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:
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
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.