Fiscal devolution moves from theory to reality as PM announces new powers for England’s mayors  

Unveiling what the government described as the biggest transfer of power from Westminster in a generation, Prime Minister Andy Burnham last week set out plans to give England's regional and metro mayors a greater share of locally generated tax revenues, reducing their reliance on central government grants and placing more decision-making closer to the communities affected.  

In layman’s terms, fiscal devolution refers to the transfer of financial powers from central government to local or regional authorities. Rather than relying primarily on funding allocated by the Treasury, devolved authorities gain greater control over the revenue generated within their own areas and more freedom over how it is spent.  

The centrepiece of Burnham's package is a commitment to allow England's mayors to retain a share of income tax revenues generated in their regions for the first time. Income tax remains one of the government's largest sources of revenue, and historically all receipts have flowed directly to the Treasury before being redistributed across the country. Under the new model, local leaders will keep a proportion of that revenue to invest in local priorities.  

Alongside this, mayors will also gain greater control over business rates revenues. While local authorities already retain some business rates income, the reforms will provide metro mayors with a larger and more predictable funding stream linked to economic activity in their areas.   

Critically, these reforms are not just about local leaders having more money. They are about providing greater certainty. One of the long-standing frustrations expressed by regional leaders - including Burnham himself during his time as Mayor of Greater Manchester - has been the need to bid repeatedly for short-term, ringfenced funding pots controlled by Whitehall departments. This is the ‘begging bowl culture’ which the Prime Minister is now trying to unpick.   

The government argues that retaining local tax revenues will allow authorities to plan over much longer time horizons and make investment decisions with greater confidence. The first phase will begin in spring 2027, when mayors start receiving a greater share of locally generated revenues, beginning with business rates retention arrangements. Further details on income tax retention are expected in the Budget in October, with the income tax component expected to come into effect from 2028.   

Perhaps the most significant consequence for business is what sits behind these changes. With more predictable revenue streams, the government hopes that combined authorities will be better placed to borrow against future income and finance major infrastructure, transport and regeneration projects. In practical terms, that could mean faster delivery of tram extensions, housing developments, skills programmes and strategic industrial investments that previously required extensive Treasury approval.  

There are, however, questions still to answer. Around half of England's population currently lives outside areas covered by a metro mayor, raising concerns about whether fiscal devolution could create a patchwork of different funding arrangements across the country. While plans for further combined authorities across England are already well underway, these major structural changes at the local level inevitably take time with the benefits unlikely to be felt for a number of years yet.   

Critics have also warned that wealthier regions may be better placed to generate tax revenues than less affluent areas. Greater levels of business rates retention will be music to the ears of mayors representing England’s major cities, but for those representing more deprived areas the prospect may be less attractive. Although the government has indicated that equalisation mechanisms will remain in place to account for differing local needs, this still creates greater reliance for poorer areas for central government redistribution compared to the cities.   

Equally contested is exactly what these extra revenues should be spent on. While most of England’s mayoralties are held by Labour, with a natural preference for investing in public transport and social housing, Ben Houchen, the popular Conservative Mayor for the Tees Valley has stated his intention to use the new revenues to create a new tax rebate scheme for local residents. Reform Mayor for Hull and East Yorkshire, Luke Campbell, has argued likewise.   

Disagreement is inevitable with competing interests locally, regionally, nationally, and across party lines. Even so, that these Mayors may even end up making these calls about what is best for their areas, as opposed to being dictated to by the Treasury, can be seen as a win under Burnham’s new vision for devolution in England.  

After years of debate about devolution, the conversation is shifting from who should hold power to who controls the money behind it. We now eagerly await the results.