Whitehall control prevents local authorities from responding to local needs, new research suggests

A new study from the University of Warwick, University of Bari and University of Birmingham suggests that local governments are restricted from effectively addressing local needs by tight fiscal controls from central government.

The researchers constructed and analysed a new dataset combining fiscal and electoral data for all local authorities in England and Wales from 1998 to 2015, to assess whether their expenditure and tax outcomes depend on which political party controls the council.

They found that political control of a council, whether by the Labour, Conservative or Liberal Democrat parties - or Plaid Cymru in Wales - has no effect on its fiscal outcomes, indicating instead that centrally imposed constraints on local economic policy hold local governments in a tight grip.

In the UK, council tax is the major revenue-raising tax for local authorities, but it has been subject to various forms of rate-capping imposed by central government and comprises only around 20% of their total revenue on average, meaning they are heavily reliant on central funding. Several services, including schools, are funded by ring-fenced grants, while capital expenditure on infrastructure such as housing, roads, and waste collection is financed by loans from central government, subject to limits set in line with the Prudential Code which sets out regulations for borrowing.

The study revealed no significant effects of either party control or seat share on councils’ total current expenditure, total expenditure on services, composition of expenditure, property tax rate or council tax revenue. Similarly, there were no significant effects on capital expenditure, debt or authorised debt limits.

The result was the same for all types of local authority (county and district councils, London boroughs, metropolitan districts and unitary authorities) and when accounting for other factors such as population size and the proportion of the population in an area under the age of 15 and over 65.

The research confirms findings from the influential report by Sir Michael Lyons into the role, function and funding of UK local government, published in 2007, which concluded that increasing centralisation has inhibited the ability of local authorities to respond to local needs and preferences and manage financial pressures. It argued that central government should give more flexibility and discretion to local authorities and made a series of recommendations to support greater devolution of power.

Professor Ben Lockwood, lead author of the report, said:

“The UK, and particularly England, is widely recognised to have one of the most centralised systems of sub-national government amongst developed democracies, both in expenditure and taxation.”

“Our findings provide evidence to confirm the concerns of Michael Lyons and others that because of the grip of Whitehall, the local democratic process does not allow local governments to respond to local preferences.”

“While there have been some small improvements since the Lyons report - such as the business rate retention scheme which enables councils to keep a proportion of revenues raised from businesses in their area - the picture he described remains largely unchanged.”

“If the central government is serious about achieving its levelling-up agenda and reducing regional inequalities, it seems a prerequisite that local governments should be able to respond to the needs of local communities to deliver effective services and enhance standards of living.”

Read the full paper

‘In the Grip of Whitehall? The Effects of Party Control on Local Fiscal Policy in the UK’, by Benjamin Lockwood, Francesco Porcelli and James Rockey, was published in June 2022 in the CAGE working paper series.