Prime Minister Andy Burnham is set to empower English mayors with a share of income tax revenue and business rates, marking a significant shift in power from Westminster to local leaders.
In a bold move to decentralize power Prime Minister Andy Burnham has announced plans to give English metro mayors a share of income tax revenue for the first time. This initiative is part of a broader strategy to transfer authority from Westminster to local leaders, allowing them to retain some business rates and gain more control over essential services like housing, transport, and skills.
The exact portion of taxes that mayors will receive is still under consideration, with more details expected in Chancellor John Healey’s first budget this autumn. This reform aims to address the UK’s highly centralized tax system, which is an outlier by international standards.
Addressing Centralization and Economic Disparities
The UK currently collects only 5.8% of national taxes at the local level, the lowest in the G7, according to the OECD. This is significantly lower than other large economies like France (20.4%), Japan (36%), and the US (45.7%).
Burnham’s plan seeks to rectify this imbalance by allowing mayors to retain a portion of the income tax and business rates collected in their areas.
Currently, mayors of strategic authorities in England rely heavily on central government grants for funding. Burnham, during his tenure as Greater Manchester mayor, advocated for greater control over tax revenue, a stance that has now been adopted at the national level. The UK government had already been exploring the distribution of national tax revenues to metro mayors before Burnham became prime minister earlier this month.
The Roadmap for Implementation
English metro mayors are expected to start retaining some revenue from business rates from April 2027, with a portion of income tax to follow from April 2028. The plan is to gradually replace grants with revenues from these taxes. The basic rate of income tax, for example, 20% on income from £12,571 to £50,270, will remain unchanged as a result of the reform.
Treasury sources indicate that some metro mayors could end up with more money to spend if they grow their local economies and expand their tax bases. The share of income tax assigned to each mayor could differ, but officials are still figuring out the practical implementation. One think tank, Re:State, has suggested that the government should allocate mayors 2.5p in every pound raised by the 20p basic rate of income tax in their areas.
Political Reactions and Challenges
The announcement has garnered mixed reactions. Conservative shadow chancellor Sir Mel Stride criticized the lack of detail, stating that unless Burnham plans to launch another tax raid, borrow more, or cut central government grants, there is no new money being announced. Stride also expressed concern that areas with weaker local economies could end up losing out, the opposite of what Burnham claims to achieve.
Reform UK home affairs spokesman Zia Yusuf called for the full devolution of power to stop the housing of illegal migrants in local communities by the Home Office. Yusuf argued that if Burnham were truly listening to local people, he would know that they do not want unvetted illegal migrants dumped in their areas.
Ensuring Fairness and Justification
The government is also working out the details of an equalization system to ensure that areas where less tax is collected continue to receive financial support. Ministers will be expected to justify why powers should remain in Whitehall rather than being devolved, under a ‘local first’ principle. The reforms are being developed by No 10 North in Manchester, with a policy paper setting out the full details to be published alongside the autumn budget.
These reforms come on the heels of a policy blitz during Burnham’s first two weeks in Downing Street, following announcements on the cost of living and a speech on his plan to overhaul Social Care. The reaction to the plans has been mixed among metro mayors from different parties.
Tracy Brabin, the Labour mayor of West Yorkshire, welcomed the move, stating that giving regions like hers a proportion of income tax means people will be able to see and feel the real benefit of their hard work. Brabin added that this will enable them to deliver on ambitious plans, including vital improvements to public transport and better skills and employment support.
Ben Houchen, the Conservative mayor for Tees Valley, expressed a preference for tax cuts but indicated that if he were handed a slice of local income tax, he would create a new rebate scheme to put money back into people’s pockets.
