Finance and accounting

How constrained is UK local government? International evidence on spending, taxation and autonomy

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Paul Joyce, Jason Lowther, Philip Whiteman

What place does local government occupy within the UK system of public governance? International evidence suggests that UK local government combines three characteristics: comparatively low expenditure, small locally attributed tax revenue and medium-low institutional autonomy.

We now explore the evidence, draw conclusions, and clarify some of the assumptions and limitations of our conclusions.

Recently published OECD data indicate that United Kingdom local authorities account for expenditure equivalent to 9.3 per cent of GDP in 2023. This was below the EU27 average of 11.1 per cent of local government expenditure. Locally attributed tax revenue for the UK amounted to 1.7 per cent of GDP compared with an  EU27 average of 3.7 per cent. 

In this blog, “local government” refers to the OECD’s S.1313 local-government subsector. Depending on national institutional arrangements, this may include regional and other intermediate authorities as well as municipalities. See the note at the end of the blog for more on the OECD reporting of data.

The UK differs considerably in its expenditure and fiscal arrangements from some northern European countries, particularly Denmark, Sweden, Finland, and Norway, which have long been rated as having high scores on the published estimates of “Government Effectiveness” (see the World Bank published Worldwide Governance Indicators database). For the countries included in our analysis, local government tax revenue and expenditure are each moderately and positively associated with national government effectiveness (r=0.43 and r=0.44, respectively).

Three points should be kept in mind. First, these correlations establish association, not causation.

Second, “Government Effectiveness” is a national governance indicator that is based on perceptions of public services, the civil service, policy formulation and implementation, and government credibility. It is not a direct measure of local-government effectiveness. Its use in this analysis is on the grounds that local government is part of a multi-level governance system, interacts administratively and financially with central government, and may affect the effectiveness of the national governance system.

Third, the tax revenue data reported by the OECD do not measure only taxes over which subnational and local authorities have unilateral control and therefore are not appropriate for measuring tax autonomy. According to the OECD (2025), the reported tax revenue figure is partly own-source taxes and partly taxes shared with central government.  We cannot immediately infer from these data how much discretion subnational and local governments possess over rates, tax bases, reliefs or use of revenue.

The results suggest that a relatively large and fiscally significant local-government sector is compatible with effective government, but they do not demonstrate that a large local fiscal role causes government effectiveness. Two findings stand out:

1. Countries with comparatively high local government expenditure or tax revenue generally have medium-high or high Government Effectiveness scores (see the World Bank’s databank).

2. Countries with low local government expenditure or tax revenue display a much wider range of government effectiveness scores. Türkiye, Mexico, and Colombia are at the lower end and Luxembourg, the Netherlands, and Switzerland are at the upper end.

The relationship involving tax revenue data is illustrated in Figure 1.

Figure 1. Scatterplot of government effectiveness and local government tax revenue, 2023

Note on tax data in Figure 1: For unitary countries we use the OECD’s main subnational figure, which corresponds to the S.1313 local-government subsector. For federal and quasi-federal countries, we use the separate “Local government alone” figures.

Using OECD data for 2023, we found a strong positive correlation (r=0.79) between local government expenditure and local government tax revenue. We hypothesise that countries with larger local government sectors provide the required finance partly through transfers of money from central government and partly through local taxes, fees and charges.  Figure 2 illustrates the existence of a strong correlation between local government expenditure and tax revenue.

Figure 2. Scatterplot of local government expenditure and local government tax revenue, 2023

Note on tax and expenditure data in Figure 2: For unitary countries we use the OECD’s main subnational figure, which corresponds to the S.1313 local-government subsector. For federal and quasi-federal countries, we use the separate “Local government alone” figures.

Figure 2 also reveals the presence of a small group of countries in which locally attributed tax revenue is lower than would be expected based on the scale of their expenditure. This is evident visually: the countries lie noticeably below the general expenditure-taxation relationship implicit in the figure. As can be seen, this group includes Austria, Czechia, Estonia, Lithuania, the Netherlands, the Slovak Republic, Slovenia, and the United Kingdom.

Table 1 presents two measures of the relationship between tax revenue and expenditure for these countries: the tax coverage ratio and the local government tax-expenditure gap. The tax coverage ratio is calculated here by dividing tax revenue by expenditure and multiplying by 100. The tax-expenditure gap is calculated by subtracting tax revenue from expenditure, with both expressed as percentages of GDP. It represents the scale of local government expenditure not matched by locally attributed tax revenue. It is not a measure of a budget deficit and should not be understood as consisting entirely of central government transfers.

Table 1 Local government expenditure and tax revenue in selected countries, 2023

CountryLocal-government expenditure (% GDP)Local-government tax revenue (% GDP)Tax coverage ratio (%)Local-government tax–expenditure gap (% of GDP)
Estonia10.50.21.910.3
Czechia12.20.43.311.8
Lithuania9.20.33.38.9
Slovenia8.90.55.68.4
Slovak Republic8.50.55.98.0
Netherlands12.71.29.411.5
Austria9.21.314.17.9
United Kingdom9.31.718.37.6

Source: calculated from OECD (2025) data. For Austria, the “local government alone” figure is used.

The fiscal picture shown in Table 1 raises a broad institutional question: does it reflect a conception of local government as a distinct sphere of democratic governance, or primarily as an administrative means of delivering responsibilities determined nationally? The existence of low tax coverage (e.g., less than 20%) and a relatively large tax-expenditure gap (e.g., over 7 % of GDP) do not imply a fiscal imbalance because local government receives funding through a variety of mechanisms. Nevertheless, low tax coverage and a large gap is consistent with a system in which local authorities have significant service responsibilities but comparatively small locally attributed tax revenue.

We stress that expenditure and tax data do not by themselves establish the extent of local government autonomy.  For autonomy has constitutional, political, and administrative dimensions as well as fiscal dimensions.

Therefore, we need to examine autonomy more comprehensively. We turn to the Local Autonomy Index (LAI 2.0) (see Ladner, Keuffer and Bastianen, 2025). According to this index, UK local government belonged to the medium-low autonomy group during the period 2015 to 2020. Its LAI score was below both the EU and OECD mean scores. It was not the lowest on local autonomy: some countries, including Ireland, Russia and Belarus, recorded lower levels of local autonomy than the United Kingdom.

The UK received a comparatively low score on the LAI’s “non-interference” dimension. This suggests that UK local government is subject to significant forms of financial and administrative supervision.

In summary, we conclude that the expenditure, revenue and autonomy evidence suggests that UK local government occupies a comparatively constrained position within the wider system of public governance. Local authorities perform important public functions, but the locally attributed tax revenue is small, and their institutional autonomy is only medium-low by international standards. In England, statutory intervention in authorities judged by national government to be failing provides a particularly visible example of the vertical powers of supervision and control retained by central government.

These findings do not demonstrate that greater fiscal decentralisation would automatically improve public services or government effectiveness. They do, however, provide grounds for carefully designed and evaluated pilot reforms intended to strengthen local fiscal and strategic autonomy. Such experiments would need to assess not only their effects on local choice and accountability, but also their implications for service performance, fiscal sustainability and territorial equality.

Note

The OECD uses “subnational government” to encompass state, regional and local government. In unitary countries without a regional tier, this may consist primarily of local government, which is municipal councils and higher levels of local government. In the case of the OECD data on the UK, the devolved administrations of Northern Ireland, Scotland and Wales are included in central government. Most of the countries in the OECD data are unitary countries, and so mostly we are talking about local government when looking at subnational data. The federal and quasi-federal countries included in this analysis are Austria, Belgium, Canada, Germany, Mexico, Spain, and Switzerland, for which local government data alone is also reported.

References

Organisation for Economic Co-operation and Development (OECD) (2025) Subnational governments: Structure and finance. 2025 edition. Paris: OECD. Available at: https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/subnational-finance-and-investment/subnational-governments-infrastructure-finance-2025.pdf (Accessed: 21 July 2026).

Ladner, A., Keuffer, N. and Bastianen, A. (2025) ‘Local autonomy around the world: the updated and extended Local Autonomy Index (LAI 2.0)’, Regional & Federal Studies, 35(2), pp. 163–185. doi: 10.1080/13597566.2023.2267990.

World Bank (2026) Worldwide Governance Indicators. Available at: https://www.worldbank.org/en/publication/worldwide-governance-indicators (Accessed: 29 July 2026).

Job half done, it’s time to tackle council tax

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Jason Lowther

It’s hard to deny that the local government finance settlement this month marks big achievements for the ‘new’ (now almost two years old) government.  Labour’s manifesto promised that “to provide greater stability, a Labour government will give councils multiyear funding settlements”, and the new finance settlement duly covers three years.  By the end of this multi-year Settlement in 28-29, Core Spending Power will have increased by over 24% compared to 2024-25, equivalent to £16.6 billion.  And this increased amount is distributed in line with a new formula designed better to match resources to needs (albeit with £440m last minute tinkering).  There is much to celebrate here, which should give the government confidence to tackle another elephant in local government’s room: council tax.

Everyone knows that the council tax system is bad.  It’s outdated (based on 1991 values, before an eighth of current housing was built), highly regressive (people in cheaper homes often pay a higher proportion of their property value than those in expensive homes), regionally unfair (a recent article in the i newspaper found 292 council areas across England paying higher rates of council tax than they would in the wealthy Royal Borough of Kensington and Chelsea), and over centralised.

As Inlogov recommended to last year’s Select Committee on The Funding and Sustainability of Local Government Finance, the Government should start to improve council tax by amending council tax bandings and giving discretion on the details of the scheme’s design locally, such as the rates in each band and discount/subsidy arrangements.  The committee’s chair commented that “councils are trapped in a straitjacket by central government, with local authorities lacking the flexibility or control to devise creative, long-term, preventative solutions which could offer better value-for-money”.

There are already tentative moves to reform Council Tax in the different nations of the UK.  The Scottish Government no longer caps council tax increases but leaves this decision to local elected representatives.  This year’s Scottish Government budget also funded a revaluation of the highest value properties, with higher bands for properties valued over £1m (compared to the current highest band of £212,000), a change expected to affect around 1% of properties.  This is less radical than most of the options considered in the IFS report the Scottish Government commissioned to inform its decision.  In Wales, properties were revalued in 2003 and an additional council tax band above the highest band in England introduced.  In Northern Ireland, domestic rates are based on 2005 prices and a percentage rate applied.

In the long term major transformation of local government funding is required, as the Select Committee concluded:

In the long term, only true transformation, supporting a clear vision of what the role of local government should be, can make the local government funding system fair and effective. Beyond mere stabilisation, the Government must consider approaches to strengthen the system, including allowing councils to set their own forms of local taxes such as tourist levies, and placing stronger responsibility on central government to fund the services it requires local authorities to deliver. Central government, so used to its tight control of local government’s purse strings, must learn to ease its grip and let councils have more power to control their own affairs, accountable not to Westminster, but to their own local electorates.

As the government enters its third year, agreeing long term plans for local taxes could make a big contribution to the “change” they promised and turbo charge the real devolution we need.

Dr Jason Lowther is director of the Institute of Local Government Studies (INLOGOV) at the University of Birmingham. He was previously Assistant Director (Strategy) at Birmingham City Council and has worked at the West Midlands Combined Authority, Audit Commission and Metropolitan Police.

Just how ‘burdensome’ is our tax system?

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Chris Game

One of the almost unavoidable consequences of being comprehensively retired and with any kind of interest in politics is that you find yourself watching more of the Government’s annual, or biannual, Budget drama than you’d ever felt necessary during your working career. There are everyone’s speculations, the experts’ attempted explanations/simplifications, plus this time the botched premature release of the whole thing by the unfortunately titled (and now former) Chairman of the Office for Budget Responsibility (OBR) some 40 minutes before Chancellor of the Exchequer Rachel Reeves even took to her feet.

Anyway, unlike, I imagine, most of you lot, I actually sat through the whole Budget speech and at least the first bit of ensuing analysis by the ‘experts’. And, having done so, I almost immediately wished I’d counted the number of ‘tax burdens’ I’d heard – rather than, say, ‘tax rates’, which was the term I feel I grew up with, or tax levels, both of which are obviously more neutral and, you might think, more appropriate for a Chancellor of the Exchequer and at least some of her own party supporters.

I’ve no way of proving this, but it’s my strong impression that for most of my life the term ‘tax burden’ is one that would be used not in a Chancellor’s budget speech, but predominantly by slightly disgruntled taxpayers themselves or by Opposition parties and politicians, as a criticism of some specific tax or tax increase that the Government or Chancellor might be contemplating or had actually just imposed.

Gratuitous piece of information: we know that the public’s attitudes towards taxation and spending do fluctuate over time – partly but not entirely in relation/response to actual levels of taxation. Indeed, there’s an actual name for the study of such fluctuations: thermostatic theory, which, when I first learnt of it, I thought was something to do with people being happier when the sun’s out.

Anyway, the two words – tax and burden – are nowadays so closely linked, in the minds apparently of both payers and imposers, that they might as well be hyphenated. Quite early on in Reeves’ speech, therefore, and having acknowledged that freezing tax thresholds would hurt working people, she assured us that her plans were fair and that “the biggest burden would fall on those with the broadest shoulders”.

Not ‘fiscal impact’, ‘tax obligation’, or even ‘tax liability’, emphasising variously the effect on government finances or the legal duty to pay taxes, but that b-word from the outset and for any public expenditure. Nowadays, it seems, any tax increase, indeed any tax at all, is not just attacked as, but presented as, burdensome – a questioning of which, as I hope you’ll be gathering, was this blog’s main prompt. 

For it strikes me as odd, wrong and regrettable in several different ways. For a start, it’s almost certainly not how most of us were first taught about and introduced to taxes and their function. My guess is that explicit links would have been made between the public services with which as young people we would have been becoming familiar and benefitting from – education, healthcare, public safety, transport, waste management, emergency services – and their providers, and how our parents contributed in various ways to their funding, even those of which they weren’t necessarily regular or direct consumers.

No doubt we learned too, maybe indirectly, about their rising costs and the tax increases required to pay for them, but, if ‘burdens’ were mentioned at all, it would have been to explain that that was part of the deal in our advanced society. And, if our teachers were particularly keen, there might be some attempts to compare our levels/burdens with those of at least other European countries.

At which point – following a weekend wondering if I should email Jason and sound him out on whether he felt it would be worth my trying to turn these frankly rather meandering thoughts into an INLOGOV blog – at 10.00 a.m. precisely on Monday morning, there arrived a ResearchGate email announcing that our colleague Catherine Durose had just co-published an article asking “How should policy actors respond to buzzwords? Three ways to deal with policy ambiguity”[1].

It’s obviously impossible to summarise a 16-page article in a single blog paragraph, but the following desperate two sentences convey at least something of Durose and her three co-authors’ concerns. By using the lens of ‘buzzwords’, they “explain how actors in real-world policymaking contexts face ambiguity, then prompt debate on how to respond” (p.4). They focus our attention on “the temporality or the cyclical nature of ideas about better policymaking” … highlighting “the ambiguity that often accompanies these cycles”, and encapsulate “what these dynamics can feel like to policy actors …” (p.5).

Which brings me to my closing paragraphs and my concern about the seemingly incessant use of the ‘tax burden’ phrase – which could easily, it seems to me, make any comparative newcomer or innocent suppose that this ‘burden’ would surely reflect the UK’s position near the top of at least the European overall tax level list.

However, as anyone who has ever spent more than a few minutes ‘researching’ this tax burden question knows well, if anything, the reverse is the case. True, UK tax as a proportion of GDP (Gross Domestic Product) is currently close to its highest since 1945, but for a single worker on an average wage, we have one of the lowest ‘tax burdens’ among both G7 (Canada, France, Germany, Italy, Japan, UK and US) and OECD countries.

Other data sets are, of course available, but if, as would seem most likely, our newcomer/innocent were thinking of personal income tax levels, they’d be pretty comprehensively wrong. In the December 2025 table of ‘Top Statutory Personal Income Tax Rates in 35 Major European Countries’ the UK’s precisely 45% personal income tax rate puts us in 16th place – yes, above halfway, but not by much, and way behind the eight 50% pluses: headed by Finland (57%), Denmark (56%), and France (55%).

