Local Government Finance: Assessing the Central Governmant's Contribution

Abstract

SUMMARYIt is widely believed that between 60 to 66 per cent. of local authority expenditure (or income) is met by grants from central government alone. This popularly held view is challenged in this paper through a consideration of the current system of funding. We begin with the rate support grant procedure and identify some common sources of misunderstanding; these concern the definition of the rate support grant itself and the true nature of relevant expenditure. This leads us to examine the question of local authority miscellaneous income from fees, sales, rents and other sources from which we conclude that its contribution is underestimated. However it is general knowledge that besides miscellaneous income local authorities derive their income from two other principal sources namely, government grants and local rates. Accordingly the remainder of the paper examines in turn the contribution of these three sources towards (i) local authority revenue expenditure in respect of rate fund services, (ii) local authority revenue income and (iii) local authority income including both revenue and capital receipts. In no instance does central government's share approach 60 per cent. Thus, it would appear that the contribution of government is being overestimated while that of miscellaneous income underestimated. The implications of this are discussed.