Local government finance in England
KEY FACTS AND TRENDS
Local government finance in England K.1 Overview K.1.1
Local government expenditure in the United Kingdom represents about 25% of all government expenditure, and about 9% of national expenditure. This percentage has steadily decreased since the mid-1970s, mainly due to a substantial reduction in capital expenditure during the early part of the period. There has been a slight upturn since 1998. (See section 1.5) Chart K.1a: Local government as a percentage of national expenditure, United Kingdom 1975 to 2003 14% 12% 10% 8% 6% 4% 2% 0% 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 Total
K.1.2
Current
Capital
In England, local authorities’ gross expenditure and income was £107 billion in 2002-03. After deducting sales, fees, charges, receipts and other non-grant income, the overall cost to the central and local taxpayer of local authority services was about £82 billion, or £1,650 per head. (See section 1.6)
9
Local Government Financial Statistics England No.15 2004
Chart K.1b: Local authority gross income and expenditure 2002–03 110 100 90 80 £ billion
Trading services £1bn Housing Revenue Account £4bn Capital £12bn Interest £3bn Transfers £6bn
Trading services £1bn Housing Revenue Account £7bn Capital grants & receipts £9bn Other £7bn Sales, fees & charges £9bn Grants outside AEF £6bn
70
Procurement £37bn
60 50 40
Revenue grants £52bn
30 20 Employees £44bn
10
Council tax £17bn
0 Expenditure
Income
K.1.3
Local authorities (including police and fire authorities) are responsible for delivering a wide range of services. These include schools, social services, the police, the fire service, libraries, collecting and disposing of waste, mending roads, and, in many areas, providing social housing.
K.2 The pattern of spending K.2.1
In 2002-03, net current expenditure (See section 2.1) on general services was £72.6 billion. Total capital expenditure was £11.7 billion. (See section 3.1 and section 4.1) Chart K.2a: Expenditure on services 2002–03 30 25
£ billion
20 15 10 5 0 Education
Social services
Police
Fire
Net current expenditure
10
Transport
Other services
Capital expenditure
Housing
Transfers
Local Government Finance in England – Key Facts and Trends
Comparisons of service expenditure over time are difficult because of changes in local government responsibilities. After adjusting for the expenditure of former grant maintained schools, net current expenditure on education increased by about a third in real terms between 1997-98 and 2002-03. Capital expenditure on education more than doubled during this period. Non-education expenditure has shown steady but smaller increases; the increase in net current expenditure on social services partly reflects additional responsibilities for care in the community transferred to local government during the late 1990s. (See section 3.5 and section 4.1) Chart K.2b: Net current expenditure by service 1997–98 to 2004–05 real terms, 2002-03 prices
35 30
£ billion
25 20 15 10 5 0 1997-98
1998-99
Education
1999-00
2000-01
Transport
2001-02
2002-03
2003-04 budget
2004-05 budget
Social services
Cultural, environmental & planning
Police
Fire
Other
Chart K.2c: Total capital expenditure by service 1997–98 to 2004–05
real terms, 2002-03 prices
4
3 £ billion
K.2.2
2
1
0 1997-98
1998-99
1999-00
2000-01
Education
Transport
Housing
Police
2001-02
2002-03
2003-04 budget
2004-05 budget
Social services Fire
Other
11
Local Government Financial Statistics England No.15 2004
K.3 Balance of funding K.3.1
About 65% of local authorities’ gross income in 2002-03 came from central government, and the remaining 35% from local sources, including council tax, charges, rents and capital receipts. (See section 2.1) On a narrower definition, 75% of revenue expenditure is funded from government grant, and 25% from local taxes. The locally-funded percentage has increased very gradually since the introduction of the council tax in 1993-94, as council tax yield has increased more quickly than government grants and business rates. Before the nationalisation of business rates in 1990-91 nearly 60% of resources to fund revenue expenditure were raised locally. (See section 3.5) Chart K.3a: Sources of revenue funding 1981–82 to 2004–05 real terms, 2002–03 prices
45 40 35 £ billion
30 25 20 15 10 5 0
Government grants
