Barnett Squeezed?Options for a Funding Floor Aftertax Devolution
Barnett Squeezed?Options for a Funding Floor afterTax Devolution
Second Report on the 2016-17 Fiscal Framework Negotiations for Wales
Wales Governance Centre at Cardiff University and the Institute for Fiscal Studies
December 2016
Online Annex: Estimating relative spending per head in Wales on programmes covered by the Barnett Formula
A challenge in assessing relative levels of funding per head in Wales is that the UK Government does not publish figures on spending in England on programmes that are covered by the Barnett formula. Therefore, aggregates of expenditure in England have to be estimated. This paper attempts to follow as far as possible the methodology of the Holtham Commission[1] and the methodology published jointly by the UK Government and the Welsh Government in 2012.[2]
This method of estimating Wales’ relative funding uses the comparability factors published in the HM Treasury Statement of Funding Policy (SFP), which reflect the extent to which the spending of each UK Government department is devolved to Wales, and how much should be passed on to the Welsh Government to fund devolved services. These comparability factors are applied to the departmental expenditure limits (DEL) as set out in the Treasury’s Public Expenditure Statistical Analyses (PESA) documents. For example, since Wales’ comparability factor for expenditure by the Department for Transport is 80.9%, comparable expenditure in England on transport is taken to be 80.9% of the department’s DEL. This calculation summed across all UK Government departments produces an estimate of comparable spending in England on programmes covered by the Barnett formula.
The most recent Public Expenditure Statistical Analyses (PESA) report was published in July 2016. This publication provided outturns for DELs from 2011-12 to 2015-16, and budget plans until 2019-20. Estimates for earlier years are derived from earlier editions of PESA. The most recent published estimate for each financial year is used. For example, estimates for 2010-11 are taken from PESA 2015, 2009-10 taken from PESA 2014, and so forth.
For each edition of PESA used, the most recent comparability factors (from Statement of Funding Policy documents) available at the time are used. For example, the comparability factors published in the November 2015 SFP[3] are applied to the PESA 2016 data published in July 2016.
Expenditure in Wales covered by the Barnett formula is defined as the total Wales DEL. Again, the most recent published estimate for each financial year is used.
The overlap between the years covered by each successive PESA report is used to adjust estimates from earlier editions to allow for classification changes between editions. For estimates of Welsh expenditure and comparable expenditure in England, the ratio between estimates from successive editions of PESA in the earliest year of overlap is used to adjust the earlier data.
This paper makes an amendment to the Holtham Commission methodology in order to account for the Business Rates Retention Scheme in England from 2013-14 onwards and to reflect the full devolution of Non-Domestic Rates from 2015-16.
Revenues from Business Rates retained by local authorities in England are added back on top of comparable expenditure in England. Data for the financial years 2013-14 and 2014-15 are taken from Table 2.1a of the Local government financial statistics England 2016[4], while data for 2015-16 onwards are taken from table 2.30 from the Office for Budget Responsibility’s Economic and Fiscal Outlook published in November 2016.[5]Some income from Business Rates in England was retained during the 2012-13 financial year, but data was not available to adjust for this. This means that relative spending in 2012-13 is slightly overestimated.
Revenues from Non-Domestic Rates in Wales are also added on top of Wales’ DEL from 2015-16 onwards. Data are again taken from table 2.30 of the OBR’s Economic and Fiscal Outlook from November.
Some Machinery of Government and classification changes affect DEL figures presented in PESA reports, and can have a large impact on estimates of comparable spending in England. One such example is the transfer of the police grant from the Department for Communities and Local Government DEL to the Home Office DEL. Under the methodology described above, because the Home Office’s comparability factor for Wales is 0%, the police grant would be incorrectly taken out of the estimate for English comparable spending. To account for this, the figure for the police grant presented in PESA 2013 is used to construct a Home Office comparability factor of 27%, which is applied to Home Office spending from 2010-11 onwards.
The resulting DEL for Wales and the estimate for comparable spending in England are then divided by the population estimates for Wales and England respectively, to arrive at an estimate of funding per head. The population figures used were the mid-year population estimates published by the Office for National Statistics (ONS).[6]
An Excel file presenting the calculations described here can be found online on the Wales Governance Centre website.
1
[1]Independent Commission on Funding and Finance for Wales, (2009) Funding devolved government in Wales: Barnett and beyond, First Report.Annex 2
[2] Welsh Government and HM Treasury, October 2012: “Funding Reform: Joint Statement of Progress”.
[3] HM Treasury (2015). Statement of Funding Policy: Funding the Scottish Parliament, National Assembly for Wales and Northern Ireland Assembly, November 2015.
[4] Available here:
[5] Available here:
[6] Available here: