July 5, 2010 11:27 pm

Academics attack Scotland’s grant

David Cameron’s goal to reform the Barnett formula was to be given fresh impetus on Tuesday as two academics suggest that Scotland receives up to £4bn more a year than it deserves.

Gerald Holtham and David Miles have published the final report of the Independent Commission, which was set up by the Welsh Assembly to examine public spending in Wales.

Their conclusions, likely to cause outrage north of the border, are that Scotland receives vastly more expenditure from Westminster than would be merited by a needs-based formula.

“A needs-based formula for the block grants that was consistent with the formulas used to distribute health, local government and educational spending around England could eventually result in Scotland getting as much as £4bn less than it currently does,” they write in Tuesday’s Financial Times.

Prof Miles is a member of the Bank of England’s monetary policy committee. Mr Holtham is managing partner of Cadwyn Capital, a hedge fund, and a former director of the IPPR think-tank.

Their conclusions will provide ammunition for David Cameron, prime minister, who in April signalled his intent to overhaul the system and replace it with a needs-based formula. “The Barnett formula is coming to the end of its life,” he told the Western Mail.

Ministers in the Conservative-Liberal Democrat coalition have said they wish to tackle the economic deficit before addressing the Barnett question, suggesting little appetite for an early clash with the nationalist-controlled Scottish government on this issue.

The academics point out the devolved governments spent more than £50bn last year via block grants from London calculated by the Barnett formula, set up more than 30 years ago as a “temporary fix”.

By this formula, each devolved authority receives an amount annually based on English expenditure and its population. “We have looked at the needs-based formulas used in England, and analogous formulas used within Scotland and Wales, to assess whether the amount of resources allocated under the block grant under Barnett is fair and consistent,” the pair argue. “It is not.”

The Holtham review will claim that by a more judicious system Wales would receive an extra “few hundred million pounds” each year. Last night the Scottish National Party said it was “quite simply wrong” to suggest the rest of the UK was propping up Scotland’s finances.

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