In a landmark move aimed at decentralising power, Prime Minister Andy Burnham has announced that all English city region mayors will receive a share of income tax revenues for the first time. This initiative is part of Burnham’s broader strategy to shift authority from Westminster to local leaders, promising to enhance financial autonomy for local governments.
New Financial Powers for Mayors
Under Burnham’s new scheme, mayors will not only gain a portion of income tax revenue but will also retain some business rates collected in their respective areas. Additionally, they will have increased control over essential services, including housing and transport. The specifics of how much tax revenue will be allocated to each mayor are yet to be determined, with further details expected in Chancellor John Healey’s first budget this autumn.
Critics have raised concerns about the lack of clarity surrounding the plans, warning that economically weaker regions might suffer from reduced funding. Nevertheless, Burnham remains optimistic, asserting that the initiative will “bring power home” to “every postcode in the country.” He emphasised that more local tax revenue will remain within communities, promoting economic growth where it is generated.
A Shift in the UK’s Tax Structure
The current state of tax revenue distribution in the UK is heavily centralised, with a mere 5.8% collected at a local level, the lowest among G7 nations, according to the OECD. Other major economies, like France and Japan, enjoy significantly higher local tax shares. Mayors have traditionally depended on central government grants for funding, but Burnham’s approach aims to empower local governments to generate their own revenue.
As Greater Manchester’s former mayor, Burnham has long advocated for fiscal independence, seeking a system where local authorities can directly benefit from the taxes collected in their regions. While the government had been exploring revenue sharing with metro mayors prior to Burnham’s appointment as Prime Minister, his recent speech on devolution signalled a more aggressive push for change.
Timeline for Implementation
The planned reforms will see English metro mayors begin retaining some income from business rates by April 2027, with a share of income tax expected to be allocated from April 2028. Importantly, the existing tax rates, such as the basic rate of 20% applicable to incomes between £12,571 and £50,270, will not change. Officials are still deliberating on the exact distribution of income tax among mayors, with suggestions from think tank Re:State proposing that mayors receive 2.5p for every £1 raised by the basic rate in their areas.
However, opposition figures like Conservative shadow chancellor Sir Mel Stride have expressed scepticism, labelling the announcement as lacking substance. He cautioned that unless Burnham’s plan involves new funding sources or cuts to existing grants, it may not provide the financial relief many areas desperately require.
Mixed Reactions from Metro Mayors
Responses from various metro mayors have been mixed. Labour’s Tracy Brabin, mayor of West Yorkshire, welcomed the devolution of tax revenues, stating it would allow her region to visibly benefit from the hard work of its residents. “This will enable us to deliver on our ambitious plans including vital improvements to public transport,” she said.
Conversely, Conservative mayor Ben Houchen of Tees Valley expressed a preference for tax cuts over revenue sharing. Yet, he acknowledged that if given a share of local income tax, he would establish a rebate scheme to return money to taxpayers.
Why it Matters
Burnham’s devolution strategy marks a significant pivot in the UK’s approach to local governance, challenging the traditional power dynamics that have long favoured Westminster. By empowering local leaders with financial control, this initiative could stimulate economic growth in regions that have historically felt neglected. The success of this plan will ultimately hinge on its execution and the government’s commitment to ensuring equitable support for all areas, particularly those with less robust economies.