The Setting of the Problem
Like any modern state, the UK has to solve the problem of fiscal federalism. Essentially, the centre taxes, but the localities spend. In 2001, the centre raised 96 per cent of UK tax revenue; local authorities only 4 per cent (Travers 2001, p. 135). So the centre must allocate grant to the localities. The sums of money involved are huge, as they cover a large part of public spending, both current and capital. Therefore, the most minute adjustment of the formulae can have huge distributional consequences. Three quite different formulae are used: one, the notorious ‘Barnett Formula’, to allocate block grant to Scotland, Wales, and Northern Ireland for devolved services; the second, to allocate grant to English local authorities; the third, to allocate grant to English health authorities. The combined consequence of the three procedures is an allocation that is very hard to justify, politically, socially, or economically. Some regions of the country seem to do conspicuously better than others.
KeywordsPublic Good Public Choice Public Expenditure Public Spending Median Voter
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