Regional Expenditure in the UK: Better Data, Fairer Funding
Research led by Professor Iain McLean has resulted in the collection and calculation of better UK regional expenditure data, as well as new calls for a needs-based approach to regional funding.
How do – and how should – the UK governments work out the distribution of public funds to Northern Ireland, Scotland, Wales, and the nine regions of England? Far from a dry issue of public finances, this very question formed a key part of the Scottish independence debate, and will no doubt feature in future conversations about further devolution.
The calculation of UK regional funding distributions has been hampered by poor data and a lack of clear policy objectives. As a result of Professor McLean's expertise, the UK Treasury tasked him with evaluating and assessing the current regional funding regime. The year-long project, which began in 2002, examined the level and form of public expenditure (domestic and European) distributed to the regions. The research revealed substantial inadequacies and significant variability in the data, inconsistencies in reporting data between government departments, and conceptual and methodological differences in how regional funding was reported. The findings were summarised in the 2003 McLean Report (Identifying the Flow of Domestic and European Expenditure into the English Regions). Professor McLean's key recommendations were that government departments should use real expenditure whenever possible, rather than assume that spending per head was equal in each region.
The UK Treasury accepted the Report's recommendations in full, indeed, a senior Treasury official remarked that 'we use the McLean Report all the time here'. In collaboration with the Office of National Statistics, the Treasury developed a new approach to calculating more reliable expenditure figures for the Public Expenditure Statistical Analyses (PESA) – a key source of information for policymakers.
In 2008, the Treasury rolled out requirements for all departments to use these methods for collecting and issuing data, ensuring that policy debates are informed by an increasingly accurate picture of the fiscal position of the UK's twelve regions.
Beyond improving data collection and data quality, McLean's research has also addressed the question of how regional expenditure goals might be improved, by showing that the per capita basis of the Barnett Formula's calculations benefitted Scotland and disadvantaged Wales. Accordingly, McLean argued that spending decisions based primarily on population figures are inappropriate, and that fairer and less distorted regimes of territorial transfers (which are sensitive to population needs) should replace the Barnett Formula.
Professor McLean was appointed to the 2008-09 Independent Expert Group of the Calman Commission on Scottish Devolution, which sought to improve the financial accountability of the Scottish Parliament. Recommendations from the Expert Group's reports were included in the Scotland Act 2012. Professor Mclean was also involved with the Holtham Commission on Funding and Finance for Wales.
Transcript of Iain McLean's Evidence to The Scottish Parliament's Scotland Bill Committee