Page last updated at 02:52 GMT, Wednesday, 10 September 2008 03:52 UK

Funding rules 'unfairness' claim

The Barnett formula has been used to distribute funding since the 1970s

The Barnett formula covering public spending across the UK is unfair to taxpayers in England and should be scrapped, a pressure group says.

In a report, The Taxpayers Alliance (TPA) claims the annual spending gap between England and Scotland is 6.6bn.

North Sea oil revenues - which the SNP argue should go to Scotland - more than covers the difference.

But the TPA says that will only be the case while there are high oil prices and long-term reform is still needed.

There have been calls from across the political spectrum to scrap the Barnett formula in recent years.

'Extremely unfair'

Even its creator Lord Barnett, who devised it when he was Labour's Treasury chief secretary in the 1970s, said the formula was never intended as a long-term measure and had been drawn up "almost on the back of an envelope".

Chancellor Alistair Darling is due to present the findings of a review of the scheme in the coming months, and Conservative leader David Cameron has called for it to be replaced with a needs-based formula.

English taxpayers want an end to subsidising Scotland
Mike Denham
Taxpayers' Alliance

Former Treasury economist and low tax campaigner Mike Denham, who compiled the TPA report, said: "The Barnett formula has a troubled history and has failed to address the extremely unfair situation of English taxpayers heavily subsiding Scotland.

"Everyone is struggling to make ends meet, and it is long overdue for the government to lift this burden from taxpayers' shoulders.

"English taxpayers want an end to subsidising Scotland, and the Scottish government wants financial control devolved to Holyrood, so now is the ideal time to consign the Barnett formula to history."

The report "Unequal Shares: The definitive guide to the Barnett Formula" says public spending per head in Scotland is 1,644 higher than in England, with spending in Wales 1,042 higher and Northern Ireland 2,254 higher.

Taxpayers' anger

It claims the formula, which automatically adjusts spending in the devolved countries when changes are made in England, based on population levels, has cost 200bn since 1985-86.

And it argues that "reform is essential" as the formula "cannot possibly withstand such pressure".

"In an era of devolved government, such spending gaps are impossible to justify to English taxpayers," the report says.

The idea that Scotland sponges off the rest of the UK is an absolute fallacy
Stewart Hosie

"They ask why they should subsidise higher Scottish, Welsh and Irish spending. Why shouldn't those areas pay for their extra benefit themselves through higher local taxes?

"There is particular anger about the Scottish advantage because, whereas Northern Ireland's position is arguably justified on the basis of peace and reconstruction, there is no such case in Scotland."

The TPA report calls for "a significant decentralisation of tax-raising powers" to give taxpayers in England and Scotland a fairer deal.

It will be submitted to the Calman Commission, which is reviewing the first 10 years of Scottish devolution.

The Scottish government argues for full fiscal autonomy but says that the flow of resources is from Scotland to the London Treasury.

Scottish National Party Treasury spokesman Stewart Hosie said: "The idea that Scotland sponges off the rest of the UK is an absolute fallacy."

He added: "A recent report by accountancy firm Grant Thornton suggested that if Scotland had control of oil revenues, the Scottish budget surplus would stand in the region of 4.4bn but these revenues are diverted to Westminster to fill the chancellor's black hole.

"An independent Scotland would have control of these revenues. They would not be used to prop up the flawed policies of another government but to make policy which would directly benefit the people of Scotland and help Scotland realise its full potential."

Funding rules 'unfair to England'
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17 Jun 08 |  Scotland
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20 Jan 08 |  UK Politics
Northern Ireland 'made of sponge'
16 Nov 07 |  Northern Ireland

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