Calman and Holtham: the public finance of devolution*

The „Barnett formula‟, which governs the transfer of block grant from the UK Treasury to the governments of Scotland, Wales, and Northern Ireland to fund devolved services, is fatally flawed. It bears no relation to relative need. Also, because the devolved administrations do not raise most of the taxation required to fund their services, they have no incentive to be fiscally responsible. The Scottish and Welsh parliaments have each commissioned an official committee to review the situation: the Calman and Holtham committees. Their approaches are described and contrasted. It is shown that the Scottish (Calman) approach) corresponds most closely to the Canadian regime for intergovernmental transfers, and the Welsh (Holtham) approach is likely to correspond most closely to the Australian. Implications for the future governance of all parts of the UK, including England, are discussed.  I was a member of the Independent Expert Group on Finance, Calman Commission; and have twice given evidence to the Holtham Commission. My thanks to fellow IEG members and to the Commissioners and staff of both Commissions. Apart from a number of interviews with politicians and civil servants working on Barnett in the UK and territorial governments, all sources used in this paper are in the public domain. This version addresses comments from the secretariat of both Commissions on an earlier draft but all comments made are my responsibility. Earlier versions were presented to the Departmental Seminar, Department of Economics, Strathclyde University, and the the Finance Seminar, School of City and Regional Planning, Cardiff University. Thanks for the helpful comments then received. Thanks also to my co-authors Guy Lodge, Katie Schmuecker, and Alistair McMillan who have collaborated on earlier papers in this area.