Is It Time To Scrap This System and Move To A Needs Based Formula For Funding?

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“The Barnett Formula” is a mathematical formula that affects the level of funding available for further education in different parts of the UK. Few people have ever heard of it, even fewer understand how it works. Yet in political circles, it’s deeply controversial. Some think it’s bad, others think it’s good: the government assures us that it really isn”t worth thinking about at all. Here, FE News attempts to get to the bottom of a complex and often baffling subject.

The Barnett Formula was created by Labour peer Lord Barnett in 1978 and is still in use today. It calculates annual funding increases for Scotland, Wales and Northern Ireland based on the rate of increases in public spending in England. It does this using figures based on the percentage of the overall UK population that each of the non-English regions represents.

Unfortunately, the figures it uses have always been based on slightly inaccurate round-ups. These were originally based on population levels in 1978, and the inaccuracy has increased over time because England’s population has risen over the last twenty-five years, while the populations of the non-English regions have decreased. The end result of this inaccuracy is inequality.

In the financial year 2002/3, Scotland spent £1,308 per head on education and training. Northern Ireland spent £1215, Wales spent £970, and England spent £911. These figures suggest that you can expect a very different level of quality and opportunity in further education depending on where you live in the UK.

Controversial, But Fair?

Understandably, this makes the formula controversial. Yet despite this, it has now been used by successive governments for over twenty-five years. To understand why, it is important to recognise that, while over funding the non-English regions seems unfair – particularly if you live in England – this isn”t necessarily so.

Historically, Scotland, Wales and Northern Ireland have all been economically depressed areas. Since 1999, all three regions have received Objective 1 funding from the European Social Fund (ESF) in recognition of this fact. One argument in favour of the Barnett Formula has always been that its unfairness does something to redress striking regional inequalities within the UK.

The problem is that there are also places in England that can be classified as economically deprived. Cornwall, South Yorkshire and Merseyside all currently receive Objective 1 funding from the ESF. In addition, the North East receives a large proportion of the UK Objective 3 budget (intended to improve employability through education and skills) because of high unemployment levels. Several inner city areas that have some of the highest levels of unemployment in the UK also receive proportionately higher levels of Objective 3 funding.

But while these areas attract funding from Europe, because of the Barnett Formula, they receive less funding from Westminster than equivalent areas in Scotland, Wales and Northern Ireland, even though their need is arguably just as great. Yorkshire and Humberside and North West England in fact spend 30% and 25% less on education than Scotland. What makes this situation even worse is that Objective 1 often works on a “match funding” basis, which means that areas receiving less funding from the home government also receive proportionally less funding from the ESF.

Disadvantage In Further Education

This seems to suggest that the real Barnett Formula losers are students and further education institutions in some of England’s most deprived areas. And there is clear evidence that ““ whether as a result of the Barnett Formula or not ““ people in these parts of England are disadvantaged when it comes to further education.

Labour MP Angela Eagle, who represents Wallasey in Merseyside, drew this to the attention of Treasury officials while serving on a House of Commons Select Committee last year. She pointed out that the proportion of adults with no qualifications is 50% higher in the North East and West Midlands compared to the South East, and that the proportion of adults with degree level qualifications is 50% greater in the South East and London than the North East. She also pointed out that, at the end of the year 2000, 58% of 16 and 17 year olds in the North East remained in full-time education compared to 70% in London.

Government strategies like Performance Related Funding and the awarding of Learning and Skills Beacon Status seem more likely to ensure that premium funding is awarded to institutions in better off parts of the country. Hampshire and the Isle of Wight, in the affluent South East, have the highest number of Beacon Status institutions in the UK. In 2004, 44% of learning providers in this area achieved a higher than average GCE and VCE point score per student, a figure that rises to 49% when Hampshire is considered on its own. By contrast, only 24% of institutions in Greater Merseyside achieved an above average point score, a figure that drops to just 16% for the city of Liverpool.

In 2004, the Labour MP for Leeds East, George Mudie, questioned Treasury officials about government efforts to combat this kind of inequality. He suggested that the obvious solution was more resources going into further education in the deprived regions, and demanded that the government provide evidence to substantiate their claim that this was already being done. In response, the officials backtracked hastily and tried to claim that extra funding wasn”t necessarily the problem.

The Barnett Squeeze

In this climate, you might expect the government to consider getting rid of the Barnett Formula, but they have no plans to scrap it. Tony Blair says that it is simply “a non-issue”. In reality, as Chancellor of the Exchequer, the formula falls well within Gordon Brown’s jurisdiction, and he usually lets Junior Treasury Ministers speak for him on the subject. They have attempted to silence critics of the formula by insisting that it has been adjusted to reflect changed population levels, and that it is actually working to redress the original imbalance over time ““ something known as “The Barnett Squeeze”. The House of Lords Select Committee on Constitution agrees with this analysis:

“[The Barnett Formula] provides for public spending across the UK to converge on a single uniform level of spending over time, if public spending continues to increase. Scotland, Wales and Northern Ireland each start from a different base level of spending, but because increases are related to the increase of spending in England eventually the same level of per-capita spending will prevail throughout the UK”¦ The present rate of growth in public spending appears to make convergence likely to occur within a relatively short space of time”.

However, far from putting everyone’s mind at rest, the “squeeze” has actually made things a lot more complicated. Faced with the prospect of losing out as the squeeze reduces the advantage they currently enjoy, various politicians from the non-English regions are now clamouring for the Barnett Formula to be scrapped. Many of them are calling for it to be replaced by a needs assessment that would ensure extra funding reaches the deprived areas that require it most.

“A Source of Deep Embarrassment”

Surprisingly, one of the biggest advocates of the formula being scrapped in favour of a needs based system is none other than Lord Barnett himself. He says that he intended his formula to be used for one year, not twenty, and that the unfairness it causes is a source of deep embarrassment to him.

Plaid Cymru ““ the Party of Wales ““ is another prime mover behind calls for a needs assessment. Of the three non-English regions, Wales has benefited least from the Barnett Formula, and a needs assessment would almost certainly result in a better deal. This is an important issue for further education institutions in Wales, because Objective 1 funding currently available for West Wales and the Valleys will cease in 2006. Of the English regions currently receiving Objective 1 funding, Merseyside and South Yorkshire will also lose out in 2006.

Other than the government, it seems that the only people still happy with the Barnett Formula are the Scots, who have benefited most from it over the last twenty years. The Scottish Minister for Finance recently described it as “simple, straightforward [and] objective.”

Here To Stay

In 2003, the House of Lords Select Committee on Constitution concluded that the Barnett Formula was not a sustainable long-term method for allocating funds in the UK. It recommended that any future system should be based at least in part on a needs assessment. The government have so far rejected these findings on the basis that a needs assessment might prove costly and ineffective and result in bitter arguments between the different nations that make up the UK.

So, for now at least, the Barnett Formula is here to stay. Which begs the question: if a needs assessment system isn”t going to be introduced, what is being done to ensure that people in depressed areas receive the resources they need to help them improve their skills and qualifications?

Joe Paget

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