Fiscal federalism and Fiscal Autonomy: Lessons for the UK from other Industrialised Countries

In many respects the notion of ‘subsidiarity’, as proposed in the Maastricht Treaty and
reasserted in the notion of bringing decisions as close as possible to the citizen in the
Amsterdam Treaty, relates closely to this concept of efficiency in public service provision. It
also gives subsidiarity an additional dimension, as it is argued that proximity to the citizen
promotes involvement by citizens in the democratic process. Although the EU Treaties laid
down criteria for the relationship between the EU and its member states, since then the notion
of subsidiarity has received further impetus, both within individual EU states and the EU’s
Committee of the Regions. It is now generally accepted that a move towards decentralisation
may lead to a better outcome in matching services to local preferences and in encouraging
citizenship.

However, as noted by Pola (1999), it is difficult to disentangle the extent to which the raw
measures of fiscal expenditure decentralisation in Tables 1 and 2 really reflect local decision-
making. This is because official expenditure statistics on sub-national jurisdictions will
sometimes include not only expenditure on functions assigned solely to that jurisdiction, but
also ones where the local government is simply delivering a service that is effectively
controlled by a higher tier of government. We have already noted earlier that central and sub-
national jurisdictions share competencies on a number of key public services. However, even
if competencies are not explicitly shared, the degree of choice that local government has in
key areas is limited if central government retains the right to direct the way in which services
are provided, or if grants to local governments take the form of specific grants rather than
block grants (Midwinter, 2001). Unfortunately there is little evidence across countries on the
extent to which specific grants are used. Good examples of areas where direction often goes
beyond simple guidance are health and education. Although these functions have been
increasingly decentralised, central governments continue to see themselves as accountable to
their electorate and will tend to use directives. This tendency to see sub-national governments

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