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British Prime Minister Andy Burnham has announced plans to allow mayors of England’s city regions to retain a share of income tax revenue for the first time, as part of a sweeping devolution agenda aimed at shifting more powers from Westminster to local authorities.
Under the proposals, mayors of England’s strategic authorities will also be allowed to retain a portion of business rates collected within their areas while assuming greater responsibility for key sectors such as housing, transport and skills development.
Although the government has yet to determine the exact percentage of tax revenues to be devolved, further details are expected when Chancellor John Healey presents the government’s first Budget in the autumn.
Speaking on the initiative, Burnham said the reforms were designed to fulfil his pledge to “bring power home” by allowing more tax revenue generated within local communities to remain there.
“Under our plans, more of the taxes raised in a community will stay in that community,” the Prime Minister said.
The proposal represents one of the most significant reforms to local government financing in recent decades. Currently, the United Kingdom has one of the most centralised tax systems among advanced economies, with only 5.8 per cent of national tax revenue collected and retained at the local level, according to the Organisation for Economic Co-operation and Development (OECD).
That figure is considerably lower than those of countries such as France, Japan and the United States, where local governments retain a much larger share of tax revenues.
At present, most English metro mayors depend heavily on grants from the central government to fund local projects and services.
Burnham, who previously served as Mayor of Greater Manchester, has long advocated greater fiscal autonomy for regional authorities, arguing that local leaders are better positioned to drive economic growth and respond to the needs of their communities.
The proposed reforms would gradually reduce dependence on Whitehall grants by allowing local authorities to benefit directly from economic growth within their regions.
Under the plan, English metro mayors are expected to begin retaining part of their business rates revenue from April 2027, while allocations from income tax are expected to commence in April 2028.
The reforms will not alter existing income tax rates for individuals but will instead determine how a portion of the revenue collected is distributed between central and local government.
Government officials indicated that regions experiencing stronger economic growth could benefit from higher revenues as their local tax base expands. However, discussions are still ongoing regarding the formula that will determine each mayor’s share of income tax receipts.
Policy think tank Re has suggested allocating local authorities 2.5 pence from every pound generated through the basic 20 per cent income tax rate within their jurisdictions.
The proposals have drawn mixed reactions from political leaders and commentators.
Conservative Shadow Chancellor Sir Mel Stride criticised the announcement, describing it as lacking sufficient detail and questioning how the government intends to fund the reforms without increasing taxes, borrowing more or reducing central government grants.
He also warned that regions with weaker economies could receive less funding, potentially widening regional inequalities.
Reform UK Home Affairs spokesman Zia Yusuf called for greater devolution in immigration-related matters, arguing that local authorities should have more influence over decisions concerning the accommodation of illegal migrants within their communities.
Among regional leaders, Labour Mayor of West Yorkshire Tracy Brabin welcomed the proposal, saying allowing regions to retain part of their income tax revenue would enable local residents to see the direct benefits of economic growth through improved public transport, skills development and employment programmes.
Meanwhile, Conservative Tees Valley Mayor Ben Houchen said he would have preferred tax reductions but added that, if granted a share of local income tax, he would introduce a rebate scheme aimed at returning money to residents.
