Keeping Barnett formula 'not appropriate' after Brexit, warns Institute for Fiscal Studies

The Barnett formula will no longer be fit for purpose after Brexit, according to the Institute for Fiscal Studies.

A pledge to maintain the Barnett formula was one of the key parts of the Vow, made by the Conservatives, Labour and the Lib Dems in the run up to the 2014 independence referendum.

But while Scotland is set to receive €5.6bn in funding from the pre-allocated funds for the 2014–2020 EU budget period, the future of funding arrangements within the UK have been thrown into doubt following the Brexit vote.

With the Scottish Parliament's Finance and Constitution Committee currently gathering evidence on post-Brexit funding, the IFS warned that the Barnett formula is unsuitable as a replacement funding mechanism, arguing that it takes no account of differences in funding needs or population growth between nations, or of the different outcomes achieved by funding.

When Scotland loses access to EU funding for agriculture, economic development and innovation, the IFS recommended that funding decisions should be taken at a UK-wide level, rather than by allocating all replacement funding to the Scottish Government to distribute to specific projects.

David Phillips, associate director at the Institute for Fiscal Studies, 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.

“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.

“In science and innovation, for instance, remaining in EU-wide programmes or integrating funding with existing UK-wide schemes would help ensure the best projects – with the biggest gains to society – 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.”