PUBLIC FINANCE AND DEVOLUTION:MONEY FLOWS BETWEEN GOVERNMENT AND REGIONS IN THE UNITED KINGDOM*
| Published date | 01 June 1984 |
| Author | JOHN SHORT |
| DOI | http://doi.org/10.1111/j.1467-9485.1984.tb00468.x |
| Date | 01 June 1984 |
Scottish Journalof Political Economy,
Vol.
31,
No.
2,
June
1984
0
1984 Scottish Fmnomic Society
PUBLIC FINANCE AND DEVOLUTION:
MONEY FLOWS BETWEEN GOVERNMENT
AND REGIONS
IN
THE
UNITED KINGDOM*
JOHN
SHORT
IMG
Consultants, Newcastle upon Tyne and Sydney
I
The purpose of this paper is to present some estimates of net fiscal transfers
between regions and government based on the regional pattern of public
expenditure and of the regional incidence of taxation in the United Kingdom.
It is not a topic that had received much attention before the debate about
devolution which led to the abortive legislation of 1978. It is true that official
accounts were presented for Northern Ireland as a result of the devolutionary
nature
of
its government since 1920. These figures showed that, in the 1930s
and subsequently in peacetime after the wartime boom, Northern Ireland was
receiving net transfers from the government. From this it was inferred that
Northern Ireland was being specially subsidized. Nevertheless, despite this
transfer of funds, the level of services provided by the public sector on
Northern Ireland remained considerably below that enjoyed by the rest of the
country (Birrell and Murie (1980) and Lawrence (1965)). However, what was
not generally appreciated was that interregional redistribution had
been
taking place on a relatively substantial scale in the rest of the United Kingdom
with some areas receiving above average levels of public spending as well as net
transfers from the Exchequer.
This topic was examined in the work
of
the Royal Commission on the
Constitution. Estimates
of
public expenditure and taxation were prepared in
King (1973), and these produced the somewhat startling result for 1968-69
that only the South East and West Midlands regions paid sufficient in taxation
to cover the expenditure made by the government sector there. These two
regions were meeting the deficit generated by the other regions, as well as
paying for those non-devolved services such as defence and the interest on the
national debt.
When legislation for devolution was under debate, estimates of expenditure
per head
for
England, Scotland, Wales and Northern Ireland were officially
*
The research upon which this paper
is
based was funded
by
the Department of Environment
and the Social Science Research Council at the Department of Economics, University
of
Durham.
The research assistance
of
D.
J.
Nicholas and the suggestions on a previous draft by two referees
are gratefully acknowledged. Any errors are
of
my own making.
Date
of
receipt
of
final manuscript:
6
December
1983.
114
PUBLIC FINANCE AND DEVOLUTION
115
presented; no breakdown was given for the English regions. Moreover,
official estimates
of
the contribution by region to taxation were not published.
This omission may have resulted from the plans to eliminate most powers
of
taxation from any devolution proposals.
Thus, the debate
on
devolution was hampered by a lack of statistics
covering a lengthy period. Certainly the information on the English regions
was not sufficient for any clear conclusions to be made. The Northern Region
Strategy Team (1976) in its attempt to produce a detailed plan for the
economic regeneration of the Northern region considered public expenditure
to be one of the most important factors in generating a successful strategy.
Accordingly, it addressed the question of obtaining estimates of public
expenditure by detailed programme and gave a high priority to obtaining data
for a run of years on all the regions. Data were produced for all the regions
broken down by spending programme for the five years from 1969/70 to
1973/74. In addition, estimates
of
public expenditure classified by economic
category were produced
for
the Northern Region alone. These estimates by
NRST showed that there were indeed quite significant regional variations in
the levels of public expenditure
;
nevertheless, in the context of overall fiscal
flows, the taxation element of the fiscal equation was omitted, as it really did
not contribute to the overall formulation
of
the Strategic Plan for the
Northern Region (1977). However, following on from the NRST work, the
Department of the Environment, the government department responsible for
regional affairs in England, funded research into regional money flows and
from the results of this work, it is possible to draw up estimates of taxation and
public expenditure for the regions of England, Wales, Scotland, and Northern
Ireland.
The purpose of this paper is to draw upon this research to present net fiscal
transfers between the government sector and the standard planning regions. It
considers whether, during the period 1974/75 to 1977/78 on average, to what
extent a region could finance the expenditures made in it by the government
sector. Two alternative scenarios relating to devolved expenditures are
examined to provide an upper and lower limit
of
a situation in which a region
may have to finance spending from within. In addition, estimates of regional
cash flows resulting from public expenditure and taxation are presented. The
paper does not consider the merits of alternative modes
of
devolution or their
financing, but merely looks at which regions, if any, could finance expenditures
from within.
The data covers aggregate expenditure by central government, local
authorities and public corporations in the regions. The different functions on
which the money is spent are not included. Taxation is also considered in
aggregate. Both
of
these are analysed in detail elsewhere (Short, 1981). The time
period relates to 1974/75 to 1977/78 inclusive, using the average figures for the
whole period for analysis.
The paper is organized as follows. Following this introduction, the
methodology
of
measuring public expenditure and taxation in the regional
context is considered in Section
11.
The data, their coverage, and the sources
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