The UK government’s “Scottish Affairs Committee” said it has launched an “inquiry into how the Scottish Government is funded within the UK.”

The Westminster MPs said they will explore the Barnett formula “which determines the change to funding for devolved public services like healthcare, transport and education from one year to the next.”

The MPs said one of the issues to be investigated is “to what extent could changes to Scottish Government borrowing powers enable more effective fiscal management, and mitigate against the impact of inflation and economic shocks in Scotland?”

The Westminster Scottish Affairs Committee comprises six Labour MPs, two Conservative & Unionist MPs, two Liberal Democrat MPs – and one Scottish National Party MP.

The committee members are: Labour MPs Patricia Ferguson, Lillian Jones, Douglas McAllister, Kirsteen Sullivan, Maureen Burke and Elaine Stewart; Conservative MPs Jack Rankin and Harriet Cross; Liberal Democrat MPs Angus MacDonald and Susan Murray; and SNP MP Stephen Flynn.

The Westminster politicians said they will examine the impact UK Government “fiscal events and in-year budgetary changes” can have on the funding available to the Scottish Government through the annual Block Grant. 

Alongside this, the MPs also said they will “explore the effectiveness of the wider financing of the Scottish Government, including the fiscal framework, Block Grant Adjustments and the process for Barnett formula bypass.”

Labour MP for Glasgow West Patricia Ferguson, chair of the Scottish Affairs Committee, said: “The Committee’s inquiry is a timely opportunity to examine the current funding model for the Scottish Government, and wider model of fiscal devolution.

“Our inquiry will explore how Scotland’s funding arrangements, particularly the Barnett formula, came to be, and how it determines the level of funding made available to the Scottish Government.

“As part of this, we’ll also look closely at the current Fiscal Framework.” 

The Committee said it is inviting written submissions through the inquiry website addressing any or all the issues raised in the following terms of reference by January 5. 

• How effective is the Barnett formula in calculating the amount of money made available to Scotland for providing essential public services?
  • What was the original design intention behind the Barnett Formula, and to what extent has it fulfilled this purpose?
  • What potential reforms to the Barnett formula could improve its effectiveness?
  • How transparent is the UK Government’s decision making regarding the application of the Barnett Formula? 
  • What impact could putting the Barnett formula on a statutory footing, or otherwise formalising it, have on its effectiveness?
• Following its review in 2023, to what extent does the current Fiscal Framework effectively govern the mechanisms for Block Grant Adjustments and fiscal flexibilities of the Scottish Government?
  • To what extent could changes to Scottish Government borrowing powers enable more effective fiscal management, and mitigate against the impact of inflation and economic shocks in Scotland? 
  • Does the current methodology for calculating Block Grant Adjustments effectively reflect the associated transfer of tax revenues or welfare spending?
• Within the existing devolution settlement, what steps could the UK Government take to offer Scotland more financial certainty?
  • Is there an appropriate level of coordination between the UK and Scottish Governments regarding in-year fiscal changes?
  • To what extent can HM Treasury’s decisions regarding the block grant be challenged by the Scottish Government?
• Are there any comparative perspectives that should be considered when assessing the effectiveness of fiscal devolution in Scotland? 
  • What learnings can be drawn from Wales and Northern Ireland’s funding settlement arrangements?
  • Are there any learnings from international perspectives that should be considered?