This post is part of a series on ‘Economic Aspects of the Constitution’. The other posts in the series will be available here.

Fiscal devolution in the United Kingdom (UK) is often examined through a technical lens. Yet some of its most significant implications and impacts are social. Tax devolution was introduced with the implicit promise that fiscal powers would enable governments to serve communities more closely, respond effectively to distinctive social needs, and sustain and strengthen local cultures and preferences. However, in practice, and as our work argues, the UK’s fiscal devolution fails to support coherent social outcomes. This is because it is built on constitutional instability and a persistent mismatch between social aspirations and fiscal capacity. The result is a system that fragments social citizenship, entrenches territorial inequalities, and leaves devolved governments unable to realise their intended social ambitions. Whilst literature on devolution, and particularly fiscal devolution, is sparse, a forthcoming article by Darryn Nyatanga identifies similar phenomena from a constitutional lens.

A quick snapshot of UK tax devolution: a constitutional mismatch

This section begins by outlining the scope of UK tax devolution since 1998, highlighting the incremental transfer of selected tax, spending and borrowing powers and the resulting emergence of divergent national tax policies. The discussion then turns to nation‑specific developments, tracing how Scotland and Wales have used their limited tax levers, while noting the far more constrained position of Northern Ireland. The discussion then situates fiscal devolution within its wider social and constitutional motivations, emphasising that the devolution projects have been driven as much by identity, accountability and social policy ambitions as by economic considerations, before we present our central argument that nations with strong social policy aspirations possess only weak fiscal tools to realise them. We then explain the causes of this constitutional mismatch in the next section.

The devolution processes of 1998 opened new possibilities for the devolution of tax, spending and borrowing powers to Scotland, Wales and Northern Ireland. Since then, however, fiscal devolution has moved at only incremental pace. While major taxes such as Value Added Tax (VAT), National Insurance Contributions (NICs) and Corporation Tax continue to be set and administered centrally, some elements of Income Tax and a number of smaller taxes (notably real property and environmental taxes) have progressively been devolved to varying degrees across the UK nations. This has enabled the emergence of distinct devolved tax policies and experimentation, but it has also produced an increasingly messy and fragmented tax landscape across the UK.

So far, Scotland and Wales have implemented their own land transaction taxes, but they operate in a similar way to the predecessor tax (Stamp Duty Land Tax) that continues to be implemented in England.  Scotland has the ability to vary Income Tax rates on non‑savings and non‑dividend income but has no control over reliefs, such as on Gift Aid charitable donations, which are still governed by UK-wide legislation. Wales has power to set Income Tax rates, but no changes have been made to these rates as yet, and so the Welsh income tax rates remain the same as those set in England.  Tax devolution in Northern Ireland is very limited, in part reflecting continued political tensions in the territory.

It is important to remember that fiscal matters are not the only or even primary drivers behind the devolution processes.  Devolution aimed to address democratic deficit, accountability and to enhance responsive social policymaking. One of Scotland’s motives for devolution was to achieve an enhanced voice for the people of Scotland, above and beyond what was possible through existing structures. Wales’ motives included a desire to strengthen a distinct Welsh identity, culture, the Welsh language and to provide tailored public services to improve citizen well-being and address unique socio-economic needs. One of the main reasons for devolving power to Northern Ireland was to overcome historic social divisions and to allow for more nuanced and non-conflictual understandings of individual identity. In sum, UK devolution was underpinned by social ambitions, social identity, hopes and aspirations.  

However, we argue that the piecemeal and asymmetrical nature of UK tax devolution has produced a fiscal system that is incapable of achieving its intended social and economic aims. Wales often reports on having the longest NHS waiting lists in the UK, alongside reports of severe financial deterioration and poverty. Indeed, Professor Robert Huggins has warned that Wales risks becoming “economically cut off from many parts of the rest of the UK”. Likewise, the Nevin Economic Research Institute reports that Northern Ireland’s fiscal arrangements have become “a bad advertisement for devolution”.  The result is a constitutional mismatch: the nations with the strongest social policy aspirations seem to have the weakest fiscal instruments with which to pursue them.

What has caused the constitutional mismatch?  

We argue that the answer to this question is five-fold. First, the partial and piecemeal nature of tax devolution has produced a system in which citizens’ fiscal rights and obligations vary not only by territory but also by income type, administrative pathway, and local authority boundaries. Scottish taxpayers, for example, face different income tax rates depending on whether their income is earned, saved, or derived from dividends. Cross‑border workers and families in Wales and England must navigate dual filing requirements for land transactions, and the forthcoming Scottish Aggregates Tax will require businesses operating across the border to register in two jurisdictions and rely on a new credit system to avoid double taxation. These complexities are compounded by low levels of tax literacy: the Institute of Chartered Accountants of Scotland and the Chartered Institute of Taxation reported in 2021 that only 27 per cent of surveyed Scottish taxpayers correctly identified that income tax is shared between the UK and Scottish governments. These are not merely administrative inconveniences. They influence household finances and affect citizens’ ability to understand, engage with and trust the fiscal state. The tax administration burden can increase financial hardship for some citizens, and has been known to cause severe distress, marriage breakdowns and mental health issues. In this sense, the UK’s fiscal constitution does not merely decentralise power—it decentralises important aspects of social citizenship and well-being.

