OVERVIEW OF FISCAL DECENTRALISATION
The United Kingdom is a unitary state and to the question of devolving powers to other authorities, together with the way in which these are organised and financed, remains ultimately with the UK parliament. In the UK there are four countries (England, Northern Ireland, Scotland and Wales) and three devolved national administrations (Northern Ireland, Scotland and Wales).
England is divided in 55 unitary councils which are responsible for all local services, Wales is divided into 22 unitary councils, Scotland has 32 unitary councils, and Northern Ireland has 11 local councils.
Statistics in this factsheet refer to the UK' sub-national government level as composed of England, the three devolved authorities and the unitary councils.
Legal acts governing fiscal decentralisation
The three acts of the UK Parliament dealing with devolution (the Scotland Act 1998, the Government of Wales Act 2006 and the Northern Ireland Act 1998) define the respective functions of the UK government and the devolved administrations. Powers have been further devolved with the introduction of new legislation, most recently the Scotland Act of 2016 and the Wales Act of 2017. Although recently restored, Northern Ireland was subject to direct rule from London for several years following the collapse of the governing coalition in the Stormont Assembly.
Qualifying fiscal decentralisation
The level of fiscal decentralisation in the UK has been rather limited, as fiscal policy has almost exclusively controlled by the UK government. Devolved administrations have had very limited control over their own budgets, which are mostly sustained by block grants from the UK government. Nevertheless, recent legislation has provided more autonomy to the devolved governments over the tax rates (expanded upon later). Local authorities (councils) are entitled to raise and set the rate of a domestic property tax (Council Tax). The remaining revenues are transfers from the central government and charges for services provisions. Local authorities also retain 50% of national non-domestic rates (business rates) collected in their jurisdiction. The large majority of tax revenues (95%) are collected by the central UK government and are then redistributed. The size of the block grants that the UK government allocates to the devolved administrations is based on the long-standing 'Barnett Formula', whereby the devolved administrations are given a proportionate share of spending on devolved functions, given their populations compared to that of England. Overall, in 2018 sub-national expenditures accounted for 23% of total public expenditures (see the pie chart below).
Source: authors’ elaboration on EUROSTAT data. For further details, see
methodology.
Fiscal equalisation mechanisms
Given that local taxation provides only a minor fraction of sub-national spending, transfers from central government play the most important role in providing sub-national government expenditures with an adequate level of financial resources. The transfers (in the form of general or specific grants) are balanced against the cost of service provisions and the local tax revenues which are directly connected to the real estate values of each area.
LEVEL OF FISCAL DECENTRALISATION
Revenue autonomy (own revenues relative to total resources available) at the sub-national level is well below the EU average (35% versus 53% in 2018), which therefore entails a dependency on central government transfers that is higher than the EU average (63% versus 48% in 2018). Local own revenues represented 8% of total government revenues in 2018, a value that is lower than the EU average (13%).
Source: authors’ elaboration on EUROSTAT data. For further details, see
methodology.
The composite ratio (10% in 2018), which captures aspects of fiscal decentralisation of both revenue and expenditure, suggests that sub-national governments in the UK have a degree of fiscal decentralisation that is lower than the EU average (16% in 2018). The OECD indicator on the level of tax-autonomy previously indicated that discretion of sub-national governments over tax rates was fully restricted. These indicators show that as a result of new devolved powers the great majority of the rates are set by the UK's devolved administrations. This is despite the fact that in the case of Scotland, the UK central government still administers and collects taxes. Over 96.3% of their tax revenues, the sub-national governments have full discretion on rates.
Source: authors’ elaboration on OECD data. For further details, see
methodology.
Fiscal rules and borrowing capacity
The Scotland Act of 2012 introduced (as from 2015) the possibility for Scotland to borrow to finance current and also capital expenditures within specific limits. Borrowing is allowed from the UK government and from credit institutions. The Act foresees the possibility of allowing the Scottish government to issue bonds (allowed from 2015).
Deficit and debt at sub-national levels
In 2018, the consolidated gross debt of the UK sub-national government sector accounted for 4.8% of GDP, a value that has remained roughly constant since 2000.
Source: authors’ elaboration on EUROSTAT data. For further details, see
methodology.
EXPENDITURE BY GOVERNMENT LEVEL AND BY POLICY AREA
Expenditures of sub-national governments represent a significant part of total general government expenditures in the fields of housing and community amenities (84% of the total expenditures in 2017), , environmental protection (54% in 2017), education (52% in 2017), and public order and safety (46% in 2017).
Source: authors’ elaboration on EUROSTAT data. For further details, see
methodology.
Sub-national expenditures are most concentrated, and more so than the EU averages, in the fields of social protection (35% of total local spending in 2017), education (25% in 2017), and public order and safety (9% in 2017) and housing and communities amenities (6% in 2017). In all other areas of spending, expenditures are rather limited and below the EU average values.
Source: authors’ elaboration on EUROSTAT data. For further details, see
methodology.
