In a significant shift of power from Westminster, Prime Minister Andy Burnham is set to empower regional mayors across England by allocating them a share of income tax revenue. This groundbreaking initiative aims to decentralise financial authority and enhance local governance, marking a pivotal moment in the ongoing conversation about devolution in the UK.
A New Era of Local Governance
Burnham’s announcement outlines a comprehensive strategy to enable mayors of city regions and strategic authorities to retain portions of income tax and business rates generated within their jurisdictions. This approach intends to reduce reliance on central government grants, which have historically dominated local funding.
Although the exact percentage of income tax that will be allocated to mayors remains under discussion, further details are expected to be revealed alongside Chancellor John Healey’s inaugural budget this autumn. Critics, notably from the Conservative Party, have voiced concerns regarding the lack of specifics, suggesting that areas with fragile economies might ultimately suffer from the proposed changes.
“Under our plans, more of the taxes raised in a community will stay in that community,” Burnham asserted, reinforcing his commitment to what he terms “bringing power home” to every postcode. This sentiment reflects a growing frustration with the centralised tax framework, which, according to the OECD, leaves the UK with the lowest local tax revenue proportion among G7 nations at just 5.8%. For comparison, countries like France and Japan retain significantly higher local shares of tax revenue.
The Mechanics of Tax Devolution
Currently, mayors primarily depend on central government grants for funding. Burnham, who previously served as the mayor of Greater Manchester, has long championed a shift towards greater local fiscal autonomy. His government’s plans, which are set to come into effect progressively—with income tax devolution anticipated for April 2028—seek to replace these grants with direct revenues from taxes generated locally.
The implication is clear: mayors will have a vested interest in fostering economic growth within their regions. As local economies flourish, so too will their financial resources. Treasury insiders suggest that some mayors could see increased funding if they successfully expand their local tax bases.
Conservative shadow chancellor Sir Mel Stride has expressed scepticism about the plan, labelling it “very short on detail.” He cautioned that without alternative funding sources—be it through increased borrowing or cuts to central government grants—there is no “new money” being introduced. Stride’s assertion raises important questions about the viability of Burnham’s proposal.
Mixed Reactions from Regional Leaders
The response from various regional leaders has been decidedly mixed. Labour mayor Tracy Brabin of West Yorkshire welcomed the idea, stating that granting regions a portion of income tax would make the financial benefits of hard work more tangible for residents. “This will enable us to deliver on our ambitious plans including vital improvements to public transport,” she remarked, highlighting the potential for enhanced local services.
Conversely, Ben Houchen, the Conservative mayor of Tees Valley, expressed a preference for direct tax cuts but indicated that he would utilise any income tax revenue received to establish a rebate scheme, aimed at putting financial resources back into the hands of local residents.
Compounding the political complexity, Reform UK’s home affairs spokesperson Zia Yusuf urged Burnham to devolve authority over immigration matters, asserting that if the Prime Minister genuinely listened to local concerns, he would act against the housing of illegal migrants in local communities.
The Road Ahead: An Equalisation System
As the government formulates its plans, a key component will be an equalisation system to ensure that areas with lower tax revenues still receive essential financial support. This system aims to prevent economically disadvantaged regions from falling further behind, a concern raised by multiple stakeholders regarding Burnham’s strategy.
The overarching principle guiding this devolution effort is “local first,” which mandates that ministers will need to justify any powers that remain under central control. This marks a significant philosophical shift in how governance is approached in the UK.
Why it Matters
Burnham’s initiative is not just about tax; it signifies a transformative moment in the relationship between local authorities and the central government. By reallocating financial powers, Burnham seeks to foster economic resilience and adaptability in communities across England. This move could potentially reshape the political landscape, energising local economies and empowering citizens to see the direct benefits of their contributions. In a time when trust in government is waning, this approach to devolution could herald a new chapter in local governance, one where communities are not just recipients of funding, but active participants in their economic futures.
