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25.04.18

Barnett Formula unsuitable for funding allocation after Brexit

The Barnett Formula would not be a suitable way to allocate replacement funding after Brexit, the Institute for Fiscal Studies (IFS) has argued.

The Scottish Parliament’s finance and constitution committee is seeking views on how EU funding for agriculture, economic development and innovation may be replaced following Brexit.

IFS researchers, Nicolo Bird and David Phillips, have submitted evidence stating that the Barnett Formula does not take account the differences in funding needs or population growth between nations, or account for the outcomes achieved by funding either.

They said that a key consideration should be how often funding allocations are updated, with frequent and fuller updates helping to target regional development funding in the most disadvantaged areas.

However, they can also reduce the fiscal incentives for devolved and local governments to encourage economic growth and tackle deprivation.

Rather than allocating all replacement funding to the Scottish government to distribute to specific projects, the IFS says that there could be benefits to making decisions at a UK-wide level or seeking to remain in EU-wide schemes, such as EU programmes aimed at investing in the best projects across the EU which saw Scottish establishments winning funding significantly greater than a population-based share in recent years.

David Phillips, associate director at the IFS, said: “The UK is set to receive around €8 billion a year from the EU budget over the next 3 years.

“But big choices loom about how much to spend on programmes to replace the EU's agriculture, regional development and research and innovation funding after 2020, and how that spending should be allocated and managed.”

He added: “The Scottish Parliament's finance and constitution committee has asked whether the Barnett Formula would be an appropriate way to allocate funding to the devolved governments.

“We don't think it would. It's also not clear that funding decisions are always best taken at a devolved level.”

He explained that remaining in EU-wide science and innovation programmes or integrating funding with existing UK-wide schemes could help to ensure that the best projects receive support.

“This would be good for the UK and for Scotland – which has historically punched well above its weight when competing for science and innovation funds,” Phillips concluded.

Top image: andrej k

 

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