So, if 45% warrants the term ‘burden’ pretty well every time it’s mentioned, I wonder what translated nouns citizens of some of these countries use?  And might it not be time for at least our Chancellor (or Chancelloress) of the Exchequer to modify the ‘burden’ references?  Oh yes, and can Durose et al. also please work on a positive buzzword/phrase to substitute for ‘tax burden’?

[1] Richardson, L., Durose, C., Cairney, P. and Boswell, J., 2025. How should policy actors respond to buzzwords? Three ways to deal with policy ambiguity. Policy Sciences, pp.1-16.

Image of chancellor: https://www.bbc.co.uk/news/articles/cewjkv8jylko

Chris Game is an INLOGOV Associate, and Visiting Professor at Kwansei Gakuin University, Osaka, Japan.  He is joint-author (with Professor David Wilson) of the successive editions of Local Government in the United Kingdom, and a regular columnist for The Birmingham Post.

Openness of council finances is key for a functioning democracy

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Matty Edwards, Research For Action

Local authorities are under immense pressure to find savings whenever they can. After more than a decade of austerity, the collective deficit in the sector is expected to reach £9.3bn by next financial year. Local authority finances have also become increasingly speculative, as budgets are prepared on the basis of unpredictable grant allocations and single-year financial settlements, sometimes without audited accounts. Pressures to find new sources of income through commercial investments and private sector partnerships have also increased the complexity of council funding.

This creates a challenge: scrutiny of local government finance is more important than ever. Yet even with the best intentions, local authorities struggle to produce open and accessible financial information. 

In a research collaboration between Research for Action and the University of Sussex, we set out to explore how financial information — such as council budgets and accounts — could be made more accessible to the public. Our research found that even experienced researchers, accountants and councillors struggle to find and understand local authority financial information.

We spoke to 26 people from the local government sector over three months this spring to examine barriers to making local authority financial information accessible to councillors and the wider public. Interviewees included councillors from a range of authorities, council officers, academics, accountants, journalists and key sector bodies like CIPFA. 

Our key findings were a lack of standard reporting requirements, strained council capacity after years of austerity and a fragmented data landscape with no standard formats for publishing financial information. These barriers make it difficult to understand a single council’s finances and make comparisons across the sector, hindering effective scrutiny by councillors and journalists, and democratic participation by the public. 

Some interviewees argued that accessibility was less of a priority in the face of a mounting crisis in local authority finances, but in our view, openness is not a luxury. It is key to effective local democracy. 

How to improve open up council finances

Based on our findings, we set out a series of recommendations for greater transparency and openness. 

The government should introduce new data standards for local government to improve accessibility, potentially via a Local Government Finance Act. This should include making financial information machine readable where possible and using accessible file formats. An easy win in this area would be to create a single repository for all local government financial information.

Local audit reforms are also an important piece of the puzzle. The new Local Audit Office (LAO) should be made responsible for local government financial data, including making it publicly available with tools to enable comparison and oversight. A more ambitious idea for the new LAO could be to create a traffic light warning system for the financial health of local authorities based on indicators that are timely and easy to understand, taking inspiration from Japan. 

Council accounts were highlighted as a particularly technical and opaque part of local government finance. That’s why councils should be mandated to attach a narrative report to their annual accounts, as previously recommended by the Redmond Review.

We think that the Local Government Data Explorer, recently scrapped, should be replaced with a data visualisation that is genuinely accessible and interactive, perhaps taking inspiration from a dashboard created by academics in Ireland. There should also be funding for local open data platforms, because there have been isolated examples of successes, such as the Data Mill North. 

The other part of the problem is that councillors often don’t have the knowledge and skills to properly scrutinise the complicated world of local government finance. That’s why we’re calling for greater support and training for councillors to enable better financial scrutiny, as well as public resources to improve literacy around local government.

While the sector faces great upheaval in the next few years through local government reorganisation and English Devolution, these reforms also present an opportunity to improve transparency – whether that’s at unitary or combined authority level. 

We believe that greater openness will ultimately facilitate better public participation and healthier local democracies.

Matty Edwards is a freelance journalist based in Bristol who also works for Research For Action, a cooperative team of researchers that in recent years has investigated PFI, LOBO loans, the local audit crisis and scrutiny in local government.