UK funding system "descending into chaos"

The rushed timetable driving the Smith negotiations has culminated in a system of territorial funding for the UK which is “descending into chaos”, an eminent economist has warned.

In an article for Holyrood, Professor of Economics at the University of Stirling David Bell claims current proposals on the devolution of further financial powers will generate widespread confusion.

The Smith Commission delivered its report on further powers for the Scottish Parliament last November, a little more than two months on from being launched.

However, the speed of the process had prompted concerns over whether it would be possible for the five parties involved in talks to create a coherent legislative package.

“The system of territorial funding in the UK is descending into chaos," Bell, who advises a number of Scottish Parliament committees, writes.

"If the coalition’s present plans for devolving financial powers are taken forward after the election, the number of people who will be able to understand how revenues are raised and funding allocated among the component parts of the UK will drop below the already tiny number who fully understand the Barnett formula.”

Bell warns that the Smith Agreement has led to an asymmetry of fiscal power across the UK while also confusing the Barnett formula and the principle of needs-based funding.

He writes: “By giving Scotland control over some welfare spending, which is largely driven by the needs of the disabled and the elderly, and by conceding that the Barnett formula doesn’t reflect need in Wales so that a floor on per capita spending is necessary, the system of block grants is now a hybrid system with even less rationale than the Barnett formula.”

Appearing in front of the House of Commons Political and Constitutional Reform Committee in October, Professor Michael Keating, director of the Scottish Centre on Constitutional Change, warned the timetable required by the Smith Commission was "not realistic".

"I'm not talking about stringing this out indefinitely and having endless discussion, but at least a year seems to be a reasonable time to put together something that will work and get the technical details right so that it won't unravel and have to be turned to again," Keating told MPs.