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The Scottish Parliament and the Barnett Formula

Kay, Neil (1998) The Scottish Parliament and the Barnett Formula. Quarterly Economic Commentary, 24 (1). pp. 32-48. ISSN 0306-7866

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In this paper we shall look at the implications of the conventions and devices to be adopted for funding the Scottish parliament. It will be argued that there are major problems with the basic mechanism to be adopted (the Barnett formula) and that the discretionary tax raising powers for the Parliament may actually create more problems than it solves. Further, the Barnett formula is designed to lead to the eventual convergence of public spending levels per head in Scotland with those prevailing in England. Consequently, questions of whether or not Scotland is over-subsidised relative to England really miss the point since the practical issue is not a question of whether there should a reallocation of public spending from Scotland to England, but rather when and how quickly this will occur. Some economic and political implications of these arguments are considered and we finish with some proposals for dealing with the dangers to the Scottish Parliament posed by the Barnett formula.