Financial autonomy and the Barnett Formula
The main task in this section is to evaluate the strategies for addressing the relative absence of financial autonomy in the allocation of devolution funding and the consequent accountability implications for subnational forms of government.
The Scottish variable rate has never been used because of political reasons. A party promising to tax more heavily, even if it were to increase the services on offer, was likely to lose popularity and support at the ballot box, and besides, there was no need to pursue this course as long as the Barnett Formula ensured Scotland received relatively generous funding. The same basic reasoning applies to Wales and Northern Ireland. Indeed, the continuation of the same financial arrangements for more than a decade masked the impact of devolution both in England and in Scotland, Wales and Northern Ireland. Until recently the effects of devolution were barely noticed south of the border with a lack of public controversy over financial matters[1147], but since 2009 there have been important official reviews of the financing of devolution, mainly triggered by growing dissatisfaction with the Barnett Formula. The original devolution settlement limited the action the Scottish Parliament could take in a number of significant areas, and the Welsh and NI Assemblies operated under similar constraints.[1148] The Calman Commission was set up by the opposition parties in the Scottish Parliament (Labour, Lib Dem, Conservative) to recommend changes to existing constitutional arrangements and to improve the financial accountability of the Scottish Parliament (within the UK), but all the main political parties in Scotland, including the SNP, favoured some change to devolution financing.[1149] In similar fashion, the Holtham Commission was established by the Welsh Assembly Government to provide an independent assessment of the merits of current funding arrangements for Wales. It reported in the summer of 2010, finding that Barnett was now the ‘random outcome of formula driven increments, unforeseen population movements and ad hoc adjustments'.[1150] More transparency in this process was required to allow for direct comparison annually on similar expenditure. In sum, the debate was no longer about whether change is needed, but what form that change should take. Although a consensus is lacking on the precise mechanism to adopt, there appears to be agreement that Barnett is flawed and should be replaced.In principle, there is general recognition across these studies that to improve accountability the Barnett Formula should eventually be replaced by a needs-based formula of some kind.[1151] The incremental approach adopted under Calman and Holtham[1152] acknowledges that the Barnett Formula must remain in place until a mechanism is conceived to provide for the equitable assessment of need. Moreover, there are further parallels when considering the institutional shape of a new body charged with responsibility for assessing the relative wealth of the devolved parts of the UK, which would take account of, for instance, local geography, transport, health requirements and social security. The objective is to find a solution which seeks to avoid routine haggling over the allocation of such financial provision. While far from being an exact parallel, the example of the Australian Commonwealth Grants Commission is often cited as an independent expert body performing this kind of role.[1153] It advises the federal government in Australia with terms of reference framed by the Commonwealth Treasurer after consultation with the states and the territories. Crucial to that operation is that its impartiality is accepted by the states and the territories and the fact that the Commission's advice has always been accepted by the federal government without hesitation. The Commission could serve as a model for a new UK funding commission operating as an independent body at arm's length from the Treasury and from the devolved administrations.[1154] Holtham goes so far as to suggest the English local government funding criteria should be applied to Wales based on: (i) relative needs; (ii) relative resources; (iii) central allocations; (iv) ‘damping'.[1155] A UK funding commission designed as an independent quango has the potential to make an important contribution to the complex task of needs assessment, but giving such a non-directly accountable body the final say in determining devolution funding priorities would be a much more controversial step.
Holtham also envisages that concordats would remain the principal mechanism for coordinating financial policy between Westminster and the devolved administrations. It recommends that the UK government and the Assembly Government should jointly agree a new ministerial concordat on the detailed funding arrangements for Wales.[1156]In its overall assessment of the Barnett Formula, the House of Lords Select Committee commended its ‘simplicity, stability and the absence of ring-fencing' as crucial characteristics which should be maintained whatever the future method of allocating funds to the devolved administrations.[1157] The process associated with Barnett may give rise to opaque decision-making and warrant clearer application, but notwithstanding drawbacks the Formula has been the accepted basis for the foundation and continuation of devolution by both the Westminster government and the devolved governments.[1158] This package was the deal on the table as devolution was launched. Given the recent trend in favour of referendums, it could be argued that a change to one of the accepted fundamentals of devolution by a needs-based replacement package should first receive popular approval from the local electorate. A radical change of the financial parameters has the potential to open up endless disputation and perhaps contribute to the eventual break of the UK. The introduction of a fiscal federalism in Italy, as a form of devolved taxation, has been perceived as being fundamentally divisive.[1159] Despite its shortcomings, the Barnett Formula has acted as a crucial unifying ingredient of devolution precisely because it has tended to minimize conflict between Westminster and the devolved administrations.
E.