Fiscal Federalism in the UK: How Free is Local Government?

points z z The UK system of government is one of the most centralized in the developed world. As a result, local governments have very few powers when it comes to tax regulation, while their policy choices are constrained by tightly controlled expenditure mandates. z z Nevertheless, there is evidence that local party control does matter. A switch from Conservative to Labour Party control usually leads to increases in council employment, expenditure and taxes for unitary and upper-tier councils. However, this is not the case for district councils, probably because party differences often materialize over education and social services spending. z z Performance management schemes, in particular the Comprehensive Performance Assessment (CPA), do appear to affect both voter perceptions of local government and its behaviour, but they can have unintended consequences. Overall, such schemes have increased local government spending and taxation, but generally have failed to improve efficiency in the use of resources. z z Incentive schemes like CPA often fail to stimulate higher local government efficiency because they are too output-oriented; incentive schemes should be designed to place substantial emphasis on efficiency, and not just reward output. z z Overall, the evidence suggests that local government in the UK is too tightly controlled from the centre and that the country would benefit from a degree of decentralization.