Barnett formula ‘ill-suited’ to distributing coronavirus recovery funds to Wales – report

The population-based Barnett Formula is ill-suited towards providing Wales with the funds it needs to recover from the coronavirus pandemic and could be replaced by a needs-based formula, according to a Cardiff University report.

The report by Guto Ifan of the Wales Fiscal Analysis research body warns that the pandemic is “set to put a massive strain on the Welsh Government budget”.

The report notes that Wales “has a significantly older population with much higher levels of ill-health and disabilities” and that the population-based Barnett funding model “may not be a fair reflection of the additional demands this crisis could place on Welsh public services”.

The Barnett Formula is the mechanism used by the UK Treasury to adjust the amounts of public expenditure allocated to Wales based on spending levels allocated to England. It is based on the population proportion of Wales compared with England.

‘Crisis’

“This crisis is likely to underline the fact the Barnett formula is ill-suited to distribute funds to the devolved administrations, particularly where the aim is to target support at areas, individuals and businesses with the greatest need,” Guto Ifan says in the report.

“To reflect the possibility of an asymmetric impact of the coronavirus across the countries of the UK, the UK government could introduce temporary reforms to the Barnett formula.

“One option would be to follow the precedent set in the Welsh fiscal framework agreement of 2016 and introduce a coronavirus related ‘needs-based factor’.

“Increments coming to Wales from coronavirus measures could be multiplied by a factor which better captures the demographic profile of the Welsh population, thereby accounting for the potential increases in demand that could be faced by Wales’ public services.

“This could be introduced when there is a clearer picture of the relative impact of the crisis in a few months’ time.”