Northern Ireland

What is the Barnett formula?

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Image caption The Barnett formula calculates how much a nation's departmental budget should change as a result of national policy decisions

It has been used to distribute UK wealth across Northern Ireland, Scotland, England and Wales for 38 years. But what is the Barnett formula and why is it controversial?

What is the Barnett formula?

The Barnett formula is a system of grants that dictates the level of public spending in Northern Ireland, Scotland and Wales.

In principle, it is extremely simple.

Under it, extra funding - or cuts - from Westminster are allocated according to the population size of each nation and which powers are devolved to them.

Image caption Lord Barnett served for five years as Labour's Chief Secretary to the Treasury

When the UK government increases or decreases funding for departments - such as health and education in England - the Barnett formula is used to decide how much devolved governments will receive.

The formula is named after its inventor, the former Labour Chief Secretary to the Treasury Joel Barnett, who devised it in 1978 when he was a member of the Callaghan government.

It has no legal status, and is merely a convention used by the Treasury.

Why was the Barnett formula created?

The Barnett formula was designed as a temporary measure to settle rows about government spending allocations.

The formula was adopted by subsequent governments amid fears that withdrawing it could severely damage the Union.

What does each country receive?

The figures vary slightly every year, but in 2012-2013 Northern Ireland got the most - £10,876 per head.

Scotland got £10,152 per head and Wales, despite being much poorer, got £9,709. England received £8,529.

The UK average was £8,788.

In Wednesday's Autumn Statement, Chancellor of the Exchequer Philip Hammond announced Northern Ireland was to get an extra two £250 million in infrastructure funding from the government.

The money is to be spread over four years and spent on capital projects such as improving roads.

Why is the formula controversial?

The formula has been criticised for allocating spending according to population size, rather than the amount that each nation actually needs.

Public spending per head is considerably different in different parts of the UK.

Northern Ireland has a much higher level of public expenditure per head than other parts of the UK.

This is largely due to the historic level of spending which the Barnett formula has impacted upon modestly over recent decades.

Estimates of government spend per person have consistently shown the highest levels of spending in Northern Ireland, followed by Scotland, then Wales and finally England.

That has left some feeling short-changed.

Many English MPs have called for reform of the Barnett formula.

Following the September 2014 Scottish independence referendum, the Barnett formula hit the headlines amid concerns that in a last-minute government bid to sway voters against independence, Scotland had been promised continued high public spending.

Lord Barnett admitted his funding formula for Scotland had been a "terrible mistake".

Some argue a needs-based system - which would take into account factors such as the age of the population and levels of poverty - would be a fairer formula.

While the Barnett formula is widely recognised as being controversial, there is no consensus on how to change it.

Almost all alternatives require an independent assessment of true need and that is hugely complex and expensive.

How does the Barnett formula benefit Northern Ireland ?

The current level of funding that Northern Ireland receives allows us to run the health care system, the education system, the justice system and all other parts of Northern Ireland, says Neil Gibson, Director of the Ulster University Economic Policy Centre.

"It has been argued on occasion that a true needs based system would allocate more to the region but it is not obvious when looking at headline economic and social data that this would be the case," he said.

"There is the possibility that NI could receive less under a different formula."

"During a cut in expenditure phase, as we have just lived through, the Barnett formula helps Northern Ireland, as the cuts are predominantly linked to population shares, not to current levels of spending."

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