/8 working out as £45.2 billion public finances raised in Scotland and £53.3 billion spent, a deficit of £8.1 billion. However, they also calculate revenue from North Sea oil, which it argues would on geographical grounds contribute £7.32 billion annually to an independent Scottish government. 

It is also important to keep in mind that the Barnett Formula for allocating funding was developed to take into account economic and social need in the different UK nations. Indeed the UK has never allocated public spending under the presumption that all citizens must receive equal amounts, and the IPPR research shows that spending within the UK is also highly variable between regions, with complex geographical transfers of public money. 

Conclusion

Looking at the figures for 2008/9, Scotland spent an average of £1,319 on each citizen above the UK average; an annual total of £6.9 billion. If this is calculated over the 5 year period of the current parliament, this works out close to the £35 billion figure cited by Simon Heffer in the Telegraph.

However, to suggest that this money represents a direct subsidy from England to Scotland is clearly controversial and far from straightforward. The deep integration and interconnection of economic, social activity and indeed natural resources between the nations of the United Kingdom means that the sort of analysis Mr Heffer offers can be (and is) contested. 

Needless to say that the debate on the Barnett Formula will be amplified as the referendum on Scottish independence promised by the SNP approaches, and figures such as these may well become engrained in public debate. Whilst the £35 billion used by Mr Heffer is not groundless, it is important to consider the context that is often left out by such a figure.

 

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