In a significant move aimed at decentralising power, Prime Minister Andy Burnham has announced that all city-region mayors in England will receive a share of income tax revenues. This initiative is part of his broader strategy to shift authority from Westminster to local leaders, empowering them to better address the needs of their communities.
Details of the Proposal
Burnham’s plan includes not only a portion of income tax but also allows mayors of strategic authorities to retain some of the business rates collected within their jurisdictions. Furthermore, mayors will gain enhanced control over essential services such as housing, transportation, and skills development. The specific portion of tax revenue allocated to mayors has yet to be determined, with further details expected to be revealed when Chancellor John Healey presents his first budget in the autumn.
Critics have raised concerns regarding the lack of specifics in the proposal and the potential for economically weaker areas to be disadvantaged. However, Burnham insists this initiative will fulfil his commitment to “bring power home” to every corner of the nation. “Under our plans, more of the taxes raised in a community will stay in that community,” he stated.
The Current Landscape of Taxation
The centralisation of tax powers in the UK sets it apart from many developed nations. Currently, only 5.8% of national taxes are collected at the local level, the lowest figure among G7 countries. In contrast, countries such as France, Japan, and the United States collect significantly higher percentages of local taxes. Traditionally, mayors in England have relied heavily on central government grants for funding.
During his tenure as Greater Manchester mayor, Burnham advocated for a more substantial share of tax revenues to reduce dependence on government handouts. The government had begun exploring the distribution of national tax revenues to metro mayors prior to Burnham assuming the premiership earlier this month. In a landmark address on devolution in June, Burnham vowed to initiate “the biggest rebalancing of power our country has ever seen.”
Moving Towards Localised Funding
The proposed reforms aim to transition local areas from reliance on Whitehall grants to a system that rewards local economic growth. English metro mayors are anticipated to start retaining a portion of business rates by April 2027, with income tax sharing set to commence in April 2028. Importantly, existing income tax rates will remain unchanged, ensuring that the basic rate of 20% on earnings between £12,571 and £50,270 continues as is.
Treasury sources suggest that some metro mayors might see increased funding if they successfully grow their local economies and expand their tax bases. However, the exact allocation of income tax revenue remains under discussion, with think tank Re:State proposing that mayors receive 2.5p for every pound raised by the basic income tax rate in their areas.
Mixed Reactions from Political Leaders
Reactions to Burnham’s announcement have been varied among metro mayors. Conservative shadow chancellor Sir Mel Stride described the announcement as lacking in detail, questioning whether it represents genuine new funding or merely a reallocation of existing resources. He warned that economically weaker regions could end up losing out, contradicting Burnham’s stated objectives.
On the other hand, Labour mayor Tracy Brabin of West Yorkshire welcomed the plan, asserting that it would allow communities to witness tangible benefits from their contributions. “This will enable us to deliver on our ambitious plans including vital improvements to public transport, providing better skills and employment support,” she noted.
Conversely, Conservative mayor Ben Houchen of Tees Valley expressed a preference for tax cuts but stated he would consider establishing a rebate scheme if awarded a share of local income tax.
Why it Matters
This initiative represents a pivotal shift towards empowering local leaders and fostering economic growth at the regional level. By reallocating tax revenues, Burnham’s government aims to enhance accountability and ensure that local authorities have the necessary resources to address their unique challenges. The success of this plan could redefine the relationship between local and central government in the UK, ultimately impacting the nation’s economic landscape for years to come.