Business rates
Domestic rates, community charge, council tax
Chart K.3b: Balance of funding 1981-82 to 2004–05 70%
Percentage of revenue expenditure locally funded
60% 50% 40% 30% 20% 10% 0%
Domestic rating system Business rate level set by Local Authorities Rate Support Grant
12
Community charge system
Council tax system
Nationally Determined Uniform Distributable NNDR Revenue Support Grant
Local Government Finance in England – Key Facts and Trends
K.4 Council tax Council tax raised £16.6 billion in 2002-03, £2.3 billion of which was funded by means-tested council tax benefit. Council tax revenue rose to £20.3 billion in 200405. Since the introduction of council tax in 1993-94, council tax bills have increased by 105%, more than three times the rate of inflation, and more than double the increase in average earnings. (See section 2.2) Table K.4a: Annual increases in average Band D council tax 1994–95
2.1%
1995–96
5.0%
1996–97
6.1%
1997–98
6.5%
1998–99
8.6%
1999–00
6.8%
2000–01
6.1%
2001–02
6.4%
2002–03
8.3%
2003–04
12.9%
2004–05
5.9%
Chart K.4b: Increases in council tax, retail prices and average earnings since 1993–94 120% 100% 80%
60% 40% 20%
Council tax
20 01 –0 2 20 02 –0 3 20 03 –0 4 20 04 –0 5
–0 1 00
0
Retail Price Index
20
–0 19
99
–9 98 19
97
9
–9 8
7 –9 96 19
19
5 19 95 –9 6
–9 94 19
93
–9
4
0%
19
Percentage increase
K.4.1
Average earnings
13
Local Government Financial Statistics England No.15 2004
K.5 Regional variations K.5.1
There is a rough gradient in spending per head from the north to the south, with both revenue expenditure and capital expenditure higher in the northern regions, and lower in the south. The exception to this pattern is London, which has by far the highest revenue expenditure per head – 35% above the average. The pattern of revenue and capital expenditure is similar, though in recent years capital expenditure in the North East has been particularly high. (See section 3.4 and section 4.1) Chart K.5a: Revenue and capital expenditure 2002–03, percentage difference from average 40% 30% 20% 10% 0% -10% -20% North East
North West
Yorkshire East West East of & the Midlands Midlands England Humber Revenue Expenditure
K.5.2
London
South East
South West
Capital Expenditure (excluding housing)
Much of the variation in revenue expenditure is due to difference in levels of spending on social services and police; London’s spend was 45% above the average for social services, and 78% above average for police. Chart K.5b: Net current expenditure on services per head 2002–03
North East North West Yorkshire & the Humber East Midlands West Midlands East of England London South East South West 0
500
1,000
1,500
2,000
2,500
£ per head Education
14
Transport
Social services
Police
Fire
Other services
Local Government Finance in England – Key Facts and Trends
K.5.3
Regional expenditure differences reflect the differences in the amount of central government funding received. Because of its needs and higher costs, London receives the highest levels of both general and specific grants. In comparison, the differences in council tax income between the regions are relatively small, and less than the variation that would be expected if all authorities set the same Band D council tax. (See section 2.4) Chart K.5c: Sources of revenue funding 2002–03
North East North West Yorkshire & the Humber East Midlands West Midlands East of England London South East South West 0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
£ per head Council tax
Specific grant
Because of regional differences in house prices, there is a big difference in the proportion of properties in the different council tax bands in each region. In the North East, 86% of all properties are in Bands A to C, whereas in London the figure is only 44%. However the variation in council tax yield is less than this disparity in bands would suggest, as regions with low value properties tend to have a higher average Band D council tax. (See section 2.2) Chart K.5d: Council tax – Band D levels and percentage of properties in Bands A to C 2002–03
90% £1,000
80% 70%
£800
60% 50%
£600
40% £400
30% 20%
£200
% of properties in Bands A to C
100%
£1,200
Average Band D council tax
K.5.4
General grant
10% 0%
£0 North East
North West
Yorkshire East West East of & the Midlands Midlands England Humber
Band D council tax
London
South East
