The Barnett formula calculates the annual change in the block grant. The formula doesn’t determine the total size of the block grant just the yearly change. For devolved services, the Barnett formula aims to give each country the same pounds-per-person change in funding.
The Barnett formula takes the change in a UK Government department’s budget. It then applies two figures that take into account the
- relative population of the devolved administration (population proportion) and
- the extent to which the UK department’s services are devolved (comparability percentage).
The calculation is carried out for each UK department and the amount reached is added to the devolved administrations’ block grant.
Change to the UK Government department’s budget (DEL) x Comparability percentage x Appropriate population proportion
Changes to UK Government departments’ budgets are generally announced at spending reviews but can be announced at other fiscal events such as the Budget.
Comparability percentages capture the extent to which spending by a UK Government department corresponds to services provided by devolved administrations. It measures the extent to which the UK department’s services have been devolved. Comparability percentages range from 0% to 100%. Broadly speaking, a department’s comparability percentage is 0% if none of its services have been devolved to the devolved administration. A department’s comparability percentage is 100% if all of its services have been devolved.
Population proportions. So that each administration receives the same pounds-per-person change in funding the Barnett formula also incorporates population proportions. The populations used are the latest mid-year estimates from the Office for National Statistics (ONS).
The government may wish to make some changes to the medium term plans over time, announcing spending on a new programme, or increasing (or decreasing) spending on an already existing spending programme. If the announced change increases (or decreases) a department’s total budget then the Barnett formula will be applied to the change. In such cases the formula is applied to the spending of the individual programme, rather than at the department level.
House of Commons Library Briefing Paper Number 7386, 28 May 2021