Newton Emerson: Tory leadership contest may blow open argument on funding for Northern Ireland

Unionists are nervous about Rishi Sunak, the favourite to be the UK’s next prime minister. In an infamous profile in the Financial Times two years ago, a Conservative colleague was quoted saying: “I remember discussing the future of the union with Rishi and he argued that England should break away. He was advocating the end of the UK because it doesn’t make financial sense to him. He doesn’t have any love for the institution and I suspect he looks at it as he looks at anything: what’s the profit?”

Sunak denied the report, tweeting “I am a strong believer in our union of four nations. Hope that clarifies that!”

Clarified or not, Sunak is now running on a platform of fiscal discipline that has defined the Tory leadership contest.

If he dislikes the financial arrangements of the union, that will be where he is inclined to wield an axe.

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Yet his rivals, promising tax cuts and more spending, may feel little different.

[ Newton Emerson: No point in EU negotiations with lame duck Johnson ]

During the last leadership contest in 2019, between Boris Johnson and health secretary Jeremy Hunt, funding for the devolved regions became a high-profile issue. Johnson had to recant years of condemning the system as too generous after Hunt accused him of planning to scrap it.

At the heart of the system is the so-called Barnett formula — a convention that public spending per head should be equal in all four parts of the UK.

If London builds a new railway in England, for example, Westminster will give a per capita equivalent sum to Edinburgh, Cardiff and Belfast to spend as they wish.

However, this only applies to planned spending. It does not cover demand-led programmes, such as social security, as it would be unthinkable for benefits to ‘run out’ once an equivalent sum elsewhere had been spent.

Regular negotiation today would involve the UK Government and three devolved administrations, at least one of which does not want the UK to exist

So in practice the formula is a ratchet, locking in and widening differences between England and the devolved regions.

In the most recent pre-pandemic year, public spending per head was £9,600 in England and up to £2,400 higher everywhere else, with Northern Ireland topping the table.

The Barnett formula was introduced in 1978, two decades before devolution, so these differences have crept up slowly and with relatively little contention, or attention.

However, any plans to put spending sharply up or down would expose the flaws in the rickety arrangement — and up or down are the only Tory plans on offer.

[ Newton Emerson: Does the intellectual collapse of the exhausted SNP hint at Sinn Féin’s future? ]

Frustrated Scottish nationalism, tensions over the Northern Ireland protocol and Brexit costs across the UK make devolutionary funding ripe for intense politicisation. There is a strain of nationalism that has always hoped England would tire of paying the bills, even while denying how much it pays.

Increasingly, unionists want to highlight the financial delusions of nationalists, even if it risks alerting England to the size of the bill.

English nationalism is a difficult giant to wake. Brexit has barely stirred it, contrary to tiresome claims. But there must be a limit to how much angry rifling through their wallets my compatriots in Southern Britain are willing to take.

Reform of the system should be possible without drama. Regional funding differences are normal and exist within England itself, where councils get a baseline grant then argue their case with the Treasury for further funding based on need. An area with a younger population needs more for schools; with an older population, more for social care. Councils can also negotiate their revenue-raising powers, keeping more money from property taxes or raising certain surcharges.

Joel Barratt, the Labour minister who devised the eponymous formula, expected it to be a stopgap measure for one or two years while officials in Scotland, Wales and Northern Ireland developed their own council-type negotiating approach with the UK Government. He expressed dismay just before his death eight years ago that his “short-term political fix” was still in use.

Regular negotiation might have seemed a more genteel prospect in 1978. Today, it would involve the UK Government and three devolved administrations, at least one of which does not want the UK to exist.

There has long been interest in Westminster in the Australian approach to federal funding, which has operated for almost 90 years. The whole task of assessing need and negotiating funding and powers is handed to an independent body, the Commonwealth Grants Commission. The packages it devises for each state and territory are presented as ‘fiscal equalisation’, preserving a sense of fairness and national solidarity, in contrast to the simplistic and undeliverable notion the UK has drifted into of equal spending per head.

But setting up a devolutionary super-quango is not a proposal likely to emerge from either side of the Tory hustings. If the funding argument makes it into the leadership contest, this has the feel of a moment that could blow the argument wide open.