UK devolution plans outline mayoral tax powers in Budget push

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UK devolution plans and mayoral tax powers

Highlights

From April 2025, UK metro mayors will retain a share of locally raised income tax, following business rates retention beginning April 2024.
Draft devolution plans propose replacing some grants with unringfenced retained business rates, providing mayors more flexible funding and direct incentives for local economic growth.
Borrowing against local revenues is under review, but increased freedom may be conditional on demonstrated financial competence in light of concerns about value for money and debt management.

Budget roadmap for mayoral revenues

As reported by Financial Times, the emerging devolution agenda centres on giving metro mayors a stronger role over locally generated revenues as part of Andy Burnham’s broader push to rewire the state.

A July cabinet paper says every mayor is to receive a degree of business rates retention from next April, while all mayors are set to gain a retained share of locally raised income tax a year later. Under draft ideas drawn up inside the local government ministry, some grants to mayoralties would be replaced by retained business rates of the same value, with the remainder returned to the Treasury.

That business rates pool would be unringfenced, allowing mayors to deploy it more flexibly. They would also receive a share of any increase in rates, creating a direct incentive for local growth, while a levy and safety net would support areas where revenues fall, topping them back up to 97 per cent of the baseline.

Borrowing against those revenues is also under discussion, although access is unlikely to be uniform across all areas. Concerns about value for money and debt levels in some places, including Teesside, suggest ministers may link greater borrowing freedom to demonstrated capability, an approach also backed this month by think-tank IPPR North.

Growth case and delivery risks

Supporters of fiscal devolution argue that more stable local revenue streams would help mayors invest strategically, attract inward investment and expand their tax bases rather than rely on transfers from London. The underlying objective is to close regional growth gaps, a goal that has long shaped Manchester’s case for devolution.

Income tax devolution, however, presents a harder challenge for the Treasury because receipts can be volatile and are influenced by factors beyond a mayor’s direct control. Any system would also need an equalisation mechanism to reflect the weaker starting tax base in places such as South Yorkshire compared with London.

Ministers are also focused on the political presentation of the policy. Discussions between Number 10 and mayors have centred on producing visible projects that show what devolved tax powers can deliver, with ideas ranging from Steve Rotheram’s proposed Beatles attraction in Liverpool to transport and regeneration schemes in Manchester, Birmingham and Newcastle.

The wider impact of the policy is still likely to depend on the government’s forthcoming white paper on rewiring the state and Burnham’s 10-year plan. That leaves the Budget as an opening signal for investors, local authorities and infrastructure planners, rather than a final blueprint for England’s devolved fiscal model.

We previously reported on how heightened geopolitical tensions and elevated fiscal spending are testing sovereign borrowers as high interest rates keep refinancing costs elevated. That piece highlighted that emerging and frontier markets are especially exposed because debt-service burdens can be high relative to narrower revenue bases, with persistent shocks such as energy and food-price spikes further pressuring budgets and credit outlooks.

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