Second, fiscal fragmentation between England, Scotland, Wales and Northern Ireland is compounded by local taxation, which is often (and confusingly) also described as ‘devolved’.  Indeed, some of the most serious social consequences of fiscal fragmentation emerge in this local context. Council Tax and Business Rates fund essential social services—social care, children’s services, housing, libraries, and local transport—yet the design of these taxes entrenches territorial inequality. Council Tax in England and Scotland is still based on 1991 property values, meaning that households in lower‑value areas often pay a higher proportion of their income than those in wealthier regions. Wales’ 2003 revaluation and subsequent reforms demonstrate that more socially responsive design is possible, but England and Scotland have not yet followed suit. Business Rates, meanwhile, are expected to support a wide array of policy aims including revenue raising, high-street revitalisation and regional decentralisation, despite being poorly suited to achieving all of these aims simultaneously.  The result is a system in which the quality of local social rights depends heavily on local tax capacity, which in turn reflects temporal factors such as historic property values rather than contemporary social need.

Third, the Barnett formula, which governs the allocation of UK government funding to the Scottish, Welsh and Northern Irish devolved governments, is often presented as a neutral mechanism that ensures equal per‑capita changes in funding across the UK. Yet its social implications are profound. With some narrow exceptions, the formula does not account for relative need, demographic change, or structural inequalities. Further, it is controlled by HM Treasury, which exercises significant discretion over comparability factors and programme classifications. It should be noted that the 2008 Holtham Commission on Funding and Finance for Wales demonstrated that Wales was significantly underfunded under the Barnett formula, which ultimately led to the introduction of a needs‑based factor for Wales and, more recently, Northern Ireland. But these adjustments are limited and politically contingent, because neither Wales’s nor Northern Ireland’s needs‑based factor represents a neutral, technocratic correction to the Barnett formula. Rather, they are the product of political negotiation, political timing, and political incentives. The UK government continues to use “formula bypass” mechanisms to allocate extra funding for specific projects, city deals and regional transport infrastructure. However, there is growing concern that bypass-based allocations are politically contested and involve decisions that are neither transparent nor clearly explained. Barnett thus functions less as a social equalisation mechanism and more as a political technology of distribution, one that obscures social needs and reinforces the centrality and control of England in fiscal decision‑making.

Fourth, one of the more positive social outcomes of devolution in Scotland and Wales is the autonomy for them to embed social values in their tax systems. Scotland’s 2021 Framework for Tax emphasises proportionality, engagement, and effectiveness, while Wales’ 2017 Tax Policy Framework integrates sustainability and the well‑being of future generations. These frameworks represent genuine attempts to align fiscal policy with social objectives. Yet their transformative potential is limited by the narrowness of devolved tax powers. Without increased control over high-yield taxes such as VAT, National Insurance Contributions, Corporation Tax and the Income Tax base, devolved governments cannot meaningfully reshape the fiscal foundations of their social models. Innovation is therefore confined to the margins with property and environmental taxes, and modest Income Tax adjustments. The UK’s fiscal constitution thus creates a structural mismatch of social ambition without fiscal capacity. Devolved governments are expected to pursue ambitious social goals, but the current fiscal system limits the money, powers, or stability required to achieve those goals.

Finally, the fifth reason for the mismatch arises from the weak constitutional foundations of fiscal devolution. Parliamentary sovereignty means that devolved fiscal powers are not entrenched but can, in theory, be expanded, restricted, or abolished by simple majority of the Westminster Parliament. Devolved governments therefore operate under a constant Eye of Sauron that can potentially override devolved powers. This creates not only constitutional but also social precarity. In other words, it follows from the constitutional insecurity and political contingency of fiscal devolution arrangements that the social ambitions of each devolved nation, local social services and the welfare of citizens are also insecure. In federal systems, social rights and fiscal powers are supposed to be mutually reinforcing; in the UK, they are mutually vulnerable!

Conclusion

The UK frequently describes itself as a ‘social union’, bound together by shared social welfare commitments. Yet its fiscal constitution does not support this aspiration. Instead, it fragments social citizenship, entrenches territorial inequalities, and leaves devolved governments unable to realise their social ambitions. The future of the UK’s social union will depend on the political and constitutional choices of the UK and devolved governments. Given the recent elections across the UK, it will certainly be interesting to see how this plays out.  Nevertheless, without a serious and coordinated effort to achieve a coherent and reasonably stable system of fiscal powers and social ambitions, the UK will continue to drift between centralisation, decentralisation, fragmentation, political improvisation and opaqueness. A ‘social union’ and society cannot possibly be expected to prosper in such a disorganised way.

(Suggested citation: S. Closs-Davies, D. de Cogan and A. Lawton, ‘Devolving Power, Dividing Outcomes – The Social Consequences of UK Fiscal Devolution’, U.K. Const. L. Blog (10th June 2026) (available at https://ukconstitutionallaw.org/))