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In a significant move aimed at decentralising power from Westminster, Prime Minister Andy Burnham has announced that all city region mayors in England will receive a share of income tax revenues for the first time. This initiative is part of Burnham’s broader objective to enhance local governance and empower regional leaders to better manage economic growth and public services. Alongside this reform, mayors will also gain the ability to retain a portion of business rates generated in their jurisdictions.
A Shift Towards Local Governance
The specifics of how much income tax mayors will be entitled to keep are yet to be finalised, with further details expected in Chancellor John Healey’s upcoming budget announcement this autumn. Critics have voiced concerns over the lack of clarity in the proposals, arguing that weaker economies may suffer from reduced funding as a result of the changes. However, Burnham remains resolute, stating that the initiative is a crucial step in fulfilling his commitment to “bring power home” to “every postcode in the country”.
“Under our plans, more of the taxes raised in a community will stay in that community,” Burnham asserted, highlighting the need for a more locally focused financial structure.
Current Tax Landscape in the UK
The UK’s system of tax revenue collection is among the most centralised in the world, with only 5.8% of national taxes being collected at the local level, the lowest in the G7, according to the OECD. This figure starkly contrasts with countries like France, Japan, and the United States, where local tax collection is significantly higher. Traditionally, strategic authorities have depended heavily on government grants, limiting their financial autonomy.
Burnham, who previously served as the Mayor of Greater Manchester, has long advocated for greater fiscal control for local leaders, and the current proposal represents a continuation of that agenda. Prior to his recent appointment as Prime Minister, discussions regarding the potential allocation of national tax revenue to local mayors were already underway.
Implementation Timeline and Future Prospects
The proposed reforms indicate that English metro mayors could begin retaining some business rate revenue as soon as April 2027, with income tax sharing expected to commence in April 2028. The ultimate goal is to replace traditional grants with revenues collected from these taxes, incentivising local economic growth. While the basic rate of income tax will remain unchanged, Treasury sources suggest that mayors who successfully expand their local economies may benefit from increased funding.
One think tank, Re:State, has recommended that mayors receive 2.5p for every pound generated by the basic 20p income tax rate in their regions. However, Conservative shadow chancellor Sir Mel Stride has expressed skepticism regarding the announcement, questioning whether it would generate any new funding without additional taxation or cuts to central government grants.
Mixed Reactions from Regional Leaders
Responses from mayors across different political parties have varied. Labour’s Tracy Brabin, the Mayor of West Yorkshire, welcomed the proposals, indicating that a share of income tax would enable regions to showcase the tangible benefits of their residents’ contributions. “This will enable us to deliver on our ambitious plans including vital improvements to public transport, providing better skills and employment support,” she stated.
Conversely, Ben Houchen, the Conservative Mayor of Tees Valley, expressed a preference for overall tax reductions but acknowledged that if granted a share of local income tax, he would implement a rebate scheme aimed at returning funds to residents.
Why it Matters
The devolution of income tax and business rates to regional mayors represents a pivotal shift in the UK’s governance model, potentially redefining the relationship between central and local authorities. By empowering local leaders with greater fiscal autonomy, this initiative could facilitate tailored economic strategies that address the unique needs of different regions. As the government finalises the details of this reform, its success could serve as a blueprint for future policies aimed at decentralising power and fostering sustainable local growth across the country.