South West
% below Band D
15
Local government finance in England K.1 Overview K.1.1
Local government expenditure in the United Kingdom represents about 25% of all government expenditure, and about 9% of national expenditure. This percentage has steadily decreased since the mid-1970s, mainly due to a substantial reduction in capital expenditure during the early part of the period. There has been a slight upturn since 1998. (See section 1.5) Chart K.1a: Local government as a percentage of national expenditure, United Kingdom 1975 to 2003 14% 12% 10% 8% 6% 4% 2% 0% 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 Total
K.1.2
Current
Capital
In England, local authorities’ gross expenditure and income was £107 billion in 2002-03. After deducting sales, fees, charges, receipts and other non-grant income, the overall cost to the central and local taxpayer of local authority services was about £82 billion, or £1,650 per head. (See section 1.6)
9
Local Government Financial Statistics England No.15 2004
Chart K.1b: Local authority gross income and expenditure 2002–03 110 100 90 80 £ billion
Trading services £1bn Housing Revenue Account £4bn Capital £12bn Interest £3bn Transfers £6bn
Trading services £1bn Housing Revenue Account £7bn Capital grants & receipts £9bn Other £7bn Sales, fees & charges £9bn Grants outside AEF £6bn
70
Procurement £37bn
60 50 40
Revenue grants £52bn
30 20 Employees £44bn
10
Council tax £17bn
0 Expenditure
Income
K.1.3
Local authorities (including police and fire authorities) are responsible for delivering a wide range of services. These include schools, social services, the police, the fire service, libraries, collecting and disposing of waste, mending roads, and, in many areas, providing social housing.
K.2 The pattern of spending K.2.1
In 2002-03, net current expenditure (See section 2.1) on general services was £72.6 billion. Total capital expenditure was £11.7 billion. (See section 3.1 and section 4.1) Chart K.2a: Expenditure on services 2002–03 30 25
£ billion
20 15 10 5 0 Education
Social services
Police
Fire
Net current expenditure
10
Transport
Other services
Capital expenditure
Housing
Transfers
Local Government Finance in England – Key Facts and Trends
Comparisons of service expenditure over time are difficult because of changes in local government responsibilities. After adjusting for the expenditure of former grant maintained schools, net current expenditure on education increased by about a third in real terms between 1997-98 and 2002-03. Capital expenditure on education more than doubled during this period. Non-education expenditure has shown steady but smaller increases; the increase in net current expenditure on social services partly reflects additional responsibilities for care in the community transferred to local government during the late 1990s. (See section 3.5 and section 4.1) Chart K.2b: Net current expenditure by service 1997–98 to 2004–05 real terms, 2002-03 prices
35 30
£ billion
25 20 15 10 5 0 1997-98
1998-99
Education
1999-00
2000-01
Transport
2001-02
2002-03
2003-04 budget
2004-05 budget
Social services
Cultural, environmental & planning
Police
Fire
Other
Chart K.2c: Total capital expenditure by service 1997–98 to 2004–05
real terms, 2002-03 prices
4
3 £ billion
K.2.2
2
1
0 1997-98
1998-99
1999-00
2000-01
Education
Transport
Housing
Police
2001-02
2002-03
2003-04 budget
2004-05 budget
Social services Fire
Other
11
Local Government Financial Statistics England No.15 2004
K.3 Balance of funding K.3.1
About 65% of local authorities’ gross income in 2002-03 came from central government, and the remaining 35% from local sources, including council tax, charges, rents and capital receipts. (See section 2.1) On a narrower definition, 75% of revenue expenditure is funded from government grant, and 25% from local taxes. The locally-funded percentage has increased very gradually since the introduction of the council tax in 1993-94, as council tax yield has increased more quickly than government grants and business rates. Before the nationalisation of business rates in 1990-91 nearly 60% of resources to fund revenue expenditure were raised locally. (See section 3.5) Chart K.3a: Sources of revenue funding 1981–82 to 2004–05 real terms, 2002–03 prices
45 40 35 £ billion
30 25 20 15 10 5 0
Government grants
Business rates
