Prime Minister Andy Burnham is set to revolutionise the fiscal landscape for regional mayors across England by granting them a share of income tax revenues for the first time in history. This bold initiative is part of Burnham’s broader strategy to decentralise power from Westminster and empower local leaders. Alongside this historic move, mayors will also gain the ability to retain a portion of the business rates collected within their jurisdictions, as they strive for increased autonomy over crucial services such as housing, transportation, and skills development.
A Shift Towards Local Empowerment
The specifics of how much tax revenue will be allocated to mayors remain under wraps, with further details anticipated when Chancellor John Healey presents his inaugural budget this autumn. Critics from the Conservative Party have already raised concerns about the lack of clarity in Burnham’s proposals, suggesting that economically weaker regions may face financial disadvantages. However, Burnham remains steadfast, asserting that this initiative is a fulfilment of his promise to “bring power home” to every community across the nation.
“This is about ensuring that more of the taxes raised in our communities stay within those communities,” Burnham declared, underscoring his commitment to local governance.
The centralisation of tax revenue in the UK is stark when compared to other developed nations. According to the OECD, the UK collects only 5.8% of national taxes at the local level, the lowest percentage among G7 countries. In contrast, countries like France and Japan allocate significantly higher proportions—20.4% and 36%, respectively. Burnham’s approach aims to rectify this imbalance, shifting the reliance of local authorities from central government grants to funding models that reward local economic growth.
Financial Dynamics and Future Prospects
Under the new framework, English metro mayors are projected to begin retaining business rates revenue from April 2027, with a share of income tax expected to follow in April 2028. This progressive shift aims to replace traditional grants with tax revenues, although the rates, such as the basic 20% income tax on earnings between £12,571 and £50,270, will remain unchanged.
Some experts, including the think tank Re:State, have proposed that mayors could receive 2.5p for every pound raised from the 20p basic income tax in their respective areas. However, the exact mechanics of this allocation scheme are still being deliberated by government officials.
Critics, including Conservative shadow chancellor Sir Mel Stride, argue that Burnham’s announcement lacks substance. “Unless Burnham intends to implement another tax increase or borrow even more, there is no new funding being introduced,” Stride remarked. He cautioned that the proposed changes could inadvertently disadvantage regions with weaker economies, which runs counter to Burnham’s stated objectives.
Reactions from the Political Spectrum
The response to these proposals has been decidedly mixed among regional leaders. Labour’s Tracy Brabin, the mayor of West Yorkshire, expressed optimism, stating that the allocation of income tax will enable her region to demonstrate tangible benefits to residents. “This will allow us to deliver on our ambitious plans, including vital improvements to public transport and enhanced skills support,” she commented.
In contrast, Conservative mayor Ben Houchen of Tees Valley expressed a preference for reduced taxes over the proposed income tax sharing. Nevertheless, he indicated that should he receive a portion of local income tax, he would establish a rebate scheme aimed at returning funds to residents.
The government is also finalising an equalisation system to support areas that may not generate sufficient tax revenue, ensuring that financial assistance remains available for less prosperous regions. This initiative aligns with the “local first” principle, requiring ministers to justify retaining powers in Whitehall instead of devolving them to local authorities.
Why it Matters
Andy Burnham’s proposed reforms represent a significant shift in the governance of local regions in England, challenging the long-standing centralisation of power in Westminster. By enabling mayors to tap into local tax revenues, Burnham aims to create a framework that prioritises the needs and aspirations of local communities. The success of this initiative could serve as a blueprint for a more equitable distribution of power and resources across the UK, transforming the relationship between local authorities and central government. As this narrative unfolds, the implications for regional economic growth and community engagement will be closely scrutinised, revealing whether Burnham’s vision can truly bring power closer to the people.
