How Spending in Wales is Worked Out: The Barnett Formula

The Welsh block grant is carried forward from one period to the next, with the Barnett Formula being used to make changes to the block. In determining these changes (which can be positive or negative and are often referred to as “consequentials”), the formula combines three factors, namely:

  1. changes to spending in England on services that are devolved to Wales;
  2. the extent to which the spending area is wholly or partly devolved (the so-called “comparability factor”); and
  3. the population of Wales relative to the population of England.

An example of the Barnett Formula in operation

The Barnett Formula determines changes to the Welsh block grant (often referred to as the Barnett consequential) via the following calculation:

    Change to Welsh      =   change to equivalent     x   comparability     x    Welsh to English
      block grant             English programme               factor             population ratio

To see the impact of this formula, consider a hypothetical £100 million increase in spending for a UK Government department. The comparability factor is determined by the extent to which the UK department’s programmes are devolved to Wales. Assuming that the UK department’s programmes are 90 per cent devolved to Wales, a comparability factor of 90 per cent will be applied. The population share is derived from Office for National Statistics (ONS) estimates, which at present show the Welsh population to be 5.83 per cent of the English population. Combining these factors, the increase in the Welsh block will be:

  £100 million x 90 per cent x 5.83 per cent = £5.25 million

The Barnett Squeeze

Public spending per head is higher in Wales and the other devolved administrations than it is in England. However, additional allocations to the budgets of the devolved administrations through the operation of the Barnett Formula are the same per head as those in England. For this reason, overall relative spending per head in the devolved administrations should converge over time towards the English level of spending per head on comparable programmes. This phenomenon is known as the Barnett “squeeze”. Other things being equal, larger increases in real public spending (as have occurred over the last decade) or higher inflation rates should amplify the rate of convergence, as they will increase the importance of increments relative to the total budget.

Try This: the Barnett Squeeze as English Expenditure Growth Varies

As we've seen, the Barnett Squeeze means that the faster English spending grows, the closer Welsh spending per person comes to English Spending per person. You can experiment with this below: this simulation shows how Welsh to English spending per person varies with the growth in English Spending.

Drag the slider right to increase the growth per year in English Spending, over the next 30 years.

Spending Growth Assumption: 6%