Domestic rates, community charge, council tax
Chart K.3b: Balance of funding 1981-82 to 2004–05 70%
Percentage of revenue expenditure locally funded
60% 50% 40% 30% 20% 10% 0%
Domestic rating system Business rate level set by Local Authorities Rate Support Grant
12
Community charge system
Council tax system
Nationally Determined Uniform Distributable NNDR Revenue Support Grant
Local Government Finance in England – Key Facts and Trends
K.4 Council tax Council tax raised £16.6 billion in 2002-03, £2.3 billion of which was funded by means-tested council tax benefit. Council tax revenue rose to £20.3 billion in 200405. Since the introduction of council tax in 1993-94, council tax bills have increased by 105%, more than three times the rate of inflation, and more than double the increase in average earnings. (See section 2.2) Table K.4a: Annual increases in average Band D council tax 1994–95
2.1%
1995–96
5.0%
1996–97
6.1%
1997–98
6.5%
1998–99
8.6%
1999–00
6.8%
2000–01
6.1%
2001–02
6.4%
2002–03
8.3%
2003–04
12.9%
2004–05
5.9%
Chart K.4b: Increases in council tax, retail prices and average earnings since 1993–94 120% 100% 80%
60% 40% 20%
Council tax
20 01 –0 2 20 02 –0 3 20 03 –0 4 20 04 –0 5
–0 1 00
0
Retail Price Index
20
–0 19
99
–9 98 19
97
9
–9 8
7 –9 96 19
19
5 19 95 –9 6
–9 94 19
93
–9
4
0%
19
Percentage increase
K.4.1
Average earnings
13
Local Government Financial Statistics England No.15 2004
K.5 Regional variations K.5.1
There is a rough gradient in spending per head from the north to the south, with both revenue expenditure and capital expenditure higher in the northern regions, and lower in the south. The exception to this pattern is London, which has by far the highest revenue expenditure per head – 35% above the average. The pattern of revenue and capital expenditure is similar, though in recent years capital expenditure in the North East has been particularly high. (See section 3.4 and section 4.1) Chart K.5a: Revenue and capital expenditure 2002–03, percentage difference from average 40% 30% 20% 10% 0% -10% -20% North East
North West
Yorkshire East West East of & the Midlands Midlands England Humber Revenue Expenditure
K.5.2
London
South East
South West
Capital Expenditure (excluding housing)
Much of the variation in revenue expenditure is due to difference in levels of spending on social services and police; London’s spend was 45% above the average for social services, and 78% above average for police. Chart K.5b: Net current expenditure on services per head 2002–03
North East North West Yorkshire & the Humber East Midlands West Midlands East of England London South East South West 0
500
1,000
1,500
2,000
2,500
£ per head Education
14
Transport
Social services
Police
Fire
Other services
Local Government Finance in England – Key Facts and Trends
K.5.3
Regional expenditure differences reflect the differences in the amount of central government funding received. Because of its needs and higher costs, London receives the highest levels of both general and specific grants. In comparison, the differences in council tax income between the regions are relatively small, and less than the variation that would be expected if all authorities set the same Band D council tax. (See section 2.4) Chart K.5c: Sources of revenue funding 2002–03
North East North West Yorkshire & the Humber East Midlands West Midlands East of England London South East South West 0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
£ per head Council tax
Specific grant
Because of regional differences in house prices, there is a big difference in the proportion of properties in the different council tax bands in each region. In the North East, 86% of all properties are in Bands A to C, whereas in London the figure is only 44%. However the variation in council tax yield is less than this disparity in bands would suggest, as regions with low value properties tend to have a higher average Band D council tax. (See section 2.2) Chart K.5d: Council tax – Band D levels and percentage of properties in Bands A to C 2002–03
90% £1,000
80% 70%
£800
60% 50%
£600
40% £400
30% 20%
£200
% of properties in Bands A to C
100%
£1,200
Average Band D council tax
K.5.4
General grant
10% 0%
£0 North East
North West
Yorkshire East West East of & the Midlands Midlands England Humber
Band D council tax
London
South East
South West
% below Band D
15
