IT has been a subject of controversy practically since it was invented in 1978, but now a prominent think tank is suggesting that Brexit could well mean the end of the Barnett Formula.

The formula automatically adjusts the amount of public spending allocated to Scotland, Wales and Northern Ireland by the UK Government.

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With Brexit set to end income from the European Union, the Scottish Parliament’s Finance and Constitution Committee has been seeking views on how funding for agriculture, economic development and innovation may be replaced after Brexit – Scotland is gaining €5.6 billion from EU funds in the current budget period that ends in 2020.

After Brexit next March, replacement funding is guaranteed from Westminster until at least 2020 and possibly 2022 for farming.

Institute for Fiscal Studies (IFS) researchers Nicolo Bird and David Phillips point out that the formula takes no account of differences in funding needs or population growth between nations. It does not account for the outcomes achieved by funding either.

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The report states that a key consideration is how often funding allocations are updated.

“Frequent and fuller updates can help target regional development funding at the most disadvantaged areas,” says the report. “On the other hand, they can reduce the fiscal incentives for devolved and local governments to encourage economic growth and tackle deprivation.”

The researchers suggest that rather than allocating all replacement funding to the Scottish Government to distribute to specific projects, there may be benefits to making decisions at a UK-wide level or seeking to remain in EU-wide schemes.

They state: “An example could be funding for research and innovation, where existing EU programmes aim to invest in the best projects across the EU. In recent years, Scottish institutions have won funding that is significantly greater than a population-based share.”

David Phillips, associate director at the Institute for Fiscal Studies, said:

“The UK is set to receive around €8bn a year from the EU budget over the next three years. But big choices loom about how much to spend on programmes to replace the EU’s agriculture, regional development and research and innovation funding after 2020, and how that spending should be allocated and managed.”

Scottish Brexit Minister Mike Russel added: “This is yet another report that suggests that staying within EU institutions and funding flows is the best option for Scotalnd.

“Such reports are appearing every day but the Brexiteers – and the Prime Minister – resolutely refuse to see or hear sense. They are pursuing a course that will cause substantial and sustained damage to Scotland but they are driving ahead regardless.”