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In a bold move to decentralise power and enhance local governance, Prime Minister Andy Burnham has announced plans to allocate a share of income tax revenue to all city region mayors in England. This unprecedented initiative aims to empower local leaders, ensuring that more of the taxes raised within communities remain there, rather than being funnelled to Westminster.
A Shift in Power Dynamics
Burnham’s proposal is a significant step in his broader agenda to transfer authority from the central government to local leaders. Alongside the income tax sharing, mayors of strategic authorities will gain the ability to retain a portion of business rates collected in their regions. In addition, they will have increased oversight over essential services such as housing, transportation, and skills development.
While the exact percentage of income tax that will be allocated to mayors remains under wraps, further details are expected to emerge during Chancellor John Healey’s budget presentation in the autumn. Critics, however, have raised concerns about the lack of clarity in the plans, warning that areas with struggling economies may not receive equitable funding.
Burnham’s Vision for Devolution
The Prime Minister, who previously served as the Mayor of Greater Manchester, has long advocated for greater fiscal autonomy. He remarked, “Under our plans, more of the taxes raised in a community will stay in that community,” emphasising his commitment to “bring power home” to every postcode across the country.
Currently, local authorities in the UK rely heavily on central government grants, with just 5.8% of national taxes collected at a local level—the lowest figure among G7 nations, according to the OECD. In stark contrast, countries like France and Japan allow localities to retain a far greater share of their tax revenues, suggesting a need for reform in the UK system.
Timeline for Implementation
The new measures are set to roll out incrementally, with metro mayors expected to start retaining some business rates by April 2027 and receiving a portion of income tax from April 2028. The intention is to shift funding away from traditional grants, fostering local economic growth through a more sustainable revenue model.
Despite the optimism surrounding the reforms, some experts caution that without a well-defined framework, the initiative may not achieve its intended goals. For example, think tank Re:State has recommended that mayors be allocated 2.5p of every pound raised by the basic income tax rate in their respective areas.
Mixed Reactions from Mayors
The reception to Burnham’s announcements has been varied among regional leaders. Labour’s Tracy Brabin, the Mayor of West Yorkshire, welcomed the potential for a more direct connection between residents and the taxes they pay, stating that it would allow for vital improvements in public services. Conversely, Conservative Mayor Ben Houchen of Tees Valley expressed a preference for tax cuts but acknowledged that if given the opportunity to control local income tax, he would implement a rebate scheme to benefit residents.
Why it Matters
Burnham’s initiative to decentralise income tax revenue could fundamentally reshape the economic landscape of England’s local authorities. By enabling mayors to retain a share of the taxes generated within their communities, this reform not only promises to enhance local spending power but also aims to invigorate regional economies. As the government plans for a more balanced distribution of resources, the success of this policy could serve as a litmus test for the future of devolution in the UK.
