Background to the report
The four nations that make up the United Kingdom (England, Scotland, Wales and Northern Ireland) have different powers of self-government. Most of the UK government funding allocated to the devolved administrations is determined through the Barnett formula. The formula aims to ensure that the devolved administrations receive a population-based share of any changes in what the UK government is spending on public services in England that are devolved in Scotland, Wales and/or Northern Ireland. However, as additional administrative and legislative powers have been devolved to the nations, the way their funding from the UK government is calculated has also changed. Funding also comes from other sources, such as local and devolved taxation, other revenue‑raising powers, grants from European institutions and borrowing.
Government announcements of funding, such as the £20.5 billion for the NHS announced in summer 2018, led to our interest in devolved funding matters and prompted questions about whether consequential amounts of funding would be made available for health services in the devolved administrations and where this funding would come from. We were also aware of Parliamentary interest in how decisions are made about the UK government funding provided to the devolved administrations. We saw an investigation as an opportunity to present some clear facts about how funding for the devolved administrations is calculated and where it comes from.
Content and scope of the report
Our investigation aimed to establish how decisions on funding are reached and the different mechanisms and formulas that result in funding allocations, covering:
- the way the UK government allocates funding to the devolved administrations and the adjustments that are required, particularly in light of devolution of tax and revenue-raising powers;
- the different UK government funding streams available to the devolved administrations and the mechanisms for calculating and allocating funding; and
- the implications of changes in UK government spending plans and how these impact on the funding allocated to the devolved administrations